SUPERIOR COURT OF JUSTICE – ONTARIO

COMMERCIAL LIST

RE: Brome Financial Corporation Inc., Plaintiff

AND:

Bank of Montreal, Respondent

BEFORE: D. M. Brown J.

COUNSEL:
L. Brzezinski and J. Polyzogopoulos, for the Plaintiff
M. Mohamed and J. Woycheshyn, for the Defendant

HEARD: July 22, 2013, with subsequent written submissions dated August 8, 2013.

REASONS FOR DECISION

I. Motion to dismiss action for alleged breach of the deemed undertaking rule

[1] The defendant, the Bank of Montreal (“BMO”), moved for an order dismissing this action on the ground that the plaintiff, Brome Financial Corporation Inc. (“Brome”), had breached the deemed undertaking rule set out in Rule 30.1 of the Rules of Civil Procedure.

[2] Brome brought a cross-motion for an order, if necessary, that the deemed undertaking rule did not apply to the evidence or information obtained by Brome from BMO’s productions in the latter’s Loretta Action or, alternatively, an order permitting Brome to make full use of such evidence and information in its present action.

[3] For the reasons set out below, I dismiss BMO’s motion and grant, in part, Brome’s cross-motion.

II. Procedural history

A. The “main” Loretta Action

[4] Between August, 2009 and November, 2010, the Loretta Group of companies were customers of BMO. One of the lending facilities BMO put in place was a factoring facility. To help with the administration of that facility BMO retained the services of Brome. As well, Brome ended up providing its own factoring facility to one of the companies in the Loretta Group, North Dakota Holdings Ltd.

[5] 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”).

[6] In May, 2012, Brome was added as a third party to the Loretta Action at the suit of BDO Canada Limited.

[7] Around June 14 and 20, 2012, BMO delivered to Brome its documentary productions in the Loretta Action. Mr. Réal Leclair, the Vice-President at Brome managing the litigation, asked Brome’s counsel to select for him from BMO’s productions all emails containing the name of Mr. Nick Dupuis, the BMO employee who had been the chief accountable executive for the servicing agreement between BMO and Brome. Leclair received those productions on June 26, 2012.[^1]

[8] Brome defended the third party claim, as well as the main action, by statements of defence dated July 31, 2012.

[9] On July 31, 2012, Brome also commenced a fourth party claim against all of the defendants in the Loretta Action.

[10] Brome decided to start a separate action against BMO. The first draft of Brome’s statement of claim against BMO was prepared in August, 2012.[^2] According to Leclair, he took the lead in reviewing BMO’s productions and he fed his counsel various pieces of information he found in that review.[^3] After conducting his review of the Dupuis emails, Leclair wrote to Brome’s counsel identifying which emails he thought confirmed Brome’s claim against BMO.[^4]

[11] Giuseppe Gatti, a defendant in the Loretta Action and a principal of the Loretta Group, was examined for discovery from September 11 to 14, 2012. Leclair attended those examinations.

B. Brome commences the present action

[12] On September 13, 2012, Brome commenced this action against BMO. In it Brome seeks more than $8 million in damages for fraudulent and negligent misrepresentation alleging that it had relied on misrepresentations made by BMO when it entered into a factoring agreement with North Dakota.

[13] The thrust of Brome’s complaint was captured in paragraph 9 of its Statement of Claim:

Knowing that Brome was also in the business of providing factoring facilities, Dupuis [BMO] referred this business to Brome. In doing so, Dupuis represented that the referral could be an attractive piece of business for Brome and that Dupuis and BMO had experienced no issues with the Loretta Group after nine months of carrying on business under the Loretta Group Factoring Agreement.

Brome pleaded that BMO knew that such a representation was false because, inter alia, “BMO’s fraud department had begun investigating the Loretta Group account as early as June of 2010, or earlier…” Brome further pleaded that BMO “knowingly made a false statement or representation to Brome” or, alternatively, “was reckless or willfully blind as to the truth of the statement”:

Brome states that by June 2010 or earlier, BMO was aware of significant red flags with its account with the Loretta Group and its fraud department had already commenced examining the account, as described above.

Brome states that BMO made the false representation with the intention that it would be acted upon by Brome and so as to off-load a portion of its exposure to the Loretta Group to Brome.

Brome seeks to recover from BMO the loss it suffered on the North Dakota factoring facility.

[14] Although Brome issued its Statement of Claim on September 13, 2012, it did not serve BMO until March, 2013. Leclair deposed that Brome decided to delay serving the claim because BMO was Brome’s banker, the loan was subject to on-going forbearance agreements, Brome did not want to jeopardize that facility, and it would not be able to re-finance the facility until it had resolved the third party claim which BDO had brought against it in the Loretta Action. Leclair ventured the view that:

It was Brome’s belief that if it was to issue and serve the Statement of Claim upon one of its bankers seeking damages in the amount of $8,057,000.00 based on fraud and negligent misrepresentation, that there would be a substantial risk that the forbearance period would be terminated and the loans of Brome would be called immediately.

