SUPERIOR COURT OF JUSTICE – ONTARIO

COMMERCIAL LIST

RE: Brome Financial Corporation Inc., Plaintiff

AND:

Bank of Montreal, Defendant

BEFORE: D. M. Brown J.

COUNSEL:
L. Brzezinski and V. Arman, for the Plaintiff

J. Woycheshyn, for the Defendant

HEARD: July 16, 2013

REASONS FOR DECISION

I. Refusals motion: Effort to secure information for which solicitor-client privilege is claimed in the context of a motion to stay an action for an alleged breach of the deemed undertaking rule

[1] The Bank of Montreal (“BMO”) seeks to compel a representative of the plaintiff, Brome Financial Corporation, to re-attend to answer three questions posed on the cross-examination on his affidavit filed in opposition to a pending motion by BMO to stay Brome’s action for breach of the deemed undertaking rule. Each question was refused on the basis of solicitor-client privilege and litigation privilege.

II. Brief history of the proceedings

[2] Between August, 2009 and November, 2010, the Loretta group of companies were customers of BMO. One of the facilities BMO put in place was a factoring facility. To help with the administration of that facility BMO retained the services of Brome Financial Corporation.

[3] In July, 2011, BMO commenced an action against the Loretta Group of companies, their principals and others, alleging that the vast majority of the Loretta Group's business operations were not legitimate, but rather part of a sophisticated cheque-kiting scheme which had defrauded BMO out of millions of dollars (the “Loretta Action”).

[4] In May, 2012, Brome was added as a third party to the Loretta Action. Brome defended the third party claim, as well as the main claim. Brome also commenced a fourth party claim against all of the defendants in the Loretta Action. The third party claim against Brome subsequently was settled.

[5] Brome's lawyers received a copy of BMO's productions in the Loretta Action on June 20, 2012. In August, 2012, Brome's lawyers drafted the Statement of Claim in this Brome Action. Brome authorized the filing of the Brome Claim on September 13, 2012, a few days before the limitation period expired. The Brome Claim seeks damages against BMO for more than $8.5 million for fraudulent misrepresentation.

[6] Although the Loretta Action was under case management on the Commercial List, Brome did not notify BMO about the claim until late February, 2013. Brome did not inform the Court during a case conference held in the Loretta Action on November 6, 2012 about the issuance of its claim.

III. The questions in dispute

[7] BMO has moved to strike out or stay the Brome Action on the ground that Brome used evidence produced by BMO in the Loretta Action to put together the Brome claim in breach of the deemed undertaking rule, Rule 30.1 of the Ontario Rules of Civil Procedure. That motion will be argued next week. The present motion concerns several refusals made by Brome’s affiant, Mr. Réal Leclair, on his cross-examination held June 17, 2013, specifically the following refusals:

Refusal No. 1: Q. 218: To make inquiries and advise which documentation within the Bank of Montreal’s productions in the Loretta Action were reviewed by Brome’s lawyers at Blaney McMurtry for the purposes of preparing Brome’s Statement of Claim.

Refusal No. 2: Q. 234: To produce a copy of the electronic file sent from Réal Leclair to Mr. Brzezinski (Brome’s counsel) that contains Mr. Leclair’s commentary and copies of the Bank of Montreal’s productions that Mr. Brzezinski culled relating to Nick Dupuis (BMO) and sent to Mr. Leclair.

Refusal No. 3: Q. 310: To produce a copy of the disc titled “Nick Dupuis search” attached to Exhibit 21.

Each question was refused on the basis of both solicitor-client privilege and litigation privilege.

IV. Positions of the parties

[8] BMO seeks answers to the refused questions in order to determine which evidence Brome relied on from its productions in the Loretta Action in drafting its statement of claim in this proceeding. In its factum BMO conceded that the information sought “likely meets the criteria of solicitor-client privilege”[^1] and acknowledged that solicitor-client privilege should not be interfered with except to the extent absolutely necessary. BMO contended, however, that such privilege is not absolute and the information it seeks would fall within the unlawful conduct exception to the protection of solicitor-client privilege.

[9] Brome argued that the information sought in Refusals Nos. 1 and 3 was protected by litigation privilege, while that sought in Refusal No. 2 fell squarely within solicitor-client privilege. Brome contended that none of the information sought fell within the unlawful conduct exception to solicitor-client privilege and, as well, it continued to enjoy the protection of litigation privilege in respect of the information sought both in this action and in the Loretta Action.

V. Analysis

[10] Since BMO was prepared to argue its motion on the basis that the information sought in each of the refused questions constituted solicitor-client communications, I will examine its request for relief on that basis.

