Court of Appeal for Ontario
CITATION: Philip Services Corp. v. Deloitte & Touche, 2015 ONCA 60
DATE: 20150130
DOCKET: C59046
Hoy A.C.J.O., Simmons and Tulloch JJ.A.
BETWEEN
Philip Services Corp. by its receiver and manager, Robert Cumming, High River Limited Partnership and Canadian Imperial Bank of Commerce
Appellants
and
Deloitte & Touche, Deloitte & Touche LLP, Deloitte Touche Tohmatsu, Deloitte Touche Tohmatsu LLP and Deloitte Touche Tohmatsu f/k/a Deloitte Touche Tohmatsu International
Respondents
Thomas Dunne and John Callaghan, for the appellants
Robb C. Heintzman, Michael Schafler and Mark Evans, for the respondents
Paul F. Farley and Brian Bellmore, for the Institute of Chartered Accountants of Ontario
Heard: December 15, 2014
On appeal from the order of Justice Paul M. Perell of the Superior Court of Justice, dated June 10, 2014.
Hoy A.C.J.O.:
[1] The appellants – Philip Services Corp. (“Philip”) by its receiver and manager, Robert Cumming, High River Limited Partnership and Canadian Imperial Bank of Commerce – appeal the June 10, 2014 order of the motion judge, dismissing their motion under rule 30.10(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.
[2] The appellants are the representative plaintiffs in a billion dollar class action involving allegations that the respondent, Deloitte & Touche (“Deloitte”), was negligent in preparing the 1995 and 1996 annual statements of Philip, a public company.
[3] In 1998, about two years before the appellants commenced their action, the Institute of Chartered Accountants of Ontario (the “Institute”) commenced an investigation into Deloitte’s audits of Philip for 1995 and 1996. In 2007, the Institute brought charges against Noel Woodsford, the senior partner at Deloitte responsible for the audits, and in 2008 it found Mr. Woodsford guilty of professional misconduct.
[4] In June 2014, the appellants sought an order under rule 30.10(1) requiring the Institute – a non-party to the litigation – to produce its investigators’ report, witness statements, notes of interviews conducted and other documentation concerning the Institute’s investigation and discipline of Mr. Woodsford. The motion judge dismissed their application. He concluded that it would not be unfair for the appellants to proceed to trial without having discovery of the material sought and that, in any event, the materials need not be produced because they are subject to a Wigmore case-by-case privilege.
[5] The appellants advance four arguments on appeal:
the motion judge erred in concluding that it would not be unfair for them to proceed to trial without discovery of the documents;
in Canadian Imperial Bank of Commerce v. Deloitte & Touche, 2014 ONCA 89, 118 O.R. (3d) 508 (the “Prior Decision”), this court determined that material relating to the discipline proceedings against Mr. Woodford is admissible, and not privileged;
if the issue of privilege was not resolved by the Prior Decision, the motion judge erred in any event in finding that the documents were privileged by case-by-case privilege; and
the motion judge erred in making his findings without inspecting the documents at issue.
[6] Given the requirements of rule 30.10 (reproduced below), to succeed on this appeal the appellants must establish both that the material at issue is not privileged and that it would be unfair to require them to proceed to trial without having discovery of the material. While I am not persuaded that the Prior Decision determined the issue of privilege, I agree with the appellants that the motion judge erred in finding that the documents were privileged by case-by-case privilege. However, there is no basis to interfere with the motion judge’s finding that it would not be unfair for the appellants to proceed to trial without discovery of the material at issue. And the motion judge was not required to inspect the material. I would accordingly dismiss this appeal.
[7] Below, I first set out the text of rule 30.10 for reference. Then I briefly address the appellants’ argument that the motion judge was required to inspect the documents at issue before making his ruling. Next, I turn to the issue of whether it would be unfair to require the appellants to proceed to trial without having discovery of the documents. While that issue is dispositive, I also address both of the appellants’ arguments with respect to privilege as the motion judge’s finding of a case-by-case privilege may have ramifications at trial.
Text of Rule 30.10
[8] Rule 30.10 addresses production by non-parties. It reads in relevant part:
Order for Inspection
30.10 (1) The court may, on motion by a party, order production for inspection of a document that is in the possession, control or power of a person not a party and is not privileged where the court is satisfied that,
(a) the document is relevant to a material issue in the action; and
(b) it would be unfair to require the moving party to proceed to trial without having discovery of the document.
