SUPERIOR COURT OF JUSTICE – ONTARIO

COMMERCIAL LIST

RE: IN THE MATTER OF THE BANKRUPTCY OF Michael Katz

BEFORE: D. M. Brown J.

COUNSEL:
F. Tayar, for the Bankrupt, Michael Katz
B. Jaeger, for the Trustee, Sheriff & Sole Inc.
B. Morris, for an opposing creditor, Joe Morra
H. Fulchini, opposing creditor in person

HEARD: July 2, 2013

REASONS FOR DECISION: ruling on voir dire

I. Admissibility of information in possession of a bankrupt’s former solicitor at a discharge hearing under section 170 of the Bankruptcy and Insolvency Act

[1] By receiving order made May 27, 2004, Michael Katz was adjudged bankrupt. A contested bankruptcy discharge hearing commenced before me yesterday. An issue arose as to whether information in the possession of the bankrupt’s former matrimonial lawyer about his pre-bankruptcy assets was cloaked with solicitor-client privilege.

II. Background evidence

[2] During the course of his evidence-in-chief Mr. Katz was asked to explain entries on several pre-bankruptcy net worth statements which he had provided to lending institutions to secure financing for various residential real estate developments his business was undertaking. The entries noted that he received significant annual income (about $150,000) from a “family trust”. In chief Mr. Katz testified that he had made a mistake in describing that income as coming from a “family trust”, since none had ever existed. He stated that the money represented an allowance which his mother gave him. His mother, Roslyn Fingold, is a Toronto real estate broker.

[3] On his October 6, 2007 Statement of Affairs the bankrupt did not disclose the existence of a beneficial interest in a family trust or any income received by him under such a trust. So, too, on his March 2, 2011 section 161 examination by the Official Receiver, the bankrupt did not identify any family trust as a source of income.

[4] On cross-examination by Mr. Morris the bankrupt acknowledged that a year or so before his bankruptcy he had experienced matrimonial difficulties with his wife, Skye Katz, and had gone to see a matrimonial lawyer, Sandra Morris. Katz was accompanied by his sister, Cathy, on that visit.

[5] Katz was asked whether he had discussed his property with Ms. Morris. Katz testified that he did not remember the appointment or its context, but his sister remained in the room during his meeting with the lawyer. Counsel for Katz then objected to the posing of any questions about what was discussed at that meeting.

[6] I ordered the holding of a voir dire.

[7] On the voir dire Katz testified that his purpose in visiting Ms. Morris was to obtain legal advice about his separation from Skye. He could not remember what was discussed nor could he remember whether he received any legal advice. Katz testified that he did not see Ms. Morris again.

[8] Sandy Morris testified on the voir dire. Back in 2003 she was working as a matrimonial lawyer at the Wilson, Christen law firm. She testified that she did not have any independent recollection about the specifics of her discussion with Katz at that time, including whether they had discussed his assets or any trust in his favour. Ms. Morris, who appeared in response to a summons, stated that she was not able to bring her client file with her to court because she had left the Wilson, Christen firm and was told by the firm that it could not release the file to her without the authorization of the client.

[9] Counsel for the opposing creditor submitted that any disclosure made by Katz to Ms. Morris about his assets back in 2003, specifically whether he was the beneficiary of a family trust which paid him a monthly amount, was not protected by solicitor-client privilege and requested that I order the Wilson, Christen law firm to release Katz’s file so that non-privileged documents could be produced and Ms. Morris could refresh her memory. Katz’s counsel opposed that request, submitting that any disclosure by Katz of his assets to Ms. Morris during that meeting would be cloaked with solicitor-client privilege.

