Industrial Alliance Securities Inc. v. Kunicyn Kunicyn v. Industrial Alliance Securities Inc.

[Indexed as: Industrial Alliance Securities Inc. v. Kunicyn]

Ontario Reports

Ontario Superior Court of Justice,

Divisional Court,

Sachs, Backhouse, and Favreau JJ.

June 8, 2020

151 O.R. (3d) 306 | 2020 ONSC 3393

Case Summary

Professions — Barristers and solicitors — Solicitor-client privilege — Investment Industry Regulatory Organization of Canada conducting investigation of appellant — In civil action, representative of respondent admitting in discovery that he gave false evidence to investigator — Respondent refusing to answer further questions or produce documents — Appellant's motion to compel dismissed for failure to establish prima facie case to apply fraud/crime exception to solicitor-client privilege — False information had no bearing on investigation — Appeal dismissed.

Securities regulation — Evidence — Privilege — Investment Industry Regulatory Organization of Canada conducting investigation of appellant — In civil action, representative of respondent admitting in discovery that he [page307] gave false evidence to investigator — Respondent refusing to answer further questions or produce documents — Appellant's motion to compel dismissed for failure to establish prima facie case to apply fraud/crime exception to solicitor-client privilege — False information had no bearing on investigation — Appeal dismissed.

The Investment Industry Regulatory Organization of Canada ("IIROC") found an investment advisor, V, guilty of professional misconduct. He was fined and permanently barred from registering as an investment representative. In anticipation of those sanctions he transferred his book of business to the appellant, who then moved her practice to the respondent. F, a senior vice-president of the respondent, was aware that the appellant subleased her office space from V. In March 2011, IIROC commenced an investigation of the appellant's transfer to the respondent based on a concern that the appellant continued to have contact with V. In February 2012, the respondent terminated its agency agreement with the appellant. Ten days before the termination, F told IIROC that the respondent's president had long known of the office arrangements. Eleven weeks after the termination, F's counsel sent an email to IIROC to correct F's testimony to the effect that the president was made aware of the office sharing arrangement only in late 2011 as a result of the IIROC investigation. The respondent commenced an action against the appellant for repayment of a forgivable loan paid to her upon entering into the agency agreement. The appellant counterclaimed for breach of contract, breach of the duty of good faith and malicious prosecution. She pleaded that the correction e-mail constituted false evidence that the respondent used to procure her prosecution by IIROC. During F's examination for discovery, by which time he no longer was with the respondent, he testified that he had been coerced to change his IIROC testimony and that the information in the e-mail was false. When the appellant's counsel asked questions and sought further production concerning communications between the respondent and its counsel in relation to the e-mail, there was a refusal on the ground of solicitor-client privilege. The appellant made a motion for the questions to be answered and production made. The motion judge determined that the appellant had not made out a prima facie case that the "future crimes and fraud" exception to solicitor-client privilege should apply. The motion was dismissed and the appellant appealed.

Held, the appeal should be dismissed.

The evidence before the motion judge revealed that IIROC prosecuted the appellant because of what they alleged was her own conduct in entering into an arrangement with V that allowed him to act as an investment representative when he was barred from doing so. The content of the email as to when the president learned of the arrangement had no bearing on whether the appellant was guilty of the conduct alleged. F gave no evidence that the communication was made to injure the appellant or that her injury would be the natural consequence of the email. He did not depose that his purpose was to obstruct, pervert or defeat the ability of IIROC to conduct its investigation. Although the appellant tried to argue that the exception should apply for the lie told to IIROC, there was no evidence that it was an offence to lie to IIROC, a self-regulatory body. In any event, there was ample authority to support the proposition that the fraud/crime exception was not meant to be extended to every form of allegedly blameworthy conduct.

