COURT FILE NO.: CV-11-00418616

DATE: 2013/12/13

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 1206953 Ontario Inc. c.o.b. Confederation Place Hotel

Plaintiff/Applicant

The Dominion of Canada General Insurance Company

Defendant/Respondent

BEFORE: Justice Moore

COUNSEL: Lawrence Theall, for the Plaintiff/Applicant

Stephen Cavanagh, for the Defendant/Respondent

DATE HEARD: 4 December 2013

E N D O R S E M E N T

[1] This matter involves an appeal from the decision of Master Graham’s order of July 16,

[2] Following an examination for discovery of the respondent’s representative, the appellant followed up for information and documentation in order to fulfill outstanding discovery undertakings and it requested responses to questions taken under advisement and/or objected to on discovery.

[3] The appellant describes the underlying action as involving an insurance coverage claim which includes serious allegations that the defendant insurer acted in bad faith. It is common ground that the appellant owns and operates a hotel and that on April 28, 2010, the parking garage at the hotel partially collapsed, destroying vehicles, damaging the building and resulting in business operation losses over a period of time.

[4] The appellant was insured under a valid policy of insurance issued by the respondent. The appellant duly reported the claim and the respondent appointed and in-house adjuster, Mr. Lavallee, to attend at the site to assess the damages. At some point thereafter, a matter in dispute between the parties, the respondent denied to the appellant that the claim made triggered the coverage afforded by the insurance policy.

[5] The statement of claim alleges that the loss is indeed covered and, further, that the respondent has breached its duties of utmost good faith and fair dealing in its investigation, handling and denying of the appellant's claims. The appellant further asserts that the respondent took an adversarial and hostile approach to the claim without reasonable justification; it failed to give proper attention to the claim, to respond to it in a timely fashion and that it handled the claim in a careless and contemptuous manner, among other things.

[6] For purposes of the motion before the Learned Master and on this appeal, the parties have agreed that the undertakings have been substantially answered. The narrow issues remaining involve whether the affidavit filed in support of the motion before the Master by counsel on behalf of the respondent effectively waived privilege, both litigation privilege and solicitor/ client privilege such that the counsel in question can be cross examined upon his affidavit in a fulsome manner unhindered by privilege concerns.

[7] The parties both looked to the Housen[^1] case in the Supreme Court of Canada to establish the standard of review for questions of mixed fact and law. At paragraph 26, the Court states:

At the outset, it is important to distinguish questions of mixed fact and law from factual findings (whether direct findings or inferences). Questions of mixed fact and law involve applying a legal standard to a set of facts…Both mixed fact and law and fact findings often involve drawing inferences; the difference lies in whether the inference drawn is legal or factual…

[8] The Court went on to clarify this [in paragraph 27], saying:

Once it has been determined that a matter being reviewed involves the application of a legal standard to a set of facts, and is thus a question of mixed fact and law, then the appropriate standard of review must be determined and apply. Given the different standards of review applicable to questions of law and questions of fact, it is often difficult to determine what the applicable standard of review is… this Court illustrated how an error on a question of mixed fact and law can amount to an error of law subject to the correctness standard:

… If a decision-maker says that the correct test requires him or her to consider A, B, C and D, but in fact the decision-maker considers only A, B and C, then the outcome is as if he or she had applied a law that required consideration of only A, B and C. If the correct test requires him or her to consider D as well, then the decision maker has in effect applied the wrong law, and so has made an error of law.

The Appellant’s Submissions

[9] On this appeal, the appellant submits that the Learned Master made an error of law that is subject to the application of the standard of correctness upon this review.

[10] The appellant states that, from the outset, it made serious allegations of bad faith including that the respondent’s adjuster denied the claim before the claim was properly investigated. As such, the appellant insists that the conduct of the respondent, its state of mind, as to when it decided to deny coverage constitute matters of material and substantial issues in the underlying lawsuit. On the examination for discovery, Mr. Lavallee claimed litigation privilege over documents created early in the lawsuit. That claim was to have been tested before the Master and as the date for the hearing approached, the respondent chose to submit an affidavit from its lawyer, Mr. Peloso, in which he attested to information he had received from Mr. Lavallee and others based upon information and belief as to its reliability. In so doing, the appellant submits that Mr. Peloso entered the fray by giving evidence on matters of substance.

