COURT FILE AND PARTIES
COURT FILE NO.: CV-09-12829CM
DATE: 2013-09-27
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Strathan Corporation, Plaintiff
AND:
Chromeshield Co., Chromecraft Corporation and FNG Corporation, Defendants
BEFORE: Nolan J.
COUNSEL:
Raymond G. Colautti, for the Plaintiff
Maria Marusic, for the Defendants
HEARD: June 24, 2013
Amended decision: The text of the original Endorsement was corrected on October 10, 2013, and the description of the correction is appended.
AMENDED
ENDORSEMENT ON MOTION FOR LEAVE TO APPEAL
INTRODUCTION
[1] The defendants seek leave to appeal to the Divisional Court from an order of Gates J. dated February 1, 2013. That order dismissed the appeal by the defendants of the order of Master Pope dated September 14, 2012, which required the defendants to produce a report from Environ EC (Canada), Inc. (“Environ”), over which the defendants assert litigation privilege. The plaintiff opposes the granting of leave.
[2] By way of background, the plaintiff is the owner of a commercial building which was leased by Chromeshield, one of the named defendants. The lease was renewed in May 2008 for ten years. A certain provision of lease provided that the guarantors, the other defendants, were released from all liabilities and obligations as of July 31, 2008. The only remaining security for the lease was the fixtures in the building. Another term of the lease provided that Chromeshield could remove the fixtures provided that all rents and other amounts due or which would become due under the lease were fully paid. Because of the nature of Chromeshield’s business and the predecessor business, there were provisions in the lease dealing with environmental conditions of the premises and the obligations of Chromeshield to maintain it in a certain manner.
[3] Sometime prior to November 1, 2010, Chromeshield idled its business operations and removed the fixtures and equipment in the building allegedly to permit it to clean up the premises in order to attract new business. On November 1, 2010, the plaintiffs allege that the defendants breached the lease by abandoning the premises.
[4] The plaintiff commenced a motion for Partial Summary Judgment for the outstanding rent and related arrears. The defendants opposed the motion. They filed several affidavits, one of them sworn by Mr. Tony Pelle ("Mr. Pelle"), an employee of Chromeshield. He deposed that he was responsible for overseeing the daily activities of Chromeshield’s contractors and other personnel who were responsible for the restoration of the building at a cost of approximately $100,000. He deposed that the leased premises were clean and presentable when the defendants vacated them in 2010. In support of that position, he attached as Exhibit 8 a Requisition of December 10, 2010, directed to Environ along with an invoice from Environ for payment of $9,044 and made reference to the report that was prepared by Environ.
[5] Mr. Pelle's affidavit described the physical and environmental condition of the plant in 1998 when the lease commenced and in 2010. He claimed to have significant knowledge about the lease and its terms. He also confirmed that Chromeshield used the pause in its operation as an opportunity to clean up the building and that the removal of the fixtures and equipment was for the purposes only of cleaning the plant.
[6] When Mr. Pelle was examined on his affidavit, he confirmed that the Environ invoice related to environmental work done in the plant and for a report prepared by Environ dealing with environmental matters with regard to the plant. When asked to produce the report, his counsel took the request under advisement and later refused the production of the report asserting both solicitor and client and litigation privilege over the report. The defendants subsequently waived solicitor-client privilege and relied on the litigation privilege to refuse to produce the report.
[7] The plaintiff brought a motion which was heard by the Master on June 15, 2012, seeking, among other relief, production of the report. The Master found that Chromeshield had no authority in law to support its position of litigation privilege, other than the fact that it was prepared subsequent to the commencement of the litigation by the plaintiff. She found that Chromeshield had not met its onus to establish that the Environ report was prepared in contemplation of the litigation currently before the court and, as a result, the report was ordered to be produced.
[8] The defendants appealed that decision giving rise to the decision of Gates J. in which he upheld the decision of the Master in a decision released on February 1, 2013, and ordered the report produced. It is that decision that the defendants are seeking leave to appeal.
[9] The determination to be made by Gates J. on the appeal was whether the Master was correct when she ordered the report to be produced. There were four paragraphs in her decision (paras. 59-62) dealing with the issue:
Pelle attached the invoice from Environ as one of several documents marked as Exhibit “F” to his affidavit. He attached it as evidence of daily activities he directed of Chromeshield’s contractors in performing restoration work, including environmental work in the summer of 2010.
The evidence is that Chromeshield “suffered a catastrophic loss of business due to the general downturn in the automotive industry,” (Affidavit of Pelle, para. 20) and as a result Chromeshield suspended operations and used that time to do restoration work. (Affidavit of Pelle, paras. 21-22.)