Blank v. Canada (Department of Justice), 2006 SCC 39, [2006] 2 S.C.R. 319, [2006] S.C.J. No. 39; Blank v. Canada (Justice), 2016 FCA 189, [2016] F.C.J. No. 694; Brome Financial Corp. v. Bank of Montreal, 2013 ONSC 4816, [2013] O.J. No. 3323; Descôteaux v. Mierzwinski, [1982] 1 S.C.R. 860, [1982] S.C.J. No. 43; Dublin v. Montessori Jewish Day School of Toronto (2007), 85 O.R. (3d) 511, [2007] O.J. No. 1062 (S.C.J.), consd

Other cases referred to [page308]

1784049 Ontario Ltd. v. Toronto (City) (2010), 2010 ONSC 1204, 101 O.R. (3d) 505, [2010] O.J. No. 764 (S.C.J.); Alberta (Information and Privacy Commissioner) v. University of Calgary, 2016 SCC 53, [2016] 2 S.C.R. 555, [2016] S.C.J. No. 53; Canada (Privacy Commissioner) v. Blood Tribe (Department of Health), 2008 SCC 44, [2008] 2 S.C.R. 574, [2008] S.C.J. No. 45; Geographic Resources Integrated Data Solutions Ltd. v. Peterson, [2009] O.J. No. 1389, 74 C.P.C. (6th) 313 (S.C.J.); Goldman, Sachs & Co. v. Sessions, [1999] B.C.J. No. 2815, 38 C.P.C. (4th) 143 (S.C.); Hallstone Products Ltd. v. Canada (Customs and Revenue Agency), [2004] O.J. No. 496, [2004] O.T.C. 72 (S.C.J.); Huang v. Silvercorp Metals Inc, 2017 BCSC 795, [2017] B.C.J. No. 918; Kefeli v. Centennial College of Applied Arts & Technology, [2002] O.J. No. 3023, 23 C.P.C. (5th) 35 (C.A.); Nelles v. Ontario, [1989] 2 S.C.R. 170, [1989] S.C.J. No. 86; McDermott v. McDermott, 2013 BCSC 534, [2013] B.C.J. No. 587; R. v. Cox and Railton (1884), 14 Q.B.D. 153, [1881-5] All ER Rep 68; R. v. McClure, 2001 SCC 14, [2001] 1 S.C.R. 445, [2001] S.C.J. No. 13; Whitty v. Wells, 2016 ONSC 7716, [2016] O.J. No. 6400; Zesta Engineering Ltd. v. Cloutier, [2008] O.J. No. 304 (S.C.J.)

Statutes referred to

Fisheries Act, R.S.C. 1985, c. F-14 [as am.]

Rules and regulations referred to

Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 31.10

APPEAL from an order dismissing a motion to answer discovery questions and make production.

Melissa J. MacKewn and Michael Byers, for respondent Industrial Alliance Securities Inc.

Peter J. Osborne, Brian Kolenda and Jonathan Langley, for appellant, Diane Kunicyn.

Scott Kugler, for respondent, Lise Douville.

The judgment of the court was delivered by

H. SACHS J.: —

Introduction

[1] Ms. Kunicyn, the appellant, appeals from the order of Stewart J. dated March 12, 2019, dismissing her motion seeking answers to certain questions that were refused and disclosure of certain documents. The questions and documents concerned communications between a law firm and its clients.

[2] The issue before the motion judge was whether the fraud/ crime exception to solicitor-client privilege should be invoked to order the requested production. The motion judge decided that it should not.

[3] Ms. Kunicyn appeals the motion judge's decision on two bases. First, she submits that the motion judge erred in requiring proof of a crime in applying the test for the exception. Second, she argues that the motion judge erred in applying too high a standard of proof to the exception. [page309]

[4] For the reasons that follow, I would dismiss the appeal. The motion judge did not err in finding that the appellant did not meet the threshold for applying the fraud/crime exception, which is a narrow and limited exception to be invoked only when it is absolutely necessary.

Background to the Action

Kunicyn enters into a relationship with Industrial Alliance

[5] From approximately 2002 to 2010, Ms. Kunicyn worked as an associate at several investment dealers as part of Mr. Vitug's investment advisory practice. In 2009, the Investment Industry Regulatory Organization of Canada ("IIROC") concluded a lengthy investigation into the investment practices of Mr. Vitug and found him guilty of professional misconduct. He was subsequently fined and permanently barred from registering as an investment representative.

[6] During this period, Mr. Franch, a senior vice-president of the respondent, Industrial Alliance, was negotiating with Mr. Vitug about having his book of business transferred to Industrial Alliance. In anticipation of Mr. Vitug's sanction by IIROC, Mr. Vitug transferred his book of business to Ms. Kunicyn, who then moved to Industrial Alliance.

