In the Matter of a Proposed Plan of Compromise or Arrangement with Respect to Hollinger Inc. et al. [Indexed as: Hollinger Inc. (Re)]
107 O.R. (3d) 1
2011 ONCA 579
Court of Appeal for Ontario,
Goudge, Sharpe and Karakatsanis JJ.A.
September 8, 2011
Civil procedure -- Sealing order -- Motion judge not erring in granting sealing order in Companies' Creditors Arrangement Act proceedings on basis of assertion that full disclosure of terms of settlement agreements would undermine Litigation Trustee's initiatives with respect to litigation in event that settlements were not approved by court -- Litigation privilege applying to terms of settlement agreements -- Sealing order constituting minimal intrusion on open court principle as it applied only to amounts to be paid under settlement agreements -- Sealing order not imposing undue burden on non-settling parties by requiring them to sign confidentiality agreement as pre-condition to disclosure of redacted information -- Settling parties not waiving privilege by putting virtually all settlement terms on public record and by disclosing redacted portions of settlement agreements to non-settling parties who signed confidentiality agreement.
In proceedings under the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36, the motion judge granted a sealing order which provided for the immediate full disclosure of the terms of two settlement agreements, other than the amounts to be paid. The sealing order provided that any non-settling party could have access to the redacted information upon signing a confidentiality agreement and agreeing to only use the redacted information in the settlement approval proceeding. The order was granted on the basis of an assertion that full disclosure of the terms of the settlement agreements would undermine the Litigation Trustee's initiatives with respect to the litigation in the event that the settlements were not approved by the court. One of the non-settling parties appealed the sealing order, arguing that it was a serious and unjustified infringement of the open court principle.
Held, the appeal should be dismissed.
Litigation settlement privilege applied to the terms of the two settlement agreements until the court either accepted or rejected the settlements. Litigation settlement privilege constitutes a social value of superordinate importance capable of justifying a sealing order that limits the open court principle. It was open to the motion judge to conclude that the salutary effects of the sealing order outweighed its deleterious effects on the right to free expression and the public [page2 ]interest in open and accessible court proceedings. The sealing order did not impose an undue burden on the non-settling parties by requiring them to sign a confidentiality agreement as a pre-condition to disclosure. The settling parties did not waive privilege by putting virtually all of the terms of the settlements on the public record and by disclosing the redacted portions of the settlement agreements to those non-settling parties who signed confidentiality agreements.
APPEAL from the sealing order of C.L. Campbell J. of the Superior Court of Justice dated February 5, 2011.
Cases referred to Sierra Club of Canada v. Canada (Minister of Finance), [2002] 2 S.C.R. 522, [2002] S.C.J. No. 42, 2002 SCC 41, 211 D.L.R. (4th) 193, 287 N.R. 203, J.E. 2002-803, 40 Admin. L.R. (3d) 1, 44 C.E.L.R. (N.S.) 161, 20 C.P.C. (5th) 1, 18 C.P.R. (4th) 1, 93 C.R.R. (2d) 219, 113 A.C.W.S. (3d) 36, apld Other cases referred to Inter-Leasing Inc. v. Ontario (Minister of Finance), 2009 CanLII 63595 (ON SCDC), [2009] O.J. No. 4714, [2010] 1 C.T.C. 177, 256 O.A.C. 83 (Div. Ct.); Kelvin Energy Ltd. v. Lee, 1992 CanLII 38 (SCC), [1992] 3 S.C.R. 235, [1992] S.C.J. No. 88, 97 D.L.R. (4th) 616, 143 N.R. 191, J.E. 92-1625, 51 Q.A.C. 49, 36 A.C.W.S. (3d) 362; Sparling v. Southam Inc. (1988), 1988 CanLII 4694 (ON SC), 66 O.R. (2d) 225, [1988] O.J. No. 1745, 41 B.L.R. 22, 12 A.C.W.S. (3d) 205 (H.C.J.) Statutes referred to Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36 [as am.] Authorities referred to Bryant, Alan W., Sidney N. Lederman and Michelle Fuerst, The Law of Evidence in Canada, 3rd ed. (Markham, Ont.: LexisNexis, 2009)
Earl A. Cherniak, Q.C., Kenneth D. Kraft and Jason Squire, for Conrad Black and Conrad Black Capital Corporation. Paul D. Guy and Faren Bogach, for Daniel Colson. Michael E. Barrack and Megan Keenberg, for Hollinger Inc. John Lorn McDougall, Q.C., Norman J. Emblem and Matthew Fleming, for KPMG LLP. Ronald Foerster, for Torys LLP. David C. Moore, for Catalyst Fund General Partner I Inc. George Benchetrit, for indenture trustee. Lawrence Thacker, for Ernst & Young Inc., monitor.
