Magnotta Winery Corporation v. Ontario (Alcohol and Gaming Commission), 2015 ONSC 6234

and Gaming Commission), 2015 ONSC 6234

DIVISIONAL COURT FILE NO.: 127/15

DATE: 20151020

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

MOLLOY, KRUZICK and LOCOCO JJ.

BETWEEN:

MAGNOTTA WINERY CORPORATION, MAGNOTTA VINTNERS LTD., MAGNOTTA VINEYARDS LTD., MAGNOTTA WINES LTD., MAGNOTTA WINERY ESTATES LTD. and MAGNOTTA CELLARS CORPORATION

Ian N. Roher and Jennifer Pocock, for the Plaintiffs (Respondents)

Plaintiffs (Respondents)

• and -

THE ALCOHOL AND GAMING COMMISSION OF ONTARIO, THE LIQUOR CONTROL BOARD OF ONTARIO and HER MAJESTY THE QUEEN IN RIGHT OF ONTARIO

Tamara D. Barclay, for the Defendants, The Alcohol and Gaming Commission of Ontario and Her Majesty the Queen in Right of Ontario

M. Jill Dougherty, for the Defendant (Appellant), The Liquor Control Board of

Defendants (Appellant)

Ontario

HEARD at Toronto: September 30, 2015

LOCOCO J.

1The Liquor Control Board of Ontario (LCBO) appeals from the order of Whitaker J. dated March 5, 2015, denying a request for a sealing order with respect to Minutes of Settlement (including a mutual release) entered into in May 2001 with Magnotta Winery Corporation and related companies (collectively, Magnotta). Lederer J. granted leave to appeal from that order on April 23, 2015. He also made an interim sealing order.

2For the reasons below, we are allowing the appeal and granting a sealing order in the terms requested by the LCBO.

Background

3Commencing in the 1990s, there were disputes between Magnotta and the LCBO regarding policies relating to the regulation of winery retail stores and retail pricing of various wine products. Prior to 2000, Magnotta commenced two actions and two applications against the LCBO. In addition to other relief, Magnotta sought a declaration of invalidity regarding the regulatory policies.

4Those court proceedings were the subject of a mediation held in 2000. The agreement under which the mediation was held contained standard confidentiality provisions. At the conclusion of the mediation, there was a settlement in principle of all proceedings.

5The terms of the settlement were set out in Minutes of Settlement, which were signed in May 2001. The Minutes of Settlement included provisions that required the Minutes to be kept confidential. The terms of the settlement were known only to Magnotta, the LCBO and the Alcohol and Gaming Commission of Ontario (AGCO), to which regulatory jurisdiction was transferred in 2001.

6In 2003, an unidentified party requested production of the mediation and settlement documents, including the Minutes of Settlement, pursuant to the Freedom of Information and Protection of Privacy Act.¹ The LCBO opposed this request on the basis that the materials were subject to settlement privilege and that their disclosure could be expected to cause harm to the commercial interests of Ontario and the LCBO. Magnotta supported the LCBO’s position in opposition to disclosure.

7The Information and Privacy Commissioner found that some but not all of the records in question were exempt from disclosure. However, upon judicial review of the decision, the Divisional Court found that the mediation documents, including the Minutes of Settlement, were exempt from disclosure by reason of a statutory exemption under the Freedom of Information and Protection of Privacy Act as well as the common law doctrine of settlement privilege.² The Court of Appeal upheld that decision, affirming that the documents were covered by a statutory exemption without deciding whether common law settlement privilege provided an additional basis for non-disclosure.³

8In August 2008, Magnotta commenced new actions against the LCBO and the AGCO. According to the LCBO (supported by the AGCO), these actions challenge the same policies and advance the same claims as in the proceedings that were the subject of the 2001 Minutes of Settlement. The LCBO proposes to bring a motion to grant summary judgment against Magnotta, or to strike or stay Magnotta’s claims as an abuse of process.

9In support of that proposed motion and to defend against Magnotta’s claims, the LCBO wishes to rely on the 2001 Minutes of Settlement, while preserving the confidentiality of that document. The LCBO therefore brought a motion for a sealing order, with the support of the AGCO. Unlike in the earlier freedom of information proceedings, Magnotta opposed the LCBO’s position, citing the open court principle. The motion judge refused to issue a sealing order.