So, according to Leclair, Brome decided to avoid any limitations issue by issuing the Statement of Claim in September, 2012, but refrained from serving it at that time.

[15] On November 6, 2012, I conducted a case conference in the Loretta Action. Counsel for Brome attended. He did not inform the Court or the other parties that his client had commenced a new action two months before which contained allegations materially linked to the issues in dispute in the Loretta Action.

[16] On February 21, 2013, Brome’s counsel, Lou Brzezinksi, contacted BMO directly to advise in-house counsel, Lorraine Howard, that Brome possessed a number of documents which indicated that BMO knew the Loretta Group was engaging in fraudulent activity before Brome had entered into the North Dakota factoring agreement. As recounted by Ms. Howard in an internal email to another BMO in-house counsel:

What Lou really wants is to see if there is a way to resolve Brome’s claim without going through litigation. Lou knows Munaf represents BMO on the recovery claim. I asked Lou why he and I were talking and he said right now Brome and BMO aren’t involved in litigation and Brome wants to see if it can get a result without litigation…

If Brome and BMO aren’t involved in litigation, there is a question to ask which is where Lou got all of the BMO documents which he claims make it clear BMO knew their customer was engaged in fraudulent activity before it granted the factoring facility which ended up with Brome.

[17] On March 4, 2013, the President of Brome, Michel Gendron, emailed a copy of the Brome Action Statement of Claim to Richard Côté, a vice-president of BMO. Murray Sutherland, a vice-president of BMO, who swore the affidavit in support of this motion by BMO, deposed:

I am further advised by Mr. Côté that during that telephone conversation, Mr. Gendron specifically indicated that Brome had accessed all data relating to the Loretta Action and that there were many “BMO internal emails” supporting Brome’s claims against BMO.

[18] Sutherland of BMO then spoke with Messrs. Gendron and Leclair on March 7, 2013. He deposed:

During that conversation I was advised that Brome had spent many hours reviewing the evidence in the Loretta Action and determined that there were “hard facts” that BMO was part of the fraud with the Loretta Group. Mr. Gendron and Mr. Leclair suggested that BMO may want to look at the evidence (from the Loretta Action) and reach an out-of-court settlement rather than go through a court process with Brome.

[19] Sutherland stated that following the telephone call he received an email from Leclair, what he called the “Brome Demand”. Sutherland deposed: “Attached to the Brome Demand were a number of emails that BMO had produced as part of the Loretta Action.”

[20] Leclair had marked his March 7, 2013 email “without prejudice”. In it he wrote that he was attaching “for your review a few documents we received from the productions of the Bank of Montreal in the action against Messrs. Faibish and Gatti and their respective corporations”:

These documents are samples of many that have been produced in this litigation which incontrovertibly prove that the Bank of Montreal knew that the Loretta Group (including North Dakota) was involved in kiting and other fraudulent activities, and that Nick Dupuis a VP at BMO had cheques in his possession belonging to North Dakota which he completed himself and deposited in the BMO accounts. The evidence to support the allegations in the Statement of Claim is substantial. Brome did not come to this decision to sue the bank of Montreal lightly or frivolously, but only after a meticulous review of the evidence and after receiving advice from legal counsel.

Notwithstanding the evidence in Brome’s possession and the significant damages caused to Brome, Brome remains prepared to sit down and arrange a reasonable and appropriate resolution of this matter without the necessity of litigation, with the ensuing result that it becomes part of the public record.

Although this letter is written on a without prejudice basis, if the Bank of Montreal decides not to accept this conciliatory approach and force this matter to litigation, my counsel has advised me that this letter will be placed before the court at the conclusion of any trial or other disposition.

On cross-examination Leclair confirmed that the “meticulous review” he had referred to concerned BMO’s productions.[^5]

[21] On the motion Brome took the position that the communications between Brome and BMO described in paragraphs 16 to 20 above were made in the course of, and for the purpose of, furthering settlement discussions and therefore were privileged. In particular, Brome contended that BMO could not use Leclair’s March 7, 2013 email to prove that Brome had breached the deemed undertaking rule.

[22] Notwithstanding that position taken by Brome, Leclair, in his May 31, 2013 affidavit, disclosed the following discussion between Brome and BMO at that time:

74. On March 4, 2013, Michel Gendron and I met with Mr. Côté at Brome’s office to inform him of the Brome claim and gave him a copy of the Statement of Claim. During that meeting, Mr. Gendron and I indicated that Brome had received the productions from BMO in the Loretta Action, and that there were many documents produced by BMO which supported Brome’s claims. Mr. Côté thereafter advised us to contact Murray Sutherland. (emphasis added)

In the same affidavit Leclair gave the following evidence concerning his March 7, 2013 email to Sutherland:

76. [T]he letter addressed the evidence in the possession of Brome and provided six documents as attachments. Three of the six attachments were in Brome’s possession prior to Brome receiving BMO’s productions in the Loretta Action; the other three are documents from BMO’s productions in the Loretta Action. The reason that all the documents delivered to BMO came from BMO’s own productions was to convince BMO of the authenticity and veracity of these documents so they would not think these documents were somehow fabricated, altered or amended by Brome, and such settlement approach would therefore be seriously considered.