[11] By choosing to submit this evidence through the lawyer rather than the client, the appellant submits that respondent has attempted to shelter the client from cross-examination and to deprive the appellant of an opportunity to put the respondent’s evidence to further enquiry to test whether privilege has indeed been waived.

[12] The Learned Master ordered that Mr. Peloso may be cross examined upon his affidavit but not into matters for which privilege has been claimed. The remainder of the motion has been adjourned.

[13] Although the appellant concedes that solicitor/client privilege is a cornerstone of our system of justice and is not to be waived or varied at random, it submits that privilege has been waived and the Master erred in limiting cross-examination of Mr. Peloso. The appellant insists that the actual issue before Master Graham was whether the lawyer, Mr. Peloso, had become a witness with respect to substantial matters resulting in an implied waiver of privilege.

[14] In this regard, the appellant submits that the test for whether privilege has been waived is based on fairness. It asserts that in the Youvarajah case, the Court of Appeal cited from Wigmore, with approval, as follows:

Judicial decision gives no clear answer to this question. In deciding, regard must be had to the double elements that are predicated in every waiver, i.e., not only the elements of implied intention, but also the element of fairness and consistency. A privileged person would seldom be found to waive, if his intention not to abandon could alone control the situation. There is always also the objective consideration that when his conduct touches a certain point of disclosure, fairness requires that his privilege shall cease whether he intended that result or not. He cannot be allowed, after disclosing as much as he pleases, to withhold the remainder. He may elect to withhold or to disclose but after a certain point his election must remain final.[^2]

[15] The appellant insists that Mr. Peloso's affidavit refers to information that he swears is true based upon his knowledge, information and belief and, thus, the knowledge he has gained while working on the file and has put directly in issue. It is not fair, asserts the appellant, that Mr. Peloso should be able to give evidence as to what he believes, then hide behind privilege so that he cannot be examined on the basis of that belief.

[16] The appellant submits that, had Master Graham applied the correct legal test for waiver of privilege based on fairness, he would have found that the evidence given by Mr. Peloso on numerous substantive issues must constitute a waiver of privilege and, accordingly, that the appellant is entitled to, and must be afforded the opportunity to, review the documents and information which Mr. Peloso had in relation to this action and the underlying loss.

The Respondent’s Submissions

[17] The respondent raises three points in argument; first, the standard of review; second, consideration of the motion actually brought; and third, the affidavit of Mr. Peloso itself.

[18] The respondent insists that the test for this appellate review does not just involve correctness because it flows from a decision of mixed fact and law. In this respect, the respondent argues that the appellant has proceeded on a false premise by saying that the Learned Master applied the wrong test because he failed to appreciate that evidence referring to substantive issues necessarily implied a waiver of privilege.

[19] The respondent insists that Master Graham considered the evidence before him and specifically the objective consideration of where on the continuum of fairness the evidence given by Mr. Peloso in his affidavit fell with relation to "that certain point of disclosure" referred to in Youvarajah. What the Master did was evaluate the several paragraphs in the Peloso affidavit and evaluate where each touched that certain point of disclosure. The respondent insists that the Master’s findings are not tainted by palpable and overriding error.

[20] On the issue of the substance of the motion, the respondent argues that context is important and the context of this motion involved an affidavit adduced on an undertakings and refusals motion upon which the Master would make no determination on issues of substance, such as whether the respondent had acted in good faith in its dealings with the appellant on the underlying claim. As well, consideration of context reveals that most of the motion remains to be adjudicated upon and the appellant might well prevail on access to information it seeks through continued examination for discovery questioning.