Court may Inspect Document
(3) Where privilege is claimed for a document referred to in subrule (1), or where the court is uncertain of the relevance of or necessity for discovery of the document, the court may inspect the document to determine the issue. [Emphasis added.]
Failure to Inspect the Documents
[9] Rule 30.10(3) is discretionary. It does not require the motion judge to inspect the documents. The motion judge is also the case management judge for the class proceeding. Among the motions that he has heard is a motion for productions. He would clearly have understood the nature and significance of the documents at issue. His decision not to inspect the documents is entitled to deference.
Not Unfair to Proceed to Trial Without Documents
[10] Rule 30.10(1) is also discretionary. The determination of the motion judge – who as I note above is also the case management judge for the class proceeding – was fact-specific and is entitled to deference. He applied this court’s decision in Ontario (Attorney General) v. Stavro (1995), 1995 3509 (ON CA), 26 O.R. (3d) 39 (C.A.), and considered the relevant factors in his analysis. As the motion judge wrote at para. 131:
The [appellants] have all the information that Deloitte provided to the Institute’s investigators, and the [appellants] have and have had their own experts to evaluate and opine on the significance of that evidence. The [appellants] have and continue to have the benefit of extensive examinations for discovery where they can question the principal actors in the events that lead to the allegedly negligent and reckless audit of Philip’s accounts.
[11] There is no basis to interfere with the motion judge’s conclusion that the appellants do not need the Institute’s file or its investigators’ report – either to prove the technical elements of the issue estoppel they plead based on the Institute’s finding of professional misconduct or to defend Deloitte’s summary judgment motion, which will turn on whether Deloitte owed Philip’s lenders a duty of care.
[12] Further, as this court held in Stavro, Rule 30.10 assumes that it is not per se unfair to require a party to go to trial without the forced production of relevant documents in the possession of third parties. There is no basis to interfere with the motion judge’s conclusion that the appellants have failed to overcome this presumption.
Impact of the Prior Decision
[13] I am not persuaded that the Prior Decision forecloses an argument that the material is privileged based on case-by-case privilege.
[14] The Prior Decision was an appeal from the motion judge’s decision that s. 61 of the Chartered Accountants Act, 2010, S.O. 2010, c. 6, Sch. C. (the “CAA, 2010”) applied to discipline proceedings under the Chartered Accountants Act, 1956, S.O. 1956, c. 7 (the “CAA, 1956”), and accordingly precluded the appellants from pleading issue estoppel based on the Institute’s decision finding Mr. Woodsford guilty of professional misconduct. Section 61 of the CAA, 2010 renders material relating to professional discipline proceedings involving the Institute inadmissible in most civil proceedings. It is a new provision: the CAA, 1956 has no equivalent.
[15] In the Prior Decision, this court engaged in an exercise of statutory interpretation. It considered whether s. 61 applied only to material relating to proceedings under the CAA 2010, or also applied to discipline proceedings under the legislative authority of the CAA, 1956, such as those against Mr. Woodsford. If s. 61 applied to proceedings under the CAA, 1956, the appellants could not amend their statement of claim to plead issue estoppel based on the Institute’s decision finding Mr. Woodsford guilty of professional misconduct. This court concluded that s. 61 only applied to proceedings under the CAA, 2010 and the appellants could therefore plead issue estoppel.
[16] At para. 52 of the Prior Decision, Doherty J.A., writing for the court, refers to the “possibility” that a party in a civil proceeding might seek to introduce documents relating to a discipline proceeding under the CAA, 1956. Properly understood, he determined that s. 61 would not be a bar to the admission of such documents. He did not determine that they are in all cases admissible.
Case-by-case Privilege
[17] While the motion judge correctly articulated the appropriate test for determining case-by-case privilege, his conclusion resulting from his application of the test cannot stand.
[18] The four elements examined in analyzing a case-by-case privilege – the Wigmore criteria[^1] – are as follows:
the communication must originate in a confidence that they will not be disclosed;
the confidentiality must be essential to the full and satisfactory maintenance of the relation between the parties;
the relation must be one which in the opinion of the community ought to be sedulously fostered; and
the injury that would inure to the relation by the disclosure of the communications must be greater than the benefit thereby gained for the correct disposal of litigation.
