CITATION: Chemtrade West Limited v. MET Holdings Inc., 2013 ONSC 6093

COURT FILE NO.: CV-12-9929-00CL COURT FILE NO.: CV-12-9847-00CL

DATE: 2013-12-03

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Chemtrade West Limited, Plaintiffs

AND:

MET Holdings Inc., Defendants

BEFORE: Mr. Justice H.J. Wilton-Siegel

COUNSEL: Peter H. Griffin and Eli S. Lederman, for the Plaintiffs John L. Finnigan and Deborah E. Palter, for the Defendants

HEARD: September 23, 2013

ENDORSEMENT

[1] On this motion, the applicants Chemtrade West Limited Partnership, Chemtrade Montreal Limited Partnership and Chemtrade Refinery Solutions Limited Partnership (collectively, the “Applicants” or “Chemtrade”) seek an order requiring production of all documents arising on or before June 24, 2011 subject to solicitor-client privilege which are in the possession of MET Holdings Inc. (formerly Investis U.S., Inc.) (“MET” or the “Respondent”) or its former legal counsel Stikeman Elliott LLP (“Stikeman”) that are relevant to the negotiation of an indemnity and covenant agreement dated June 24, 2011 entered into between Chemtrade and Investis U.S., Inc. (the “ICA”). In this Endorsement, references to MET and to Investis U.S., Inc. are understood to be a reference to the same legal entity.

Background

[2] The following facts pertaining to these proceedings are undisputed.

The Indemnity and Covenant Agreement

[3] The ICA was entered into in connection with an arrangement agreement dated May 5, 2011 (the “Arrangement Agreement”), pursuant to which Chemtrade Logistics Inc. (“Logistics”) agreed to acquire all the outstanding shares of Marsulex Inc. (“Marsulex”) for $419.5 million (the “Transaction”). The ICA was finalized on or about May 5, 2011, and was attached as a schedule to the Arrangement Agreement. It was executed and delivered by Chemtrade and Investis U.S., Inc. on June 24, 2011 (the “Effective Date”), at the closing of the Transaction.

[4] Under the provisions of section 4.5(1)(i) of the ICA (the “Tax Indemnification Provision”), Chemtrade agreed to indemnify MET for, among other things, all liabilities arising out of the taxes of the “MET Parties” for periods or portions thereof ending on or before the “Effective Date”, being the date of completion of the Transaction (June 24, 2011) (such taxes being referred to as “Pre-Arrangement Taxes”). For this purpose, the “MET Parties” comprise MET and its subsidiaries Marsulex Environmental Technologies Corporation (“METC”) and Marsulex Environmental Technologies LLC.

The Respective Applications of the Parties

[5] MET has commenced an application for an order declaring Chemtrade liable to indemnify MET for the Pre-Arrangement Taxes of the MET Parties, which it calculates to be $3,017,673, pursuant to the ICA.

[6] In response, Chemtrade has commenced its own application seeking rectification of the terms of the ICA. It says the intention of the parties was that Chemtrade would only be obligated to indemnify MET for liabilities arising out of the taxes of the MET Parties for periods or portions thereof ending on or before December 31, 2010 (rather than June 24, 2011).

The Negotiation of the ICA

[7] The parties commenced negotiation of the Transaction in December 2010. From the outset, the parties understood that Chemtrade did not wish to acquire METC, which was a wholly-owned subsidiary of MET. Marsulex indicated that it was pursuing a sale of METC to a third party that would close prior to the Transaction. Subsequently, draft share purchase documentation, which included tax indemnification provisions, was exchanged between Marsulex and the third party. Chemtrade and Marsulex executed a letter of intent dated February 22, 2011 regarding the Transaction (the “LOI”), which included an express term regarding the sale of METC to the third party prior to announcement of the Transaction.

[8] Shortly after the execution of the LOI, Marsulex advised Chemtrade that it was having difficulties with the proposed third party purchaser and proposed that the Transaction be restructured to include a spin-off of METC by Marsulex to its shareholders. Chemtrade says that it advised Marsulex that it was prepared to have Marsulex proceed with the spin-off transaction provided Chemtrade would be in the same economic position as if the third party sale had occurred. While this would not be an unexpected position for Chemtrade to take, the principal shareholders of MET after completion of the Transaction, Birch Hill Equity Partners Management Inc. and two associated limited partnerships (collectively, “Birch Hill”), which own approximately 98% of the shares of MET, deny that Investis agreed that it would “ensure” that Chemtrade would be in the same economic position. In any event, however, the specific issue in this proceeding had not been addressed by the parties at the time of any such statement.