[21] The respondent points to the direction given by the Court of Appeal in Chrusz[^3] as binding upon this court that a claim to solicitor/client privilege in the context of litigation is in fact a claim that an exception should be made to the most basic rule of evidence which dictates that all relevant evidence is admissible. And it is incumbent on the party asserting the privilege to establish an evidentiary basis for it. Broad privilege claims which blanket many documents, some of which are described in the vaguest way, will often fail, not because the privilege has been strictly construed, but because the party asserting the privilege has failed to meet its burden. As such, the respondent insists that part of the reason for filing Mr. Peloso's affidavit was the need to discharge its duty to establish an evidentiary basis upon which to assert privilege.

[22] To the suggestion made by the appellant that this evidentiary burden should have been the subject of an affidavit from Mr. Lavallee, the respondent insists that Mr. Lavallee was extensively examined through the discovery process and he will be again on answers to undertakings and, possibly, on refusals that are subject to the Master’s scrutiny on the portion of the motion that stands adjourned.

[23] In any event, the respondent insists that even if Mr. Lavallee had deposed to the same grounds of the timing of receipt of legal advice that Mr. Peloso addressed, the court should take from the Guelph case, this conclusion made by Corbett J.:

In my view, mere disclosure of the receipt in reliance upon legal advice, in the discovery process, is not sufficient to give rise to waiver of privilege.[^4]

[24] The appellant submits that if the position of the appellant is accurate, it would pose an extremely difficult situation for any litigant to adduce evidence to establish when privilege arises in compliance with the Chrusz case.

[25] In any event, Master Graham did not completely limit the appellant in its right to cross-examine Mr. Peloso and Master Graham has yet to deal with a determination of whether the appellant is entitled to access to information and documentation that Mr. Lavallee has refused to provide. Therefore, the appellant is not unfairly disadvantaged by the outcome of the Master’s decision.

Analysis

[26] It is not lost on this court that every affidavit filed in support of a motion must contain either the personal knowledge of the deponent or information obtained that the deponent believes to be accurate. The appellant submits that the Peloso affidavit was clearly intended to provide evidence on the substantive issue of how the respondent had conducted its investigation, the state of mind of its employees and to support its claims of litigation privilege. Clearly, Master Graham disagreed.

[27] I accept the submission of counsel that although there were no written submissions made to Master Graham in respect of the waiver argument, counsel for the appellant was permitted to submit case law and it is clear to me that those cases were considered. Master Graham also had before him the respective motion records on the parties on the underlying undertakings and refusals motion.

[28] On this appeal, counsel for the appellant noted that, in addition to referring to information and belief, Mr. Peloso also referred [in paragraphs 10 and 11] to conclusions that he based upon his review of the file. The court pointed out to counsel that in support of her affidavit sworn on 19 June 2013, an associate lawyer of counsel for the appellant also based her evidence upon her review of her file documentation. Thereafter, in my view properly so, imprecise reference to the file was not pursued as a ground for waiver of production.

[29] I am not persuaded that the appellant has satisfied the onus upon it to establish that the Master’s decision was tainted by palpable and overriding error or was wrong as a matter of law. The Learned Master carefully reviewed the contents of the Peloso affidavit and characterized them as to their purpose and content. He found nothing disclosed in the affidavit that constituted a waiver of privilege. He was alive to the applicable law and had the benefit of submissions from capable and experienced counsel.

[30] This appeal shall be dismissed with costs to the respondent in amounts to be agreed upon or fixed by me. In the event that the parties cannot agree on costs, I may be spoken to. In that event, counsel may contact the trial co-ordinator to schedule a conference call with me to discuss establishing the most efficient and cost-effective process for fixing costs.

Moore J.

DATE: 13 December 2013

[^1]: Housen v. Nikolaisen, 2002 SCC 33, [2002 2 S.C.R 235, at para. 26. [^2]: R. v. Youvarajah, 2011 ONCA 654, at para. 148 [^3]: General Accident Insurance Company et al. v. Chrusz et al., 1999 CanLII 7320 (ON CA), [1999] O.J. No. 3291 [^4]: Guelph (City), 2004 CarswellOnt 4428, at para 87.