Test for granting a sealing order – Sierra Club of Canada

10In his endorsement,⁴ the motion judge referred to the Supreme Court of Canada decision in Sierra Club of Canada v. Canada (Minister of Finance). That case sets out the test for the granting of a confidentiality order, in the following terms:

A confidentiality order … should only be granted when:

(a) such an order is necessary in order to prevent a serious risk to an important interest, including a commercial interest, in the context of litigation because reasonably alternative measures will not prevent the risk; and

(b) the salutary effects of the confidentiality order, including the effects on the right of civil litigants to a fair trial, outweigh its deleterious effects, including the effects on the right to free expression, which in this context includes the public interest in open and accessible court proceedings.⁵

11In that decision, the Supreme Court of Canada went on to state that there were three important elements that were subsumed under the first branch of the test. Each of those elements related to “a commercial interest” or “an important commercial interest”, being a subset of “an important interest” referred to in the first branch of the test. Those three elements may be summarized as follows: (i) the risk must be real and substantial, well grounded in evidence, posing a serious threat to the commercial interest in question; (ii) the important commercial interest must be one which can be expressed in terms of a public interest in confidentiality where there is a general principle at stake; and (iii) the judge is required to consider not only whether reasonable alternatives are available to such an order, but also to restrict the order as much as is reasonably possible while preserving the commercial interest in question.⁶

Decision of the motion judge and standard of review

12In his decision, the motion judge stated that the onus was on the LCBO as the moving party to prove that the sealing order was necessary. He concluded that this onus had not been met, noting that the LCBO did not put any evidence forward to show that disclosure posed a real and substantial risk to the alleged interests, and that the supporting affidavit filed by the LCBO was “significantly lacking”. He also concluded that the LCBO has not demonstrated a public interest in confidentiality, and that there was very little against which to balance the open court principle.

13For the reasons that follow, we have concluded that the motion judge did not properly apply the test in the Sierra Club of Canada case, which constitutes an error in law. The standard of review is therefore correctness. However, even if we accept Magnotta’s position that the standard of review that applies in this case is palpable and overriding error, we would still allow the appeal, reaching the same result when applying the higher standard.

Settlement privilege and the first branch of the sealing order test

14The fundamental difficulty with the motion judge’s decision is his failure to recognize and give legal effect to the protection that settlement privilege affords to the Minutes of Settlement. Settlement privilege should have been a key consideration when analyzing both branches of the test in Sierra Club of Canada, particularly the first branch to the extent that settlement privilege constitutes an “important interest” that may be at serious risk if a sealing order is not granted. Instead, the motion judge mentioned settlement privilege as the second issue on the motion, seemingly independent of the first issue, whether the LCBO satisfied the test for granting a sealing order. There was in fact no further reference to settlement privilege in the balance of his endorsement.

15When considering the issue of settlement privilege, the recent decisions of the Supreme Court of Canada in Sable Offshore Energy Inc. v. Ameron International Corp.⁷ and the Ontario Court of Appeal in Hollinger Inc. (Re)⁸ are of particular note. The Sable Offshore Energy decision settled the principle that settlement privilege is a class privilege. In reaching that conclusion, the Court found that promoting settlement was sound judicial policy that contributes to the effective administration of justice.⁹ The conclusion that settlement privilege is a class privilege was consistent with the result in the earlier Hollinger case, which referred to settlement privilege as a “social value of superordinate importance.”¹⁰ As noted in Sable Offshore Energy, as with other class privileges, settlement privilege gives rise to a prima facie presumption of inadmissibility, subject to exceptions when the justice of the case requires it.¹¹

16In his oral submissions, Magnotta’s counsel conceded that the 2001 Minutes of Settlement were initially covered by litigation privilege, but argued that the Minutes of Settlement were no longer protected from disclosure. In Magnotta’s submission, the LCBO waived privilege when it relied on the settlement in its Statement of Defence and referred to it in its motion for a sealing order and its proposed motion for summary judgment or to strike or stay Magnotta’s claims. Alternatively, Magnotta argued that an exception from the presumption of inadmissibility applied in this case because the justice of the case requires it. Accordingly, in Magnotta’s submission, the LCBO could not rely on settlement privilege as an important interest that was at serious risk if the sealing order is not granted, as required under the first branch of the Sierra Club of Canada case. We disagree.