[9] Draft term sheets were subsequently exchanged between the parties regarding a proposed spin-off of METC by means of a distribution of MET’s shares to the Marsulex shareholders. The term sheets contemplated documentation for the spin-off based on the draft share purchase documentation.

[10] Effective March 31, 2011, Marsulex completed an internal reorganization under which ownership of certain other subsidiaries of MET which were to be acquired by Chemtrade in the Transaction (referred to as the “Refinery Subsidiaries”) were transferred from MET to another wholly-owned subsidiary of Marsulex. After this reorganization, the only subsidiaries of MET were METC and Marsulex Environmental Technologies LLC.

[11] Chemtrade says the purchase price of Marsulex was determined based on the Marsulex financial statements as of March 31, 2011, which therefore excluded MET and its subsidiaries including METC. It says the purchase price calculation had an adjustment for changes in working capital of the consolidated entity excluding MET and METC from that date to the date of closing.

[12] On or about April 13, 2011, the third party terminated negotiations with Marsulex regarding the proposed third party sale transaction. From this time onward, the parties concentrated on negotiating the documentation for a spin-off, including the ICA, which would occur as part of the Transaction.

[13] Ultimately, as mentioned, the Transaction was finalized in the Arrangement Agreement dated May 5, 2011, and closed on June 24, 2011.

The Record in this Proceeding

[14] MET commenced its application to enforce the ICA by notice of application dated September 20, 2012. The MET application was supported by an affidavit dated September 18, 2012 of Michael Salamon (“Salamon”), a partner in Birch Hill Equity Partners Management Inc.

[15] Chemtrade commenced its application for rectification of the terms of the ICA by notice of application dated November 30, 2012 (the MET application and the Chemtrade application are herein referred to collectively as the “Applications”). The Chemtrade application was supported by an affidavit dated November 9, 2012 of Mark Davis (“Davis”), the president and chief executive officer of Logistics (the “Davis Affidavit”). The Chemtrade application was also supported by an affidavit of Jean Fraser (“Fraser”), a partner in Osler Hoskin & Harcourt LLP (“Osler”), who acted as legal counsel to Logistics in respect of the Transaction (the “Fraser Affidavit”).

[16] In the Fraser Affidavit, Fraser states that, through inadvertence and/or mistake, the Tax Indemnification Provision provided for indemnification of tax liabilities for periods ending on the Effective Date rather than December 31, 2010. She states further that, when the tax indemnification provisions in the draft share purchase documentation were revised in the draft ICA prepared for the spin-off transaction, the parties and their solicitors failed to recognize the implications of the substitution of the term “Effective Date” for the term “Closing Date” (which was the term used in the draft share purchase documentation).

[17] In response to the Davis Affidavit and the Fraser Affidavit, MET delivered affidavits dated December 14, 2012 of Salamon (the “Salamon Affidavit”) and of Ron Ferguson (“Ferguson”), a partner in Stikeman who was involved in negotiating the Transaction on behalf of Marsulex and MET (the “Ferguson Affidavit”).

[18] In the Salamon Affidavit, Salamon states that it was intended by Investis U.S., Inc. (now MET) that Chemtrade would indemnify it for the taxes of the “MET Parties” owed for the tax periods or portions thereof ending on or before the Effective Date (June 24, 2011). As mentioned above, Salamon also denies that he made any statement to Chemtrade that MET would ensure that it was to be in the same economic position regardless of whether MET was sold to a third party prior to the Transaction or spun off to the Marsulex shareholders. I would note that the issue is not whether MET would ensure that Chemtrade would be in the same economic position but whether the parties agreed to the principle that Chemtrade would be in the same economic position and failed to implement that principle in the ICA. It is not clear whether this subtle difference in language between Chemtrade’s statement and Investis’ response is intentional and meaningful or not.

[19] Each of Davis and Fraser provided further affidavits dated January 25, 2013 in response to the Salamon Affidavit and the Ferguson Affidavit (respectively, the “Supplementary Davis Affidavit” and the “Supplementary Fraser Affidavit”). In her Supplementary Affidavit, Fraser provided an explanation for the language of the Tax Indemnification Provision that appears in the ICA, which is set out below.

