ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-12-444478
DATE: 20120821

B E T W E E N:

NUVIUS BANKCARD SERVICES, INC. AND GLORIA SANDERS
Plaintiffs
Plaintiffs/Defendants by Counterclaim

• and -

MICHAEL SCOTT DOWTY, ALSO KNOWN AS SCOTT DOWTY
Defendant/Plaintiff by Counterclaim

Jonathan Erik Laxer, for the Plaintiffs/Defendants by Counterclaim
John Philpott, for the Defendant/Plaintiff by Counterclaim

HEARD: August 21, 2012

MORGAN J.

[ 1 ] On December 4, 2011, just prior to commencement of litigation, the Plaintiffs’ lawyer at the time sent a draft statement of claim and covering letter to the Defendant’s employer. The employer was eventually dropped from the claim as issued, but at that stage it was also named as a prospective defendant in the draft claim. Is the draft, which is alleged to have been defamatory of the employee/defendant, covered by an absolute privilege conferred on litigation documents? Furthermore, should a Counterclaim based on the draft claim or the covering letter, if not subject to immunity, be tried together with the main action?

[ 2 ] The Plaintiffs bring this motion for two forms of relief. In the first place, they move for those portions of the Counterclaim that allege that the draft statement of claim was defamatory to be struck out under Rule 21.01(1)(b). The Plaintiffs contend that the draft claim is subject to an absolute privilege and that any allegation that it is actionable therefore must fail at the pleadings stage.

[ 3 ] In addition, the Plaintiffs move under Rule 27.08(2) to sever the main action from the Counterclaim (or what remains of the Counterclaim if part of it is dismissed under the Rule 21 portion of their motion). They contend that the Counterclaim relates to written communication by the Plaintiffs’ (now former) legal counsel in this very action, and that a defense of the Counterclaim will inevitably entail the disclosure of solicitor-client communications which will prejudice the Plaintiffs in the main action.

[ 4 ] The Plaintiffs’ motion under Rule 21.01(1)(b) is, appropriately, based on the pleadings alone, without affidavit evidence. Conveniently, the pre-litigation letter to the Defendant’s employer and the draft statement of claim that was sent with it are both appended as Schedule “A” to the Counterclaim and so form part of the pleadings. On their face, the stated purposes of the letter enclosing the draft claim are remarkably similar to the purposes held by several courts to be legitimate and non-actionable.

[ 5 ] In Lax v. Dingwall , 1988 4716 (ON SC) , [1988] OJ No 61 (Ont HCJ), solicitors for a potential plaintiff wrote to the proposed defendants enclosing a draft statement of claim. Potts J. found, at para 21, that the purpose of the correspondence was “an invitation to resolve the matter before the statement of claim was issued.” He went on to reason that, “[a] solicitor cannot protect his client if all such overtures are subject to the spectre of a libel suit.”

[ 6 ] In Hamouth v. Smart Video Technologies Inc ., [2005] BCJ No 639 , the British Columbia Court of Appeal pursued parallel reasoning in extending absolute privilege to pre-litigation correspondence where, at para. 35, “the lawyers were acting within their duties to their clients in seeking relevant information or alerting potential witnesses or parties to the proceedings.” Quoting the English Court of Appeal in Munster v. Lamb (1883), 11 QB 588, at 604, the court noted that, “[t]he reason of the rule is, that a counsel, who is not malicious and who is acting bona fide, may not be in danger of having actions brought against him.”

[ 7 ] In the present case, the Plaintiffs’ solicitor told the Defendant’s employer in his December 4th letter that, “We can end this matter now by…” Those words can certainly be understood as inviting settlement, in which case they would be within the policy rationale for absolute privilege set out in Lax . Likewise, Plaintiffs’ solicitor followed up this invitation by stating in his letter, “On the other hand, if you have information which demonstrates…” Those words can certainly be understood as seeking relevant information, in which case they would be within the policy rationale for absolute privilege as set out in Hamouth .