[7] Ms. Kunicyn ran her Industrial Alliance practice from an office space on Holly Street in Toronto that she subleased from Mr. Vitug. Ms. Kunicyn alleges that she took steps to ensure that Mr. Vitug did not have access to her files and was not involved in her advisory business. It is not disputed that Mr. Franch, and therefore Industrial Alliance, knew of this arrangement.

[8] In October of 2010, Industrial Alliance and Ms. Kunicyn entered into an agency agreement pursuant to which Ms. Kunicyn was paid a commission, plus a fixed amount based on the book of business transferred to Industrial Alliance.

The IIROC investigation and Ms. Kunicyn's termination

[9] On March 16, 2011, IIROC advised Industrial Alliance that it was investigating Ms. Kunicyn's transfer to Industrial Alliance. In particular, it was concerned with whether Ms. Kunicyn was having continued contact with Mr. Vitug, such that she was, in effect, facilitating his ability to continue to act as an investment representative when he was barred from doing so.

[10] On February 10, 2012, Industrial Alliance terminated its agency agreement with Ms. Kunicyn and demanded repayment of the outstanding balance of the amount they had paid her when they entered into the agreement with her. According to Industrial Alliance, the amount was a forgivable loan. [page310]

[11] As part of its investigation, IIROC interviewed a number of Industrial Alliance employees, including Mr. Franch and the respondent, Ms. Douville, the President of Industrial Alliance.

[12] On January 31, 2012, ten days before Ms. Kunicyn's termination, Mr. Franch told IIROC that Ms. Douville had long known of the office arrangements between Mr. Kunicyn and Ms. Douville.

[13] On April 26, 2012, counsel to Mr. Franch and Industrial Alliance wrote to IIROC to correct Mr. Franch's testimony. That correction noted in part:

Mr. Franch testified that Ms. Douville was aware that an office sharing arrangement existed. However, upon reflection, Mr. Franch now believes that his recollection was inaccurate and that Ms. Douville did not become aware that such an office sharing arrangement existed until late 2011 when it came out during the course of IIROC's investigation into this matter. (the "Correction Email").

[14] In April of 2014, IIROC commenced a proceeding against Ms. Kunicyn, alleging that she had entered into a business arrangement with Mr. Vitug that allowed him to do indirectly what he could not do directly, namely, continue to advise his former clients with respect to their investments. IIROC later withdrew its proceeding against Ms. Kunicyn.

[15] IIROC also commenced a proceeding against Industrial Alliance, which was settled in October of 2014. As part of that settlement, Industrial Alliance admitted that it failed to adequately supervise Mr. Vitug's activities in relation to his former clients and failed to adequately address the risks inherent in Ms. Kunicyn's relationship with Mr. Vitug.

The civil proceedings between Industrial Alliance and Ms. Kunicyn

[16] On December 23, 2015, Industrial Alliance commenced an action against Ms. Kunicyn. In its statement of claim, Industrial Alliance has pleaded that when it entered into the agency agreement with Ms. Kunicyn, it paid her $450,000 as a forgivable loan representing 75 basis points of the value of the book of business Ms. Kunicyn was transferring to them. The principal amount of the loan was to be reduced by 1/84 per month during Ms. Kunicyn's relationship with Industrial Alliance. According to Industrial Alliance, if it terminated Ms. Kunicyn, with or without cause, Ms. Kunicyn would be required to repay the loan. A subsequent agreement with similar terms was entered into in October of 2011. Industrial Alliance also maintains that it was entitled to terminate Ms. Kunicyn with or without cause upon giving the requisite notice, which it did. It alleges that as a result of her termination, Ms. Kunicyn owes it over $300,000 in relation to the loan, which she has refused to repay. [page311]

[17] In response to this claim, Ms. Kunicyn filed a statement of defence and counterclaim. In her pleading, she alleges that the agreement between her and Industrial Alliance contemplated that if she was terminated prior to the expiry of 84 months, the remaining amount due and owing on the forgivable loan would be, in part, compensation to her for her loss of income and clients as a result of the termination. By way of counterclaim she claimed $5 million in damages for breach of contract, breach of the duty of good faith and malicious prosecution. She also claimed punitive and aggravated damages. According to Ms. Kunicyn's pleading, Industrial Alliance procured the prosecution of Ms. Kunicyn by IIROC. They did so by providing false evidence -- evidence that Ms. Douville did not know about the office sharing arrangement between Ms. Kunicyn and Mr. Vitug until IIROC commenced its investigation. This false evidence included the correction e-mail.