[11] Supreme Court of Canada jurisprudence holds that solicitor-client privilege is a principle of fundamental justice[^2] which must be as close to absolute as possible to ensure public confidence. The privilege will only yield in certain clearly defined circumstances, not on the basis of a case-by-case balancing of interests.[^3] A court must not interfere with the confidentiality of communications between solicitor and client except to the extent absolutely necessary in order to achieve the ends sought by enabling legislation.[^4] In the case of Goodis v. Ontario (Ministry of Correctional Services) the Supreme Court of Canada identified two circumstances which prior jurisprudence had recognized as giving rise to an absolute necessity to interfere with the privilege: the maintenance and security of a penitentiary, and the genuine danger of wrongful conviction.[^5]

[12] The jurisprudence also recognizes that certain communications between a client and his lawyer may not enjoy the benefit of solicitor-client privilege. An exception exists to the principle of confidentiality of solicitor-client communications where those communications are made with a view to obtaining legal advice to facilitate the commission of a crime or fraud. That “future crime and fraud” exception only applies where the client is knowingly pursuing a criminal purpose, and the party seeking to remove the protection of the privilege must show that the client knew or should have known that the intended conduct was unlawful.[^6]

[13] In describing the ambit of the “future crime and fraud” exception to solicitor-client privilege in his judgment in the R. v. Campbell case, Binnie J. quoted with approval from two decisions which explained the rationale for the exception. First, he quoted from the decision in R. v. Cox and Railton (1884), 14 Q.B.D. 153, where, at page 168, Stephen J. stated:

In order that the rule [the solicitor-client privilege] may apply there must be both professional confidence and professional employment, but if the client has a criminal object in view in his communications with his solicitor one of these elements must necessarily be absent. The client must either conspire with his solicitor or deceive him. If his criminal object is avowed, the client does not consult his adviser professionally, because it cannot be the solicitor’s business to further any criminal object. If the client does not avow his object he reposes no confidence, for the state of facts, which is the foundation of the supposed confidence, does not exist. The solicitor’s advice is obtained by a fraud.

Binnie J. also recalled the statements made by Lord Parmoor in O’Rourke v. Darbishire, [1920] A.C. 581 (H.L.), at p. 621:

The third point relied on by the appellant, as an answer to the claim of professional privilege, is that the present case comes within the principle that such privilege does not attach where a fraud has been concocted between a solicitor and his client, or where advice has been given to a client by a solicitor in order to enable him to carry through a fraudulent transaction. If the present case can be brought within this principle, there will be no professional privilege, since it is no part of the professional duty of a solicitor either to take part in the concoction of fraud, or to advise his client how to carry through a fraud. Transactions and communications for such purposes cannot be said to pass in professional confidence in the course of professional employment.[^7]

[14] A dispute exists in the case law of the lower courts of this country about whether the “future crime and fraud” exception to solicitor-client communications extends also to communications for the purpose of facilitating a civil wrong, such as tortious conduct. In Goldman, Sachs & Co. v. Sessions, Smith J., of the British Columbia Supreme Court, held:

Accordingly, intended crimes and frauds are but instances of the application of the general principle that the privilege does not attach to communications in relation to intended unlawful conduct. In this context, "unlawful conduct" has a broader meaning than simply conduct that is prohibited by the criminal law. It includes breaches of regulatory statutes, breaches of contract, and torts and other breaches of duty. Breaches of contract and of civil duties are "unlawful" because, although they are not prohibited by any enactment, they cause injury to the legal rights of other citizens and give rise to legal remedies. They are therefore contrary to law.[^8]

[15] Closer to home, this court, in Dublin v. Montessori Jewish Day School of Toronto, considered an action in which Dr. Dublin had leveled against the defendant school allegations of negligence, breach of contract, breach of trust, breach of confidence and intentional infliction of emotional harm in regards to discipline meted out by the school to his son. Perell J. stated:

As I understand K.J. Smith, J.,'s analysis, it advances the proposition that if it can be shown that the client communicated with a lawyer with the intention of committing an unlawful act, be it criminal or tortious, because the client knew or ought to have known that the intended conduct was unlawful, then the communication with the lawyer is not privileged…

However, a mere assertion that the lawyer's advice was sought in furtherance of an illegal purpose would not be sufficient; some convincing evidence of the illegal purpose is required…

The party challenging lawyer-and-client privilege on the grounds of fraud or criminal activity must make out a prima facie case of fraud before the privilege is lost…

In my opinion, the exception for communications to facilitate the commission of a crime or a fraud applies to the circumstances of the case at bar, which concern the commission of various intentional torts against Dr. Dublin and his son.[^9]

[16] Leave to appeal was granted from that decision, with Carnwath J. finding that the decision conflicted with that of this court in Rocking Chair Plaza (Bramalea) Ltd. v. Brampton (City)[^10] and there was good reason to doubt the correctness of the decision:

Given the sanctity of solicitor-client privilege, the expansion of the exception for furtherance of crime to tortious acts of the kind alleged in the Statement of Claim may go too far.[^11]

[17] The earlier Rocking Chair Plaza case involved a civil claim by a landowner that the local municipality had delayed, in bad faith, the issuance of a building permit, as a result of which the landowner had suffered economic losses. On the discovery of the city solicitor the plaintiff asked for the disclosure of the advice which the solicitor had given to the municipal council. A Master ordered the question answered on the basis that some evidence existed that the council had acted in bad faith when passing certain resolutions and by-laws, thereby negating the solicitor-client privilege claimed by the municipality. O’Driscoll J. disagreed, rejecting the attempt to expand the “future crime and fraud” exception to include tortious conduct or breach of contract.[^12]

