Court File and Parties
CITATION: One York Street Inc. v. 2360093 Ontario Ltd., 2024 ONSC 4272
DIVISIONAL COURT FILE NO.: 530/23 DATE: 20240806
ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT
Backhouse, Lococo, and Leiper JJ.
BETWEEN:
ONE YORK STREET INC.
Matthew Lerner and Jim Lepore, for the Respondent (Defendant/Plaintiff by Counterclaim) One York Street Inc.
Plaintiff/ Defendant by Counterclaim (Respondent)
– and –
2360083 ONTARIO LIMITED and LCIL LTD.
Matthew Karabus and Luke Sabourin, for the Appellants (Plaintiffs/Defendants by Counterclaim, 2360083 Ontario Limited and LCIL Ltd.
Defendants/ Plaintiffs by Counterclaim (Appellants)
HEARD at Toronto: July 22, 2024
Reasons for Decision
BY THE COURT:
Introduction
[1] This is an appeal with leave from the August 24, 2023 interlocutory decision of Justice D. Wilson (“the motion judge”), ordering the Defendants’ former lawyers, Fogler Rubinoff, to produce solicitor client communications relative to the negotiation of commercial lease agreements with the Plaintiff.
[2] For the reasons that follow, we grant the appeal on the basis that the motion judge erred in her application of the test for deemed waiver of privilege and in ordering production of the Defendants’ solicitor-client communications.
Background
[3] The Plaintiff owns and operates commercial space at the foot of York Street in Toronto. The Defendants operate retail grocery stores, one of which was the subject of a lease with the Plaintiff signed on May 25, 2017, and a lease extension agreement signed on May 26, 2017.
[4] On October 14, 2021, the Plaintiff initiated this action for unpaid rent under the terms of the lease and damages for the abandonment of the leased premises 3.75 years into the 20-year term.
[5] The Defendants filed a statement of defence and counterclaim for damages, alleging that the Plaintiff made misrepresentations and breached the leases. The statement of defence pleaded in several places that when its representative, Louis Coppa, signed the lease extension agreement to extend the lease for three to 20 years, he did so “without legal advice.” The statement of defence and counterclaim pleaded and relied upon the doctrines of non est factum and contra preferentum.
[6] On December 1, 2021, counsel to the Plaintiff wrote to Fogler Rubinoff, counsel to the Defendants, raising the issue that the Defendants had put their state of mind in issue in the litigation by asserting in their pleading that the Defendants:
i. Notwithstanding the terms of the lease, were induced and/or relied on alleged extra-contractual representations by the Plaintiff in executing the lease (paragraph 12);
ii. Were induced to exercise the four extension terms described in the lease “without legal advice” and by a person who was too old to understand, or somehow did not understand, the document he executed (paragraphs 13 and 14); and
iii. Executed the lease extension without understanding its terms and “without legal advice” (paragraph 15).
[7] Paragraphs 12-15 in the 2021 version of the statement of defence and counterclaim referred to in the Plaintiff’s counsel’s letter, read:
The Defendants did so rely on the Plaintiff’s representation as to the Leased Premises, to their detriment and peril. At the same time, the Plaintiff benefited from such inducement and was unjustly enriched as a result.
The term of the Lease was a further inducement to the Defendants. While the Lease contained future options to extend, in favour of the Tenant, the term of the Lease was to be a short three year span, ending June 30, 2021. The very next day after the Lease was signed, the Defendants were presented with a new agreement, comprising just 2 pages, and were asked to sign. Without discussion and without legal advice, and still in the glow of the Plaintiff’s tale of guaranteed success, the Defendants complied.
The effect of this 2 page agreement, referred to in paragraph 9 of the Statement of Claim, was to extend the term of the Lease from 3 years to 20 years. The Defendants were neither asked to, nor did they, exercise their option to extend the Lease, as contemplated by the provisions of the Lease. The person who signed for the Defendants was in his 70’s at the time.
Not only was the extension agreement made without legal advice, the Tenant did not understand the ramifications of the document. The extension document was prepared by the Plaintiff, or its lawyers. It represented a significant departure from the Lease and there was no consideration for such agreement.
