John Biro v. Unica Insurance Inc., 2013 ONFSCDRS 108

Financial Services Commission des

Commission services financiers

of Ontario de l’Ontario

Neutral Citation: 2013 ONFSCDRS 108

FSCO A09-001753

BETWEEN:

JOHN BIRO

Applicant

and

UNICA INSURANCE INC.

(formerly known as YORK FIRE & CASUALTY INSURANCE COMPANY)

Insurer

DECISION ON A MOTION (amended)

Before: Richard Feldman

Heard: August 12, 2013, at the offices of the Financial Services Commission of Ontario in Toronto.

Appearances: Steven Sieger and David Himelfarb for the Applicant

Jamie Pollack for the Insurer

Reason

for Amendment: The name of the Insurer has been amended, on consent of the parties

Background:

The Applicant, John Biro, was injured in a motor vehicle accident on March 11, 2007. He applied for and received statutory accident benefits from the Insurer. Disputes arose between the parties concerning the Applicant’s entitlement to certain accident benefits. The parties were unable to resolve their disputes through mediation, and Mr. Biro applied for arbitration at the Financial Services Commission of Ontario under the Insurance Act, R.S.O. 1990, c.I.8, as amended.

The claims advanced by the Applicant included a claim for a Special Award related to delay or denial of non-earner benefits and housekeeping and home maintenance benefits. The Special Award claim was specifically withdrawn by the Applicant at the pre-hearing conference in March 2010 and no attempt was made to resurrect this claim by any of the three law firms that have represented the Applicant, until now.

The hearing of the merits of the Applicant’s case has been delayed a number of times. These delays, however, are attributable primarily to conduct of the Applicant himself or his legal representatives and not due to institutional delay or the Insurer’s conduct. The hearing itself was adjourned twice at the Applicant’s request to permit him to retain new legal representation; these adjournments delayed the hearing by over two years (from May 2011 to August 2013). From March 2010 through to July 2013, the pre-hearing arbitrator resumed the pre-hearing discussion an extraordinary number of times in an attempt to deal with the numerous procedural issues that have been raised by both sides to this conflict.

The hearing itself (expected to last 12-14 days) was scheduled to commence on August 12, 2013. Shortly before that date, however, both parties filed motions, returnable on August 12, 2013, dealing with (or related to) privileged documents that had inadvertently come into the possession of the Applicant’s counsel. The Insurer requested, and a Senior Arbitrator agreed, that someone other than the hearing arbitrator ought to hear and decide these two motions in order not to “taint” the hearing arbitrator. These motions were heard by me on August 12, 2013. The parties then returned before me on August 14, 2013 and I advised them orally of my decision. I took submissions from counsel for both parties on some of the terms I was considering including in my order. I then advised the parties that a more formal written order and reasons therefor would follow shortly.

Insurer’s Motion:

In June 2011 the Insurer sent its file to the Applicant’s then legal representative (Mr. Little). It consisted of thousands of documents. Inadvertently included with those documents were approximately 38 documents that were privileged.¹ These documents included very detailed accounts from Laxton Glass LLP (counsel for the Insurer) and communications between Laxton Glass LLP and the Insurer related to the issues in dispute. These solicitor-client communications covered such topics as: the Insurer’s litigation strategy, legal opinions and advice and other highly sensitive matters clearly covered by solicitor-client and litigation privilege.

Around the time that the firm of Himelfarb Proszanski LLP took over carriage of the Applicant’s case (in November 2012), it obtained the file (including the privileged documents in question) from Mr. Little. Counsel for the Insurer did not become aware of the inadvertent disclosure of privileged documents until July 11, 2013. Ms. Knudsen then promptly contacted both Mr. Little and Mr. Himelfarb (on July 17, 2013) to advise them of the situation and to ask that all such privileged documents be returned, unread and un-copied. On July 19, 2013, Mr. Sieger wrote to Ms. Knudsen to advise that the documents in question had been destroyed. Between the telephone conversation of July 17, 2013 and the letter of July 19, 2013, however, both Mr. Sieger and Mr. Himelfarb reviewed the documents in question.