The April Drafts of the ICA

[20] The issues on this motion arise largely out of statements made in the Salamon Affidavit and the Ferguson Affidavit in respect of two drafts of the ICA dated April 14, 2011 and April 25, 2011 delivered by Osler to Stikeman. The facts are largely undisputed although the parties contest the legal significance of the statements in the Affidavits pertaining to these drafts.

[21] The April 14, 2011 draft included a Tax Indemnification Provision that indemnified MET for the tax liability of the MET Parties for periods or portions thereof ending on or before the Effective Date. Osler sent a copy of this draft marked up with handwritten notes of changes requested by Chemtrade that included an amendment that would have limited the tax indemnification liability of Chemtrade to the tax liability of the MET Parties for the period ending December 31, 2010. The April 25, 2011 draft apparently incorporated all of the handwritten changes on the earlier draft but was marked up with new handwritten changes proposed by Osler. Among these proposed changes was language changing the language of the Tax Indemnification Provision back to the previous version such that the indemnity would cover the tax liability of the MET Parties for periods or portions thereof ending on or before the Effective Date. This change was subsequently made to the Tax Indemnification Provision and, accordingly, it is this version that is set out in the ICA and is the subject of these proceedings.

[22] Paragraphs 34 to 37 of the Salamon Affidavit address the two drafts of the ICA. Salamon acknowledges that the effect of the handwritten changes to the April 14, 2011 draft was to limit the tax indemnification obligation to taxes owed for periods ending December 31, 2010 and states that this change was not acceptable MET. He also states that the handwritten changes to the April 25, 2011 draft reflected MET’s intention that the tax indemnification obligation would extend to taxes owing for periods ending on the Effective Date. I would note, however, that there is no evidence in the record that MET ever communicated this intention to Chemtrade.

[23] The Ferguson Affidavit contains language substantially identical to that of the Salamon Affidavit in respect of the two drafts of the ICA. Ferguson further explains that the April 25, 2011 draft was generated by an associate at Stikeman. Ferguson says that he instructed the associate to incorporate all of the handwritten changes on the April 14, 2011 draft with black lines to show the incorporated language and to circulate the revised blacklined draft, being the April 25, 2011 draft, to counsel at Osler and Stikeman for their review.

[24] Ferguson further states at paragraph 11 of the Ferguson Affidavit that “the change proposed by Osler [regarding the scope of the tax indemnification] was not acceptable to Investis.” Ferguson makes the following statement in paragraph 13 with respect to the scope of the Tax Indemnification Provision contemplated by the handwritten changes to the blacklined draft of April 25, 2011 received from Osler (referred to as the “April 25 Mark-Up”):

The April 25 Mark-Up was acceptable to my client and reflects my intention that the Indemnitors would indemnify Investis for the Pre-Arrangement Taxes of the MET Parties for the period or portions thereof ending on or before the Effective Date of June 24, 2011, and not just the taxes owed on or before December 31, 2010, as the Indemnitors now suggest.

[25] In the Supplementary Fraser Affidavit, Fraser explains the restoration of the former language of the Tax Indemnification Provision in the April 25 Mark-Up as follows:

On April 17, 2011, Natalie Munroe, an associate at Osler, sent a mark-up of the Indemnification Agreement (the “Mark-Up”) which had been previously drafted by Stikeman and was based on the indemnification provisions contained in the Draft [share purchase agreement] prepared in connection with the proposed sale by Marsulex of MET to a third party. Page 13 of the Mark-Up shows the proposed amendment to Section 4.5(1) of the Indemnification Agreement to correctly provide that the indemnity is to cover Taxes of the MET Parties for “Pre-Arrangement Taxable Periods” only. …

Contrary to the assertions made in paragraphs 9 to 11 of the Ferguson Affidavit, the changes proposed by Osler were accepted by Stikeman on behalf of its clients. Indeed, on April 25, 2011, Paul Karvanis, an associate at Stikeman, provided the latest version of the Indemnification Agreement to Osler, which incorporated all of the handwritten changes which had been proposed in the Mark-Up. …

Further, on April 25, 2011 at 9:20 p.m., Mr. Ferguson sent me an email confirming that Stikeman had provided the draft Indemnification Agreement “which incorporated all [of Osler’s] changes”. …

Before finalizing the terms of the Indemnification Agreement, at my request, Chemtrade’s tax counsel reviewed the Indemnification Agreement. However, Chemtrade’s tax counsel had not been closely involved in the negotiations relating to the “MET in a box” concept or the working capital adjustments.