Events leading to the motion before Stewart J.

[18] Ms. Douville was examined for discovery in this action about the circumstances leading to the sending of the correction e-mail. Questions and further production about these issues were refused on the basis of solicitor-client privilege.

[19] On July 9, 2018, Mr. Franch was examined for discovery pursuant to rule 31.10 [of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194]. By this time, Industrial Alliance had terminated its relationship with Mr. Franch. During his examination, Mr. Franch testified that he had been coerced to change his IIROC testimony by Ms. Douville and that the contents of the correction e-mail were false. In fact, Ms. Douville had known prior to Ms. Kunicyn's arrival that she would have an office-sharing arrangement with Mr. Vitug. When Ms. Kunicyn's counsel asked questions and sought further production concerning the communications between Industrial Alliance and its law firm in relation to the correction e-mail, Industrial Alliance refused to answer on the grounds of solicitor-client privilege. Industrial Alliance's Affidavit of Documents disclosed that there were 11 email exchanges between it and its solicitor concerning the correction e-mail.

[20] Ms. Kunicyn's counsel brought a motion to the court for an order that the questions should be answered and the production made. That motion was heard by Stewart J. At the motion there was no issue that the information sought was privileged. The argument was whether the crime/fraud exception applied.

The Motion Judge's Decision

[21] The motion judge began her analysis by noting how fundamental solicitor-client privilege is to the functioning of our legal system. That is why it is as close to an absolute privilege as possible. [page312]

[22] She then notes that one of the exceptions to the privilege is the one relied upon by Ms. Kunicyn -- the "future crimes and fraud" exception. On the question of whether the exception applied in the case at bar, the motion judge wrote as follows [at paras. 31-38]:

It must therefore be considered whether any crime/fraud exception applies in this case. In order to do so, the moving party must make out a prima facie case that the crime/ fraud exception to solicitor-client privilege applies that would require the requested information and documentation to be produced.

This exception is extremely limited in scope and will only apply in narrow and specific circumstances. The communications between a lawyer and client must be shown to be made for the purpose of obtaining legal advice to facilitate the commission of a crime or are themselves criminal. It must be demonstrated that the client knows, or ought to know, that the proposed conduct was criminal. The advice must be shown to have facilitated the crime, or the lawyer otherwise became a dupe or conspirator to the crime.

The mere pleading or allegation of fraud does not entitle Kunicyn to review or obtain privileged evidence. She must first establish a prima facie case of the offence alleged.

In my view, the evidence before the court on this motion falls short of the threshold that Kunicyn must meet to establish a prima facie case of an offence. This is not a case in which there has been a prior determination of any misconduct, and IAS disputes that any misconduct has in fact occurred. A review of Franch's evidence on his examination, as well as that of Douville on discovery, does not support the inference that Kunicyn seeks to have drawn.

Kunicyn is not entitled to privileged communication simply because two people have provided different accounts of their recollection as to when one of them learned of particular facts and then one of them has recanted, and then recanted again.

I agree with the characterization by counsel for IAS of this dispute as being one that will concern the proper inferences to be drawn from facts and consequences that should flow from those inferences.

As is often the case, it will be for the trier of fact to determine the credibility of these witnesses and to consider whether any credibility issue has a bearing on the outcome of the proceedings.

As a result, I do not consider that the moving party has demonstrated that the proper characterization of these communications as being subject to solicitor and client privilege should be interfered with in this instance.

Analysis

[23] As already noted, Ms. Kunicyn alleges that this reasoning demonstrates two key errors:

(1) That the motion judge confined the exception to crimes, when the case law has extended it to apply to civil wrongs. The wrong alleged in this case is the provision of false information to a regulator. [page313]

(2) That the motion judge applied too high a test. In this case, the allegation of wrongdoing -- using a solicitor to send a false correction- is more than a bald pleading. There is direct evidence from Mr. Franch that he was pressured by Ms. Douville to send the correction e-mail and that the email was in fact false. In contrast to this, neither Industrial Alliance nor Ms. Douville put forward any evidence on the motion to directly deny Mr. Franch's version of events. Ms. Douville's discovery evidence was given before the motion was brought, it should not have been considered on the motion, and she, unlike Mr. Franch, was not subject to cross-examination on the issue. In making her submissions, Ms. Kunicyn was clear that she was not alleging that the lawyer who sent the correction e-mail participated in the conspiracy to send false information. According to Ms. Kunicyn, the lawyer's intention is irrelevant -- it is the client's intention that matters. Mr. Franch has admitted that it was his intention to use the correction e-mail to provide false information to IIROC.