17Magnotta’s counsel cited case law to support his clients’ position that privilege may be waived if a party uses a privileged communication as the basis of its claim or defence (for example, see the decision of D.M. Brown J. of this court in Hallman Estate (Re)).¹² The case law also indicates that the principles relating to waiver of privilege are founded on notions of fairness, in order to prevent, for example, partial disclosure of privileged information that benefit the party while withholding disclosure of adverse information.¹³

18Consistent with such notions of fairness, we are satisfied that the LCBO has not waived settlement privilege in this case. The LCBO claims that Magnotta’s current actions advance the same claims as the prior settled proceedings, and we express no view on that assertion. However, the LCBO should, as a matter of fairness, be able to raise the settlement in its defence and in support of its proposed motion, without automatically losing the benefit of settlement privilege. In particular, the LCBO should be able to rely on the Minutes of Settlement for this purpose. To achieve that end, we consider the LCBO to have followed the appropriate procedure by bringing a sealing motion before placing on the public record the proposed motion for summary judgment or motion to strike or stay the claims. In our view, the LCBO’s reference to the settlement or the Minutes of Settlement in those documents is not sufficient to waive settlement privilege. We consider that result to be in the interests of justice, consistent with the judicial policy in favour of promoting settlements referred to in Sable Offshore Energy. As well, as explained further below when considering the second branch of the sealing order test, there is no prejudice to any of the parties if the sealing order is granted, without only minimal impingement of the open courts principle.

19We also considered Magnotta’s alternative position that the Minutes of Settlement do not have the benefit of a prima facie presumption of inadmissibility because the justice of the case requires it, as contemplated by the Sable Offshore Energy decision. In this regard, Magnotta’s counsel also relied on the Supreme Court of Canada decision in Union Carbide Canada Inc. v. Bombardier Inc.,¹⁴ which recognized a narrow exception with respect to disclosure of communications made in the context of a mediation process to permit a party to prove the terms of the settlement where the scope or existence of the settlement is in issue. The Union Carbide decision also recognized that it was open to a party to apply for a confidentiality order to permit the evidence to be heard in camera, as long as the test set out in Sierra Club of Canada is met.¹⁵ However, we do not agree with Magnotta that the reasoning in Union Carbide supports Magnotta’s position that the interests of justice require that the presumption of inadmissibility not apply to the Minutes of Settlement. Consistent with our findings above, our conclusion is quite the contrary, that is, that an exception from the presumption of inadmissibility would not serve the interests of justice in this case.

20Based on the foregoing, we have concluded that settlement privilege applies to the Minutes of Settlement, and that the LCBO has not waived that privilege. We have also concluded that this case is not one of those exceptional cases in which a prima facie presumption of inadmissibility does not apply because the justice of the case requires it.

21Accordingly, we have concluded that a sealing order is necessary in this case in order to prevent a serious risk to an important interest, that is, the settlement privilege applicable to the Minutes of Settlement, because reasonably alternative measures will not prevent the risk. Therefore, the first part of the test for a sealing order set out in the Sierra Club of Canada has been met. No further evidence is required beyond that in the record before the motion judge. That conclusion is consistent with the Hollinger decision, in which the Ontario Court of Appeal upheld a sealing order based on the applicability of settlement privilege.

22The LCBO also argued that a sealing order was necessary in this case in order to prevent a serious risk to its commercial interest and that of the Ontario government. However, given our conclusions relating to settlement privilege, it is unnecessary to consider that argument.

The second branch of the sealing order test

23Turning to the second part of the Sierra Club test for granting a confidentiality order, we are also satisfied that the LCBO has met its burden of demonstrating that the salutary effects of the confidentiality order outweigh its deleterious effects in this case. In our view, the motion judge committed a palpable and overriding error in concluding otherwise.