Chemtrade’s tax counsel reviewed Stikeman’s draft of the Indemnification Agreement, but I believe that they did so through the lens of a third party sale scenario and began to modify the draft back to its original version, which would place the tax burden for MET’s current year taxes up to the Effective Date on to Marsulex and which would also provide Marsulex with the benefit of any tax refunds in respect of that period.

Chemtrade’s tax counsel proposed the revisions to the Indemnification Agreement in which both section 3.6(1) and section 4.5(1) applied in respect of all “Pre-Arrangement Taxes”, which were defined as “taxes of the MET Parties for periods or portions thereof ending on or before the Effective Date”. The addition of the words “or portions thereof” to these sections resulted in such sections being applicable to taxes accruing during the period from January 1, 2011 to the Effective Date. Although such changes were consistent with a typical third party private sale transaction, they were erroneously made in this context by tax counsel who had not been closely involved in the negotiation relating to the “MET in a box” concept or the working capital adjustments.

These changes were then sent by Ms. Munroe to Stikeman on April 27, 2011 and were again accepted by Stikeman on April 28, 2011. …

Subsequent Developments Prior to Closing of the Transaction

[26] On June 15, 2011, Salamon had a conversation with Rohit Bhardwaj (“Bhardwaj”), the chief financial officer of Chemtrade, in which the parties discussed the operation of the Tax Indemnification Provision. In that conversation, Salamon says that he stated his view that Chemtrade was liable for the tax liabilities of the MET Parties to the Effective Date and that Bhardwaj acknowledged that Chemtrade was “on the hook” unless another specific provision in the ICA applied, which it is agreed does not apply. Bhardwaj did, however, set out Chemtrade’s position that it was not responsible for such taxes in emails before and after this conversation, albeit on different bases from those addressed in this Endorsement.

Developments After Closing of the Transaction

[27] In July, 2011, at the urging of their clients, Fraser and Ferguson had a short telephone call in which Fraser raised Chemtrade’s position and Ferguson advised that MET’s position was that Chemtrade was liable for the tax liability of the MET Parties in accordance with the terms of the Tax Indemnification Provision as executed. As a result, the parties ultimately commenced their respective applications.

The Issues On This Motion

[28] The parties have agreed on a consensual basis to disclosure of solicitor-client communications on a mutual basis up to May 5, 2011, the date of execution of the Arrangement Agreement. MET opposes disclosure of any solicitor-client communications in the period from May 5, 2011 to June 24, 2011, the date the Transaction closed. It argues, however, that, if disclosure is ordered, the cut-off date of June 24, 2011 for disclosure of solicitor-client communications is arbitrary and that all such communications after May 5, 2011 should be produced.

[29] Chemtrade submits that it is entitled to all of MET’s privileged documents up to the time the Transaction closed on two alternative grounds:

1. that solicitor-client privilege has been waived over all solicitor-client communications to the date of closing; and

2. that Chemtrade inherited the privilege by virtue of its acquisition of Marsulex.

I will address each ground in turn after making two preliminary observations.

[30] First, the issue in these proceedings is whether the parties reached a common understanding regarding the scope of the Tax Indemnification Provision and failed through inadvertence or mistake to incorporate that understanding into the ICA. It is Chemtrade’s position that the parties had a common understanding based on two general principles.

[31] Chemtrade says that an agreement to the substitution of the spin-off transaction for a third party sale transaction was conditioned on Investis’ agreement or understanding that Chemtrade’s economic position after the spin-off transaction would be the same as it would have been under the proposed third party sale transaction. As mentioned, it is not clear whether MET denies this principle was agreed to or merely denies any obligation on its part to ensure that the documentation reflected this result. In any event, to the extent there was such an understanding, there remains the issue of whether there was any understanding regarding the economic effect on Chemtrade that was to be maintained in the spin-off transaction.

[32] Chemtrade says that the parties had a common understanding that Chemtrade would only be responsible for any tax liabilities of the MET Parties for periods ending on December 31, 2010 and would have no responsibility for any tax liabilities accrued during the period from January 1, 2011 to the Effective Date. It says that this economic deal was to have been implemented in the proposed third party sale transaction by a working capital adjustment that was no longer applicable after the termination was restructured as a spinoff. Chemtrade says that this understanding follows from the fact that the profits and losses of MET and METC after December 31, 2010 were excluded in establishing the purchase price for the Transaction.