Solicitor-client privilege and its role in our legal system

[24] The Supreme Court of Canada has repeatedly emphasized the importance of solicitor-client privilege to our legal system. The privilege ensures that clients are represented effectively, and that legal information can be communicated fully and frankly (Blank v. Canada (Department of Justice), 2006 SCC 39, [2006] 2 S.C.R. 319, [2006] S.C.J. No. 39, at paras. 23-26). It has evolved from a rule of evidence to a privilege with constitutional dimensions, both as part of the principle of fundamental justice and as a part of client's right to privacy. (Blank; Alberta (Information and Privacy Commissioner) v. University of Calgary, 2016 SCC 53, [2016] 2 S.C.R. 555, [2016] S.C.J. No. 53). Solicitor-client privilege is a class privilege that will only yield in certain clearly defined circumstances, and not on the basis of a case-by-case balancing of interests (R. v. McClure, 2001 SCC 14, [2001] 1 S.C.R. 445, [2001] S.C.J. No. 13).

[25] In University of Calgary, the Supreme Court reemphasized that the privilege is one that is "jealously guarded and should only be set aside in the most unusual circumstances" and that "as a substantive rule, solicitor-client privilege must remain as close to absolute as possible and should not be interfered with unless absolutely necessary": at paras. 34 and 43.

The "future crimes and fraud" exception

[26] In Descôteaux v. Mierzwinski, [1982] 1 S.C.R. 860, [1982] S.C.J. No. 43, at pp. 882-83 S.C.R., the Supreme Court explained that confidential communications lose their confidential character to the extent that those communications were made to obtain legal advice [page314] for the purpose of committing a crime or if the communication itself is the material element of the crime. Such communications are injurious to the administration of justice and do not fall into the "ordinary scope of professional employment".

[27] This is what has become known as the "future crimes/ fraud exception". As described by the Supreme Court in Canada (Privacy Commissioner) v. Blood Tribe (Department of Health), 2008 SCC 44, [2008] 2 S.C.R. 574, [2008] S.C.J. No. 45, at para. 10, the exception is "extremely limited [in] nature", which serves to emphasize rather than dilute the general rule that solicitor-client privilege is to remain "[a]s close to absolute as possible to ensure public confidence and retain relevance".

[28] The parties agree that to establish the exception the party relying on the exception has the onus of demonstrating:

(a) That the challenged communications relate to proposed future conduct;

(b) The client must be seeking to advance conduct which they know or should know is unlawful; and

(c) The wrongful act being contemplated must be clearly wrong (see, e.g., McDermott v. McDermott, 2013 BCSC 534, [2013] B.C.J. No. 587, at para. 75; 1784049 Ontario Ltd. v. Toronto (City) (2010), 2010 ONSC 1204, 101 O.R. (3d) 505, [2010] O.J. No. 764, at para. 34).

[29] In establishing these elements, the moving party is held to a prima facie case standard.

Does the exception extend to civil wrongs?

[30] In Dublin v. Montessori Jewish Day School of Toronto (2007), 85 O.R. (3d) 511, [2007] O.J. No. 1062, at paras. 30 and 39, Perell J. found that, although criminal proceedings may represent the "classic example" of the exception, there was "no reason why the exception should not include communications perpetrating tortious conduct that may become the subject of a civil proceeding". Leave to appeal Perell J.'s decision was granted, but the appeal was never argued.

[31] In Geographic Resources Integrated Data Solutions Ltd. v. Peterson, [2009] O.J. No. 1389, 74 C.P.C. (6th) 313, at para. 26, Master MacLeod (as he then was), although critical of the scope of the Dublin decision, found it to be "clear however that without going as far as the court went in Dublin, the fraud exception would encompass 'fraudulent conspiracy, trickery and sham contrivances' ".

[32] In Zesta Engineering Ltd. v. Cloutier, [2008] O.J. No. 304, at paras. 113-14, Master J.M. Haberman, relying on Dublin and a decision of the British Columbia Supreme Court in Goldman, Sachs & Co. v. Sessions, [1999] B.C.J. No. 2815, 38 C.P.C. (4th) 143, found [page315] that the exception applied to torts such as abuse of process, breach of regulatory statutes, breach of contract and other breaches of duty.