[8] Plaintiff’s counsel wrote, “your clients have pleaded their state of mind as a relevant issue and have waived privilege over their file and communications with Fogler Rubinoff LLP regarding the execution of the Lease and its extension.”
[9] By return correspondence, Defendants’ counsel disputed they had waived privilege, asserting that they had not advised the Defendants relative to the signing of the Lease Extension Agreement of May 26, 2017. Counsel to the Defendants agreed to preserve the file.
[10] The case proceeded to discoveries. On March 24, 2023, during the examination of the Defendants’ representative, John Coppa, Plaintiff’s counsel stated that he would be asking questions about a letter dated March 17, 2017 between Fogler Rubinoff and the Defendants because “you’ve pleaded the absence of legal advice regarding these negotiations and therefore have waived privilege.”
[11] During that exchange, counsel for the Plaintiff asked whether the defence agreed that counsel at Fogler Rubinoff “sent revisions and comments regarding the lease on March 15, 2017 that this document was copied to Michael Pelak, the agent, who subsequently transmitted it to the plaintiff. That it contains advice from Mr. Middlestadt regarding the negotiations of the lease. That Fogler Rubinoff continued to act for the defendant, 236[0083 ONTARIO LIMITED], from at least March 15, 2017 until present.”
[12] Defendants’ counsel expressed dissatisfaction and surprise that the document had been produced and that the question of waiver was being raised. Counsel to the Defendants stated that he thought that this was no longer a live issue. Counsel to the Plaintiff confirmed that their position on privilege was as in the pleadings, that the issue was still alive, and that counsel was establishing a record through his questions to address with the court.
[13] Counsel to the Defendants reiterated his position that the Plaintiff was not entitled to any of the information or solicitor-client privileged information in the Fogler Rubinoff file based on solicitor client privilege and ultimately to the motion for production based on waiver of privilege.
[14] On June 1, 2023, the Defendants changed counsel from Fogler Rubinoff to Gowlings prior to the return of the motion for production. On the return of the motion, on June 28, 2023, the Defendants moved to amend the statement of defence and counterclaim, which was granted by the motion judge as unopposed. The opposed motion for production was adjourned to be heard on August 9, 2023.
[15] The relevant portions of the 2023 “amended amended”[^1] statement of defence and counterclaim are as follows:
i. Paragraph 12: The same or similar representations as to the volume of consumer traffic ensuring a successful business operation for the Defendants at the Leased Premises were repeated by representatives of the Plaintiff, including Andrew Boughner, when the Defendants complained to the Plaintiff about the lack of consumer traffic and business. [This was a new paragraph that was not in the 2021 pleading.]
ii. Paragraph 13: The Defendants did so rely on the Plaintiff’s representations as to the Leased Premises, to their detriment and peril. At the same time, the Plaintiff benefited from such inducement and was unjustly enriched as a result. [This had been contained in prior paragraph 12.]
iii. Paragraph 14: [This was prior paragraph 13 and was struck out.] The term of the Lease was a further inducement to the Defendants. While the Lease contained a future option to extend, in favour of the Tenant, the term of the Lease was to be a short three year span, ending June 30, 2021. The very next day after the Lease was signed, the Defendants were presented with a new agreement, comprising just 2 pages, and were asked to sign. Without discussion and without legal advice, and still in the glow of the Plaintiff’s tale of guaranteed success, the Defendants complied.
iv. Paragraph 15: [This was prior paragraph 14, and was struck out.] The effect of this 2 page agreement, referred to in paragraph 9 of the Amended Statement of Claim, was to extend the term of the Lease from 3 years to 20 years. The defendants were neither asked to nor did they, exercise their option to extend the Lease, as contemplated by the provisions of the Lease. The person who signed for the defendants was in his 70s at the time.
v. The Defendants also deleted from their pleadings their reliance on the doctrines of non est factum and contra preferentum.