Chromeshield relied on no authority in law in support of its position on litigation privilege. Other than the fact that the Environ report post-dated the commencement of this litigation, Chromeshield has not met its onus to satisfy this court that the Environ report was prepared in contemplation of this litigation.
Therefore, the Environ report shall be produced by Pelle.
[10] It is questionable whether the Master was correct in her assertion in paragraph 61. In fact, there was evidence in the form of an affidavit filed by Barbara Opalinski, a lawyer in the office of the defendants’ counsel, that was not disputed either by cross-examination of her on the affidavit or the filing of an affidavit challenging the statement. Thus, there was some evidence for the claim litigation privilege that was asserted.
TEST
[11] The test for leave to appeal an interlocutory order is set out in rule 62.02(4) of the Rules of Civil Procedure, R.R.O. 190, Reg. 194 which provides that:
62.02(4) Leave to appeal shall not be granted unless,
(a) there is a conflicting decision by another judge or court in Ontario or elsewhere on the matter involved in the proposed appeal and it is, in the opinion of the judge hearing the motion, desirable that leave to appeal be granted; or
(b) there appears to the judge hearing the motion good reason to doubt the correctness of the order in question and the proposed appeal involves matters of such importance that, in his or her opinion, leave to appeal should be granted.
POSITIONS OF THE PARTIES
[12] The defendants argued that this case meets both of the tests under rule 62.02(4) for the granting of leave. They asserted that Gates J. made a number of overriding and palpable errors of fact and law: first, in concluding that the report was not subject to the litigation privilege; second, when he failed to find that the dominant or substantial purpose of the report was to assist the defendant in the contemplated litigation, there being no evidence before him that the report was commissioned for some other purpose; third, he erred in law when he determined that the “inadvertent” disclosure of an invoice related to the report constituted a waiver of privilege attached to it and failed to apply the proper legal tests; fourth, there is good reason to doubt the correctness of his decision in failing to grant the appeal of the Master's order in that his decision is in direct conflict with other case law; and fifth, that the proposed appeal, should leave be granted, impacts on a fundamental principle of law that warrants review by a higher court.
[13] The plaintiff argued that the issue of litigation privilege had been carefully weighed and determined by the Master and Gates J., their decisions were correct and in accordance with established case law pertaining to litigation privilege and the waiver of privilege. Further, counsel for the plaintiff argued that the issue of the production of the Environ report is not an issue of public importance or a matter that is relevant to the development of law and the administration of justice and is only relevant to the issues between the parties in this particular case.
[14] Further, the plaintiff argued that the relevancy of the report was put in issue by Mr. Pelle and as such counsel was entitled to cross-examine him on any matters that he put in issue in his own affidavit (Toronto Board of Education Staff Credit Union Ltd. v. Skinner, 1984 CarswellOnt 477 (Ont. H.C.J.) at para. 17; Ontario v. Rothman’s Inc., 2011 ONSC 2504, 2011 CarswellOnt 2916 (S.C.J.) at para. 142).
[15] The plaintiff also argued that where a claim of privilege is raised, the onus rests on the party asserting that privilege to establish the privilege. The plaintiff asserted that the “dominant purpose test” applies in determining whether a claim of litigation privilege is properly asserted (PSC Industrial Services Canada Inc. v. Thunder Bay (City), [2006] O.J. No. 917, para. 42). One defendant did not disagree with that position. The court will also consider if the party claiming the privilege fails to adduce evidence as to the circumstances in which a document was prepared.
[16] Relying on Guelph (City) v. Super Blue Box Recycling Corp., 2004 34954 (ON SC), [2004] O.J. No. 4468, the plaintiff argued that a court may consider if the privilege claimed was waived expressly or implicitly. If privilege is waived, the waiver applies to the entire subject matter of the communications. Two circumstances can give rise to implicit waiver. The first is disclosure itself. Once the privileged communication has been disclosed, the privilege that attaches to it is lost. Disclosure can take the form of the actual communication itself or by disclosure of the substance of the communication. Implicit waiver can occur by pleading or otherwise relying upon the privileged communication as part of a substantive position taken in the legal proceedings, that is, waiver by reliance, either in the prosecution or defence of a case.
[17] The plaintiff argued that Mr. Pelle put the work done by Environ in issue when he disclosed and relied on the Environ requisition and invoice in his affidavit, when he attached the requisition and invoice as part of an exhibit to his affidavit and that by doing so, he waived any claim for privilege.