[19] At para. 145 of his reasons, the motion judge concluded that: the Institute gave assurances of confidentiality; the confidentiality was essential for the maintenance of the relationship between “a regulator of a self-governing and self-disciplining profession and its members”; it is in the public interest to sedulously foster that relationship and the role of the regulator; and “impairing the relationship by the disclosure of confidential communications is more injurious to the public interest than the advantages to the court in its pursuit of truth and accuracy.” At para. 148 of his reasons, the motion judge considered that s. 61 of the CAA, 2010 was “some evidence that it is in the public interest to have a case-by-case privilege that keeps the member’s communications with the Institute about discipline proceedings confidential.”
[20] With respect, the motion judge’s conclusion that the Wigmore criteria are established in this case flows from a reversible error. Understood in context – particularly in light of the Institute’s practice to produce the material at issue to the affected member at or before the time charges are laid – the Institute’s assurance as to confidentiality only applied until charges were laid.
[21] By letter dated May 12, 1998, the Institute advised Mr. Woodsford that it was commencing an investigation and required a reply. The Institute enclosed a copy of its “Complaints Investigation and Disciplinary Procedures”. That document indicated that “[m]atters under investigation and information gathered by the professional conduct committee are confidential to the committee except to the extent necessary to carry out a prosecution where charges are laid” (emphasis added).
[22] Subsequently, in its decision of May 31, 1999 denying Mr. Woodsford’s request that the Institute defer its investigation because it could prejudice Deloitte in the parallel U.S. civil proceedings alleging negligence, the Institute wrote:
The professional conduct committee is aware of the risk that a court may order production of material, including investigators’ reports, which the committee views as confidential and subject to qualified privilege. The committee has, in the past, successfully argued against court ordered production of investigators’ reports. The committee fully intends to resist any future applications for production of materials gathered as a result of an investigation brought by the committee that have not been made public through a discipline prosecution. This assurance of confidentiality that has been given to members in the past, who are the subject of an investigation, is extended to Messrs. McNeill[^2] and Woodford [sic] (emphasis added).
[23] In this case, charges were laid against Mr. Woodsford, but – in a departure from the Institute’s normal practice, involving what counsel for the Institute characterized in oral argument as a “unique” settlement agreement – the materials were not delivered to Mr. Woodsford before charges were laid or made public in the subsequent discipline prosecution.
[24] Importantly, as counsel for the Institute acknowledges, since Howe v. Institute of Chartered Accountants (Ontario) (1994), 1994 3360 (ON CA), 19 O.R. (3d) 483 (C.A.), leave to appeal to S.C.C refused, [1994] S.C.C.A. No. 348, was decided, the Institute’s practice is to provide disclosure to the subject of the complaint when charges are laid, in fulfillment of its Stinchcombe disclosure obligations. Indeed, but for seemingly tactical decisions by Mr. Woodsford and Deloitte not to accept the disclosure available to them and to conclude an agreement with the Institute that ensured the investigators’ report and other contentious materials would not be led in evidence at the discipline hearing, the material at issue would have been in the hands of Mr. Woodsford and Deloitte and compellable on discovery and would have been made public through the discipline process.
[25] The discipline committee’s decision of October 16, 2008 indicates that the parties agreed that the professional conduct committee would only call one witness, who would not be cross-examined, and that counsel for Mr. Woodsford would not call evidence with respect to the question of guilt or innocence. The witness was one of the investigators retained by the professional conduct committee. He provided an opinion as to Mr. Woodsford’s conduct, with reference to a brief of documents and a brief of authorities. The investigators’ report was not filed in evidence before the discipline committee.
[26] The actual agreement between the Institute and Mr. Woodsford has not been disclosed. However, the most reasonable inference from the record is that it was not entered into until after the assurances at issue had been made, after the allegedly confidential communications had been made to the Institute, and after Mr. Woodsford was notified that charges would be drafted.
[27] By January 2005, the Institute had completed its investigation. At the beginning of February 2005, the Institute held a disclosure meeting with Mr. Woodsford or his counsel. Within the week, counsel for the Institute notified counsel for Mr. Woodsford that he had been instructed to draft charges against Mr. Woodsford. A delay of nearly two years ensued before, on January 21, 2007, charges were finally laid against Mr. Woodsford. And the discipline committee did not hear the matter until October 16, 2008. Presumably, this delay was occasioned by the negotiation of the agreement between Mr. Woodsford and the Institute.