III. Analysis

A. The principles of law

[10] Under Canadian law, solicitor-client privilege is that of the client, in this case the bankrupt, and the Bankruptcy and Insolvency Act does not attempt to displace that privilege by authorizing the trustee to waive it.[^1] In the Bre-X Minerals case the Alberta Court of Appeal observed that the common law was evolving in a direction which did not favour recognizing an exception to solicitor-client privilege in favour of trustees generally,[^2] and it adopted the approach taken to the issue by the Ontario Court of Appeal in its 1984 decision in Clarkson Co. v. Chilcott,[^3] commenting that that decision had correctly balanced the importance of solicitor-client privilege against creditor rights.[^4]

[11] The Chilcott case involved a motion by a trustee for an order that the bankrupt’s lawyer attend to answer questions relating to the bankrupt’s property. In the first instance Ewaschuk J. granted the order sought for two reasons: (i) questions relating to the bankrupt’s acquisition, location and disposition of property did not attract any privilege “being objective acts and transactions and not confidential communications”; (ii) the trustee enjoyed the power to waive privilege as regards the client’s instructions regarding the property, including the purpose for which the property was acquired or disposed.[^5]

[12] On appeal, the Court of Appeal agreed that the solicitor “was properly ordered to reattend before the special examiner to answer questions regarding his bankrupt client’s affairs”.[^6] The Court of Appeal disagreed that the trustee possessed the power to waive the bankrupt’s solicitor-client privilege with respect to legal advice given to the bankrupt concerning his former property.[^7] The Court of Appeal stated:

In our view, the [bankrupt’s solicitor] can be compelled to disclose all information regarding the bankrupt's affairs, transactions and the whereabouts of his property, etc., which do not require the disclosure of communications made to the [bankrupt’s solicitor] for the purpose of giving legal advice. These communications with respect to property are not privileged. All questions contained in sch. "A" to the order of Mr. Justice Ewaschuk can be read as falling in this category of non-privileged information and to that extent they should be answered by the [bankrupt’s solicitor]. In that respect, there is no privilege to be waived by the client or by the trustee.

The privilege attaches, however, to all information requested by the client for the purpose of obtaining professional advice and assistance and given for that purpose…[^8]

[13] In his dissent in the Bre-X case, LoVecchio J., in referring to sections 163 and 164 of the BIA, stated that those sections allowed for the examination of a solicitor and “a solicitor may be compelled to disclose all information relating to the transactions of the bankrupt or the location of the bankrupt’s property”.[^9]

[14] Louise Lalonde, in an informative article entitled, The Bankrupt’s Right to Solicitor-Client Privilege: An Unbreakable Cone of Silence or Has the Last Word Been Said?,[^10] reviewed the jurisprudence on the discoverability of transactions by bankrupts with third parties and observed that the Quebec Court of Appeal, in Laprairie Shopping Center Ltd.,[^11] had reached a similar result as had the Court of Appeal in Chilcott.

[15] More recent jurisprudence has not eroded the approach adopted in the Chilcott case. In Maranda v. Richer the Supreme Court of Canada observed regarding solicitor-client privilege that:

The protection conferred by the privilege covers primarily acts of communication engaged in for the purpose of enabling the client to communicate and obtain the necessary information or advice in relation to his or her conduct, decisions or representation in the courts. The distinction is made in an effort to avoid facts that have an independent existence being inadmissible in evidence…It recognizes that not everything that happens in the solicitor-client relationship falls within the ambit of privileged communication, as has been held in cases where it was found that counsel was acting not in that capacity but simply as a conduit for transfers of funds (Re Ontario Securities Commission and Greymac Credit Corp. (1983), 1983 1894 (ON SC), 41 O.R. (2d) 328 (Div. Ct.); Joubert, supra).[^12]

[16] Recently, in Kaiser (Re), the Court of Appeal held that “administrative information” relating to the solicitor-client relationship, such as who was paying the legal bills of the bankrupt’s counsel, was presumptively privileged, a privilege which could only be rebutted by showing that disclosure of the information would not lead to the revelation of confidential solicitor-client communications or the requested information was not linked to the merits of the case and its disclosure would not prejudice the client.[^13]

[17] From these cases about the scope of the solicitor-client privilege enjoyed by a bankrupt I conclude that a solicitor who acted for a bankrupt prior to the making of a receiving order can be compelled to disclose information about a bankrupt’s property – what assets the bankrupt owned or possessed an interest in - provided that in so doing the solicitor does not reveal communications made for the purpose of giving legal advice. So, for example, if prior to the making of a receiving order the bankrupt told his lawyer that he owned Asset A, then in the bankruptcy proceedings the solicitor could be compelled to disclose that fact. The solicitor could not be asked to disclose what advice he may have given about what to do with or how to treat Asset A, but the fact of the existence of Asset A would be discoverable.