On July 19, 2013 (less than 30 days prior to the hearing and about one day after reviewing the privileged documents), counsel for the Applicant delivered its witness list to the Insurer. Shortly thereafter, counsel for the Applicant indicated, for the first time, that they wished the Insurer to produce as a witness at the hearing one of its lawyers who had previously worked on this file (Stanley Tessis), that they wished to examine an adjuster, that they would be seeking permission to resurrect the claim for a Special Award and that they might to be seeking to have Laxton Glass LLP removed as the Insurer’s counsel of record. Ultimately, Applicant’s counsel did not seek an order to examine Stanley Tessis or for removal of Laxton Glass LLP but the Applicant’s counsel did bring a motion for leave to add a claim for a Special Award and for leave to examine an adjuster.

The Insurer’s response was to bring this motion for, amongst other relief, the removal of Himelfarb Proszanski LLP on the basis that Himelfarb Proszanski LLP is seeking to use, to the detriment of the Insurer, information Himelfarb Proszanski LLP obtained from the privileged documents that were reviewed by Mr. Himelfarb and Mr. Sieger on or about July 18, 2013.

The Insurer is seeking an order:

to remove Himelfarb Proszanski LLP as solicitors of record for the Applicant;
imposing terms (further particularized in the Notice of Motion) intended to prevent the Applicant and his former, current or future representatives from using information that may have been contained in the privileged documents;
for a suspension of pre-judgment interest pending the commencement of the hearing;
for expenses of the motion and “costs thrown away”; and
for such further and other relief as I deem appropriate.

Applicant’s Motion:

The Applicant is seeking an order:

to amend his claims to include a claim for a Special Award;
to order the Insurer to produce as a witness at the hearing a particular adjuster (identified in the motion material);
waiving the usual time requirements;
for its expenses of this motion; and
for other relief particularized in the Notice of Motion.

Result:

The Insurer’s motion is granted, on terms set out below.
The Applicant’s motion is denied, on terms set out below.

ANALYSIS:

Insurer’s Motion:

There may have been a time when privilege could be lost through inadvertent disclosure. Generally, however, that is no longer the law in Canada, especially in the case of documents or information to which solicitor-client privilege attaches. In Chan v. Dynasty,² a case very similar to the present one, Justice Belobaba sets out the following current applicable principles:

The purpose of solicitor-client privilege is to preserve the confidentiality of information passing between lawyer and client. This privilege is part of and fundamental to the Canadian legal system. This privilege must remain as close to absolute as possible if it is to retain relevance.
Not all communications passing between a solicitor and a client are privileged – only those that involve the seeking or giving of legal advice and that are intended to be confidential.
A document is no less privileged because it contains some factual information, which on its own, might not be privileged.
Privilege is not lost simply because the inadvertently disclosed documents are relevant to the action.

The Ontario Superior Court has stated that, whether or not privilege has been waived by disclosure depends on: (1) whether the disclosure was inadvertent (and thus excusable); (2) whether an immediate attempt has been made to retrieve the documents (presumably, once the disclosure has been discovered); and (3) whether it would be unfair to the recipient for privilege to be maintained (for instance, where the party claiming privilege has taken positions that would make it inconsistent to maintain the privilege).³

The Supreme Court of Canada, however, has stated that emphasis on “inadvertence” is overly simplistic. What is more important is: (a) How did the privileged documents come into the possession of opposing counsel (or their client)? and (b) What did that counsel do upon recognition that they were in possession of documents potentially subject to solicitor-client privilege?⁴

Whether through advertence or inadvertence the problem is that solicitor-client information has wound up in the wrong hands. Even granting that solicitor-client privilege is an umbrella that covers confidences of differing centrality and importance, such possession by the opposing party affects the integrity of the administration of justice. Parties should be free to litigate their disputes without the fear that their opponent has obtained an unfair insight into secrets disclosed in confidence to their legal advisors. The defendant’s witnesses ought not to have to worry in the course of being cross-examined that the cross-examiner’s questions are prompted by information that had earlier been passed in confidence to the defendant’s solicitors. Such a possibility destroys the level playing field and creates a serious risk to the integrity of the administration of justice. To prevent such a danger from arising, the courts must act “swiftly and decisively” as the Divisional Court emphasized. Remedial action in cases such as this is intended to be curative not punitive.⁵

It is wrong (and unprofessional) for counsel to use, directly or indirectly, privileged documents or the information contained therein that was inadvertently disclosed to that counsel.⁶ Not only can such counsel not use the documents themselves, they also cannot use the information derived therefrom as a “springboard for activities detrimental to the person who made the confidential communication”.⁷

In this case, it is no longer in dispute that the documents in question are protected by solicitor-client privilege. Having been informed on July 17, 2013 that they possessed privileged information that was inadvertently released by the Insurer, what should Applicant’s counsel have done? They should have taken steps to identify the documents in question without reviewing the contents. They could have asked for a list from Insurer’s counsel. Alternatively, a junior lawyer or assistant or clerk could easily have identified these documents using certain keywords and the document-management software admittedly possessed by Himelfarb Proszanski LLP or by simply looking at the name of the originating law firm or author and the name of the intended recipient (found at the top of many of these documents, alleviating the need to review the body). If there were disputes about the claim of privilege,⁸ the documents could have been sealed and then the matter referred to an arbitrator for a ruling.