[18] More recently, Master MacLeod, in Geographic Resources Integrated Data Solutions Ltd. v. Peterson, summarized the “lay of the land” regarding these conflicting authorities:

In Dublin the court relies on the dictum of Goff J. as cited in the Rocking Horse Plaza decision encompassing a broad definition of fraud and also cites with approval a decision of Master Dash that applies the same rationale to "acts that were an abuse of the court's process including abuse of the criminal process, deliberate suppression of evidence and malicious prosecution for an improper purpose". Utilizing this rationale, Dublin goes beyond both Rocking Horse Plaza and Hallstone to encompass intentional torts which could be the focus of a civil action. I am urged by counsel for the solicitors to disavow Dublin and not to follow it.

Though it would normally be binding upon me, it may be open to me not to follow Dublin if there is equally binding and contrary authority. There has actually been a preliminary finding not only that there is contrary authority but that there is good reason to doubt the correctness of the Dublin decision. These of course are the tests for leave to appeal and such leave was granted on September 10th, 2007. The contrary decision is the Rocking Horse Plaza decision in which the court specifically refused to recognize mere tortious activity as coming within the exception. It does not appear the appeal of Dublin was ever argued. Nor to date has the decision in Dublin attracted further adverse judicial comment.[^13]

[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 courts in the 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 set out in the R. v. Campbell case.

[20] In any event, the conduct in this case which BMO contends takes the information sought outside of the protection of solicitor-client privilege comes nowhere near communications made in furtherance of a crime or a fraud. BMO alleges that the communications between Mr. Leclair of Brome and the company’s counsel were for the purpose of breaching the deemed undertaking rule – Rule 30.1 of the Rules of Civil Procedure. That rule provides that a party may not use certain evidence obtained during the compelled discovery process in an action “for any purposes other than those of the proceeding in which the evidence was obtained” and the rule imposes on the parties and their lawyers a deemed undertaking to that effect.[^14]

[21] The deemed undertaking rule is a most important one in the civil litigation process balancing, as it does, the public interest in getting at the truth in a civil action with the privacy interest of the person subject to examination for discovery and the compelled production of documents.[^15] Its importance is underlined by the fact that the undertaking is one given to the court.[^16] But the breach of the deemed undertaking does not attract any penal sanction. Although Rule 30.1 does not specify the sanctions for its breach, case law exists in which courts have stayed subsequent proceedings which used evidence in breach of the deemed undertaking rule,[^17] and other remedies may include striking pleadings or bringing a civil contempt motion.[^18] That is to say, a breach of the deemed undertaking rule does not give rise to a cause of action against the party in breach, but the aggrieved party may seek a process-related remedy before the court in an existing action, such as the present one.

[22] In my view, the nature of the conduct involved in any alleged breach of the deemed undertaking rule does not come anywhere close to that 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. Nor has BMO demonstrated any circumstance of “absolute necessity”, as identified in the jurisprudence to date, which could justify interfering with the confidentiality of the solicitor-client communications in issue. Accordingly, I do not grant BMO’s motion to compel Mr. Leclair to re-attend to answer the three questions refused on his cross-examination.

VI. Conclusion and costs

[23] For these reasons, I dismiss BMO’s motion, and I reserve the issue of the costs of this motion to the hearing next week of BMO’s motion to stay the Brome Action for breach of the deemed undertaking rule.

[24] I commend counsel for a well-argued motion.

D. M. Brown J.

Date: July 16, 2013

[^1]: BMO Factum, paras. 7 and 34.
[^2]: R. v. McClure, 2001 SCC 14, para. 41.
[^3]: Goodis v. Ontario (Ministry of Correctional Services), 2006 SCC 31, para. 16.
[^4]: Ibid., para. 15.
[^5]: Ibid., para. 20.
[^6]: R. v. Campbell, 1999 676 (SCC), paras. 55, 57 to 61.
[^7]: Ibid., paras. 56 and 59 (emphasis added).
[^8]: (1999), 1999 5317 (BC SC), para. 16.
[^9]: (2007), 2007 8923 (ON SC), paras. 42 to 44.
[^10]: (1998), 29 C.P.C. (2d) 82 (Ont. Gen. Div.).
[^11]: [2007] O.J. No. 5230, para. 2.
[^12]: (1988), 29 C.P.C. (2d) 82 (Ont. H.C.J.).
[^13]: (2009), 2009 15436 (ON SC), paras. 24 and 25.
[^14]: Rule 30.1.01(3).
[^15]: Juman v. Doucette, 2008 SCC 8, paras. 24 to 27.
[^16]: Ibid., para. 27.
[^17]: See the discussion about remedies in Juman v. Doucette, at para. 29. Stays of proceedings were granted in Kinsmen Club of Kingston v. Walker (2004), 2004 28597 (ON SC), paras. 34 to 36; Disher v. Kowal (2001), 2001 28010 (ON SC), para. 31; as well as Goodman v. Rossi (1995), 1995 1888 (ON CA).
[^18]: Juman, para. 29.