ANALYSIS
[18] With respect to privilege, rule 30.02(2) provides:
Every document relevant to any matter in issue in an action that is in the possession, control or power of a party to the action shall be produced for inspection if requested, as provided in rules 30.03 to 30.10, unless privilege is claimed in respect of the document.
[19] There are special rules that apply to an expert report. Rule 31.06(3) provides that on an examination for discovery:
A party may on an examination for discovery obtain disclosure of the findings, opinions and conclusions of an expert engaged by or on behalf of the party being examined that are relevant to a matter in issue in the action and of the expert’s name and address, but the party being examined need not disclose the information or the name and address of the expert where,
(a) the findings, opinions and conclusions of the expert relevant to any matter in issue in the action were made or formed in preparation for contemplated or pending litigation and for no other purpose; and
(b) the party being examined undertakes not to call the expert as a witness at the trial.
[20] Rule 53.03 provides that:
A party who intends to call an expert witness at trial shall, not less than 90 days before the pre-trial conference required under Rule 50, serve on every other party to the action a report, signed by the expert, containing the information listed in subrule (2.1).
[21] The importance of the litigation privilege was dealt with in a number of cases to which I was referred by the defendants. In Jones v. Niklaus, 2002 CarswellOnt 5497 (Div. Ct.), at para. 12, the Divisional Court confirmed that only an expert’s name, address, findings, opinions and conclusions need be disclosed on discovery but not the actual report and that to order the production of the report would be in conflict with rule 53.03.
[22] In another case determined by the Divisional Court, Davies v. American Home Assurance Co., 2002 CarswellOnt, p. 2225, a motions judge ordered production of documents over which the defendant claimed privilege on the basis that the privilege had been waived. In that case, the only evidence of privilege was the listing of the documents in Schedule B of the affidavit of documents and the ground for privilege were not articulated. Even in that case, the court set aside the claim of privilege notwithstanding the lack of any other evidence from the defendant to establish entitlement to the privilege.
[23] In Gabany v. Sobeys Inc., 2002 CarswellOnt 2683 (OSCJ), the court upheld a claim for litigation privilege over documents that were created before litigation had been commenced but where there was a threat of legal action. The court found that the dominant purpose for the preparation of the report was preparation for litigation.
[24] That same principle was expressed by Sanderson J. in Scopis Restaurant Ltd. v. Prudential Assurance Co. of England Property and Casualty (Canada), 1999 CarswellOnt 1026. That case also involved an appeal of a decision of a Master for the production of a document over which privilege had been claimed. At paragraph 16 of that decision, Sanderson J. found that the Master was wrong in not reviewing the documents before finding that they were not protected by privilege.
[25] With respect to waiver of privilege, in Airst v. Airst, 1998 14647 (ON SC), 1998 CarswellOnt 2630 (Ont. Gen. Div.), the court set out the condition that must be met to determine that a waiver of privilege by disclosure has occurred:
a disclosure;
of a private privileged communication;
that is intended;
with the intention of waiving privilege; and
by a person authorized to make the disclosure and waive the privilege.
A number of years later in Guelph (City) v. Super Blue Box Recycling Corp., the court revisited the issue of circumstances that give rise to implicit waiver. The first is disclosure itself of the communication or disclosure of the contents of the communication. The second is by pleading or relying upon the communication over which privilege is claimed as part of a substantive position taken in the proceeding.
[26] In 2006, Belobaba J. in Chan v. Dynasty Executive Suite Ltd., 2006 CarswellOnt 41318, considered a circumstance in which a document over which privilege had been claimed in an unsworn affidavit of documents was inadvertently produced in a volume of productions. The receiving counsel was advised of the inadvertent inclusion of the document and was asked to return it. Counsel refused to return it which resulted in the motion before Belobaba J. In attempting to justify the refusal, counsel argued that it was a relevant document and thus disputed the claim of privilege. At paragraphs 23 and 30 of that decision, Belobaba J. said that privilege is not lost simply because the documents are relevant to the action and that determining privilege by reference to relevance would defeat a principle that is an underpinning of our legal system. Just because privileged documents prove to be useful to the receiving counsel does not mean that the privilege had been lost. Belobaba J. went on to say at paragraph 30 that “the mere loss of physical possession of a privileged solicitor-client communication due to an inadvertent or negligent disclosure does not automatically waive or terminate the privilege.
RULE 62.02(4)(a)
[27] In reviewing the cases submitted to me by both the plaintiff and defendants along with the findings of fact and law made by Gates J., I find there is significant conflict between the decision of Gates J. and the principles applied in those cases with respect to the assertion of and protection of the litigation privilege and the circumstances under which it is waived or can be lost. The standard that he had to apply in determining the appeal before him was that of correctness, a test that he acknowledged in his decision.