[23] Also, notwithstanding the position which Brome took at the hearing of this motion that the March 7, 2013 email was protected by settlement privilege, on June 17, 2013, BMO’s counsel cross-examined Mr. Leclair at length on the contents of that email, without any objection by Brome placed on the record.[^6]

[24] Consequently, I need not deal with the issue of whether settlement privilege applied to those February and March, 2013 communications because Leclair revealed their substance in his first affidavit, thereby waiving any privilege which might have existed.

C. Brome settles its participation in the Loretta Action

[25] In mid-February, 2013, Brome settled the third party claim BDO had brought against it.

[26] On March 11, 2013, Brome served BMO with its Statement of Claim in this action. Notwithstanding such service, Leclair deposed that in early May, 2013, the lending syndicate of which BMO was a member extended the forbearance agreement with Brome until July 30, 2013. Disclosure of the claim against BMO evidently did not prejudice Brome’s ability to secure an extension of its facility with its lenders, the ostensible reason Leclair gave to justify sitting on the issued Statement of Claim in this action for almost six months.

III. Positions of the parties

[27] BMO submitted that Brome had used evidence from its productions in the Loretta Action to found its claim in this action, thereby breaching the deemed undertaking rule. The consequence of that breach, according to BMO, should be the dismissal or stay of this action.

[28] Brome contended that it did not breach the deemed undertaking rule because its action was founded on information accumulated by itself, without resort to BMO’s productions. Alternatively, Brome sought relief from the deemed undertaking rule and permission to use that evidence in this action.

IV. The governing legal principles

A. The deemed undertaking rule

[29] The deemed undertaking rule set out in Rule 30.1 of the Rules of Civil Procedure imposes the following obligation on the parties and their lawyers:

30.1.01 (3) All parties and their lawyers are deemed to undertake not to use evidence or information to which this Rule applies for any purposes other than those of the proceeding in which the evidence was obtained.

As specified in Rule 30.1.01(1), the evidence subject to the deemed undertaking rule includes evidence obtained under Rule 30 (documentary discovery).

[30] Rules 30.1.01(4) and (5) provide that the deemed undertaking obligation does not prevent (i) a use to which the person who disclosed the evidence consents, (ii) the use of evidence that is filed with the court, or (iii) evidence that is given or referred to during a hearing. Rules 30.1.01(6) and (7) specify two other permitted uses of prescribed evidence and information:

(6) Subrule (3) does not prohibit the use of evidence obtained in one proceeding, or information obtained from such evidence, to impeach the testimony of a witness in another proceeding.

(7) Subrule (3) does not prohibit the use of evidence or information in accordance with subrule 31.11 (8) (subsequent action).

[31] Rule 30.1.01(8) enables a party to ask the Court to relieve it of its obligations under the deemed undertaking rule:

30.1.01(8) If satisfied that the interest of justice outweighs any prejudice that would result to a party who disclosed evidence, the court may order that subrule (3) does not apply to the evidence or to information obtained from it, and may impose such terms and give such directions as are just.

B. The case law

[32] The leading case on the deemed undertaking rule is the decision of the Supreme Court of Canada in Juman v. Doucette. That Court explained the reason for the rule:

The rationale of the implied undertaking rule rests on the statutory compulsion that requires a party to make documentary and oral discovery regardless of privacy concerns and whether or not it tends to self-incriminate.

The root of the implied undertaking is the statutory compulsion to participate fully in pre-trial oral and documentary discovery. If the opposing party seeks information that is relevant and is not protected by privilege, it must be disclosed even if it tends to self-incrimination.[^7]

[33] Rule 30.1 does not specify what consequences might follow from a breach of the deemed undertaking rule, but in Juman v. Doucette the Supreme Court of Canada stated:

Breach of the undertaking may be remedied by a variety of means including a stay or dismissal of the proceeding, or striking a defence, or, in the absence of a less drastic remedy, contempt proceedings for breach of the undertaking owed to the court.[^8]

[34] As noted, Rule 30.1.01(8) enables a party to seek relief from the obligations imposed by the deemed undertaking rule. The analysis in Juman indicates that a party should seek such relief before making use of any documents subject to the deemed undertaking, rather than ask for forgiveness after a breach:

The undertaking is imposed in recognition of the examinee's privacy interest, and the public interest in the efficient conduct of civil litigation, but those values are not, of course, absolute. They may, in turn, be trumped by a more compelling public interest. Thus, where the party being discovered does not consent, a party bound by the undertaking may apply to the court for leave to use the information or documents otherwise than in the action, as described in Lac d'Amiante, at para. 77:

Before using information, however, the party in question will have to apply for leave, specifying the purposes of using the information and the reasons why it is justified, and both sides will have to be heard on the application.

In such an application the judge would have access to the documents or transcripts at issue.[^9]

[35] Against the background of those general legal principles, let me turn to the specific facts of the present case.

