SUPERIOR COURT OF JUSTICE - ONTARIO

COMMERCIAL LIST

COURT FILE NO.: 00-CL-3835
DATE: 20131029

RE: The Bankruptcy of Jay Tien Chiang

AND RE: Mendlowitz & Associates Inc. in its capacity as trustee in bankruptcy of Jay Tien Chiang, and Korea Data Systems (USA), Inc., plaintiffs v. Jay Tien Chiang et al, defendants

COUNSEL:
John Marshall and James Gibson for Korea Data Systems (USA) , Inc.

Catherine Francis and Mark Freake for the Trustee

Hilary Book for Christina Chang

Jaclyn Greenberg (student-at-law) for Jay Chiang

HEARD: October 28, 2013

BEFORE: MESBUR J.

Introduction:

[1] Korea Data Systems (USA), Inc. (KDS) held a multi-million dollar California judgment against Jay Tien Chiang. It tried to enforce it in Ontario. Chiang then declared bankruptcy. KDS took the position the bankrupt had engaged in fraudulent activities, and sought an order permitting it to continue its action to enforce the California judgment, notwithstanding the bankruptcy. The court agreed. The parties referred to this action as the Fraudulent Conveyances action.

[2] Chiang’s Trustee became a plaintiff in the Fraudulent Conveyances action as well. Borden Ladner Gervais (BLG) represented both the Trustee and KDS in that action. It eventually came on for trial before Marrocco J (as he then was). The plaintiffs did not enjoy the success they had anticipated. The judgment suggested the Trustee retain new, independent counsel of its own. It has now done so.

[3] When Trustee’s new counsel was retained, BLG asked if the Trustee had any objection to BLG continuing to act for KDS. The Trustee advised BLG it did not object to BLG’s continuing to act for KDS and John Hui, (the principal of KDS) provided that, and for so long as neither KDS nor Hui took any positions or steps which were adversarial to the positions and interests of the Trustee or Benny Mendlowitz personally. BLG continued to act. The Trustee is moving on November 6 for an order removing BLG as counsel to KDS and Mr. Hui on the basis, among other things, of BLG’s alleged breach of the Rules of Professional Conduct in relation to joint retainers, among other things.

[4] Although judgment was granted after the lengthy trial, the judgment contemplates the court taking a number of additional steps, including, but not limited to, things like submissions on costs, hearing submissions on the precise nature of damages, if any, KDS is entitled to recover from Jay Chiang; the precise terms of a Mareva injunction in aid of execution and the precise terms of an equitable tracing order. The issue of the penalty hearing on a finding of contempt against Jay Chiang also remains outstanding.

[5] Trustee’s counsel and KDS’ counsel now do not agree on how many of these matters should be resolved. They disagree on how the Trustee might resolve outstanding issues. The Trustee is moving before Brown J on November 6 to have BLG disqualified from continuing to act for KDS. It has filed a lengthy report in support of its motion to do so. The report is also filed in relation to the trustee’s additional motion or motions for the court’s advice and directions on many of the outstanding issues I have outlined above. KDS takes the position that a number of documents and statements the Trustee has included in its report breach solicitor client privilege.

[6] Morawetz J determined the motion for advice and directions could not be dealt with until first, the privilege issue is decided, and second, the removal motion has been decided.

[7] KDS takes the position that the report discloses privileged information, and the Trustee should be prohibited referring to any of this impugned information, both for the purposes of the removal motion and for the purposes of the Trustee’s motion or motions for further directions after that.

[8] This motion is to determine whether any of the impugned information is indeed privileged, and if so, for what purpose or purposes.

The impugned information:

[9] The information in question can be roughly divided into three types: first, actual solicitor/client communication during the course of the joint retainer; second, what KDS describes as “settlement privilege”, or privilege attaching while BLG and Trustee’s counsel were trying to craft a joint settlement regarding the various outstanding issues under the judgment; and third, “litigation” or “common interest” privilege.