[16] The motion judge correctly set out the two-part test articulated by Perell J. in Creative Career Systems Inc. v. Ontario, 2012 ONSC 649, 27 C.P.C. (7th) 172, at para. 30:
Thus, a deemed waiver and an obligation to disclose a privileged communication requires two elements, namely: (1) the presence or absence of legal advice is relevant to the existence or non-existence of a claim or defence, which is to say that the presence or absence of legal advice is material to the lawsuit; and (2) the party who received the legal advice must make the receipt of it an issue in the claim or defence.
[17] The motion judge’s analysis began with relevance based on the content of the amended pleading. This included the Defendants’ statements that they relied on representations made by the Plaintiff at the time about the suitability of the space and the expected volume of customers to the store.
[18] The motion judge found that if there were discussions between the Defendants and their lawyers about the representations made by the Plaintiffs, those discussions would be “absolutely relevant to their defence of reliance on the extra-contractual representations that they say induced them into signing the lease.”
[19] The motion judge made findings relative to the first part of the Creative Career test as to relevance in these terms:
- The Defendants have pleaded they relied on the representations made by the Plaintiff. As a result, the Plaintiff would want to know what representations the Defendants allege were made by whom, about what, whether they were material to the lessees, whether they were relied upon by the lessees and if so, was it reasonable for them to do so? The fact that the Defendants had counsel at the time of these negotiations is critical to comprehending what the Defendants understood at the time of execution of the agreement. If the representations were fundamentally important to the Defendants so as to induce agreement to the lease, it is critical to know if the Defendants discussed with their counsel at the time and if so, what advice was given to the lessees, if any about those representations? This is clearly relevant given the four corners clause that is contained in the lease.
[20] However, the motion judge did not confine the analysis of whether to order production to the amended pleadings. The motion judge fortified her reasons by turning to the prior pleadings, prefacing that with the statement that the amendment did not assist with preserving solicitor client privilege.
[21] In the concluding paragraphs on the motion, the motion judge listed several reasons in support of her finding that the privilege over the solicitor-client communications should yield to trial fairness issues, including applying the principle that the Defendants could not “unwaive” their waiver of privilege arising from the prior pleading by amending it. That paragraph reads:
- The Defendants plead that the contract is unenforceable because they relied on misrepresentations by the Plaintiff on critical issues. They also plead that they did not understand the ramifications of signing the lease extension. In their counterclaim, they allege they signed the lease and the extension because they were threatened and intimidated by the Plaintiff. The Defendants had the advice of counsel at the time. What they understood from their lawyers is relevant to the determination of whether or not it was reasonable for the Defendants to have relied on the representations made by the Plaintiff concerning the nature of the leased premises. In order to understand the context in which the lease was signed, it is necessary to know the advice received from their counsel at the time. The Defendants have waived privilege in the file and cannot now attempt to “unwaive” it by stating that they were not aware of the issue of waiver and by withdrawing a pleading that was clearly not accurate. [Emphasis added.]
[22] The motion judge rejected the Defendants’ submission that the implication of this finding would mean that in every case where a party pleads misrepresentation, the file from their counsel at the time of the transaction would be producible. The motion judge disagreed that this would not be the automatic result, but instead in every case, that a court would have to be satisfied that “fairness dictates that the file be produced.” The motion judge determined that on the facts, the Defendants had “made their state of mind at the time of the execution of the lease material to their defence. To preclude disclosure of the advice received from their counsel at the time would, in my view, result in an unfair litigation advantage to the Defendants.”
[23] The motion judge’s order required the Defendants to produce “the portions of the Fogler Rubinoff file relevant to the state of mind of the [Defendants] at the time of the negotiation and execution of the lease and lease amendment, including communications between the lawyers working on the file and their clients, dockets for work that was done on the lease, and any work product such as legal research up to July 14, [2017]”.
The Issues on Appeal
[24] The Defendants allege four errors of law, but for the purposes of this appeal, our findings on the third issue are sufficient to dispose of the appeal.
[25] That issue is framed as follows: did the motion judge err by failing to consider the order amending the pleadings in the deemed waiver and production analysis?
