ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: 10-48359
DATE: 20150806
BETWEEN:
Geographic Resources Integrated Data Solutions Ltd. and The State of Oregon, acting by and through its State Board of Higher Education, on behalf of Southern Oregon University
Plaintiffs
– and –
Perry Peterson, Nelligan O’Brien Payne, Nelligan O’Brien Payne LLP and Wing T. Yan
Defendants
Patrick Snelling and William Parker, for the Plaintiffs
Stephen Cavanagh, for the Defendants Nelligan O’Brien Payne, Nelligan O’Brien Payne LLP and Wing T. Yan
John A. Ryder-Burbidge for the Defendant, Perry Peterson
HEARD: June 16, 2015
REASONS FOR DECISION
Beaudoin J.
Background
[1] At a case conference held on May 6, 2015, I postponed the trial of this matter which was scheduled to commence on June 1, 2015 for a period of 4 weeks. This action was to be tried along with a related proceeding (action no. 10-48359). Having regard to the matters in issue, it was doubtful that this action could be tried within the allocated time. More importantly, plaintiffs’ counsel had made clear his intention to question the defendants at trial about their conduct of the litigation. Since the Nelligan O’Brien Payne and Yan defendants (collectively “NOP”) relied on the advice of their counsel with regard to the conduct in issue, their counsel would be required to give evidence at trial if those questions were ordered to be answered. In that case, the defendants would have to retain new counsel in the middle of the trial and an adjournment would be necessary.
[2] The plaintiffs had previously indicated that it was their intention to amend their previously amended statement of claim but had not done so. I seized myself of the trial of this action and set aside three days commencing June 15, 2015 to hear any motion to amend the statement of claim and to conduct a voir dire on the admissibility of this evidence.
[3] The plaintiffs now seek to amend their statement of claim and an advance ruling on the proposed trial questions.
Overview of the Claim
[4] The action is a dispute over the ownership of certain intellectual property secured by a Canadian patent. The defendant, Perry Peterson, is an engineer with expertise in creating software for geospatial mapping. The plaintiff, Geographic Resources Integrated Data Solutions Ltd., (“GRIDS”) is a corporation in which Peterson was involved as an officer and director. One of the purposes of GRIDS was to market software. Peterson claims that he invented the application that is now the subject of the patent in issue. That patent was obtained by him through the efforts of the defendant solicitors (NOP) pursuant to a filing dated August 1, 2003.
[5] Mr. Peterson had obtained preliminary legal advice from the defendant solicitors about patenting the invention in August and September 2002 when he was still a director of GRIDS. The solicitors dealt with Mr. Peterson, but that work was billed and paid for by GRIDS.
[6] Mr. Peterson became involved in the dispute with GRIDS and resigned as an officer and director. After leaving GRIDS, he retained the defendant solicitors to proceed with his application to patent the invention and to advise him on his dispute with GRIDS.
[7] Mr. Peterson contends that the intellectual property was at all times his property and was never transferred to GRIDS. In his version of events, GRIDS was licensed to use the invention, but never acquired ownership. He contends that GRIDS agreed to fund the inquiry into patent protection because it was in the interests of both himself as owner, and GRIDS as licensee that such protection be secured. In the plaintiffs’ version of events, Mr. Peterson is not the owner of the intellectual property which is instead jointly owned by GRIDS and the State of Oregon. According to the plaintiffs, the legal advice obtained by Mr. Peterson was obtained in his capacity as vice president of GRIDS and on behalf of GRIDS. The plaintiffs assert that both he and the solicitors acted in breach of fiduciary duty to GRIDS when the patent application was subsequently filed.
Procedural History
[8] While evidence as to the merits of a proposed amendment to a statement of claim is generally not permissible, it is nevertheless useful to consider the procedural history of this matter since reference is made to an order of Master Macleod in the proposed amendments and the scope of that ruling is in issue.
[9] On April 3, 2009, Master MacLeod made a ruling with regard to the inadvertent disclosure of an e-mail containing legal advice. That e-mail disclosed that the NOP defendants knew that GRIDS was challenging Mr. Peterson’s ownership of the intellectual property. NOP advised Mr. Peterson to send a cease and desist letter until he commenced a patent application. He was also advised to immediately commence a patent application in order to have standing to obtain an injunction since it was likely that there would be a competing application made by GRIDS.
[10] Master MacLeod ruled that there had been waiver of privilege over that e-mail and he relied on the “future crime and fraud” exception to the claim of solicitor-client privilege. At paragraph 17 of his decision, he stated:
This ruling does not automatically extend to the entire contents of the Nelligan file and does not encompass all the matters for which Peterson may have obtained advice from the firm. There may well be advice which is neither continuous with the advice already disclosed nor engaged by the pleadings. My ruling on waiver extends to the e-mail and questions relating to Peterson’s knowledge of the competing GRIDS claim to ownership of the intellectual property when he made the patent application.