[33] MET asserts that its position at all times was that Chemtrade was to be liable for the Pre-Arrangement Taxes. MET argues that Chemtrade got the economic benefit of the profits and losses of MET and METC for the period January 1, 2011 to March 31, 2011. It says that, therefore, it was reasonable that Chemtrade would be responsible for the tax liabilities of these corporations for the period from January 1, 2011 to the Effective Date.

[34] It is neither necessary nor possible for the Court to resolve either of these issues and I make no finding as to which of these alternative views of the business deal was intended by the parties, if indeed there was a common understanding. However, the respective positions of the parties on these issues are important background to the issues on this motion.

[35] Second, Chemtrade suggests that the existence of the agreement between the parties respecting disclosure of solicitor-client communications up to May 5, 2011 constitutes evidence that MET has, in fact, waived solicitor-client privilege in the Salamon Affidavit and the Ferguson Affidavit. I am not persuaded that this argument has any force and I have not taken it into consideration in reaching the conclusions herein.

The Alleged Waiver of Solicitor-Client Privilege

[36] As mentioned, the principal issue in the Applications is whether the parties reached a common understanding or agreement regarding the scope of the Tax Indemnification Provision. I propose to address certain case law dealing with analogous circumstances and then to set out my analysis and conclusions.

Applicable Case Law

[37] In Creative Career Systems Inc. v. Ontario, 2012 ONSC 649 (S.C.) at para. 30, Perell J. set out the required elements for a deemed waiver or an implied waiver and an obligation to disclose privileged communications between a solicitor and his client:

[A] deemed waiver and an obligation to disclose a privileged communication requires two elements; namely: (1) the presence or absence of legal advice is relevant to the existence or non-existence of a claim or defence; which is to say that the presence or absence of legal advice is material to the lawsuit; and (2) the party who received the legal advice must make the receipt of it an issue in the claim or defence.

[38] Perell J. went on to summarize the essence of these elements by endorsing an instructive observation of Corbett J. in Guelph (City) v. Super Blue Box Recycling Corp, 2004 34954 (ON SC), [2004] O.J. No. 4468 (S.C.) as follows:

[T]he deemed waiver occurs as a matter of the party's choice. Waiver does not occur because the party discloses that he or she received legal advice, nor does it occur because the party admits that he or she relied on the legal advice; it occurs because the party chooses to use the legal advice as a substantive element of his or her claim or defence.

[39] In S. & K. Processors Ltd. v. Campbell Ave. Herring Producers Ltd. (1983), 1983 407 (BC SC), 45 B.C.L.R. 218 (S.C.), at p. 221, McLachlin J. (as she then was) explained that the concept of deemed waiver is motivated by the requirements of “fairness and consistency” in litigation. She noted that, in the cases where fairness has been held to require an implied waiver, there is always some manifestation of a voluntary intention to waive the privilege at least to a limited extent. After canvassing several cases in which waiver was deemed, she noted the common thread between them was that “the Plaintiff chose to raise the issue [of privileged legal advice]. Having raised it, he could not in fairness be permitted to use privilege to prevent his opponent exploring its validity.”

[40] It is therefore an important principle for present purposes that solicitor-client privilege will be waived where it would be unfair to permit litigants to present some evidence, but exclude other evidence relating to the same issue where the result would be to present an incomplete and misleading picture to the court: see Ranger v. Penterman, 2011 ONCA 412 at para. 16. This principle has been applied to provide that disclosure as to part of a communication constitutes a waiver of the entire communication: see Livent Inc. v. Drabinsky, [2003] O.J. No. 1618 (S.C.), citing S. & K. Processors at para. 10.

[41] There is a paucity of case law regarding the circumstances in which a waiver of solicitor-client privilege may occur outside of the straight-forward circumstance of pleading or otherwise putting forward actual legal advice. However, two cases have been brought to the Court’s attention that are helpful in addressing the issue in this proceeding.

[42] In Woodglen & Co. Ltd. et al. v. Owens et al. (1995), 1995 7070 (ON SC), 24 O.R. (3d) 261 (Gen. Div.) E. Macdonald J. ordered disclosure of a solicitor’s file in order to determine the scope of a second solicitor’s mandate where the issue at the heart of the litigation was the scope of the plaintiff’s engagement of the second solicitor. E. Macdonald J. ordered disclosure on the ground that the party at issue had put into issue the instructions given to the party’s solicitor.