Standard of Review
[26] Appellate standards of review apply to the appeal from the motion decision. On questions of fact and mixed fact and law, the standard of review is palpable and overriding error. On questions of law, or questions of mixed fact and law involving an extricable error, the standard of review is correctness: Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, at paras. 26-31.
[27] Issues of relevance and the determination of questions of privilege are questions of law which attract a correctness standard of review: Laliberté v. Monteith, 2021 ONSC 4133 (Div. Ct.), at para. 24; Magnotta Winery Corp. v. Ontario (Alcohol and Gaming Commission), 2020 ONSC 561, at para. 21.
Analysis
[28] The fundamental importance of solicitor client privilege requires careful attention to the relevant circumstances and the context in support of an alleged deemed waiver. In a case resting on pleadings as the source of deemed waiver, the state of the pleadings at the time of the motion are the source of the relevant trial issues. The motion judge did not give full effect to the pleading amendments, in determining that privilege had been waived. This finding in effect considered a pleading which no longer accurately defined the issues of law on the trial. In doing so, we find that the motion judge did not correctly apply the test for deemed waiver to the record before her.
[29] Our findings rest on the law of privilege and implied waiver, which we describe next.
Solicitor-Client Privilege and Waiver
[30] Solicitor client privilege is a paramount principle of fundamental justice. It protects the legal rights of those who communicate in confidence with their lawyers. Solicitor-client privilege has been described as “as close to absolute as possible”. Thus, courts will require solicitor-client privilege to yield only in clearly defined circumstances: see Canada (National Revenue) v. Thompson, 2016 SCC 21, [2016] 1 S.C.R. 381, at para. 17; R. v. McClure, 2001 SCC 14, [2001] 1 S.C.R. 445, at para. 35; Descoteaux v. Mierzwinski, [1982] 1 S.C.R. 860, at p. 875; Soprema Inc. v. Wolrige Mahon LLP, 2016 BCCA 471, 405 D.L.R. (4th) 594, at para. 50.
[31] A client may intentionally and voluntarily waive privilege: Hainan Dehong Real Estate Development Corp. v. WestBay Partners, 2022 BCSC 24, 67 B.C.L.R. (6th) 146, at para. 12; S. & K. Processors Ltd. v. Campbell Ave. Herring Producers Ltd. (1983), 45 B.C.L.R. 218 (S.C.), at pp. 220-21.
[32] Solicitor-client privilege may also yield where a court has found that there has been an implied waiver, but this will only happen in the “clearest of cases”: McQueen v. Mitchell, 2022 ONSC 649 (Div. Ct.), at paras. 59 and 73; Wintercorn v. Global Learning Group Inc., 2022 ONSC 4576, at para. 101, leave to appeal refused, 2023 ONSC 199.
[33] Waiver is “implied where a party makes its state of mind material to its claim or its defence in such a way that to enforce the privilege would be to confer an unfair litigation advantage on the party claiming it”: Doman Forest Products Ltd. v. GMAC Commercial Credit Corp., 2004 BCCA 512, 245 D.L.R. (4th) 443, at para. 12; ProSuite Software Ltd. v. Infokey Software Inc., 2015 BCCA 52, 382 D.L.R. (4th) 698, at para. 1.
[34] Implied waiver is not treated as a discretionary call about trial fairness. A party must rely on legal advice as an element of its claim or defence. The relevance of the privileged evidence must be high, and the principles of fairness and consistency must require disclosure: McQueen, at para. 60; Roynat Capital Inc. v. Repeatseat Ltd., 2015 ONSC 1108, 125 O.R. (3d) 596, at paras. 83-84; Creative Career, at para. 29; Toronto-Dominion Bank v. Leigh Instruments Ltd. (Trustee of) (1997), 32 O.R. (3d) 575, [1997] O.J. No. 1177 (Gen. Div.), at para. 46; S. & K. Processors, at pp. 220-21.
[35] The principle of implied waiver is a response to the risk posed to the opposing party arising from refusing access to communications which are being relied upon by the holder of the privilege. The corollary to this is that if the privileged material is not being “used” in service of a party’s legal position, then the harm is not present: see Creative Career, at paras. 27, 29.