[10] There are eight parts of the trustee’s report that contain this impugned information. KDS has helpfully filed a brief, called “Brief of Privileged Documents” of 8 tabs including the material it claims privilege over. In will refer to each of the 8 tabs in determining whether or not privilege attaches. First, however, I must set the dispute in its legal context.

The legal framework:

[11] At the heart of this motion is KDS’s contention that when two parties jointly retain a lawyer, one of those clients cannot unilaterally waive privilege without the other’s consent. It takes the position that all the impugned material is subject either to solicitor client privilege, settlement privilege or litigation or common interest privilege. It says it does not waive privilege, and therefore all the impugned material should be stricken from the motion materials and Trustee’s report.

[12] The Trustee takes the position that first, privilege only operates against the world, and does not apply between the parties themselves. It goes further and says no privilege can attach to the communications that postdate the Trustee’s dismissing BLG as its counsel.

[13] There is no question that legal advice given to clients falls within the ordinary course of solicitor-client communications, and is therefore privileged. Both the Trustee and KDS agree on this important principle.

[14] Settlement discussions between adverse parties, made with a view to settling the dispute between them are also clearly privileged. The purpose of settlement privilege is to ensure parties can resolve their disputes by negotiating freely without fear of later prejudice. Communications parties make in the course of their negotiations to settle their dispute are inadmissible.[^1] Settlement privilege is jointly held by all parties to the negotiation and cannot be unilaterally waived by any one party.

[15] In a similar way, courts have recognized “litigation privilege”. It attaches to communications and documents provided to others with common, but not identical interests. It is sometimes referred to as “common interest privilege”. The privilege attaches, among other things, to sharing litigation strategy.[^2]

[16] Joint retainers present some different issues. Where two clients are represented by the same counsel, both clients enjoy solicitor client privilege. Neither can waive that privilege against third parties, unless both consent. As between the two of them, no privilege attaches to any communications between them and their lawyer.[^3]

Discussion:

[17] It seems to me I must address the question of privilege in two contexts. The first is in relation to the motion to remove BLG as KDS’ lawyer. The second is in relation to the Trustee’s broader motion for advice and directions.

Privilege on the removal motion

[18] I see the removal motion as essentially a conflict between the two clients themselves, since at its heart is the Trustee’s wish to prevent KDS from continuing with BLG as its counsel of choice.

[19] As set out in Wigmore, quoted in Horowitz v. Rothstein, above, where the same attorney acts for two parties having a common interest, those communications are clearly privileged. However, the communications are not privileged in a controversy between the two original parties themselves. The controversy on the removal motion is between the Trustee and KDS over whether KDS can continue to have BLG as its counsel. In this context, there can be no privilege. I therefore conclude that for the motion before Brown J on the removal issue, the Trustee’s entire motion record should be available.

Privilege on the balance of the Trustee’s motion for advice and direction

[20] That, however, is not the end of the matter. The Trustee wishes to use its motion record and October 11, 2013 report to support its motion or motions for further advice and directions. That motion includes seeking advice and directions about:

a) The Trustee’s right to disclose documents and information to Jay Chiang (the bankrupt) and Christina Chiang (his wife);

b) The Trustee paying out certain funds to Winner (one of the original defendants in the Fraudulent Conveyances action)

c) Scheduling a penalty hearing regarding the third contempt trial of the Chiangs, including KDS’ role, if any in that proceeding;

d) KDS’ proposed s. 38 motion;

e) Scheduling a hearing date to deal with residual matters under the Marrocco J decision;

f) KDS’ proposed garnishment proceeding against the Trustee

g) The return of Jay Chiang’s travel documents;

h) The Trustee’s rights and obligations in terms of the appeal from the trial decision; and

i) The Trustee’s rights and obligations in relation to certain proceedings in Taiwan.

[21] It is readily apparent these additional directions will involve many other parties apart from the Trustee and KDS. As I see it, different legal principles apply in that regard.

