Fincantieri v. Anmar Energy, 2015 ONSC 219

COURT FILE NO.: 12-54372

DATE: January 12th, 2015

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: FINCANTIERI MARINE SYSTEMS NORTH AMERICA INC., Plaintiff

AND:

ANMAR ENERGY LTD. et. al., Defendant

BEFORE: MASTER MACLEOD

COUNSEL: H. James Marin, for the Defendants

Andrew J.F. Lenz, for the Plaintiffs

HEARD: November 27th, 2014

ENDORSEMENT

[1] This endorsement also deals with a companion motion in the related action no. 12-54685. The motions relate to joint examinations for discovery conducted in the two actions. The parties have narrowed the issues considerably.

[2] One document which was in dispute is a document which is the property of Hydro One Networks Inc. (“Hydro One”). The parties have agreed to production of the document under a confidentiality and sealing order which I signed on the day the motion was argued. I am satisfied that the interests of justice are served by sealing this document and it does not do violence to the open court principle to do so.

[3] Although there was only one significant issue that was ultimately argued, it is an issue dealing with the evolving area of settlement privilege so I reserved to give written reasons. In addition, I wished to inspect the document in question and I have done so.

Background

[4] The actions themselves relate to a failed electrical generating project (“the Becker project”). For purposes of this decision I will not attempt to distinguish between the various corporate entities or between the two actions. I will refer to the Fincantieri entities as “Fincantieri” or “the plaintiff” and the Anmar entities as “Anmar” or “the defendant”. Fincantieri is an Italian based group of companies which amongst other things manufactures boilers and generators. The Anmar companies are based in northern Ontario and are involved in electrical generating projects.

[5] Anmar had intended to purchase a 20.75 megawatt steam generator from Fincantieri. The purchase price was just over 5.2 million Euros. For reasons I will come to momentarily the order was cancelled and instead Anmar proceeded with a much smaller project using a generator sourced from another company. Fincantieri sues for damages and that is the subject matter of both of the related actions.

[6] The background to the Becker project is as follows. Anmar had purchased a controlling interest in a struggling sawmill in the Town of Hornepayne. It planned to construct a co-generation plant which would generate electricity using biomass supplied by the sawmill. For the project to be successful the electricity would have to feed into the Hydro One power grid to be sold to the Ontario Power Authority. The electricity from Becker would travel over a one kilometer “tap” from Hornpayne to an existing Hydro One feeder line to a transformer station in Manitouwadge approximately 90 kilometres away. At the request of Anmar Hydro One had conducted Connection Impact Statements that were generally supportive of the plan. Anmar was therefore proceeding with planning for the large generator it had decided to purchase from Fincantieri.

[7] When the planning was well advanced, it was determined that the existing Hydro One infrastructure could not handle the amount of electricity Anmar proposed to generate. To proceed with the original project, Anmar would have been required to fund installation of expensive upgrades and the construction of new transmission lines. Ultimately Anmar decided that the original project could not proceed.

[8] The limited capacity of the connection between Hornpayne and Manitouwadge was an unwelcome surprise to Anmar. This issue had never come to light during any of the studies carried out by Hydro One, the owner of the electrical grid. Once this problem was disclosed it appeared the large generator would not be viable and Anmar instead proceeded with a much smaller project. Fincantieri was advised that Anmar would not be proceeding to purchase the original generator.

[9] Although the agreement between the parties was a preliminary agreement which contemplated a more formal contract, the plaintiff seeks to hold Anmar liable in damages. The court proceedings seek damages for breach of contract, for misrepresentation and unjust enrichment or a combination of the above. A significant issue in the litigation will be when Anmar knew or ought to have known of the limited capacity of the electrical connections and whether it proceeded in good faith with respect to the plaintiff once it had this knowledge. The plaintiff alleges that Anmar represented the project as one which had been approved and not a project that was subject to any further technical issues. It also alleges that when Anmar actually knew of the limitation it did not disclose it to the plaintiff but rather it proceeded in bad faith by failing to take the necessary steps to complete its side of the agreement including the negotiation of a detailed agreement of purchase and sale.

[10] Discoveries of representatives of both parties took place in Toronto in February of 2014. As outlined above, there were numerous questions in dispute, both refusals and undertakings. These have been reduced to issues that are the subject of these reasons.

Production of the Agreement with Hydro One

[11] The main question that was argued is whether or not Anmar must produce an agreement it has entered into with Hydro One. As mentioned earlier Anmar has now concluded an agreement to construct a scaled down version of the project. In the course of those negotiations it also discussed a claim for compensation with Hydro One and it ultimately executed a release under which Anmar released any claim against Hydro One or OPA.