[36] The motion judge concluded that the Defendants waived privilege by putting their mental state in issue and pleading no receipt of legal advice in their first pleading. The motion judge found the Defendants could not retract or “unwaive” the privilege by amending their pleadings, despite the order permitting the amendment. The motion judge took this finding into account in ordering production of their lawyers’ files to the Plaintiff.
[37] In our view, this conclusion failed to consider the material issues at trial relative to the protection of privilege, based on the amended pleading. This directly impacted the second step of the test and the question of whether the Defendants were explicitly relying on the lack of legal advice. It also changed the landscape of trial relevance by removing lack of legal advice and the plea of non est factum and refocussing the defence on the actions of the Plaintiff. The first part of the test for implied waiver requires a high degree of relevance, and the amended pleading reduced, if not eliminated, the relevance of legal advice provided to the Defendants during the lease negotiations as part of their defence and counterclaim.
Assertions of Privilege after Waiver
[38] The Respondent on appeal submitted that the cases support the proposition that waiver in these circumstances cannot be “unwaived.” We disagree. The decisions which the Respondent relies on involve different facts and logically promote fairness.
[39] The Respondent has cited for example, the breach of fiduciary duty case, Canadian National Railways v. Holmes, 2022 ONSC 1682. At trial, the plaintiff sought to tender a letter from the defendant’s former lawyer. That letter had previously been filed in an assessment proceeding between the defendant and the former lawyer. The defendant objected to its use at trial. He alleged that his prior waiver of privilege was inadvertent, and that privilege applied to the letter, which contained admissions against his interest.
[40] The trial judge found that the defendant had waived privilege over the letter which could not at that stage, be “unwaived” because the letter had been referred to in other published reasons for seven years, it had been filed in other stages of the litigation, and the defendant had failed to take any steps to protect its confidentiality: see CNR v. Holmes, at para. 46.
[41] To similar effect, in Mayer v. Osborne Contracting Ltd., where a party filed an affidavit from his own lawyer on an application, the court found that although the evidence was not relied upon, it could not be retracted after the fact: 2012 BCCA 77, 29 B.C.L.R. (5th) 232, at para. 185. The B.C. Court of Appeal applied the principle that to permit the document to be retracted would result in “untenable litigation and general unfairness.”
[42] In both CNR and Mayer, the privileged material had been filed, was not subject to any sealing orders, and the parties or a party relied on the material in public proceedings.
[43] The legal literature recognizes the fact specific nature of determining the finality of a waiver of privilege. ProSuite Software Ltd. v. Infokey Software is a 2015 decision of the British Columbia Court of Appeal which involved a pleading amendment made after a motion was heard that found that there had been a deemed waiver of privilege. There, the Court of Appeal with one judge dissenting, determined the issue on a mootness analysis. The court cited Sopinka, Lederman and Bryant in The Law of Evidence in Canada (2d ed., 1999) quoting Wigmore on Evidence (McNaughton Rev., 1961, Vol. 8):
Judicial decision gives no clear answer to this question. In deciding it, regard must be had to the double elements that are predicated in every waiver, i.e., not only the element of implied intention, but also the element of fairness and consistency. A privileged person would seldom be found to waive, if his intention not to abandon could alone control the situation. There is also the objective consideration that when his conduct touches a certain point of disclosure, fairness requires that his privilege shall cease whether he intended that result or not. He cannot be allowed, after disclosing as much as he pleases, to withhold the remainder. He may elect to withhold or to disclose, but after a certain point his election must remain final. [Emphasis added.]
ProSuite Software, at para. 22.
[44] In analogous circumstances to the case at bar, the British Columbia Supreme Court in Hainan considered a motion to compel production of the plaintiff’s solicitor’s file. The plaintiff made a motion to amend the plaintiff’s pleading to remove paragraphs that potentially waived privilege. The court suspended its order that the plaintiff produce its solicitor’s file until the amendment motion could be decided. The court held that the solicitor’s file could not be produced if the plaintiff were allowed to amend its pleadings given that the receipt of, or the lack of legal advice would no longer be relevant. The court further stated that there was “no unfairness” in this result, even considering the dilatory conduct of the plaintiff after being on notice of the defendant’s position on privilege. The court found that it ought to uphold the privilege because to do otherwise is inconsistent with the near absolute nature of the privilege, and that both fairness and consistency are important considerations in the privilege analysis: Hainan, at paras. 36-37.