[11] He concluded at paragraph 37:
In summary, having reviewed the documents in question, having included that there is a waiver of privilege concerning the patent application and having included that the e-mail in question may fall within the future crime and fraud exception, I order the document to be produced. If the plaintiff wishes, the document may be produced on the condition that it may not be used at trial unless the trial judge rules on its admissibility. Further discovery questions may be directed to the communication between Mr. Peterson and the Nelligan firm and the advice given by the Nelligan firm. Those questions may also be answered subject to a reservation of claims of privileged and to obtaining a ruling on the admissibility of trial.
[12] The formal order, as issued and entered on April 27, 2010 and prepared by the plaintiffs, states that only one document, namely Document 134 of Schedule A of the Peterson affidavit of documents was to be disclosed.
[13] At a case conference held on June 30, 2009, Master MacLeod ordered the following at paragraph 3(a):
Subject to claims of privilege, which may require a ruling, all additional documents are to be produced by July 17, 2009. The defendants are to make best efforts to determine the position on privilege as soon as possible in order to accommodate this date.
[14] On February 24, 2012, Master MacLeod dismissed a motion by the plaintiffs to amend the pleadings by adding allegations of “knowing assistance” of breach of fiduciary duty against the defendant law firm. He concluded that this new cause of action was not encompassed in the existing pleading and that it was statute-barred. The proposed amendments referred to the production of Document 134. An appeal of that decision was subsequently dismissed by Justice Aitken on December 12, 2012.
[15] Privilege with respect to certain documents remained an issue at the pre-trial/trial management conference before Master Roger on February 12, 2014, where he ordered that Mr. Peterson was to advise of his position on privilege over certain documents by March 7, 2014. The NOP defendants were to advise of their position on the privilege issue by March 31, 2014. He added that if any of the parties disagreed with Mr. Peterson’s position with respect to privilege, or if any of the party sought clarification from the court on that issue, then that party had to serve a motion to resolve the issue of privilege by no later than April 17, 2014.
[16] In accordance with a further order of Master MacLeod dated July 9, 2014, counsel for the NOP defendants delivered a motion in writing to resolve the privilege issue on July 18, 2014.
[17] On October 24, 2014, Master MacLeod released his ruling. It provides:
[1] The purpose of this motion which applies in this action and also in court action 10-48359 is to obtain a ruling on whether or not privilege protects certain documents. The moving party’s law firm seeks a declaration that the documents numbered 1–63 in Schedule B to the affidavit of documents are privileged and cannot be produced to the plaintiff or alternatively seeks an order that they are not or are no longer so protected and must be produced.
[2] The plaintiff of course seeks access to the documents. Mr. Peterson had previously indicated that he refused to waive privilege but he did not ultimately file materials in response to the motion.
[3] I had previously ruled that certain documents created in the course of the client lawyer relationship had to be produced. Those documents were documents dealing with Mr. Peterson’s knowledge of the competing claim of GRIDS to ownership of the intellectual property at the time he patented the invention. I was not prepared to make a blanket order for production of the entire Nelligan’s file since I was not aware of what might be in that file that was unrelated to the core issues and over which privilege had not been waived.
[4] I agree with the submission of the plaintiff that those documents listed in Schedule B of Mr. Yan’s affidavit of documents should be presumed to be only documents that appear to be relevant. There is no obligation of course to list documents that are not relevant whether they are privileged or not.
[5] Waiver of privilege will occur when the pleadings of the party who claims the privilege puts in issue the advice obtained from counsel. Waiver also occurs when the person claiming privilege chooses to produce certain of the privileged documents or answers questions which reveal the content of privileged communication. In this case both have occurred. Important examples are set out in paragraphs 7–20 of the plaintiffs’ factum. A litigant cannot continue to assert privilege over his lawyer’s file but then produce only some of the documents or answer questions but refuse to provide the documents to confirm the accuracy of the answers.
[6] Out of an abundance of caution, I contacted Mr. Peterson by e-mail and was advised by him as follows:
“I did not file any material to the court. However, I have notified both parties that I am willing to waive my privilege to avoid any further delay in this case.”
[7] This disposes of the matter. The documents numbered 1–163 in Schedule B are to be produced to the plaintiffs. I may be spoken to for further directions if the previous timetable has been disrupted.
[18] On January 14, 2015, Master MacLeod released his costs endorsement with respect to that motion. The following comment appears in that document:
[2] This motion was necessary because Mr. Peterson had taken the position that the documents remained privileged and he would not waive this privilege. When the motion came on for hearing, Mr. Peterson did not appear. It was only when the court contacted Mr. Peterson by e-mail that he advised he was waiving privilege in order to reduce costs and avoid further delay.
[19] After commenting that the plaintiffs had taken the view that Mr. Peterson had clearly waived privilege in the documents at issue in view of his April 3, 2009 ruling, and by the answers given at his discovery, Master MacLeod added the following:
[4] I do not agree that the April 3, 2009 order provided any kind of blanket ruling. That order dealt specifically with one document which may or may not be found by the trial judge be subject to the future crime and fraud exception to privilege. It was not a ruling dealing with waiver of privilege.