[43] In Woodglen, Macdonald J. also stated the following in noting that not every solicitor-client communication that goes to the “heart of the matter” is, on that account alone, privileged:

… the defendants submit that when the solicitor-client communication goes to the "very heart of the matters at issue" in the litigation, the solicitor-and-client privilege cannot be maintained. In my view, this is not what the cases stand for. …

In Katz v. Lapsker, [1988] O.J. 1950, another case of Master Peppiatt, counsel for the moving party had argued that the solicitor-client privilege had been penetrated because the communications were "at the heart of the matter of the litigation". Master Peppiatt correctly stated the law in this regard as follows:

With great respect to [counsel for the moving party], I think that he has misconceived the principle laid down in these cases. It is that the solicitor-client privilege is set aside (as I said, I think this is really a form of waiver) where a party raises the issue of what he learned from his solicitor. It does not mean that where certain information or evidence is central to the litigation, the solicitor can be compelled to reveal what he, or she, said to the client. Such a doctrine would entirely destroy the solicitor-client privilege.

In my view, this is an accurate characterization of the issue raised by the defendants in this motion. The cases in this area are based upon waiver where a party puts into issue the instructions given to his or her solicitor. If a litigant were able to obtain information that would otherwise be privileged, on the basis that it goes to the heart of the matter, the concept of solicitor-client privilege would be destroyed. Accordingly, I view the "heart of the matter" concept as being one which is misconceived….

[44] This is an important constraint on the scope of any alleged waiver of solicitor-client privilege. Merely because information subject to solicitor-client privilege “goes to the heart of the matter” does not give rise to a waiver of that privilege.

[45] In 1273368 Ontario Inc. v. Pharmx Rexall Drug Stores Ltd., [2002] O.J. No. 3220 (S.Ct.) the issue was the intention and knowledge of the plaintiff at the time an earlier and a later agreement were signed, and any change of intention between the execution of the two documents. LaForme J. (as he then was) ordered disclosure of the file of the plaintiff’s lawyer on the basis that the plaintiff’s interpretation of the meaning of the agreements, and of the effect of any changes in the wording of the second agreement, were relevant to the issue.

[46] In Pharmx, the issue at the “heart of the matter” was the intention and knowledge of the plaintiff in the context of a claim for rectification of an agreement. LaForme J. ordered disclosure of the solicitor’s legal advice, if any, as it could have a bearing on the plaintiff’s state of mind. LaForme J. also ordered disclosure of the solicitor’s recollection of the plaintiff’s interpretation of the agreement, i.e. of his state of knowledge, which would necessarily have been derived from communications between the plaintiff and his solicitor.

Analysis and Conclusions

[47] MET argues that the statements in the Salamon Affidavit at paragraphs 34 to 37 do no more than set out MET’s position regarding the scope of the Tax Indemnification Provision and its instructions to its counsel, Stikeman, respecting the draft ICA documentation. Similarly, it says that the Ferguson Affidavit, in particular paragraphs 11 and 13, also do no more than set out MET’s instructions to its counsel and, as such, do not constitute a waiver of solicitor-client privilege. I do not agree. I think something more significant is at play in these paragraphs.

[48] Chemtrade is of the view that the parties had a common understanding or agreement that it would only be liable for tax liabilities of the MET Parties for periods ending on or prior to December 31, 2010. It says the parties mistakenly included the form of the Tax Indemnification Provision in the ICA which extended liability to taxes arising in respect of the period up to the Effective Date. MET says that it intended Chemtrade to be liable for taxes of the MET Parties up to the Effective Date. However, because Chemtrade’s counsel itself revised the form of the Tax Indemnification Provision to provide that Chemtrade would assume such liability, there is no documentary evidence of any negotiations confirming either intention. Given these circumstances, the communications between Salamon and MET are the only forum in which Salamon’s state of mind regarding the existence of any common understanding or agreement between the parties, and regarding the existence of a mistake on the part of Chemtrade, would be reflected.

[49] The issue at the heart of this litigation is, therefore, whether or not the parties, in fact, reached a common understanding or agreement that provided that Chemtrade would not be liable for such liabilities and, if so, whether MET took advantage of a mistake in the drafting of the ICA by remaining silent. This is fundamentally, a question of MET’s knowledge or, more specifically of Salamon’s knowledge, of the existence or lack of existence of a common understanding or agreement between the parties and, accordingly, his understanding of whether or not, by remaining silent, MET was taking advantage of a mistake by Chemtrade in the finalization of the terms of the ICA.