24In order to determine whether that part of the test was satisfied in this case, the court is required to consider and balance various interests relating to the administration of justice, including the litigants’ right to a fair trial and the public interest in open court proceedings. In this case, the Minutes of Settlement are protected by settlement privilege, consistent with the strong public policy of encouraging litigation settlement. In these circumstances, the court is entitled to take that public policy into account when weighing the salutary and deleterious effects of a sealing order.

25If the sealing order is granted in this case, the court and all parties would continue to have access to the Minutes of Settlement for the purpose of determining the matters in issue. On the other hand, in our view, the LCBO’s interest in obtaining a fair trial would be compromised if it is unable to rely on the Minutes of Settlement without jeopardizing the continuing confidentiality of that document. Magnotta is not alleging any prejudice to them if the sealing order is granted, basing their opposition to disclosure on the open court principle.

26The open court principle is of vital importance to the fair administration of justice. However, it is also in the interests of the fair administration of justice to encourage parties to resolve their disputes without fear that anything said or done in the course of that settlement will be used against them. The importance of maintaining the confidentiality of settlements must therefore be weighed against the importance of maintaining an open court system. Here, the order sought only minimally impairs the open court principle, given the limited application of the sealing order, whereas if confidentiality is not protected, it is lost forever.

27Weighing the salutary effects and deleterious effects of a sealing order in this case, we are satisfied that the salutary effects easily outweigh the deleterious.

Scope of the sealing order

28In reaching our conclusion that the test for granting a sealing order in this case has been met, we also considered whether the sealing order should apply to some but not all of the provisions of the Minutes of Settlement. If we took that approach, a sealing order would apply to the full version of the Minutes of Settlement, and a redacted version would be placed on the public file.

29The LCBO’s counsel candidly conceded that some parts of the Minutes of the Settlement were more sensitive than others from a commercial standpoint. However, we agree with the LCBO’s position that the sealing order should apply to the entire document, consistent with the LCBO’s reliance on settlement privilege rather than commercial sensitivity as the principal basis for its request for a sealing order. In our view, disclosure of a redacted version of the Minutes of Settlement would be inconsistent with the strong judicial policy in favour of encouraging settlement of litigation. In any case, we see no useful purpose in disclosing a redacted version, given the limited application of the sealing order, as previously noted.

30Accordingly, the appeal is allowed. The order dated March 5, 2015 of Whittaker J. is set aside. A sealing order will issue in the terms set out in subparagraph 1 of paragraph 76 of the LCBO’s Factum dated June 5, 2015. The terms of the sealing order will supersede paragraph 2 of the order of Lederer J. dated April 23, 2015.

31As the successful party, the LCBO is entitled to its costs, fixed at $10,000, payable by Magnotta forthwith. There will be no costs order relating to the AGCO, which did not seek costs.

LOCOCO J.

MOLLOY J.

KRUZICK J.

Released: October 20, 2015

and Gaming Commission), 2015 ONSC 6234

DIVISIONAL COURT FILE NO.: 127/15

Footnotes

1. 1R.S.O. 1990, c. F.31.
2. 2Ontario (Liquor Control Board) v. Magnotta Winery Corp., [2009] O.J. No. 2980 (Div. Ct.).
3. 3Ontario (Liquor Control Board) v. Magnotta Winery Corp., 2010 ONCA 681, [2010] O.J. No. 4453.
4. 42015 ONSC 1453, [2015] O.J. No. 1061.
5. 52002 SCC 41, [2002] 2 S.C.R. 522 at paras. 53-57.
6. 6Ibid. at paras. 54-57.
7. 72013 SCC 37, 2013 SCC 237, [2013] 2 S.C.R. 623.
8. 82011 ONCA 579, [2011] O.J. No. 3977.
9. 9Supra, note 7 at paras. 11-12.
10. 10Supra, note 8 at para. 20.
11. 11Supra, note 7 at para. 12.
12. 12[2009] O.J. No. 3890 (S.C.) at para. 16.
13. 13Ibid.
14. 142014 SCC 35, [2014] 1 S.C.R. 800.
15. 15Ibid. at para. 66.