V. Did Brome breach the deemed undertaking rule?

[36] Brome took the position that it possessed full knowledge of the facts underlying its action against BMO before it commenced this action and “any information received from the BMO productions simply confirmed what Brome already knew or provided supplementary detail.” As a result, Brome submitted that it had not breached the deemed undertaking rule or, alternatively, any breach was purely technical in nature.[^10]

[37] Leclair, in his May 31, 2013 affidavit, described at some length the information already in the possession of Brome which had led it to consider whether it might have a claim against BMO in respect of the factoring agreement. A January 24, 2011 internal Brome memorandum expressed some uncertainty about the tenability of such a claim:

In regards to a potential claim against BMO, the facts known as of today do not allow to assess if a claim could be started against BMO…

To engage BMO liability…we will have to demonstrate that BMO knew about the fraudulent acts done by the representative of Loretta and of North Dakota.

[38] Leclair deposed that when he joined Brome in May, 2011, the company’s CEO told him he “suspected wrongdoings by BMO”. Leclair stated that Brome chose not to commence a claim at that point for business and financial reasons.

[39] According to Leclair, when he read the Third Party Claim against Brome in May, 2012, and the accompanying pleadings from the main action, “it became obvious to me that BMO had referred North Dakota to Brome without disclosing all the information relating to the Loretta Group of which it was aware”. He, and other Brome employees, then reviewed the documents in Brome’s files. From that exercise, Leclair deposed, “I was convinced Dupuis had knowledge of the fraudulent activities of Gatti/Loretta Group/North Dakota and that he also actively participated in the fraud against Brome”. At the end of May, Leclair emailed another lawyer whom Brome was considering retaining for this matter: “I do not know if we have yet enough to make a claim against BMO, but for sure we have enough to make BMO unhappy to see Brome testifying.”

[40] Before he had received the BMO productions from Brome’s counsel, Leclair made a presentation about a possible case to his Board of Directors on June 19, 2012, posing the question whether Brome could have a claim against BMO.

[41] According to Leclair, by June 20, 2012, Brome’s counsel had loaded BMO’s productions onto its computer database, and on June 27 Leclair received from counsel a CD containing documents relating to Mr. Dupuis. Leclair acknowledged:

A review of the BMO documents simply confirmed what was alleged in BMO and BDO’s pleadings, which was that BMO had significant knowledge about the Loretta Group that it did not share with Brome.

He concluded:

I can assure this Honourable Court that Brome knew it had a strong claim against BMO as a result of the misrepresentations and fraudulent conduct of Dupuis well before receipt of any of BMO’s productions in the Loretta Action.

[42] Notwithstanding that evidence by Leclair, elsewhere in his first affidavit Leclair acknowledged that he had told representatives of BMO that “Brome had received the productions from BMO in the Loretta Action”, “there were many documents produced by BMO which supported Brome’s claim”, and the reason he had attached some of those productions to his March 7, 2013 emails “was to convince BMO of the authenticity and veracity of these documents so they would not think these documents were somehow fabricated, altered or amended by Brome, and such settlement approach would therefore be seriously considered”. All of those statements by Leclair indicate that Brome “used” evidence or information it had obtained from BMO productions in the Loretta Action.

[43] Rule 30.1.01(3) talks simply of “use”; it does not qualify or modify “use” by specifying the particular degree of “use” which would result in a breach of the deemed undertaking rule. The case law provides little guidance. The only case placed before me which even alluded to the issue of the degree of use was the decision in Kinsmen Club of Kingston v. Walker[^11] where this Court found a breach of the deemed undertaking rule where information obtained from a person on a discovery in one proceeding “formed a good part of the information” upon which a separate action was brought against that party.

[44] Given that the deemed undertaking rule aims to encourage the robust and fulsome disclosure of relevant evidence or information in the production process by affording such disclosure a high degree of protection by limiting what a party can do with any evidence obtained, in my view liability under the deemed undertaking rule does not turn on the extent of the use which a party may have made of the evidence. To start down the road of measuring the degree of use in ascertaining whether the deemed undertaking rule has been breached risks seriously undermining the protection intended by the rule. Parties to civil litigation need to know in advance of making compulsory production that no use will be made of their productions other than in the litigation, absent a court order. The integrity and utility of the documentary production process requires such a “bright line” standard.

[45] As applied to the present case, there is no doubt on the evidence that Brome made some use of BMO’s productions in arriving at its decision to sue the Bank; it has so admitted. Moreover, the chronology of events disclosed that it was the receipt of BMO’s productions which tipped the scales and led Brome to decide to start this action. Brome did not make that decision at its June 19, 2012 Board meeting. Only after receiving the BMO productions later that month did Brome ultimately prepare the first draft of its Statement of Claim in August, 2012. From this I conclude that Brome made use of BMO’s productions in initiating its present action, thereby using that evidence for purposes other than those of the Loretta Action. By so doing, Brome breached the deemed undertaking rule.