[50] In the Salamon Affidavit, Salamon did more than merely state MET’s position that the scope of the Tax Indemnification Provision was acceptable to MET. Salamon went on to set out MET’s view of the business deal between the parties which, in MET’s view, gave Chemtrade the benefit of MET’s profits and losses to March 31, 2012 and, he says, supports Met’s view of the intention of the parties respecting the Tax Indemnification Provision. As mentioned, MET considers that the Tax Indemnification Provision reflected, and was consistent with, the business deal between the parties.

[51] This may well be correct. However, in making this statement, Salamon has put in play MET’s understanding of the nature and extent of any common understanding or agreement, if any, between the parties regarding the conceptual framework which guided the parties in the drafting of the ICA. In effect, he is denying the existence of any common understanding or agreement of the nature asserted by Chemtrade without expressly saying so and asserting the absence of any knowledge on his part of any mistake on the part of Chemtrade.

[52] The present circumstances are therefore analogous to those in Pharmx. As in that case, any communications and discussions that Salamon may have had with Ferguson regarding these issues would be material to the issue of Salamon’s state of mind, including any legal advice that Ferguson may have provided as to whether in his opinion the parties reached an agreement or common understanding.

[53] Further, and more significantly, paragraph 11 of the Ferguson Agreement implies that Salamon expressly discussed the issue of the scope and nature of the Tax Indemnification Provision with Ferguson, which would necessarily include the basis of MET’s position on this issue and any legal opinion of Ferguson regarding the alleged common understanding or agreement. Otherwise, it would be a meaningless, if not misleading, statement. Similarly, in making the statement in paragraph 13 of the Ferguson Affidavit that the April 25 Mark-Up was acceptable to his client, Ferguson is implicitly stating that he discussed this draft with Salamon, which would also necessarily include Salamon’s views on the existence of any common understanding or agreement as alleged by Chemtrade and/or, if any such common understanding or agreement did, in fact, exist, any statement of Salamon that he intended to remain silent and leave it to Chemtrade to pick up the error.

[54] Ferguson’s statements are intended to constitute support for MET’s position regarding the scope and nature of the Tax Indemnification Provision. Significantly, given Salamon’s effective denial of the existence of any common understanding or agreement for the reasons set out in the preceding paragraph, Ferguson’s statements imply that he agrees with the conclusion that the parties did not reach an enforceable agreement of the nature asserted by Chemtrade. In particular, I think that is a necessary implication of the statement in paragraph 13 that the April 25 Mark-Up reflected his intentions regarding the Tax Indemnification Provision. I think the Court is entitled to assume that, as an officer of the Court, he would not have made this statement if his legal opinion had been that MET’s position entailed a breach of a common understanding or agreement. Otherwise, his statement that the April 25 Mark-Up reflected his intentions, without more, would mean that his intentions and/or his client’s intentions were to breach a common understanding or agreement and, in the present context, would be misleading.

[55] Having relied upon this evidence in support of MET’s position, MET cannot in fairness continue to assert solicitor-client privilege over communications between Salamon and Ferguson regarding the drafting of the ICA. Consequently, the requirements for demonstration of a waiver of solicitor-client privilege have been established with respect to the communications that underlie the statements in the Ferguson Affidavit. Even if the only purpose of the Ferguson Affidavit is to confirm the consistency of MET’s position and its instructions to Stikeman, MET has put in play the content of the communications resulting in its instructions to Stikeman by relying on the statements in the Ferguson Affidavit. To the extent that such statements are intended to confirm that MET’s position also reflected Stikeman’s legal opinion regarding the absence of any common understanding or agreement, MET has also waived its privilege with respect to the content of any such opinion. Having relied on part of the communications, fairness and consistency require that all of the communications be disclosed.

[56] The issue then arises whether there is any basis for extending the deemed waiver to include communications between MET and Stikeman between May 5, 2011 and June 24, 2011. I think there is for the following reason. While finalized by May 5, 2011, the ICA was not executed until June 2011. The statements in the Salamon Affidavit and the Ferguson Affidavit are understood to be statements of Salamon’s continuing state of mind and, therefore, of MET’s continuing position and understanding, to the date of execution of the ICA. Otherwise, they would also be misleading in this respect. In these circumstances fairness and consistency require disclosure of all communications between MET and Stikeman pertaining to their understanding of the issue in this proceeding up to the date of execution of the ICA.