[33] In Hallstone Products Ltd. v. Canada (Customs and Revenue Agency), [2004] O.J. No. 496, 1 C.P.C. (6th) 324, at paras. 10 and 15, Master Dash found that the fraud exception is "not to be narrowly construed" and "includes all forms of dishonesty", in particular"[p]roperly supported claims of . . . criminal process, deliberate suppression of evidence and malicious prosecution for an improper purpose".

[34] Ms. Kunicyn relies on Huang v. Silvercorp Metals Inc, 2017 BCSC 795, [2017] B.C.J. No. 918, a decision of the British Columbia Supreme Court, for the proposition that the civil wrong of procuring an inappropriate investigation by a regulator could ground a claim under the exception. In that case, the moving party, Huang, alleged that Silvercorp committed the tort of false imprisonment by conspiring with the Chinese authorities to have him imprisoned there. The motion for production by Huang was successful because the motion judge found that Silvercorp had not established that the documents sought by Huang were presumptively privileged and there was an implied waiver of privilege between Silvercorp, its lawyers and the Chinese authorities. However, the motion judge also found that the crime/fraud exception would apply in the case before him because the "wrongful conduct in issue is the tort of false imprisonment, which is akin to fraud in terms of moral culpability": at para. 179.

[35] In Brome Financial Corp. v. Bank of Montreal, 2013 ONSC 4816, [2013] O.J. No. 3323, D.M. Brown J. (as he then was) stated [at para. 19]:

In light of the near-absolute protection accorded to solicitor-client privilege in the Supreme Court of Canada jurisprudence and the narrow ambit that court gave to the "future crime and fraud" exception in its ratio in the R. v. Campbell case, I am not prepared to follow the path walked by the court in Goldman, Sachs and Dublin cases. The extensions made in those cases to the "future crime and fraud" exception seemed to go beyond the core principles concerning that exception as set out in the R. v. Campbell case.

[Emphasis in original]

[36] The information sought in Brome Financial concerned communications between Brome and Brome's counsel for the alleged purpose of breaching the deemed undertaking rule. Brown J. found that the "deemed undertaking rule is a most important one in the civil litigation process", but that it did not "come anywhere close to the narrow cohort of 'future crime and fraud' misconduct in respect of which communications between a client and its lawyer would not enjoy the protection of solicitor-client privilege": at paras. 21-22. In making this ruling, Brown J. observed that a breach of the deemed undertaking rule does not attract any penal sanctions, and that the [page316] moving party had not demonstrated that it was necessary within the meaning of the case law to interfere with solicitor-client privilege.

[37] In Whitty v. Wells, 2016 ONSC 7716, [2016] O.J. No. 6400, Myers J. commented on the fraud/crime exception, and relying on Blood Tribe, found that the exception did not apply to any unlawful activity. "Any breach of contract or tort can be said to be unlawful. The exception is much narrower, 'extremely limited' says the court [in Blood Tribe], so that privilege is lost only for conversations that are 'criminal in themselves or intended to further criminal purposes'": at para. 31.

[38] This narrower approach to the exception was adopted by the Federal Court of Appeal in Blank v. Canada (Justice), 2016 FCA 189, [2016] F.C.J. No. 694. In Blank, the moving party and his company were charged summarily with 13 violations under the Fisheries Act, R.S.C. 1985, c. F-14. Eight of the charges were quashed and the remaining five were ultimately stayed by the Crown. The appellant sued alleging abuse of process. During the lawsuit, the appellant sought production of any correspondence to or from one of the prosecutors who prosecuted them. The Federal Court of Appeal found that the documents were protected by solicitor-client privilege and that the federal court jurisprudence is clear -- following the Supreme Court's decision in Blood Tribe"blameworthy conduct or abuse of process is not sufficient to lift solicitor-client privilege": at para. 60.

The application of this law to the facts of this case

[39] As defined in Descôteaux, the fraud/crime exception applies if the solicitor-client communication was made for the purpose of committing a crime or the communication itself was a material element of the crime.