VI. What remedy should the Court grant in respect of Brome’s breach?

[46] BMO contended that a stay or dismissal of Brome’s action was the appropriate remedy to grant as a result of the breach. Brome, on its part, moved to regularize its breach by seeking leave to use in this action the evidence covered by the deemed undertaking rule.

A. A further look at the applicable legal principles

[47] Three additional principles emerge from the jurisprudence concerning the deemed undertaking rule. First, as a general rule a party should ask for permission to use evidence or information covered by the rule before actually using it, rather than seek forgiveness for an unauthorized use after the fact. The passages from the Juman decision reproduced above clearly state that proposition. Such an approach obviously would enhance compliance with the deemed undertaking rule. That said, the language of Rule 30.1.01(8) does not foreclose a party seeking forgiveness after a breach; it merely states that “the court may order that subrule (3) does not apply to the evidence or to information obtained from it”. As well, there are cases where leave from the obligations of the deemed undertaking rule has been granted after the fact, or on a nunc pro tunc basis, where the interests of justice favoured such an order.[^12]

[48] Second, both before and after the Juman decision courts have taken a very dim view of breaches of the deemed undertaking rule, and they often have struck out or stayed new proceedings founded solely on evidence previously disclosed in another action. The seminal decision of the Court of Appeal in Goodman v. Rossi[^13] illustrates the point. In that case, Ms. Goodman, a real estate agent, sued her employer for wrongful dismissal. During the discovery process, her employer disclosed a report its president had made to the government regulatory body which stated that her “ethical conduct was questionable in many instances”. Armed with that document, Ms. Goodman commenced a second action suing the president, Rossi, for defamation. Rossi sought to stay the action on the basis that Goodman’s defamation claim rested on evidence she had obtained in her wrongful dismissal action. Goodman brought a cross-motion for an order granting her leave, nunc pro tunc, to commence the defamation action – i.e. in essence, for relief from any deemed undertaking rule.

[49] The motions judge accepted the existence of a common law deemed undertaking rule, but granted Goodman relief from it because she might sustain an injustice if not able to have a court determine the accuracy of the offending report. At the Divisional Court level, two judges concluded that no deemed undertaking rule existed, but the dissenting judge who did recognize a deemed undertaking rule nonetheless would have granted relief from the obligations of the rule. All three judges thought that Goodman should have a chance to clear her name.

[50] The Court of Appeal, in a unanimous decision, confirmed the existence at common law of the deemed undertaking rule, but denied Goodman’s request for relief from it. That Court recognized that it was a necessary and appropriate part of the deemed undertaking rule that the court have the power to grant relief from its application[^14] and that the criteria for granting relief from the rule were an important part of the rule itself.[^15] Yet, the grounds for granting relief should not be so broadly based as to infringe routinely the integrity of the rule.[^16] As to the appropriate scope of those grounds, the Court of Appeal was prepared to tolerate “some injustice to the discovered party if it is outweighed by a greater injustice to the discovering party if he or she could not make use of the discovered documents”:[^17]

Of course, there will be cases where the interests of the discovered party sought to be protected by the rule will not be seriously affected, or affected at all, by a collateral use of discovered document, but those of the discovering party would be seriously affected if use could not be made of the documents. This is the kind of case where it would reasonably be thought that the discovered party would give his or her consent to the use of the documents but, failing this, would be a proper case for granting relief.[^18]

On the facts of that case, the Court of Appeal concluded that there were methods available to Goodman to clear her name without resorting to a defamation action based on a document disclosed in another action, such as by writing directly to the government regulator. Those alternate methods led the Court of Appeal to conclude that the prejudice to the discovered party by permitting use of the discovered document outweighed that to Goodman.[^19]

[51] A somewhat similar result had been reached a few years before the Goodman v. Rossi decision in the case of Carbone v. De La Rocha.[^20] The plaintiff had sued the defendant for libel in respect of a letter which he had written to the Timmins Chamber of Commerce. The defendant subsequently discovered that the plaintiff had written her own letters to the Chamber and requested the plaintiff’s consent to their release by the Chamber. She gave her consent to their release, an act which Whalen J. characterized as tantamount to the compellable production by the plaintiff of them. The defendant then sued the plaintiff for libel for what she had written in her letters to the Chamber. Whalen J. found that the defendant, by using compelled productions obtained in the plaintiff’s action to bring his own action, had breached the common law deemed undertaking rule, and he stayed the defendant’s action as an abuse of process and denied the defendant’s request for leave to proceed to trial.