[45] The court noted that the circumstances there did not mean that permitting a party to “retract” a potentially deemed waiver of privilege by amending its pleading would be unfair. The court distinguished cases involving affidavits filed which waive privilege, from pleadings which have not yet been adjudicated: Hainan, at para. 40. We agree. The former is much more likely to cause unfairness than the latter.
[46] In this case, the Defendants disputed waiver and preserved the records in confidence. When the issue was raised during discoveries, the Defendants obtained new counsel and amended their pleading prior to the production motion and any finding on waiver of privilege.
[47] Having done so, the Defendants’ amended amended statement of defence and counterclaim is the pleading that informed the question of materiality of the evidence at trial and the context for assessing the relevance of the solicitor client communications. In amending the pleading, the Defendants withdrew their reliance on lack of legal advice, as well as their reliance on the doctrines of non est factum and contra preferentum. Thus, this removed their reliance on lack of legal advice. Yet, prior to the Defendants having a definitive ruling that they had implicitly waived privilege, the motion judge found they could not “unwaive” it by amending the pleadings, essentially giving effect to the prior pleadings in the deemed waiver analysis.
[48] This is the issue: in dealing with the fundamental principle of solicitor-client privilege, the motion judge considered a version of the pleading that no longer applied or will apply to the trial issues. This choice equated the amendment of the pleading with an attempt to “unwaive” privilege. Amending the pleading is not the same as trying to retract a filed document or a served and filed affidavit from a lawyer.
[49] The test had to be applied to the pleading in effect at the time of the motion. That did not happen. As a result, we find that the motion judge incorrectly applied the test to the record before her, amounting to an error in law.
[50] The Plaintiff submitted that even if the prior pleading is removed from the analysis, the decision of this court in Roynat is a complete answer to their claim for production, given that the amended pleading continued to put the Defendants’ state of mind in issue and the Defendants admit they had legal advice during the negotiations. We decline to make such a finding, in part because of the “unique” factual background in Roynat, but also due to the prominence given to the prior pleading as a source of deemed waiver that cannot be retracted or “unwaived.”
[51] The amendment of the Defendants’ pleadings withdrew their explicit reliance on lack of legal advice. It removed the plea of non est factum and contra preferentum, leaving allegations of misrepresentations by the Plaintiff. Given the protection of solicitor client privilege, we cannot conclude the amended pleading results in a clear case where trial fairness requires production of privileged material to respond to the issues as now framed by the Defendants.
[52] As Perell J. pointed out in Creative Career, waiver of privilege is not associated with solicitor client communications from the mere fact that during the events in question, the party received legal advice. More is required. The party must use the presence or absence of legal advice as a material element in the claim or defence: see Creative Career, at paras. 27, 29.
Conclusion
[53] The appeal is allowed and the order for production is quashed. By agreement of the parties, costs are payable to the Defendants in the amount of $22,500 all-inclusive, as costs of the motion for leave to appeal and the appeal.
___________________________ Backhouse J.
Lococo J.
Leiper J.
Date: 6 August 2024
CITATION: One York Street Inc. v. 2360093 Ontario Ltd., 2024 ONSC 4272
DIVISIONAL COURT FILE NO.: 530/23 DATE: 20240806
ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT
Backhouse, Lococo and Leiper JJ.
BETWEEN:
ONE YORK STREET INC. Plaintiff/ Defendant by Counterclaim (Respondent)
-and-
2360083 ONTARIO LIMITED and LCIL LTD. Defendants/ Plaintiffs by Counterclaim (Appellants)
REASONS FOR DECISION
Date: August 6, 2024
[^1]: The Defendants’ statement of defence and counterclaim had previously been amended in 2022.