[ 8 ] Context, however, is everything. In concluding his December 4 th letter, Plaintiffs’ solicitor specifically warned that, “Global’s [i.e. Defendant’s employer’s] bald assertion of, ‘We didn’t know’ will not be an adequate explanation in this case.” Surprisingly, however, this is precisely the answer he appears to have received and fully accepted. Taking the statements of fact contained in the Statement of Defense and Counterclaim as true, as I must in a Rule 21 motion, Global did nothing more than to send back a brief email stating that there was no basis for a claim against it. The Plaintiffs promptly emailed Global accepting its position and dropped it from the draft claim.

[ 9 ] It seems evident from the pleadings that the bald assertion of ‘We didn’t know’ provided the very adequate answer that the Plaintiff’s solicitor had said would be inadequate. The Statement of Claim, as issued, contains the identical allegations as the draft claim had against the Defendant, but eliminates the several sentences that had addressed Global as a potential defendant. The Plaintiffs do not appear to have received any information from Global as envisioned in Hamouth , or to have settled with Global (in any sense other than simply dropping the threatened claim) as envisioned in Lax .

[ 10 ] Defendant’s counsel argues that the stated purposes for sending the letter and draft claim were not the true purposes. The proof of that, the Defendant submits, is apparent on the surface of the correspondence attached to the pleadings and in the pleadings themselves – that is, whatever the Plaintiffs sought to accomplish in sending the letter and draft claim appears to have been accomplished, even though neither of the stated purposes were accomplished. The real goal of the Plaintiffs’ communication through their solicitor, the Defendant pleads, was to defame the Defendant and to cause him harm with his employer.

[ 11 ] While a Rule 21 motion is not the place to make any definitive findings of fact, it is the essence of the Counterclaim that, as stated at paragraph 58 of that pleading, “Gloria’s [i.e. the individual Plaintiff’s] quick decision to remove Global from the Draft Claim on the basis of a brief email demonstrates that Gloria never held an intention to pursue a Claim against Global.” It is hard to refute that conclusion from the recitation of facts in the Counterclaim, which are the only facts I have to go on.

[ 12 ] As the British Columbia Supreme Court said in Peak Innovations, Inc. v. Pacific Rim Brackets Ltd ., [2009] BCJ No 1521, at para. 28 , statements made outside of a court proceeding or document are subject to privilege only “if the statements made outside the court are made to achieve the objects of the litigation.” Beyond that, as noted in Peter A. Downard, Libel (Toronto: Butterworths, 2003), at p. 57, “Further publication is unprotected. For example, a lawyer’s letter to a company’s customers informing them of defamatory allegations against the company is not absolutely privileged, even though it may be written while litigation is contemplated or has been commenced [citing Dashtgard v. Blair (1990), 4 CCLT (2d) 284 (Alta QB) ]. ”

[ 13 ] What the learned author says of customers would seem to apply equally to employers. In the present case, the facts as pleaded simply do not support a finding that the statements made in the draft statement of claim or the letter were made to achieve the objects of the litigation. The authorities do not support “an extension of the concept [of privilege] to all occasions when the possibility of litigation is contemplated, or even all such occasions when a threat of litigation has been made…” Mosely-Williams v. Hansler Industries Ltd . (2004), 2004 66313 (ON SC) , 32 CCLT (3d) 266, at para. 56 , aff’d [2005] OJ No. 997 (Ont CA) . Litigation may have been contemplated in the Plaintiffs’ solicitor’s December 4 th communication with the Defendant’s employer, but according to the pleadings it was litigation against the Defendant alone, not against his employer.

[ 14 ] Accordingly, absolute privilege does not apply to any of the communications in issue in the Counterclaim. There is no basis to strike out a portion of the Counterclaim as showing no cause of action. The Counterclaim is not a “flank attack” on the Plaintiffs, as Lord Denning described it in Lincoln v. Daniels , [1962] 1 QB 237 (CA) , and it is not “based upon statements in a pleading…[such that] to permit it to continue would constitute an abuse of process of the Court.” Dooley v. C.N. Weber Ltd. (1994), 1994 7300 (ON SC) , 19 OR (3d) 779 (Ont Gen Div), at p. 9 (QL). It is a self-standing and viable cause of action as pleaded.