[52] Notwithstanding that the parties to the two actions were the same, Whalen J. articulated the public policy reasons which militated against allowing documents compelled in one action to found a separate cause of action:

The process of this court cannot be or appear to be an instrument of the initiation of litigation not otherwise contemplated or part of the cause of action which disclosed the potentially new claim. To be so would undermine full and frank disclosure by parties. This would be contrary to the public interest and is an abuse of the process of the court.[^21] (emphasis added)

Whalen J. developed this point at some length in his reasons, an analysis which I think useful to reproduce:

It is against the foregoing analysis that I weigh the defendant's request for leave to use the discovered letters as the basis of a claim…But for receipt of the letters (which I have found were produced under compulsion), the defendant would never have known of them or of any potential defamation contained therein. In my view, it makes little difference that those letters were in the hands of a third party as opposed to an employee or agent of the plaintiff. The letters were within the power of the plaintiff as a result of the terms of release imposed by the Timmins Chamber of Commerce. The nature of that control is of little consequence in these circumstances. If the contents of the letters produced do disclose some ground for libel…the defendant's intended use of the letters is more than to "tell against" the plaintiff's interest in the original action, to obtain admissions, or to tie the plaintiff to some position or set of facts. The defendant's intent is to expose the plaintiff to some separate "peril" (using the language of Megaw L.J. in Halcon v. Shell Transport, supra) or other "matters of prejudice" (the terminology cited by Sutherland J.). If plaintiffs believed that information provided or documents produced by them in pursuance of a claim would result directly in their being named as defendants in a separate action that would have had no basis but for the production, plaintiffs (or for that matter any party required to make disclosure) would have little incentive to make full and honest disclosure. This is contrary to the effective administration of justice and not in the public interest. There is also a danger that the court may appear as the instrument of litigation rather than the neutral administrator and arbitrator of an unbiased resolution process. This would be the effect if parties were or appeared to be permitted to "shop" for further claims through the use of documents or other information an opposing party was compelled to produce in the context of an existing action. The intrusion which a plaintiff must endure in advancing his or her claim and which is afforded a defendant so that he or she may know the case to be met, discover facts, commit positions, etc., should not be available for any purpose other than to assist the parties and the court to resolve the issue in respect of which the disclosure was made. Nor is it useful to speculate on alternative procedural steps the defendant might have employed to bring the letters to light for purposes of a separate claim (as was done in argument before me) so long as it was done by using the process of the court in the existing action. Any such use of the court's process offends the rule. (emphasis added)[^22]

[53] More recently, in M.F. v. I.S.,[^23] the defendant, the former girlfriend of the plaintiff, had accused the plaintiff of sexual assault, but the charges were dismissed against him. He sued her for malicious prosecution; she sued him for the assault. As part of his productions, he produced a medical record which showed that six years before the start of their relationship he had been diagnosed with and treated for a form of herpes. She had not been aware of that information before receiving his productions. She then moved to amend her counter-claim to add a new cause of action alleging that the sexual intercourse they had engaged in during their relationship had occurred without her informed consent due to his failure to disclose his previous medical condition and therefore constituted battery.

[54] Master MacLeod denied her request to amend her counter-claim, reasoning as follows:

(i) Although parties often amend their claims or counter-claims as a result of information obtained on discovery, a difference existed between an amendment which added particulars or material facts and one which asserted a new cause of action;

(ii) The former girlfriend’s only source for the information on which she rested her proposed new cause of action were the documents produced by her former boyfriend;

(iii) Notwithstanding the extant litigation between the parties, no principled difference existed between using information obtained on discovery to launch a new action and using the information to amend an existing claim to assert a new cause of action;

(iv) When performing the balancing of interests in deciding whether to grant relief from the deemed undertaking rule, “it is appropriate to consider the strength of the case both as to liability and damages and for that purpose to at least consider the evidence on which the proposed claim is based”;[^24] and,

(v) On the facts of that case, Master MacLeod concluded that the harm which the former girlfriend would suffer if not allowed to pursue her claim would be to lose the possible recovery of only nominal damages.[^25]

So, in the M.F. case, as in Goodman v. Rossi, relief from the deemed undertaking rule was not granted where the only evidence upon which the party rested its new claim was evidence obtained from the productions of the opposite party.

[55] The third principle which has emerged from the jurisprudence concerns the analysis which a court must conduct when considering whether to grant relief from the deemed undertaking rule. In Juman the Supreme Court of Canada held that a court must weigh the public interest in respect of use of the evidence against the public interest in protecting the right against self-incrimination, as well as upholding a litigant’s privacy and promoting an efficient trial process.[^26] As put by the Supreme Court in Lac d’Amiante du Quebec Ltee v. 2858-0702 Quebec Inc.:

The courts must therefore assess the severity of the harm to the parties involved if the rule of confidentiality were to be suspended, as well as the benefits of doing so. In cases where the harm suffered by the party who disclosed the information seems insignificant, and the benefit to the opposing party seems considerable, the court will be justified in granting leave to use the information.[^27]

Later, in Juman, the Supreme Court stated:

The case law provides some guidance to the exercise of the court's discretion. For example, where discovery material in one action is sought to be used in another action with the same or similar parties and the same or similar issues, the prejudice to the examinee is virtually non-existent and leave will generally be granted.[^28] (emphasis added)

[56] Snider J. of the Federal Court, in Sanofi-Aventis Canada Inc. v. Apotex Inc.,[^29] helpfully enumerated many of the factors which a court should consider when asked to relieve a party of the obligations imposed by the deemed undertaking rule. I have taken that list and grouped the factors together as follows:

(i) The similarity of the parties and the issues in the two proceedings: whether the parties in the proceeding for which the discovery took place (the Original Proceeding) are the same or similar as the parties in the proceeding in which the documents will be used (the Companion Proceeding), and whether the issues or factual background in the Original Proceeding are the same as in the Companion Proceeding;[^30]

(ii) The confidentiality of the information used: whether the discovered material is inherently confidential; whether the Original Proceeding and the Companion Proceeding are protected by orders of confidentiality; whether the documents obtained through discovery were once publicly available, but are now no longer publicly available through no fault of the party seeking relief; whether granting relief will result in dissemination of the information beyond the parties who already have access to it;

(iii) How the party intends to use the information in litigation: whether the party seeking relief in the Original Proceeding wishes to establish a witness has given inconsistent versions of the same fact in the Companion Proceeding; whether a third party claim is likely to be initiated against the party who gave the discovery; and,

(iv) The availability of alternative means to obtain the information or accomplish the intended use of the information: whether the purposes of the Companion Proceeding can be accomplished by the Original Proceeding; whether the information sought is otherwise compellable.[^31]

B. Application of the jurisprudence to the facts of this case

[57] In my view, several factors influence the issue of remedy in this case. First, as the Supreme Court of Canada indicated in Juman, where discovery material in one action is sought to be used in another action with the same or similar parties and the same or similar issues, the prejudice to the examinee is virtually non-existent and leave generally will be granted. The Loretta Action is a complex and multi-faceted one, involving parties beyond BMO and Brome. Nevertheless, the issues all flow from the primary allegation that the Loretta Group of companies, which included North Dakota, defrauded their lenders, and the various layers of allegations and sub-claims within the Loretta Action are designed to make the lenders whole.

[58] As a named third party in the Loretta Action, Brome enjoyed the right, under Rule 29.11(1) to assert by way of a fourth party claim against any person not already a party to the third party claim, such as the plaintiff BMO, “any claim that is properly the subject matter of a third party claim”. Such a claim would include one for damages arising out of transactions involved in the main action or a related transaction: Rule 29.01(1)(b). Brome’s claims in this action against BMO fall within that language. Accordingly, it was open to Brome to assert its present claim against BMO by including it in its Fourth Party Claim in the larger “proceeding in which the evidence was obtained” – i.e. the Loretta Action - although the Rules do recognize a fourth party claim as an action in its own right. However, Brome, for commercial reasons, decided against doing so and commenced a separate action. Nevertheless, that similarity of parties, factual matrix and issues firmly places Brome’s use of BMO’s productions into the realm where, in the words of Juman, “the prejudice to the examinee is virtually non-existent”.

[59] Second, although Master McLeod in M.F. v. I.S. held that no principled difference existed between using information on discovery to launch a new action and using it to amend an existing claim to assert a new cause of action, the Rules of Civil Procedure could be read in a different fashion. The deemed undertaking rule limits the use of evidence to the purposes of “the proceeding in which the evidence was obtained”. Rule 1.03(1) defines a “proceeding” as “an action or application”, and the definition of “action” includes proceedings commenced by a third party or subsequent claim. A party is required to serve “an affidavit of documents” in an action disclosing “any matter in issue in the action”, so it would be open to a third party who has initiated a fourth party claim to file a single affidavit of documents. That would suggest the “proceeding” in which production was made could capture related third and fourth party claims. Or, put differently, Brome’s “use” of BMO’s productions in a third party defence to the main Loretta Action or a related fourth party claim would be for a purpose “of the proceeding in which the evidence was obtained”. Again, the similarity of parties, factual matrix and issues influences that interpretation.

[60] Third, unlike the circumstances in cases such as Goodman v. Rossi and Carbone v. De La Rocha where the new claim had not been contemplated before the production of documents in the original proceeding, I accept Leclair’s evidence that Brome had started thinking about a potential claim against BMO as early as January, 2011, and its internal investigation and consideration of that issue unfolded to the point of briefing the Board of Directors on June 19, 2012 about bringing a claim against BMO. While I have found that Brome’s accumulation of its own evidence against BMO did not alter the fact that it made “use” of BMO’s productions, based on the issues and pleaded facts disclosed to it in the Loretta Action prior to BMO’s production Brome evidently was thinking of claiming over against BMO. In those circumstances I see little substantive prejudice to BMO if Brome were permitted to use the produced documents. BMO’s potential exposure to litigation risk from Brome was not altered in a material way because of Brome’s decision to initiate a new action, rather than to include BMO in its Fourth Party Claim, a decision which was driven by Brome’s business concerns about disclosing its claim against BMO in the summer and fall of 2012.

[61] Those factors lead me to conclude that notwithstanding Brome’s breach of the deemed undertaking rule, I should grant that part of its cross-motion permitting Brome to make use of the evidence and information disclosed by BMO in its productions in the Loretta Action in the present action and decline to grant BMO’s motion to dismiss or stay this action.

