SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Han v. Li, 2013 ONSC 5185

COURT FILE NO.: CV-12-456870

BEFORE: MASTER R.A. MUIR

COUNSEL: S. Tock for the plaintiffs

C. Goldson for the defendants Li, Nissan, 1856257 Ontario Inc. and 2302344 Ontario Inc.

E. Pleet for the defendant Gang Wu

HEARD: August 8, 2013

ENDORSEMENT

[1] The plaintiffs bring this motion for the following relief:

(a) an order that they be granted leave to amend their amended statement of claim to add a new defendant;

(b) an order that the defendants Li, Nissan, 1856257 Ontario Inc. and 2302344 Ontario Inc. (the “Li Defendants”) serve further and better affidavits of documents; and,

(c) an order that the defendant Wen Wu produce certain documents set out in Schedule B to his affidavit of documents.

[2] All parties and the proposed new defendant consent to the proposed amendments to the amended statement of claim.

[3] The defendant Gang Wu consents to all of the relief sought by the plaintiffs. The defendant Wen Wu takes no position on the relief relating to the production of documents. The Li Defendants oppose the relief relating to the production of documents.

[4] The plaintiffs seek additional Schedule A documents from the Li Defendants. In particular, the plaintiffs seek bank statements, copies of cancelled cheques and any other documents evidencing the transfer of funds by the defendant corporations between January 2011 and June 21, 2012 relevant to the transactions in issue in this proceeding.

[5] The Li Defendants do not dispute the relevance of these documents but assert that such documents are not in their possession. However, the Rules require more than that. Relevant documents that are in the possession, control or power of the party must be produced. Clearly, the documents requested fall within that definition. All of these documents would be readily available from the corporate defendants’ bank upon request by the customer. The plaintiffs’ request is time limited and specific. Production of these documents would not unduly burden the Li Defendants. These documents shall be produced by the Li Defendants within 60 days. A supplementary affidavit of documents setting out these documents in Schedule A shall also be served within 60 days.

[6] The bulk of the argument in connection with this motion was addressed to the production of documents listed in Schedule B to Wen Wu’s affidavit of documents. This action arises from a real estate purchase made by the plaintiffs. The plaintiffs apparently retained the services of the defendant Li to assist them with finding a suitable real estate investment in Canada. It appears that Li found such a potential investment. However, the property was first purchased by the Li Defendants from the original owners for $4,100,000.00 before being re-sold, three weeks later, to the plaintiffs for $5,600,000.00. The plaintiffs allege that this was a secret profit and amounts to fraud. The Li Defendants characterize this action as a dispute over the compensation owed to the Li Defendants as a finder’s fee.

[7] The defendant Wen Wu is a lawyer. He acted for the Li Defendants in connection with their purchase from the original owners and the re-sale to the plaintiffs. The Schedule B documents at issue are all of the documents found in his purchase and sale files.

[8] The plaintiffs take the position that these documents are producible for three reasons. First, some of the documents may not be communications between a lawyer and client for the purpose of seeking or giving legal advice. Second, they are producible because the defendant Wen Wu has placed his state of mind in issue in his statement of defence. Third, there can be no privilege for communications that seek legal advice in respect of a fraud.

[9] I agree with Mr. Goldson that lawyer/client privilege is a fundamental right within our system of justice. It must be as close to absolute as possible. See R. v. McClure, 2001 SCC 14, [2001] 1 S.C.R. 445 at page 459.

[10] It is clear on the evidence before me on this motion that Wen Wu was retained by the Li Defendants in his professional capacity as a lawyer. The documents in issue come from the files Wen Wu kept in connection with the sale and purchase transactions he carried out on behalf of the Li Defendants. Virtually all of the descriptions of the subject documents included in Wen Wu’s Schedule B refer to one or more of the Li Defendants specifically or to “client” generically. I am satisfied on a balance of probabilities that the communications in issue are communications between a lawyer and client for the purpose of seeking or giving legal advice in connection with the subject transactions.

[11] In addition, I do not accept the plaintiffs’ argument that these lawyer/client communications are producible simply because Wen Wu has placed his state of mind in issue in his statement of defence. The privilege over these communications does not belong to Wen Wu. It belongs to the Li Defendants. The decision relied upon by the plaintiff in Bank Leu AG v. Gaming Lottery Corp., [1999] O.J. No. 3949 (S.C.J.) is not helpful. The facts in that case involve a situation where the party to whom the privilege belongs put its state of mind in issue. See Bank Leu AG at paragraph 5. The plaintiffs also rely upon Cabaniss v. Cabaniss, 2008 BCSC 987. However, it seems clear that the decision in that case turned on a finding that there was prima facie evidence of fraud. See Cabaniss at paragraph 29. Lloyds Bank Canada v. Canada Life Assurance Co. (1991), 47 C.P.C. (2d) 157 (Ont. G.D.) is also relied upon. That case also involved a situation where the party to whom the privilege belongs put its state of mind in issue. See Lloyds Bank at paragraph 14. Finally, the plaintiffs rely on the British Columbia decision in Knight’s Mineral Exploration & Co. v. Corcoran & Co., 1993 CarswellBC 117 (S.C.). In my view, that decision is also distinguishable. The claims being made against the party to whom the privilege belonged were in the nature of fraudulent and negligent misrepresentation. That party then withdrew its defence and was deemed to have admitted all of the allegations against it, including fraud. See Knight’s at paragraphs 21-23.

[12] In my view, a party does not lose its right to lawyer/client privilege simply because another independent party to the litigation has placed its state of mind in issue.

[13] Finally, I do agree with the plaintiffs that lawyer/client privilege may be lost in cases involving fraud. However, such a result will only obtain when a prima facie case of fraud is made out in fact. See Goodman and Carr v. Minister of National Revenue, 1968 340 (ON SC), [1968] 2 O.R. 814 (H.C.) at page 816. In my view, it is simply too early in this proceeding to arrive at such a conclusion. No discoveries have taken place. The statement of claim is in the process of being amended and a new defendant is about to be added to this action.

[14] I agree with the plaintiffs that there are certainly unusual circumstances surrounding the purchase and sale of the subject property. Those circumstances are fully set out at paragraph 53 of the plaintiffs’ factum. However, it is also clear from paragraphs 43 and 44 of the amended statement of claim that the plaintiffs knew about the earlier purchase from the original owners and nevertheless went ahead and completed their purchase of the property anyway.

[15] In my view, much clearer evidence of fraud is necessary before the court should take the extraordinary step of setting aside a claim of privilege over lawyer/client communications. Such evidence may come to light as this action progresses, but I am not satisfied that a prima facie case of fraud has been made out on the evidence before me on this motion.

[16] I therefore order as follows:

(a) the plaintiffs are hereby granted leave to amend the amended statement of claim in the form of the draft amended amended statement of claim at Tab 2D of the plaintiffs’ motion record;

(b) the Li Defendants shall, within 60 days, serve a supplementary affidavit of documents and copies of additional productions which shall include all bank statements, copies of cancelled cheques and any other documents evidencing the transfer of funds by the defendant corporations between January 2011 and June 21, 2012 relevant to the transactions in issue in this proceeding;

(c) the balance of the relief sought on this motion is dismissed, subject to the right of the plaintiffs to seek such relief in the future should additional evidence of fraud become available; and,

(d) if the parties are unable to agree on the issue of costs, they may make brief submissions in writing by no later than September 6, 2013.

Master R.A. Muir

DATE: August 13, 2013