[1] BY THE COURT: -- Conrad Black and Conrad Black Capital Corporation ("Black") appeal a sealing order redacting the amounts to be paid by the respondents, Torys LLP and KPMG LLP Canada, to the respondent, Hollinger Inc., pursuant to two proposed settlement agreements. The settlement agreements were made in the context of a Companies' Creditor Arrangement Act, R.S.C. 1985, c. C-36 ("CCAA") proceeding and are subject to court approval. The sealing order provides for the immediate full disclosure of all terms of the settlements, other than the amounts to be paid, and details as to the manner of payment in [page3 ]the Torys agreement. The sealing order further provides that any non-settling party may have access to the redacted information upon signing a confidentiality agreement only to use the redacted information in the settlement approval proceeding. The sealing order terminates upon final approval of the settlements.
[2] For the following reasons, we reject Black's argument that the sealing order constitutes a serious and unjustified infringement of the open court principle and dismiss the appeal.
Facts
[3] Hollinger and two related corporations have been granted CCAA protection pursuant to a Commercial List order made in August 2007. The order appoints a Litigation Trustee to deal with the assets available to Hollinger's creditors which consist almost entirely of Hollinger's claims against former officers, directors and advisors, including Black, Torys and KPMG.
[4] Black asserts a claim against Hollinger in the CCAA proceedings, as well as claims for contribution and indemnity against Torys and KPMG in relation to several claims asserted against him by Hollinger.
[5] Settlement discussions and mediations between Hollinger, the Litigation Trustee, Torys and KPMG led to two settlement agreements that require court approval. The draft settlement agreements were circulated to all parties with the amounts to be paid by way of settlement redacted. The respondents moved before the judge dealing with the CCAA proceedings for the sealing order that is the subject of this appeal. The crucial paragraph of the affidavit filed by Hollinger in support of that motion reads as follows:
- In my view, disclosure of the commercially sensitive terms contained in the Settlements and the strategy of the Litigation Trustee and other confidential details relating to Litigation Assets set out in the Litigation Trustee's Report would undermine the Litigation Trustee's initiatives with respect to the remaining Litigation Assets including, without limitation, any possible settlements the Litigation Trustee may reach in respect of any of the remaining Litigation Assets and litigation with KPMG or Torys, in the event that the settlements are not approved.
[6] The Litigation Trustee's report has since been disclosed. There was no cross-examination on that affidavit.
[7] Although the terms of the settlements are not directly at issue on this appeal, Black relies on the fact that both settlement agreements provide for a "bar order" that would prevent anyone sued by Hollinger; any shareholder, officer, director or creditor of Hollinger; and any person who could claim rights or interest through Hollinger from making any claim against Torys [page4 ]or KPMG in relation to the advice given by those parties to Hollinger. Black points out that the bar orders would extinguish his indemnity claims against Torys and KPMG. On the other hand, the respondents submit that the bar orders are economically neutral for Black and other non- settling defendants. This is because Hollinger waives its right to claim joint and several liability with respect to shared liability between settling and non-settling defendants if the non-settling defendant can establish a right to contribution and indemnity from a settling defendant.
Decision of the Motion Judge
[8] The motion judge found that litigation settlement privilege applied to the terms of the two settlement agreements. He concluded that the onus to establish that a sealing order protecting the confidentiality of the amounts of the settlements was in the public interest had been satisfied and that the test set out in Sierra Club of Canada v. Canada (Minister of Finance), 2002 SCC 41, [2002] 2 S.C.R. 522, [2002] S.C.J. No. 42 ("Sierra Club") had been met.
[9] On the motion judge's suggestion, the sealing order included a "comeback" clause, permitting any party affected by the settlement motion to request relief from the sealing order if it operated in a manner that would prevent that party from making full submissions as to the approval of the settlement.
Issues
[10] Black submits (1) that the evidence was insufficient to justify a sealing order and departure from the open court principle; (2) that the requirement that a party seeking disclosure of the settlement amounts must sign a confidentiality agreement imposes an undue burden; and (3) that the respondents have waived privilege.