[62] I reach that conclusion notwithstanding the emphasis one finds in the Rule 30.1.01 jurisprudence on the need to secure judicial relief from the obligations of the deemed undertaking rule before a person makes any use of the documents in issue. As previously noted, the Rule does not foreclose a request for relief made after-the-fact-of-use, although it will be the exceptional case where such relief is granted. Although Brome’s concern that it risked losing its lending facility with BMO and other lenders if it had disclosed its claim against BMO in the summer of 2012 proved unfounded, hindsight is perfect, and such a perfect understanding is not always available to business people who are trying to run a business. That said, I find it unacceptable that Brome did not disclose the existence of its new action at the November 6, 2012 case conference which its counsel attended. For the case management of a complex case to work, parties must be upfront with the court. Brome was not. Although the harm its silence caused – now having to play catch-up with the schedule in the Loretta Action – is of the sort which can be compensated for by way of a costs award, it merits significant sanction.

[63] Accordingly, although I grant Brome’s cross-motion, in part, and dismiss BMO’s motion, I do so on the following terms:

(i) This Brome Action will be tried at the same time as or immediately after the Loretta Action;

(ii) Brome must co-operate with BMO to ensure this action quickly reaches the same stage of pre-trial preparation as has the Loretta Action pursuant to the various case management orders made in that action; and,

(iii) Brome must pay BMO’s reasonable costs of this motion and cross-motion on a substantial indemnity basis. While an order of costs against a successful party on a motion is unusual, Brome’s failure to seek dispensation from the deemed undertaking rule before using the evidence obtained from BMO’s productions and its failure to participate in the case management process with the degree of candour required of all parties in that it did not disclose the existence of this action at the November, 2012 case conference merits such an award.

[64] I would encourage the parties to try to settle those costs. If they cannot, BMO may serve and file with my office written cost submissions, together with a Bill of Costs, by November 18, 2013. Brome may serve and file with my office responding written cost submissions by November 29, 2013. The costs submissions shall not exceed three pages in length, excluding the Bill of Costs.

VII. Summary

[65] For the reasons set out above, I dismiss BMO’s motion and grant, in part, Brome’s cross-motion on the specified terms.

D. M. Brown J.

Date: November 5, 2013

[^1]: Transcript of cross-examination of Réal Leclair, June 17, 2013, Q. 223.
[^2]: Ibid., Q. 195.
[^3]: Ibid., Q. 201.
[^4]: Ibid., Q. 231-234.
[^5]: Ibid., Q. 326.
[^6]: Ibid., QQ. 315 to 329.
[^7]: Juman v. Doucette, 2008 SCC 8, paras. 3 and 20.
[^8]: Ibid., para. 29.
[^9]: Ibid., para. 30. See also Lac d’Amiante du Quebec Ltee v. 2858-0702 Quebec Inc., 2001 SCC 51, [2001] 2 S.C.R. 743, para. 77.
[^10]: Brome Factum, paras. 3 and 4.
[^11]: (2004), 2004 28597 (ON SC), 69 O.R. (3d) 453 (S.C.J.), para. 9.
[^12]: See, for example, Professional Components Ltd. v. Rigollet, 2010 BCSC 688, paras. 46 to 57; Temelini v. Canada Permanent Trust Co., [2005] O.J. No. 4913 (Master), para. 30; Ochitwa v. Bombino (1997), 1997 14899 (AB KB), 153 D.L.R. (4th) 555 (Alta. Q.B.).
[^13]: (1995), 1995 1888 (ON CA), 24 O.R. (3d) 359 (C.A.).
[^14]: Ibid., p. 377b.
[^15]: Ibid., p. 377a.
[^16]: Ibid., p. 378a.
[^17]: Ibid., p. 378e.
[^18]: Ibid., p. 378d.
[^19]: Ibid., pp. 378‑9. Other decisions have held that a breach of the deemed undertaking rule occurs where evidence obtained from the discovery or productions in one proceeding is used to commence a separate action against a person who was not a party to the first action, and the courts have stayed the new action as an abuse of process: Kinsmen Club of Kingston, supra.; Disher v. Kowal (2001), 2001 28010 (ON SC), 56 O.R. (3d) 329 (S.C.J.).
[^20]: (1993), 1993 8568 (ON SC), 13 O.R. (3d) 355 (Gen. Div.).
[^21]: Ibid., para. 36.
[^22]: Ibid., para. 34.
[^23]: 2013 ONSC 1233.
[^24]: Ibid., para. 20.
[^25]: Ibid., paras. 15 to 21.
[^26]: Juman, supra., para. 33.
[^27]: Lac d’Amiante, supra., para. 77.
[^28]: Ibid., para. 35.
[^29]: 2008 FC 320.
[^30]: For example, in Crest Homes Plc v. Marks, [1987] A.C. 829, the House of Lords regarded two separate Anton Piller proceedings as, in substance, “a single set of proceedings”, and allowed evidence obtained in one to be used in support of a contempt motion in the other.
[^31]: Ibid., para. 21.