[22] I accept the statement of law from KDS’ factum in terms of joint retainers, privilege and waiver of privilege as far as third parties are concerned. That is to say, “parties to joint retainers, co-defendants in actions and co-parties to settlement discussions communicate with the reasonable expectation that their discussions will be kept confidential. When such joint enterprises crumble, co-parties should not be permitted to use those confidences to their own advantage.”[^4]

[23] Solicitor client privilege is close to absolute. A joint holder of privilege cannot unilaterally waive solicitor-client privilege without the consent of the co-holder of that privilege.[^5] The same principle applies to litigation privilege, settlement privilege or common interest privilege. Thus, if I determine that the impugned documents are subject to one of these types of privilege, they cannot be disclosed to any third parties, since KDS does not waive its privilege of any kind.

[24] This leads me to a discussion of the actual impugned documents. In this regard, I will refer to the documents as they are reproduced in the “Brief of Privileged Documents” prepared by KDS. I will refer to the tab numbers in that brief, since that is the easiest way to identify precisely what is being considered.

[25] Tabs 1, 2, and 3: These contain documents including legal advice given to the Trustee and KDS during the course of BLG’s joint retainer. I accept that when it comes to this kind of advice, privilege attaches. Since I have decided the privilege can be waived against third parties only if all the joint clients waive the privilege, these documents may not be disclosed on the Trustee’s motion(s) for directions, and must be expunged from the Trustee’s report.

[26] Tab 4 is the portion of the Trustee’s report that outlines generally the information set out in Tabs 1, 2, and 3. Since those Tabs are privileged, the impugned material in tab 4 must also be privileged.

[27] Tab 5 is an outline of all the fees billed by BLG. No particulars are provided, simply the billing date, invoice number and billing amount in either Canadian or US Dollars. All the bills were rendered while both the Trustee and KDS were BLG’s clients. KDS has paid all of them. As I see it, the accounts were provided to both clients. Their contents are part of the overall communication between lawyer and client, and are thus privileged. Even though the entire accounts are not included, I fail to see how partial information from them avoids the privilege issue.

[28] The Trustee suggests that since a trustee must always tax its fees and disbursements, and this would include its counsel’s fees, the information cannot be privileged. It says that any law firm acting for a trustee could have no expectation of privacy. Here, however, KDS indemnified the Trustee in relation to BLG’s fees, and in fact has paid them. I fail to see how the privilege that attaches to the bills can somehow be lost in the fashion the Trustee suggests.

[29] Tab 6 deals with communications BLG had with a lawyer in Taiwan in February of 2013. BLG shared this information with Trustee’s counsel. BLG did not suggest in any way the information should be kept confidential. By this point, it was abundantly clear the trustee and KDS had divergent interests from one another. It seems to me that had BLG wanted to keep this information confidential, it should have said so explicitly. It did not.

[30] BLG suggests that this communication is somehow protected by common interest, or settlement privilege. I am not persuaded at this point there was any true common interest, particularly on this issue. I am not persuaded the communication was made to further a settlement between the Trustee and KDS. At its highest, the excerpt from an email from Mr. Cameron, KDS’ California counsel, could fall into the common interest settlement privilege category, since it raises issues of tactics in dealing with the Taiwan litigation. It seems to me that portion of the impugned material should be struck as offending common interest privilege, and KDS has not waived that privilege. The rest of the tab can remain.

[31] Tab 7 contains emails from Trustee’s counsel to KDS counsel. I fail to see how KDS can claim privilege over the Trustee’s documents. If they are subject to privilege, that privilege lies between the Trustee and its counsel. The privilege is the Trustee’s to waive, and it has clearly chosen to do so. Tab 7 is therefore not privileged.

[32] Tab 8 contains the same documents as are found in tab 3. Since Tab 3 is privileged, Tab 8 is, too.

[33] Tab 9 contains the paragraphs of the trustee’s report that describe the information and documents in tabs 3, 7 and 8. To the extent they reveal information from tabs 3 and 8, they must be removed. To the extent they reveal information from tab 7, they are not privileged.