[18] I think this conclusion follows not only from the focus of the privilege’s protection on the communications between client and lawyer for the purpose of receiving legal advice, but also from the related principle that solicitor-client privilege may not be invoked for the purpose of assisting in the commission of a crime, suppressing real evidence of a crime or perpetrating tortious conduct.[^14] Section 158(a) of the BIA imposes a statutory duty on the bankrupt to “make discovery of and deliver all his property that is under his possession or control to the trustee…” and section 158(b) requires him to “deliver to the trustee all books, records, documents, writings and paper…in any way relating to his property or affairs”. The failure of the bankrupt to do any of the things required of him under BIA s. 158, without reasonable cause, constitutes the commission of an offence.[^15] To permit a solicitor to refuse to answer questions about the existence and location of the bankrupt’s property would, in its effect, enable solicitor-client privilege to be invoked to assist the bankrupt in committing an offence – i.e. failing to comply with the duties imposed by section 158 of the BIA.

B. Application to the facts

[19] Turning to the facts of this case, I conclude that Ms. Morris must answer questions concerning any information in her possession about the existence and location of the bankrupt’s property prior to the date of the receiving order because that information does not fall within the scope of solicitor-client privilege.

[20] I would also note that in his evidence Mr. Katz testified that his sister, Cathy, had attended his meeting with Ms. Morris. The presence of unnecessary third parties when the communication is made to or from the lawyer may serve to vitiate the solicitor-client privilege because the presence of an individual whose presence is not essential to the consultation leads to the presumption that the communication was not intended to be made in confidence.[^16]

[21] Ms. Morris has testified that she has no independent recollection of whether she discussed with Mr. Katz the assets which he owned at the time of their meeting. She stated she would need to look at her file in order to ascertain whether she had recorded any such information. Since Mr. Katz’s client file remains with the Wilson, Christen firm, it follows that I order that firm to make that client file available to Ms. Morris for the purpose of enabling her to give evidence at this discharge hearing. I will ask counsel for their submissions on how this hearing should proceed in light of my ruling.

D. M. Brown J.

Date: July 3, 2013

[^1]: Bre-X Minerals Ltd. (Trustee of) v. Verchere, 2001 ABCA 255, para. 35
[^2]: Ibid., para. 45.
[^3]: (1983), 47 C.B.R. (N.S.) 93 (Ont. S.C., Bkptcy), appeal dismissed (1984), 1984 2098 (ON CA), 48 O.R. (2d) 545 (C.A.).
[^4]: Bre-X, supra., para. 38.
[^5]: Chilcott, supra., Ont. S.C., para. 9.
[^6]: Chilcott, supra., OCA, para. 6.
[^7]: Ibid., para. 8.
[^8]: Ibid., paras. 12 and 13. Unfortunately the reported reasons did not reproduce Schedule “A” to the decision of the motions judge.
[^9]: Bre-X, supra., para. 82.
[^10]: 2006 Annual Review of Insolvency Law (Toronto: Carswell, 2007) 672.
[^11]: 1998 13242 (QC CA), [1998] R.J.Q. 448 (Que. C.A.), para. 47.
[^12]: 2003 SCC 67, [2003] 3 S.C.R. 193, para. 30.
[^13]: 2012 ONCA 838, para. 30.
[^14]: Sopinka, Lederman & Bryant, The Law of Evidence in Canada, Third Edition (Toronto: LexisNexis, 2009), §14.75 and 14.76.
[^15]: BIA, s. 198(2)
[^16]: Sopinka, Lederman & Bryant, supra., §14.49.