Court File and Parties

CITATION: 1824120 Ontario Limited v. Matich, 2023 ONSC 938

DIVISIONAL COURT FILE NO.: 118/22

DATE: 20230215

SUPERIOR COURT OF JUSTICE – ONTARIO

DIVISIONAL COURT

RE: 1824120 ONTARIO LIMITED, Appellant

AND:

JOSEPH GEORGE MATICH, KELLY ANNE SMITH and ANNE MARIE MATICH, Respondents

BEFORE: Stewart, Matheson and Leiper JJ.

COUNSEL: Daniel Schwartz, Scott McGrath and Alexander Soutter, for the Appellant

Johanna McNulty, for the Respondents

HEARD: February 7, 2023, at Hamilton (by videoconference)

ENDORSEMENT

[1] This is an appeal with leave from the decision of Justice J. Ramsay dated January 28, 2022, dismissing a motion for an order that the respondents produce their lawyer’s file in relation to a real estate transaction (the “Decision”).[^1]

[2] The underlying action arises from a real estate transaction in which the agreement of purchase and sale included a solicitor approval clause in favour of the sellers. In the action, the sellers take the position that they properly exercised their rights under that clause and the sale was terminated. The appellants dispute that position.

[3] Mr. and Mrs. Matich and their daughter Kelly Anne Smith co-own 37 acres of land that used to be the family farm. A realtor approached the Matichs to sell the property. The Matichs were then in their 80s and Mr. Matich was very ill. Mr. Matich has since passed away. The Matichs signed a listing agreement with the realtor with a list price of $18.5 million. There was then a course of events where the realtor presented an offer from the appellant for about $16.1 million, which they rejected. The realtor had received a second higher offer for $16.5 million that he mentioned but he did not present it to the Matichs. The realtor suggested that the Matichs counteroffer for $16.5 million in response to the appellant’s offer. They did so and their counteroffer was accepted (the “APS”).

[4] The APS was signed by the Matichs only, not their daughter Ms. Smith, but Ms. Smith suggested the inclusion of the lawyer’s approval clause. The Matichs did not understand at the time that their daughter needed to sign.

[5] The solicitor approval clause provided that the transaction was conditional upon the “approval” of the “terms” of the APS by the seller’s solicitor. The seller was required to give the buyer notice in writing within three days that the condition was fulfilled otherwise the offer was “null and void”. This condition was expressly stated to be for the benefit of the seller and could be waived at the seller’s sole option by notice in writing to the buyer within the three-day time period.

[6] In keeping with the above clause, the Matichs retained a lawyer and had the APS reviewed by their lawyer who provided an opinion to them. Their lawyer did not approve the transaction. After discussing the opinion with their lawyer, they told the appellant that they were not prepared to waive the condition. In the email giving the appellant’s lawyer notice that the condition was not waived, the Matichs’ lawyer specifically noted that they were not waiving their solicitor-client privilege.

[7] The appellant sued, alleging that the respondents had an obligation to exercise their rights under the above clause “reasonably, honestly and in good faith” and that their actions were “unreasonable, dishonest and in bad faith”. The statement of defence denied the claim and pleaded that the Matichs, in good faith and in accordance with the solicitor approval clause, retained a real estate lawyer to review the APS, the review was done, and based on the advice they decided not to waive the condition.

[8] There are outstanding motions for summary judgment brought by each side. The respondents’ motion arises because one of the three owners of the property, Ms. Smith, is not a party to and did not sign the APS.

[9] In the course of the dispute, it has become known that the Matichs’ lawyer received a higher offer from a third party before giving the above opinion. That information may be used by the appellant in this action regardless of whether it obtains production of the legal file.

[10] On the motion for production of the lawyer’s file and on this appeal, the appellant relies on statements made by the respondents in their statement of defence, affidavit evidence and submissions to the court to say that the respondents impliedly waived their solicitor-client privilege.

[11] In the Decision, the motions judge considered the pleadings, evidence and submissions before him. He concluded that privilege had not been impliedly waived. The appellant submits that while the motion judge did not err in his statement of the legal principles regarding implied waiver, he erred in the application of those principles to this case. The appellant further submits that the motion judge misconstrued the clause and considered irrelevant factors.

[12] The standard of review for this statutory appeal is as set out in Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235. Errors of law are reviewed on a correctness standard. For errors of fact, there must be a palpable and overriding error. Errors of mixed fact and law also require a palpable and overriding error unless there is an extricable error of law or principle, which is reviewed on a correctness standard.