[34] Tab 10 is an email and attachments from Mr. Cameron, a California attorney who represented KDS’ principal, Mr. Hui, and obtained the judgment KDS initially attempted to enforce in Canada. His email is in response to Ms. Francis’ request for information about various California proceedings, and for copies of court documents. Included in the material Mr. Cameron sent is a copy of something called “Confidential Voluntary Settlement Brief” for a conference scheduled for February 17, 2010. The lawsuit is one in which Mr. Hui is a named defendant, as well as a cross-complainant.

[35] The brief is marked “CONFIDENTIAL – NOT TO BE DISTRIBUTED TO COUNSEL OR PUBLIC* . Mr. Cameron, however, did not impose any additional limitations on Ms. Francis’ use of this document. Mr. Cameron has sworn an affidavit in which he describes his communications with Ms. Francis as being “for the purpose of attempting to reach a joint settlement position that could be presented separately to Christina Chiang, Mei Huang, and Winner International Group Limited [^6] as well as a number of other defendants.”[^7]

[36] Mr. Cameron includes in his affidavit copies of more of the email correspondence between him and Ms. Francis. He has provided the material, but asserts, on KDS’ instructions, solicitor client privilege over this material. He says all the communications, taken together, include his “candid views on various pending litigation steps.” He says he “understood those communications were part of a privileged and confidential settlement process KDS was undertaking with the Trustee…” Mr. Cameron says he viewed his role as akin to in-house counsel for KDS. He says he understood all his communications with Ms. Francis were without prejudice. He was not cross-examined on this affidavit. I have no basis to disbelieve what he says.

[37] As I see it, Ms. Francis’ communications with Mr. Cameron, set out in tab 10, focus on joint settlement strategies for their two clients. I see them as protected by common interest privilege. While those communications trying to effect a joint settlement have broken down, I fail to see how that falling out can destroy the privilege, unless KDS agrees to waive it. It has not. Privilege therefore applies to tab 10.

Conclusion:

[38] For these reasons, no privilege attaches to anything in the Trustee’s report for the purpose of the removal motion before Brown J. He is to be provided with the entire, unredacted Trustee’s motion record and trustee’s report dated October 11, 2013, but under seal. The unredacted motion record, together with KDS’ responding motion record will remained sealed.

[39] For the purposes of the balance of the Trustee’s motion or motions for advice and directions, the following material is declared privileged, and must be removed/redacted from the motion record that forms part of the public record in these proceedings:

a) Tabs 1, 2, 3, 4, and 5;

b) The excerpt from Mr. Cameron’s email, reproduced at Tab 6;

c) Tab 8;

d) Tab 9, but only to the extent it describes information from Tabs 3 and 8; and,

e) Tab 10

[40] Trustee’s counsel tells me the unredacted motion record was only served on KDS. It is not to be served on anyone else. The redacted motion record, redacted in terms of this endorsement, will replace the sealed motion record for all purposes except the removal motion before Brown J. Brown J is to be provided with a copy of these reasons when the parties file their facta on the removal motion.

MESBUR J.

Released: October 29, 2013

[^1]: Johnstone v. Locke, 2011 ONSC 7138

[^2]: Barclays Bank PLC v. Metcalfe and Mansfield, 2010 ONSC 5518

[^3]: See, for example, Wigmore on Evidence, 3rd ed. Vol 8, art 2313, quoted in Horowitz v. Rothstein 1955 CarswellBC 111 (BCCA)

[^4]: KDS factum, paragraph 7

[^5]: Chan v. Dynasty Executive Suites Ltd. [2006] O.J. No. 2877 (S.C.J.); Nette v. Stiles, 2012 ABQB 290; Almecon Industries Ltd. v. Anchortek Ltd., 1998 9108 (FC)

[^6]: They were all parties to the litigation KDS and the trustee pursued against Mr. Chiang and others

[^7]: Affidavit of D. Steve Cameron sworn 23 October 2013