[57] MET has raised two companion issues in the event that the Court orders such disclosure. First, it is MET’s position that any such disclosure should be reciprocal. I entirely agree. The issue of knowledge of any common understanding or agreement of the parties is a reciprocal one. The understanding of Davis, which has clearly been put in issue in the Davis Affidavit and the Fraser Affidavit, is equally relevant. Accordingly, disclosure is also ordered of any communications between Davis and Fraser of the nature described above in respect of Salamon and Ferguson.

[58] Second, MET argues that any such disclosure should not be restricted to communications arising prior to the closing of the Transaction on June 24, 2011. I also agree with respect to this submission.

[59] In the context of the state of mind of the parties respecting any common understanding or agreement with respect to the Tax Indemnification Provision, the date of June 24, 2011 is as artificial a cut-off as the date of May 25, 2011. As described above, on June 15, 2011, representatives of the parties exchanged views regarding the scope of the Tax Indemnification Provision after it appears that the issue was identified by Chemtrade. Any internal conversations before or after this exchange of views leading up to the closing of the Transaction are relevant to the issues in the applications brought by the parties, as discussed above. The parties’ counsel also exchanged views on this issue at the request of their clients after completion of the Transaction in July, 2011. Any internal conversations in respect of this exchange would similarly be relevant.

[60] More generally, I see no distinction in principle between the significance of exchanges between the parties and their respective solicitors on this issue before closing of the Transaction and after the closing. Each may be relevant in the determination of the state of mind of the parties regarding the Tax Indemnification Provision, particularly if any mistake, if there were one, was only identified at a date subsequent to the finalization of the ICA and, apparently, shortly before the closing of the Transaction but continued to be the subject of efforts by Chemtrade to address the issue after closing.

[61] On the other hand, for the sake of clarity, nothing in this Endorsement constitutes, or should be interpreted to require, disclosure of any solicitor-client communications pertaining to the Applications, including without limitation any legal advice regarding the merits of the positions of either party in the Applications.

[62] I also wish to state that, in reaching the foregoing conclusion in this Endorsement, I am not in any position to make, and do not intend to make, any determination regarding whether or not Chemtrade is correct in asserting that MET is taking advantage of its mistake in view of the existence of a common understanding or agreement respecting the terms of the Tax Indemnification Provision. Similarly, I am making no determination of any kind regarding the actions of any of the individuals involved in respect of this issue. The evidence before the Court on this motion is equivocal and, in any event, a determination on this issue is neither necessary nor appropriate.

Chemtrade Claim of Inheritance of the Privilege

[63] Chemtrade argues that Stikeman acted for both Marsulex and MET on the Transaction. Chemtrade says that, by virtue of its acquisition of Marsulex, it has inherited the privilege of Marsulex and is therefore entitled to access to all privileged documents which Marsulex and MET had in their possession to June 24, 2011. It relies on the principle of law that communications between a solicitor and a client in a joint retainer relationship are not privileged as against the other client.

[64] I do not accept the factual premise upon which this argument of Chemtrade is based - that Stikeman acted for both Marsulex and MET in respect of the negotiation of the ICA.

[65] The Chemtrade position ignores two important features of the spin-off transaction. From the outset of the spin-off transaction, the parties contemplated that the ICA would be an agreement between Chemtrade and MET; Marsulex was not to be a party to the ICA. Moreover, as structured by the parties, the ICA was only to become effective upon completion of the Transaction.

[66] In these circumstances, Marsulex had no need for legal advice and there is no evidence that Stikeman purported to provide any such legal advice. Accordingly, while Stikeman acted for Marsulex in respect of the arrangement transaction by which Chemtrade acquired all of the shares of Marsulex, Stikeman did not act for Marsulex in respect of the spin-off transaction and it follows, in particular, that Stikeman did not act for Marsulex in the negotiation of the ICA. To the extent that it was necessary to consider the effect of the spin-off on Marsulex, Osler addressed such issues in its mandate on behalf of Chemtrade, as any such effects would occur contemporaneously with Chemtrade’s acquisition of Marsulex.

[67] In short, in respect of the ICA, even though there may be no formal documentation evidencing these circumstances, I think it is clear that no joint retainer relationship arose. Stikeman acted solely for MET. Osler’s mandate in acting for Chemtrade included addressing, to the extent necessary, any effect of the spin-off transaction on Marsulex.

Conclusions

[68] Based on the foregoing, it is ordered that the parties shall disclose all solicitor-client communications relating to the negotiation of the ICA and the parties’ respective understanding of its terms.

Wilton-Siegel J.

Date: December 3, 2013