[ 15 ] The very thing that makes the defamation action in the Counterclaim a poor candidate for being struck out – its independence from the claim and defense in the main action – makes it a good candidate for the Plaintiffs’ second request – i.e. the request for severance under Rule 27.08(2).

[ 16 ] Counsel for the Plaintiff submits that in order to defend the Counterclaim effectively, the Plaintiffs would be compelled to give evidence relating to the legal advice they received from their lawyer. This would potentially cause “significant prejudice” to their ability to prosecute the main claim. Stewart v. Humber River Regional Hospital , 2009 ONCA 350 , at para. 59 (Ont CA).

[ 17 ] In response, counsel for the Defendant points out that Rule 27.08(1) provides in its opening phrase that, “a counterclaim shall be tried at the trial of the main action…”, establishing a prima facie right to have the two matters tried together. He states, accurately, that the policy behind the presumption that the two actions will be tried together is one of judicial economy and the desire to reduce the need for multiple proceedings.

[ 18 ] The court must be cognizant that while judicial economy is an important value, it cannot override the procedural rights of a litigant. Similar to the situation described in Jones v. Campbell , 2000 CarswellOnt 2962, at para. 24 (Ont Master) , “[t]here are no common issues between the claim and the proposed counterclaim and it is almost certain plaintiff’s counsel would be forced to be a witness in the proposed counterclaim.” While there are, of course, a number of facts that will be pertinent to both actions here, the Counterclaim relates to acts of the Plaintiff that are subsequent in time and that allegedly caused injury to the Defendant that is independent of the underlying allegations and injuries claimed by the Plaintiff against the Defendant.

[ 19 ] Defendant’s counsel says the Jones situation is distinguishable from the present one since the Plaintiffs here have already changed counsel, and it is their former lawyer rather than their current one that will have to testify. Nevertheless, I am of the view that the Plaintiffs will suffer an impermissible prejudice if they must try the Counterclaim with the main claim; the problem is not so much that they will have to change lawyers (as here they will not), but rather that solicitor-client communications will potentially be revealed to their detriment in the main action.

[ 20 ] Counsel for the Defendant further submits that in the absence of affidavit evidence the Plaintiffs have not established the prejudice that they need to establish in order to counter the Defendant’s prima facie right to try the two claims together. Specifically, it is argued that the Plaintiffs have not revealed what their defense to the Counterclaim will be and so it is only conjecture at this stage as to whether privileged information will have to be disclosed.

[ 21 ] I am not convinced by this argument as it seems to put the Plaintiffs is a “Catch 22” situation. As the Defendant would have it, in order to sever the Counterclaim from the main claim the Plaintiffs should first reveal what their defense would be, and thereby suffer the very prejudice of breach of privilege that they seek to avoid through severance. Moreover, it is rather obvious from the pleading itself that the entire defamation claim revolves around words written by the Plaintiffs’ lawyer. Determining whether the Plaintiffs are liable on the Counterclaim will entail an assessment of the meaning and intent of their lawyer’s alleged communication with the Defendant’s employer. There does not seem to be anything in the Counterclaim that does not raise the spectre of solicitor-client privilege.

[ 22 ] I conclude that it will not be appropriate for the claim contained in the present Counterclaim to be tried together with the main claim. Since the action is still at the pleadings stage, it seems best to remedy the situation by the issuance of a new claim to replace the Counterclaim. The main claim can proceed as is, but the Counterclaim portion of the current Statement of Defense and Counterclaim must be removed. The Defendant is granted leave, if that is necessary, to serve an Amended Statement of Defense that eliminates the present Counterclaim. The Defendant is also free to issue a new statement of claim based on the allegations that were until now contained in Counterclaim, which will be tried separately from the present action.

[ 23 ] Success in this motion has been mixed. There will be no costs ordered for or against either party.

Morgan J.

DATE: August 24, 2012