[13] On implied waiver, the appellant begins with the oft-cited case of S & K Processors Ltd. v. Campbell Ave. Herring Producers Ltd., [1983] 4 W.W.W. R. 762 (B.C.S.C.), at para. 6. It is important to consider the whole passage. McLachlin J., as she then was, held that waiver of privilege is ordinarily established where it is shown that the possessor of the privilege: (1) knows of the existence of the privilege; and (2) voluntarily evinces an intention to waive that privilege. This test is not met here – the respondents expressly communicated that they did not intend to waive their privilege. The appellant relies on the next sentence of the reasons of McLachlin J., which goes on to say that waiver may also occur where fairness and consistency so require.

[14] Since S & K, the Supreme Court of Canada has made it clear that solicitor-client privilege is a principle of fundamental justice and a cornerstone of the Canadian justice system. Solicitor-client privilege “must be as close to absolute as possible to ensure public confidence and retain relevance. As such it will yield in only certain, clearly defined circumstances and does not involve a balancing on a case-by-case basis”: R. v. McClure, 2001 SCC 14, [2001] 1 S.C.R. 445, at para.35. These principles inform the application of S & K.

[15] There has been considerable jurisprudence setting out principles relevant to this case. It is now well-established that a plaintiff cannot, through its claim of bad faith, force an implied waiver of the defendant’s privilege. In turn, a denial of alleged bad faith, and a response that there was good faith, is not enough to find an implied waiver: Leggat v. Jennings, 2015 ONSC 237, at para. 33. The appellant accepts that this is so.

[16] The crux of the appellant’s argument is that the respondents have said that they sought, received and relied upon legal advice in good faith. The appellant submits that this crosses the line and amounts to an implied waiver. We disagree. In the circumstances of this case, the pleadings and other statements by the respondent amount to saying, in response to an allegation of dishonesty and bad faith in relation to the use of the solicitor approval clause, that they took the steps required to exercise their rights under the solicitor approval clause, did exercise that right, and did so in good faith.

[17] The appellant relies on Dynamic Transport Ltd. v. O.K. Detailing Ltd., [1978] 2 S.C.R. 1072, a case where a real estate transaction was subject to subdivisional approval, and 11 Suntract Holdings Ltd. v. Chassis Service & Hydraulics Ltd., a case about the sale of a commercial property where a cell tower lease became an issue. In Dynamic, the court found that the party who was obliged to obtain the subdivision approval had to, in good faith, take all reasonable steps to obtain that approval. In Suntract, the court commented that the vendor’s conduct should be scrutinized. Neither case involved an implied waiver of privilege.

[18] The appellant relies on these cases to submit that it should be able to explore the respondent’s conduct. Put another way, it submits that the privileged information may be relevant. Yet it has long been established that relevance does not determine the issue of implied waiver of solicitor-client privilege, even in bad faith litigation: Davies v. American Home Assurance Co., at para. 27 (Div. Ct.).

[19] Moving to the issue about the interpretation of the clause, the appellant submits that, properly interpreted, the clause did not allow for the consideration of other offers. The appellant relies on the decision of the British Columbia Supreme Court in Zhang v Amaral-Gurgel, 2017 BCSC 1561. Zhang was not an implied waiver case. However, a similar solicitor approval clause was interpreted having regard for the role of good faith in contact law under Bhasin v. Hyrnew, 2014 SCC 71. The court concluded that the clause limited the solicitor approval to the legal rights and duties under the contract and did not permit the acceptance of a competing offer.

[20] We do not agree that the clause at issue here, which refers to the approval of the “terms”, excludes the consideration of the price, which is of course a term of the APS. Further, the findings of the motion judge on contractual interpretation are questions of mixed fact and law and we see no palpable and overriding error.

[21] The appellant also submits that the duty of good faith required the respondents to disclose the concerns that caused their lawyer not to approve of the transaction and give the appellant an opportunity to address those concerns. The clause plainly does not require these steps. Bhasin requires the good faith performance of the contractual obligations. It does not require that these additional obligations be added to the APS by implication.

[22] Lastly, the appellant submits that the motion judge erred by considering irrelevant factors including comments on the business terms of the APS. The motion judge did comment on those terms, and on Mr. Matich’s age and illness. The appellant submits that these matters influenced the motion judge to find no waiver. Read in context, these comments relate to what the motion judge saw as the real issues on the merits of the action. However, even if they did influence the motion judge, the Decision on the issue of implied waiver is nonetheless correct.

[23] The motion judge did not err in law in his conclusion that there was no implied waiver of privilege, nor did he make a palpable and overriding error of fact. The appellant may still pursue the bad faith argument, but not with disclosure of the lawyer’s file.

[24] The appeal is therefore dismissed with costs to the respondents in the agreed upon amount of $14,500, all inclusive.

Stewart J.

Matheson J.

Leiper J.

Date: February 15, 2023

[^1]: 2021 ONSC 8406