Analysis
1. Sufficiency of the evidence to justify a sealing order
[11] It is common ground that the motion judge applied the correct legal test, namely, that laid down by the Supreme Court of Canada in Sierra Club, at para. 53:
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 [page5 ]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.
[12] Before us, there were two significant concessions.
[13] First, the respondents indicated that they place no reliance upon the portions of the Litigation Trustee's affidavit referring to the "commercial sensitivity" of the redacted terms of the settlement. They rely solely upon the evidence that public disclosure of the settlement amounts before the agreements had been approved "would undermine the Litigation Trustee's initiatives with respect to . . . litigation with KPMG or Torys, in the event that the settlements are not approved".
[14] Second, Black conceded that his attack on the terms of the sealing order rests on the open court principle and that he does not assert that the terms of the sealing order give rise to any procedural disadvantage.
[15] The respondents assert that their interest in maintaining the confidentiality of the amounts of the proposed settlements falls squarely within litigation settlement privilege. Simply put, the respondents say that should the settlement agreements not be approved, they would be unfairly prejudiced in the litigation that would follow if they had to disclose publicly the amounts they were prepared to pay or accept in settlement of the claims asserted by the Litigation Trustee.
[16] It is well established that in order to foster the public policy favouring the settlement of litigation, the law will protect from disclosure communications made where (1) there is a litigious dispute; (2) the communication has been made "with the express or implied intention it would not be disclosed in a legal proceeding in the event negotiations failed"; and (3) the purpose of the communication is to attempt to effect a settlement: see Bryant, Lederman and Fuerst, The Law of Evidence in Canada, 3rd ed. (Markham, Ont.: LexisNexis, 2009) at p. 1033, 14.322); Inter-Leasing Inc. v. Ontario (Minister of Finance), 2009 CanLII 63595 (ON SCDC), [2009] O.J. No. 4714, 256 O.A.C. 83 (Div. Ct.).
[17] We agree with the motion judge that those conditions are met here. We see no error in the motion judge's conclusion that [page6 ]"[l]itigation settlement privilege . . . applies in this case at least until the Court either accepts or rejects the settlement". In the context of this case, Hollinger, Torys and KPMG have a legally protected interest in being afforded a zone of confidentiality to shelter the most sensitive aspect of their proposed settlement.
[18] The sealing order protects litigation settlement privilege and thereby fosters the strong public interest in the settlement of disputes and the avoidance of litigation. "This policy promotes the interests of litigants generally by saving them the expense of trial of disputed issues, and it reduces the strain upon an already overburdened provincial Court system" (Kelvin Energy Ltd. v. Lee, 1992 CanLII 38 (SCC), [1992] 3 S.C.R. 235, [1992] S.C.J. No. 88, at p. 259 S.C.R., citing Sparling v. Southam Inc. (1988), 1988 CanLII 4694 (ON SC), 66 O.R. (2d) 225, [1988] O.J. No. 1745 (H.C.J.), at p. 230 O.R. (emphasis added by the Supreme Court)).
[19] The rationale for litigation settlement privilege is that unless parties have an assurance that their efforts to negotiate a resolution will not be used against them in litigation should they fail to resolve their dispute, they will be reluctant to engage in the settlement process in the first place. A legal rule that created a disincentive of that nature would run contrary to the public policy favouring settlements.
[20] We agree with the respondents that litigation settlement privilege constitutes a social value of superordinate importance capable of justifying a sealing order that limits the open court principle.
[21] In our view, it was open to the motion judge to conclude under the Sierra test that the salutary effects of the sealing order outweighed its deleterious effects on the important right to free expression and the public interest in open and accessible court proceedings.
[22] While the evidence led in support of the sealing order is limited to a bald statement that full disclosure of the terms of the settlement agreement "would undermine the Litigation Trustee's initiatives with respect to . . . litigation with KPMG or Torys, in the event that the settlements are not approved", in light of the strong public policy favouring settlements and the recognized privilege that protects the confidentiality of settlement discussions, the motion judge did not err in concluding that the evidence was sufficient to satisfy the onus under the Sierra test.
[23] We agree with the respondents that the motion judge's sealing order was a minimal intrusion on the open court principle and on the procedural rights of the non-settling parties. The sealing order protected only the amounts of the settlements and [page7 ]it gave the non-settling parties ready access to the amounts of the settlement upon signing a confidentiality agreement. The "come back" clause allowed any party to return to court for a reassessment of the need for the sealing order should the circumstances change.