[28] With respect to the second part of that test, it is my opinion that it is desirable that leave to appeal be granted. The cases which have considered that test make it clear that the issues must involve a question of general or public importance that require appellate review (Rankin v. MacLeod, Young, Weir Ltd., 1986 2749 (ON SC), [1986] O.J. No 2380 (Ont. H.C.J.). These matters of importance must be of public rather than private importance or matters relevant to the development of the law. The issue of litigation privilege is one of significance to parties involved in litigation in all areas of the law and is thus an important issue. The issue sought to be appealed is whether the mere reference to an expert report in an affidavit and the attaching of the documents for payment of that report to an affidavit constitutes a waiver of the litigation privilege of the report itself. This is a matter of importance beyond the interests of the parties involved in this lawsuit.
RULE 62.02(4)(b)
[29] As for the alternative test in rule 62.02(4)(b), I have reviewed the material that was available to Gates J. on the hearing of the appeal and the conclusions he reached based on that material.
[30] Gates J. had available the record that was before the Master when she came to her determination that there was no evidentiary basis on which she could find that the report was privileged. Gates J. also reviewed the pleadings in the statement of claim and the statement of defence, as well as the case law on which the Master had relied in support of her decision. Gates J. reviewed the issue of "inadvertence" and found that because the purchase order and invoice relating to the report formed part of Mr. Pelle's affidavit as exhibits and was relied on by the defendants to oppose the granting of partial summary judgment, there was nothing “inadvertent” about their inclusion. He found they formed part of the defendants’ defence of the motion for partial summary judgment and was put in issue by the defendants, thus, by implication, amounted to a waiver of any privilege that might otherwise have attached to it.
[31] This decision is in conflict with a number of decisions set out dealing with how the litigation privilege can be waived. The uncontradicted affidavit of Ms. Opalinski made clear that the Environ report had been obtained by the defendants for the purpose of defending the claim. That assertion was uncontradicted by any other evidence by the plaintiff and was not the subject of cross-examination.
[32] As for the second part of the test with respect to the importance of the issues sought to be appealed, I find that they are of general importance. In that regard, I am guided by the words of the late Associate Chief Justice Callahan of the High Court of Justice sitting as a judge of the Divisional Court in Greslik v. Ontario Legal Aid Plan (1980), 1988 4842 (ON SCDC), 65 O.R. (2d) 110. In commenting on the need for the conditions for granting leave to be satisfied, particularly matters of "such importance" before granting leave, he clarified that the matters have to be of public importance and matters relevant to the development of the law. The matters in issue are those of a number of aspects related to the litigation privilege and are of broader application beyond this particular case and fits within that definition.
[33] I find that the tests set out for leave to appeal in both rule 62.02(4)(a) and 62.02(4)(b) have been met. The decision of Gates J. is in conflict with other decisions of both this court and the Divisional Court of Ontario with respect to how other courts have considered the issue of litigation privilege and how it can be lost. In addition, because of the nature of the issue, namely the litigation privilege, it is my view that it is desirable that the appeal should be granted.
[34] I also find that there is good reason to doubt the correctness of Gates J.’s order to produce the Environ report given the findings of other courts, including the Divisional Court with respect to the importance of the privilege and how that privilege can be waived. I am also of the opinion that the issue of litigation privilege is of such significance to litigation in all areas of the law that leave to appeal should be granted.
[35] The motion for leave to appeal is granted with costs to the defendants in an amount to be agreed on by counsel or fixed by me after receipt of cost outlines and cost submissions, no longer than three pages in length, from both parties within 30 days from the date of this amended decision.
Original stamped “Mary Jo M. Nolan”
Mary Jo M. Nolan
Justice
Date: Original decision released: September 27, 2013
Amended decision released: October 10, 2013
(See explanation of amendment attached)
Amendment made October 10, 2013:
The word “plaintiff” in paragraph 35 has been changed to “defendants” and the words added at the end of the paragraph “from the date of this amended decision”.
Paragraph in original decision read:
[36] The motion for leave to appeal is granted with costs to the plaintiff in an amount to be agreed on by counsel or fixed by me after receipt of cost outlines and cost submissions, no longer than three pages in length, from both parties within 30 days from the date of this amended decision.
Amended corrected decision now reads:
[37] The motion for leave to appeal is granted with costs to the defendants in an amount to be agreed on by counsel or fixed by me after receipt of cost outlines and cost submissions, no longer than three pages in length, from both parties within 30 days from the date of this amended decision.