[28] In my view, the communications could not have originated in a confidence that they would not be disclosed after charges were laid, and after Mr. Woodsford would, in the normal course, be in possession of the materials and could himself be compelled to disclose them. Nor – given the Institute’s normal practice – could Mr. Woodsford’s communications have originated in a confidence that they would not be disclosed at the discipline hearing. The Institute says that the agreement as a result of which the investigators’ report and other materials were not disclosed at the hearing is “unique”. The assurance that the Institute extended to Mr. Woodsford in its decision of May 31, 1999 was the “assurance of confidentiality that has been given to members in the past”. Those past assurances did not involve a “unique” agreement, such as that entered into with Mr. Woodsford.
[29] In my view, the first element of the Wigmore test is not made out. Further, the motion judge’s palpable and overriding error in relation to this first element taints the balance of his Wigmore analysis.
[30] With respect to the second Wigmore criterion, the motion judge rejected the appellants’ argument that where, as here, a member is compelled to cooperate with a regulator,[^3] and the governing statute does not provide assurances as to confidentiality, confidentiality is not “essential to the full and satisfactory maintenance of the relation between the parties”. The motion judge wrote, at para. 147, “the Institute [gave] the assurances of confidentiality because its policy was that proceeding in this way was the appropriate way to maintain the relationship between the regulator and the member being regulated” (emphasis added).
[31] However, not providing disclosure to the member to be charged and entering into an agreement such as the unique agreement it entered into in this case were contrary to the Institute’s normal practices, and not consistent with the Institute’s policy. While the motion judge did not articulate the nature of the particular relationship that was sought to be maintained, presumably he was referring to the Institute’s argument on this appeal: while a member under investigation is obligated to cooperate with the Institute, he or she will be more cooperative if the Institute provides an assurance of confidentiality. But, as I explain above, the assurances were given, and the communications to the Institute made, before the agreement between Mr. Woodsford and the Institute was formed. The Institute had obtained the disclosure it required to fulfill its regulatory function before it entered into the agreement.
[32] While the Institute did not provide specific submissions to this effect, I suspect that, as a result of the agreement, Mr. Woodsford cooperated at the discipline hearing and the hearing was more efficient than it would have otherwise been. Efficiency should generally be encouraged. However, I have inferred that the negotiation of the agreement also had a role in the delay in laying the charges and proceeding with the hearing. Hence, it is not clear that the agreement – and the additional assurances of confidentiality through the agreement – resulted in overall efficiency in this case.
[33] In my view, where a member is required to cooperate with its self-regulating body, where the self-regulating body has an obligation to provide disclosure to the member at or before the time charges are laid, and where the governing framework does not provide an assurance as to confidentiality, confidentiality after charges are laid would usually not be found to be “essential to the full and satisfactory maintenance of the relation between the parties.”
[34] As I note above, after charges were laid in this case, but for a tactical ploy, Mr. Woodsford would have had possession of the materials, and could have been compelled to disclose them. Further, those materials would have been made public through the discipline process. In my view, after charges were laid, confidentiality was not essential to the full and satisfactory relationship between the Institute (qua regulator, with a public duty to investigate, to promote and protect the public interest and maintain the credibility of the profession as a self-regulatory body) and Mr. Woodsford. Confidentiality – in this case and at this stage – is not “essential to the full and satisfactory maintenance of the relation between the parties.”
[35] Nor do I accept that this type of tactical cooperation between the regulator and a member is something that, in the opinion of the community, should be “sedulously fostered”, or that the injury to the relation between the Institute and Mr. Woodsford by the disclosure of the materials at issue would be greater than the benefit thereby gained for the correct disposal of the litigation.
[36] The Institute’s claim for case-by-case privilege therefore fails.
Disposition and Costs
[37] I would accordingly dismiss this appeal. As agreed by the parties, I would award costs, as between the appellants and Deloitte, in the cause and would order the appellants to pay the Institute costs in the amount of $20,000, inclusive of disbursements and applicable taxes.
“Alexandra Hoy A.C.J.O.”
Released: January 30, 2015 (A.H.) “I agree Janet Simmons J.A.”
“I agree M. Tulloch J.A.”
[^1]: The four Wigmore criteria were recognized by the Supreme Court of Canada in Slavutych v. Baker, 1975 5 (SCC), [1976] 1 S.C.R. 254.
[^2]: Following the investigation, charges were not laid against Mr. McNeill.
[^3]: Members are compelled by the Institute’s by-laws and rules to co-operate with an investigation by the Institute, including by complying with requests for information, documents and interviews.