[24] We do not accept Black's submission that these are concluded agreements for which the litigation settlement privilege is spent. The settlement agreements at issue here have no legal effect until they are approved. In the context of this litigation and these settlement discussions, we are satisfied that just as the threat of disclosure of pre- resolution discussions would likely discourage parties from attempting to settle, so too would the threat of disclosure of their tentative settlement requiring court approval. We add, however, that our conclusion on the privileged nature of a settlement requiring court approval is based on the facts and circumstances of this case, and we leave to another day the issue of whether the privilege always attaches to other settlements requiring court approval, for example, class action settlements or infant settlements, where different values and considerations may apply.
[25] Nor do we agree with Black's argument that because the litigation settlement privilege would still prevent any party from introducing the terms of the settlement into evidence in any trial that might follow should the court not approve the settlements, the information can now be made available to the public at large. We know of no authority that limits the reach of litigation settlement privilege in this manner. Moreover, the argument that no harm could flow from full public disclosure appears to us to ignore the practical reality that allowing for full public disclosure of all terms of the settlement agreements prior to court approval would have a very perverse effect on the desired incentives to engage in settlement discussions in the context of high-stakes, high- profile litigation.
2. Did the confidentiality agreement impose an undue burden?
[26] We see no merit in the submission that Black's right to obtain disclosure of the settlement amounts was unduly burdened by the term of the sealing order requiring him to sign a confidentiality agreement as a pre-condition to disclosure. This term of the sealing order protects the non-settling parties' procedural right to have full access to the terms of the settlement agreements while maintaining the protection of the litigation settlement privilege. It is only if Black uses the privileged information for some improper purpose that he would face the [page8 ]prospect of some sanction for breach. Contrary to the submission that that sanction would inevitably be "draconian", it would be a matter for the discretion of the court to decide an appropriate sanction in the circumstances and we see no reason to fear that the court would decide to impose a sanction that did not fit the circumstances of the case.
[27] We add here that we do not consider the terms of the bar orders relevant to the issue of the sealing order. Neither the motion judge nor this court was asked to pass upon the appropriateness of the bar orders at this stage and as the sealing order allows Black to obtain full disclosure of the terms of the settlement, Black suffers no disadvantage if he chooses to challenge the settlement on the ground that the bar orders should not be approved.
3. Did the respondents waive privilege?
[28] Black submits that by putting virtually all of the terms of the settlements on the public record and by disclosing the redacted portions of the settlement agreements to those non- settling parties who sign confidentiality agreements, the respondents have waived privilege.
[29] We disagree. These terms were imposed by court order (albeit at the suggestion of the parties) and we fail to see how or why abiding by the terms of a court order should result in a finding that a party has waived privilege. Moreover, in our view, this argument is inconsistent with Black's purported reliance on the open court principle as requiring disclosure of the settlement amounts. The terms of the order said to amount to a waiver of privilege were plainly motivated to ensure that the sealing order was minimally intrusive on the open court principle. To accept Black's submission that those terms of the order constitute waiver would be to require sealing orders to be more restrictive than necessary to protect the public interest in fostering settlements. Such a rule would be self- defeating and contrary to the public interest in open access to court proceedings.
4. Conclusion
[30] We conclude that the sealing order strikes an appropriate balance between the public interest in the promotion of settlements and the public interest in the open court principle: (i) the public interest in the promotion of settlements and the protection of settlement privileged information and communications is met by the sealing of the redacted portions of the settlement agreements from the public record; and [page9 ] (ii) the public interest in the open court principle is met by the public disclosure of all but the redacted terms of the settlement agreements, and the time-limited nature of the sealing order, lasting only so long as the settlements remain contingent on court approval.
[31] In addition, the sealing order strikes the appropriate balance between the competing private interests of the parties: (i) the settling parties' interest in maintaining the confidentiality of their privileged information is met by the sealing of the redacted portions of the settlement agreements; (ii) the interests of all non-settling defendants (including Black) are met by the approval of the confidentiality agreement provision affording them access to the redacted portions of the settlement agreements and thereby enabling them to respond meaningfully to the settlement approval motion.
Disposition
[32] The appeal is dismissed. In accordance with the agreement of counsel, the respondents Hollinger, Torys and KPMG are entitled to costs of $10,000 each, inclusive of disbursements and applicable taxes.
Appeal dismissed.