[12] The plaintiff demands production of the release. In the plaintiff’s view the claim that could have been asserted against Hydro One and the release of that claim are relevant facts in the current litigation. I agree that the negotiations leading up to the revised Becker project are relevant and the release is part of that factual matrix. This is a document which would be subject to production unless it is protected by privilege.

[13] Of course the plaintiff has not seen the document. I have the benefit of both the affidavit evidence and I have inspected the document itself. It is a fairly standard form of release and clearly is designed to resolve potential litigation between Anmar and the other parties. Though no litigation was commenced, a draft statement of claim is attached to the release.

[14] The document is clearly one that is presumptively privileged. The evidence demonstrates that Anmar believes it was misled by Hydro One concerning the viability of the original Becker project and it sought compensation. Although there was no litigation, Anmar had a significant potential claim which would have been much larger if it had not been able to mitigate its losses by proceeding with the scaled down project. There is no doubt that the release was the result of settlement negotiations.

[15] The Supreme Court of Canada has recently discussed the question of settlement privilege in Union Carbide Canada Inc. v. Bombardier Inc. [1] and in Sable Offshore Energy Inc. v. Ameron International Corp. [2] In both of these decisions the Supreme Court affirms that in Canada “settlement privilege” now exists as a distinct form of class privilege. It is neither an offshoot of litigation privilege nor of lawyer client privilege but stands on its own.

[16] Classically there were two concerns that resulted in the need to protect settlement discussions from disclosure. The first of these was the concern that willingness to discuss settlement and to acknowledge there might be weaknesses in the evidentiary or legal position of one of the parties could not be used as an admission against interest otherwise admissible to prove liability. The second was the concern that settlement offers not be disclosed to the court trying the case lest the amounts offered by the parties might influence the trier of fact responsible for assessing damages. These remain perhaps the central concerns but by defining it as a class privilege the Supreme Court has reinforced and expanded the protection.

[17] Everything about settlement negotiations is presumptively privileged. This common law privilege attaches to any kind of settlement discussions and exists in addition to any rule based or contractual privileges.[^3] It is not just that the content of the settlement discussions may not be used by the parties to the negotiations against each other. The contents of the negotiations are a true privilege which neither party is entitled to breach without the consent of the other or of a court order. Both successful and unsuccessful settlement discussions are protected.

[18] The privilege is founded on the public interest in promoting negotiated settlements. Parties to disputes must have a zone of privilege within which they can have full and frank discussions designed to reach settlement of a dispute that would otherwise have to be adjudicated. Both the contents of the discussion and the eventual agreement, if there is one, are protected by the privilege.

“The purpose of settlement privilege is to promote settlement. The privilege wraps a protective veil around the efforts parties make to settle their disputes by ensuring that communications made in the course of these negotiations are inadmissible.”[^4]

[19] The privilege is not absolute. It admits of exceptions but the party seeking to establish such an exception must show that it would be unjust for it to have to proceed without the evidence. In such cases, for example when it is necessary to disclose the agreement reached between the parties in order to enforce it, the interests of justice require that the privilege yield. It is not enough that it might be helpful to see the agreement it must be critical to do justice between the parties to the subsequent dispute.

“A proper analysis of a claim for an exception to settlement privilege does not simply ask whether the non-settling defendants derive some tactical advantage from disclosure, but whether the reason for disclosure outweighs the policy in favour of promoting settlement.”[^5]

[20] In the current litigation, the essential issue in dispute is whether or not the plaintiff is entitled to damages because the defendant had ordered a generator from it and then cancelled the order. There are many subsidiary issues such as whether or not there was a fully formed contract or whether the defendant misled the plaintiff. It will be relevant to know when Anmar first knew or ought to have known about the problem. There may be relevance to when Anmar began the process of planning a smaller generator and when it began its negotiations with Hydro One. None of the background documents giving rise to the potential claim against Hydro One are privileged and most of them have been produced. The planning documents, applications and other material used to obtain approvals to construct the scaled down Becker project are not privileged. The steps taken to source and obtain a smaller generator from another supplier are not privileged. The fact that there were settlement discussions does not of course cloak documents that were not prepared for other purposes with settlement privilege. The existence of the potential claim and the settlement of the claim have been disclosed. The question is whether the defendants need to see the agreement itself.

[21] I can see no reason why the actual settlement agreement would be a critical piece of evidence in this litigation. In my view the interests of justice in this case do not compel the court to make an exception to the privilege and I decline to order the release produced. Counsel for the defendant may arrange to recover the original release from my office.