[40] On the question of whether the exception should be extended to include civil wrongs like the tort of malicious prosecution, the case law would appear to be divided, with Dublin representing one side of the debate -- holding as it does that the exception should be extended to encompass communications that perpetrate any tortious conduct -- and Brome and Blank representing the other. The latter two cases maintain that the exception must be narrowly construed and cannot be used to lift the privilege when it comes to wrongs such as breaching the implied undertaking rule or abuse of process (which arguably is a wrong that involves the same level of moral turpitude as the tort of malicious prosecution).

[41] In this case, while the debate about the extent of the fraud/crime exception was put to the motion judge, it is evident from reading her reasons as a whole that she did not decide the motion based on a determination that the exception could not be extended to non-criminal behaviour. This is because she focused her analysis [page317] on the next question before her, which was whether, even if the fraud/crime exception could be extended, Ms. Kunicyn had made out a prima facie case that the exception should apply. On this point, the motion judge found that she had not.

[42] According to Ms. Kunicyn, the motion judge made a number of errors in her analysis on this issue. First, the motion judge erred in characterizing the test for the exception as requiring that the moving party establish a prima facie case of the offence alleged (malicious prosecution), rather than a prima facie case that the exception applies, which only requires adducing evidence that the impugned communication was made for an improper purpose. Second, the motion judge erred in holding that for the exception to apply there must be a prior finding of misconduct. Third, the motion judge applied too high a standard of proof. Assessing whether there is a prima facie case that the exception applies only requires that there be evidence beyond the allegations in the pleading to give "colour" to the allegation. The fact that the evidence may be contradicted by other evidence does not matter. Further, according to Ms. Kunicyn, there was no evidence to contradict Mr. Franch's evidence on the essential points because Ms. Douville's discovery evidence should not have been considered on the motion. With respect to this last point, Ms. Kunicyn requested leave to argue that there was no evidence to contradict Mr. Franch's evidence. Leave was not granted on this issue and therefore it was inappropriate for her to pursue this argument on the appeal.

[43] I agree with Ms. Kunicyn, that all these issues involve extricable questions of law and should be reviewed on a correctness standard.

[44] With respect to the alleged wrongdoing that formed the basis of Ms. Kunicyn's counterclaim against Industrial Alliance (malicious prosecution), to make out the tort of malicious prosecution, a plaintiff must establish that (a) the prosecution was initiated by the defendant; (b) the prosecution was terminated in favour of the plaintiff; (c) the absence of reasonable and probable cause for the prosecution; and (d) the defendant acted with malice: Nelles v. Ontario, [1989] 2 S.C.R. 170, [1989] S.C.J. No. 86. A third party may be considered a "prosecutor" for the purposes of the test only in exceptional circumstances, namely, (i) where they desired and intended that the plaintiff be prosecuted; (ii) the facts were so peculiarly within their knowledge that it was virtually impossible for the professional prosecutor to exercise any professional independent discretion or judgment; and (iii) they procured the institution of the prosecution, either by furnishing information which they knew to be false, by withholding information that they knew to be true, or both : [page318] Kefeli v. Centennial College of Applied Arts & Technology, [2002] O.J. No. 3023, 23 C.P.C. (5th) 35.

[45] There is no evidence amounting to a prima facie case that it was virtually impossible for IIROC to exercise any professional independent discretion or judgment in relation to Ms. Kunicyn's prosecution, nor is there any evidence amounting to a prima facie case that the correction e-mail procured the institution of the prosecution against Ms. Kunicyn. The evidence before the motion judge revealed that IIROC prosecuted Ms. Kunicyn because of what they alleged was her own conduct in entering into an arrangement with Mr. Vitug that allowed him to act as investment representative when he was barred from doing so. When Ms. Douville learned of this arrangement has no bearing on whether Ms. Kunicyn was guilty of the conduct alleged. Regarding Industrial Alliance's liability to IIROC, it is clear that Industrial Alliance did know of the office sharing arrangement. Mr. Franch was its Vice President and he admitted that he knew of the arrangement when Industrial Alliance entered into its agreement with Ms. Kunicyn.

[46] I do not agree with Ms. Kunicyn that the motion judge's analysis focused on whether there was prima facie evidence of malicious prosecution in deciding that the exception should not apply. However, I do agree that, based on the language in Descôteaux, if it had, there is some basis for arguing that this would have been an error. In Descôteaux, at para. 46, the Supreme Court of Canada quoted, with approval, Stephen J.'s comments in R. v. Cox and Railton (1884), 14 Q.B.D. 153, [1881-5] All ER Rep 68, about the various rationales for the fraud/crime exception:

The reason on which the rule is said to rest cannot include the case of communications, criminal in themselves, or intended to further any criminal purpose, for the protection of such communications cannot possibly be otherwise than injurious to the interests of justice, and to those of the administration of justice. Nor do such communications fall within the terms of the rule. A communication in furtherance of a criminal purpose does not come into the ordinary course of professional employment.