Having considered the evidence that has been submitted on these motions, I find that Mr. Himelfarb and Mr. Sieger both reviewed the contents of the documents in question, after they were advised of their presence and before they purportedly destroyed them. Neither Mr. Himelfarb nor Mr. Sieger submitted an affidavit concerning the extent of their review of the documents in question and I draw an adverse inference from their failure to do so. In any event, the facts and allegations set out in their motion material (both in support of the Applicant’s motion and in response to the Insurer’s motion) makes it obvious to me (having also reviewed the contents of the privileged material) that there was quite a detailed review of the contents of those documents by Mr. Himelfarb and Mr. Sieger that went well beyond a mere attempt to identify the documents in question.

Thus, the Insurer now faces a situation in which counsel for the Applicant has gained insight into the Insurer’s litigation strategy, the advice it has received from its lawyers and other confidential communications between itself and its lawyers. Although Mr. Himelfarb and Mr. Sieger have undertaken not to attempt to introduce at the hearing any of the documents in question and have undertaken not to cross-examine a particular expert witness on a specific issue, the Insurer is not satisfied that this is sufficient to adequately protect its interests or ensure the sanctity of solicitor-client communications. Counsel for the Insurer argues that much more is needed, including removal from the record of the Applicant’s current legal representatives.⁹

What remedy is appropriate in this situation? Courts have recognized that removal of a party’s legal representative of choice is a drastic remedy and an infringement upon the usual right of a person to choose their own representative. Courts have also recognized that such an order can result in some prejudice to the party who has to search for new representation, including delay of the proceedings. Consequently, the Ontario Court of Appeal has suggested that a law firm should only be disqualified if, after considering the whole of the evidence, the moving party has satisfied the court that:

(i) there is a real risk that opposing counsel will use information from the privileged documents to the prejudice of the moving party; and

(ii) the prejudice cannot realistically be overcome by a remedy short of disqualification.¹⁰

When this issue came before the Supreme Court of Canada, however, that Court provided a different (non-exhaustive) list of factors that ought to be considered in determining whether solicitors ought to be removed after having come into possession of privileged information:

How the documents came into the possession of the recipient party or its counsel;
What the recipient and its counsel did upon recognition that the documents were potentially subject to solicitor-client privilege;
The extent of the review made of the privileged material;
The contents of the solicitor-client communications and the degree to which they are prejudicial;
The stage of the litigation;
The potential effectiveness of a firewall or other precautionary steps to avoid mischief.¹¹

Applying those factors to the facts of this case, the following factors tend to favour permitting Himelfarb Proszanski LLP to continue to act on behalf of the Applicant. First, it is not the fault of the Applicant or his counsel that these documents came into their possession. Second, this situation was discovered essentially just before the commencement of the hearing and, as a result, any order to remove the Applicant’s current counsel will likely delay the hearing, perhaps for a substantial period of time. Obviously, further delay of the hearing is something that ought to be avoided, if possible.

The following factors favour removal of Himelfarb Proszanski LLP:

While prejudice to the Applicant from a delay of the hearing is presumed, there is no evidence before me of any specific, actual prejudice that is likely to occur to the Applicant. Furthermore, the hearing has been adjourned twice before as a result of issues between the Applicant and his legal representatives, so I do not find that potential prejudice that may result from delay is an overriding factor.
Many of the privileged documents (which documents I read and then returned to Insurer’s counsel) contain information that is related to issues going to the heart of this arbitration proceeding and that is potentially prejudicial to the Insurer. There is not just a risk that Applicant’s counsel might try to use this information against the Insurer, there has been demonstrated a manifest intention to do so (as evidenced by the Applicant’s motion).
As I have already indicated, I am satisfied that Mr. Himelfarb and Mr. Sieger reviewed the documents in question in some detail and well beyond what was necessary to identify them.
Finally, there is no suggestion by either party that a firewall or other precautionary action is reasonable and available in this case. Both Mr. Himelfarb and Mr. Sieger are tainted. Had someone other than Mr. Himelfarb and Mr. Sieger or if only one of them had reviewed the documentation, it might have been possible to erect some sort of firewall around the tainted person and allow other counsel at the same firm to take carriage of this file. They both agree that there is no one else at their firm ready, willing and able to take carriage of this file at this time. They failed to suggest any other possible remedy. In essence, Applicant’s current lawyers are left saying “trust us, we won’t use the information we gleaned from the privileged documents”. The Supreme Court of Canada has specifically rejected such a proposal:

This puts the court in the invidious position of deciding which lawyers are to be trusted and which are not. Furthermore, even if the courts found this acceptable, the public is not likely to be satisfied …¹²

Furthermore, the Supreme Court of Canada recognizes that a lawyer cannot compartmentalize his or her mind, screening out what has been gleaned from one source versus another.¹³ This is confirmed by Mr. Sieger, who wrote to the Insurer’s counsel on August 7, 2013, indicating that he had reviewed the privileged documents after being advised of their existence and stating that “I cannot unread what I have seen, and unlearn what I have already discovered.”

I find that the factors that tend to favour removal of Applicant’s counsel far outweigh those that favour permitting them to remain on the record. Public confidence in solicitor-client privilege must be maintained. The Insurer is also entitled to have reasonable confidence that information that it shared with its lawyers and advice it received from its lawyers and that was inadvertently disclosed will not be used against it during the course of this arbitration proceeding, consciously or otherwise. In this case, nothing short of removal of the Applicant’s counsel will suffice.

In conclusion, I find it appropriate to grant the Insurer’s motion. I shall include in my order such terms as I deem reasonable and necessary to protect the privileged information that was inadvertently disclosed by the Insurer and to ensure that the Applicant will have access to his complete file in order to expedite his retaining new legal representation.

I will leave the issue of suspension of “pre-judgment” interest to the arbitrator who ultimately hears the merits of this case.

Applicant’s Motion:

The Applicant wishes to amend his claim to include a claim for a Special Award. He also seeks an order that will permit his counsel to cross-examine a particular adjuster at Unica who was involved in this matter.

It is clear to me, both from the timing of this motion and from the content of the Applicant’s motion material, that this motion is being brought as a direct result of information improperly obtained by Mr. Himelfarb and Mr. Sieger when they reviewed the contents of privileged documents that were brought to their attention on July 17, 2013. There is no evidence of any intention on the part of Applicant’s counsel, prior to reviewing the privileged documents, of advancing a claim for a Special Award or an intention to examine an adjuster. The only evidence in support of this motion (the affidavit of Nazanin Eisazadeh, sworn August 6, 2013 and her cross-examination before me) indicates that the Applicant discovered new information relevant to a claim for a Special Award upon his counsel’s review of the privileged documents. At paragraph 27 of the same affidavit, it states that the “Alleged Privileged Information revealed the conduct of the Insurer giving rise to the Applicant’s entitlement to a claim for a special award.” (emphasis added)

In general, case law at the Financial Services Commission of Ontario suggests that a Special Award is always a live issue that can be added even in the midst of a hearing (for example, where new evidence comes out during the hearing that suggests that an insurer may have unreasonably delayed or denied payment of benefits). It is an issue that can even be raised on an arbitrator’s own motion. Nevertheless, on the facts of this case, the Applicant cannot be permitted to add this issue at this time.

The Applicant’s counsel suggests that the privileged documents they reviewed contain new information that supports a claim for a Special Award. They argue that, even if they had not reviewed the privileged documents, this information might have come out anyway at the hearing. The fact is, however, that this motion was only brought immediately after and as a result of the improper, detailed review by Applicant’s counsel of the contents of documents they knew or ought to have known to be protected by solicitor-client privilege. Although the Applicant’s counsel is not seeking to use the documents themselves, Applicant’s counsel has attempted to use the information gleaned from those documents as a springboard to make a claim detrimental to the Insurer. If this motion were granted, it would undermine the sanctity of solicitor-client privilege and would, in this case, amount to an abuse of process. This cannot be permitted.

The Applicant’s motion is denied.

EXPENSES:

I leave the issue of the expenses of these two motions (including the Insurer’s “costs thrown away”) to the arbitrator who ultimately hears the merits of this case.

August 15, 2013

(Amended: October 10, 2013)

Richard Feldman

Arbitrator

Date Issued