Production of Fincantieri source data

[22] The second issue before the court was access to source data which Fincantieri used to generate a damages spreadsheet. The data is contained in Fincantieri’s accounting software and resides on its computers. The question was ultimately not argued because the plaintiff has now produced an affidavit certifying that it is not possible for the Fincantieri software to export source data. A witness will testify to the manner of constructing the spreadsheet and the source of the data in the electronic business records of the company.

[23] The plaintiff has agreed that if the defendant wishes to send someone to review the operation of the accounting software in the Fiancantieri computer in order to be satisfied that the spreadsheet accurately reflects that data, it may do so. The defendant has decided not to pursue the issue further at this time.

Follow up Discovery

[24] The only remaining issue is the question of a follow up examination for discovery. The plaintiff has produced Mr. Grossi who resides in Italy as its representative for discovery. It had been agreed that both parties would be examined in Toronto and Mr. Grossi travelled there for discovery in February of 2014. Though Mr. Grossi came to Toronto on that occasion, the plaintiff does not agree that it should be necessary for Mr. Grossi to come back to Toronto just to answer a few follow up questions arising from the undertakings.

[25] When the current Ontario discovery regime was constituted in the 1980s the rules included a presumptive right to almost unlimited oral discovery. Unless it could be shown that a party was abusing its discovery rights then the court would ordinarily permit the parties to carry out such oral discovery as the examining party felt necessary. If questions were improperly refused or if there were undertakings then the examining party was presumptively permitted to bring back the witness for a further round of oral discovery. Of course the rules also provide that the party being examined is either to be examined where that party resides or in a location agreed upon. In recent years the discovery regime has been modified.

[26] Even before it was modified, the right to discovery was not unlimited. The court has long taken the position that discovery is not an end in itself and the court would refuse to order a further round of discovery if it served no purpose.[^6]

[27] The current rules have modified the approach to discovery. First and foremost the parties and their lawyers are expected to attempt to negotiate a discovery plan that is utilitarian and focused and to apply proportionality (a synonym for common sense) in developing that plan. The parties are required to amend the plan as circumstances require.[^7] Moreover, in my view, they should also be considering the use of appropriate technology to keep down the costs, save time and ensure that the objectives of limited focused discovery are met.

[28] It may be that follow up questions could be satisfactorily answered in writing or that the discovery could be completed by telephone or video conference. It may be that Mr. Grossi will not be coming to Toronto but will be somewhere else in North America at some point so that a trip to Toronto could be added at reasonable financial and personal cost. On the other hand it may be that it is just simpler and more cost effective for him to come to Toronto when required and for the discovery to be completed in the normal way. There may of course be implications for timing if the discovery is done one way or the other and the impact of the discovery process on delaying the action is also a consideration.

[29] I am quite prepared to condone the use of any appropriate technology or any written or electronic process that permits the evidence of the witness to be obtained providing it meets the purposes of discovery. Obviously the evidence must ultimately be in a form where it can be “read in” or used to challenge evidence at trial as may be appropriate. There are certain technical issues involved in organizing an alternative to oral discovery particularly across time zones in countries with different legal systems and reporting systems. There are also mechanics such as ensuring documents can be put to the witness, verifying that the evidence is reliable and admissible and ensuring access to legal advice as required. None of these are insurmountable but it is sometimes more efficient to simply absorb the cost of bringing the witness back to Canada (costs which will be recoverable in the cause).

[30] Much will depend on how many questions must be put to the witness, the nature of the questions, the need to consult documents and exhibits, whether the evidence given to date has generally been viewed as forthright or evasive and a host of other questions.

[31] Suffice to say I am not prepared to deal with this question in the abstract nor as an absolute right or in the absence of a good faith effort on the part of counsel to reach agreement. It is not enough that one party simply wants a follow up oral discovery and the other does not want to come back to Toronto. I will have to be convinced on the one hand that further oral discovery is necessary and on the other that if it is necessary any proposed alternative is workable and appropriate under the circumstances.

[32] Counsel are directed to confer with a view to creating an amended discovery plan. If they are unable to do so then I will give further direction at the upcoming case conference.

Costs

[33] I understand I may also have to deal with costs of this motion. Counsel are naturally encouraged to agree on the disposition of costs in light of the motions they both prepared for, what was ultimately argued and the disposition. If necessary I will give further direction concerning the process for disposing of costs at the case conference.

Master MacLeod

[^1]: 2014 SCC 35, [2014] 1 S.C.R. 800

[^2]: 2013 SCC 37, [2013] 2 S.C.R. 623

[^3]: Union Carbide, supra

[^4]: Sable Offshore, supra @ para. 2

[^5]: Supra, @ para. 30

[^6]: See Senechal v. Muskoka 2005 11575 (ON SC), [2005] O.J. No. 1406 (Master) @ para. 7

[^7]: See Rules 29.1 & 29.2