[47] Thus, if one of the rationales for the "exception" is the character of the communications, and that, in turn, does not depend on whether the criminal or otherwise inappropriate purposes of the client subsequently became the subject of litigation, it appears to me that, while relevant, an action or prosecution is not a requirement for the exception to apply.

[48] According to Ms. Kunicyn, based on Mr. Franch's evidence, there is a strong prima facie case that the events leading to the correction e-mail fall outside the protection of solicitor-client privilege. The communications related to proposed future conduct that was clearly wrong -- namely lying to the regulator for the purpose of [page319] deceiving the regulator so that Ms. Kunicyn would be harmed and Industrial Alliance would not be found to have terminated Ms. Kunicyn in bad faith. Further, Mr. Franch confirmed that he was seeking to advance conduct that he knew was unlawful through his lawyer.

[49] The problem with this analysis is that for the exception to apply, there would need to be prima facie evidence that the communications were either unlawful in themselves, or that they were made for the purpose of furthering unlawful conduct. For deceit to constitute a wrong, either criminally or civilly, the dishonest conduct must cause injury. For obstruction of justice, the dishonest conduct must have been engaged in for the purpose of obstructing, perverting or defeating IIROC's ability to conduct its investigation into Industrial Alliance or Ms. Kunicyn. In this case, there is no evidence that meets the prima facie standard that the communications were made in furtherance of a criminal or civil wrong. Mr. Franch gave no evidence that the communications were made in order to injure Ms. Kunicyn or that her injury would be the natural consequence of the correction e-mail. He did not depose that his purpose was to obstruct, pervert or defeat the ability of IIROC to conduct its investigation. Further, as the motion judge found, the inferences to be drawn from the other evidence do not make out a prima facie case on this point. As already noted, IIROC was prosecuting Ms. Kunicyn separately for her own conduct, and at no point was there any evidence that when Ms. Douville knew of the space-sharing arrangement between her and Mr. Vitug was relevant to that prosecution. IIROC was also prosecuting Industrial Alliance. However, again, for the purpose of investigating Industrial Alliance, there is no evidence that what Ms. Douville knew and when she knew it was relevant to the issue of when and whether Industrial Alliance knew about the office sharing arrangement. Mr. Franch had already made it clear that he knew and, given his position with Industrial Alliance, that meant that Industrial Alliance knew as well. Thus, while there is prima facie evidence from Mr. Franch (a witness who, as the motion judge put it"recanted and then recanted again") that the correction e-mail was a lie, there is no prima facie evidence to support Ms. Kunicyn's allegation that the lie to the regulator had anything to do with harming her or protecting Industrial Alliance. On this latter point, all that exists is a bald pleading.

[50] Ms. Kunicyn also maintained that the exception should apply because, regardless of the purpose of the correction e-mail, it is an offence to lie to IIROC. There was no evidence before us that it was an offence to lie to IIROC, which is a self-regulatory body. Furthermore, even if it is, given the lack of evidence that the correction e-mail, if it was false, posed a risk to anyone or to IIROC's investigation, the motion judge's conclusion that she was not prepared to invoke what is [page320] meant to be a narrow exception to a very important privilege was correct. There is ample authority to support the proposition that the fraud/crime exception is not meant to be extended to every form of allegedly blameworthy conduct.

[51] With respect to the argument that the motion judge erred in requiring a prior determination of misconduct, the motion judge did note that there had been no prior determination of misconduct. However, taken in context, that was a statement of fact, not a finding that in order to satisfy the prima facie standard there must be a prior determination of misconduct. The courts have found that whether or not there has been a prior determination of misconduct is clearly relevant to the court's weighing of the evidence: see, e.g., Hallstone Products Ltd., at para. 17.

Conclusion

[52] For these reasons the appeal is dismissed. As agreed, the appellant shall pay both respondents collectively the sum of $22,500, all inclusive, by way of costs.

Appeal dismissed.

End of Document