[5] I accept that the defendant lawyers could not produce the documents without a ruling from the court in the face of Mr. Peterson continuing to assert privilege and refusing to acknowledge that he had waived it. Bringing a motion for directions was the correct thing to do.
The Proposed Amendments
[20] The plaintiffs had previously amended their claim in order to make allegations of the breach of fiduciary duty on the part of the defendant Peterson in appropriating intellectual property for his own use. They also alleged that the conduct of NOP and Yan, in acting for Mr. Peterson to the detriment of GRIDS, amounted to a breach of fiduciary duty. The new allegations are as follows:
Further Conduct by Defendants Warranting Punitive Damages:
Furthermore all of the dependence of conducting themselves in the within litigation in a manner worthy of denunciation by an award of punitive damages.
On April 3, 2009, Master MacLeod of the Superior Court of Justice said that, with respect to the within litigation, Peterson had waived privilege with respect to the following matters:
a) Information in the possession of NOP/NOP LLP and Yan concerning who invented the IP;
b) Information in the possession of NOP/NOP LLP and Yan concerning whether Peterson or GRIDS originally was their client with respect to legal services relating to the IP;
c) Information in the possession of NOP/NOP LLP and Yan concerning GRIDS’ claim to ownership of the IP; and,
d) Information in the possession of NOP/NOP LLP and Yan concerning Peterson’s knowledge of GRIDS’ claims to ownership of the IP at the time the Peterson Canadian patent application was filed.
(the “Ruling”)
Furthermore, at the examination discovery of the defendant Wing T. Yan, and in the presence of Wing T. Yan and his personal capacity and as a representative of NOP/NOP LLP, Peterson explicitly waived privilege over communications between himself and NOP/NOP LLP and Yan concerning Inventorship and Ownership of the IP. (The Explicit Waiver)
On May 5, 2011, the Defendants NOP/NOP LLP and Yan delivered a sworn affidavit of documents. At that time, there were 171 documents listed under Schedule B marked as lawyer-client privileged.
The privilege claim referred to in schedule B was asserted by Peterson over a 171 documents in Schedule B.
Subsequently, in April 2014 Peterson confirmed that he had reviewed the documents contained in Schedule B marked lawyer-client privileged with respect to the ruling of Master MacLeod and determined that documents should be produced but maintained his claim of privilege over the balance of the documents.
On October 15, 2014, Peterson abandoned his claim of privilege over the balance in Schedule B documents marked where client privileged through written correspondence to counsel for the Plaintiffs and the Defendants NOP/NOP LLP and Yan.
On November 11, 2014, the balance of the Schedule B lawyer-client privileged documents was delivered to counsel for the Plaintiffs. Upon review of the documents it was clear that many of the documents were probative of matters over which privilege have been waived pursuant to the Ruling and the Explicit Waiver.
The refusal of all of the Defendants to abide by their legal obligations arising from the Ruling and the Explicit Waiver resulted in the Plaintiffs being deprived of evidence of the of the claims being advanced in the within litigation, and as a result the Plaintiffs have suffered prejudice including but not limited to increased cost and delay in bringing this matter to trial.
Furthermore, the Defendants, in refusing to abide by the ruling or their obligations arising from the Express Waiver effectively concealed evidence supporting the Plaintiffs’ claims and permitted the Defendants to maintain positions in the litigation which are untenable and have been untenable since the commencement of the litigation (the “Concealment”).
Through the Concealment over more than five (5) years, all of the Defendants have been benefited from the fact that the plaintiffs have been constrained to advance claims without the benefit of relevant probative evidence which they were entitled to receive from the litigation process.
The conduct of NOP/NOP LLP and Yan is at least in part motivated by desire to conceal from the Plaintiff’s evidence highly probative of the tort of knowing assistance of breach of fiduciary duty given that the Plaintiffs had delivered notice of an intention to amend pleadings to particularize claims for knowing assistance by letter dated October 22, 2009.
A review the Schedule B documents delivered to the Plaintiffs on November 11, 2014 reveals that NOP/NOP LLP and Yan were aware that by acting for Peterson in patenting the IP, they would be assisting Peterson in breaching fiduciary duties he owed to the Plaintiffs.
Furthermore, on August 1, 2014, NOP/NOP LLP and Yan served a motion record seeking summary judgment in the within action, and inter alia the dismissal of the Plaintiff SOU’s claim against NOP/NOP LLP and Yan for breach of fiduciary duty. In support of their motion for judgment these Defendants delivered an affidavit appending an excerpt from Peterson’s examination for discovery transcript to establish that none of NOP/NOP LLP or Yan were aware that Prof. Kevin Sahr claimed in a mentorship interest in the IP prior to the filing of the Peterson patent application on August 1, 2003.
The conduct of the defendants as particularized in paragraphs 38 to 52 is worthy of condemnation by way of an award of punitive damages.
The Positions of the Parties
[21] The plaintiffs state that the proposed amendments are prima facie meritorious. The proposed amendments target the litigation conduct of the defendants and they allege that this conduct constitutes a breach of their fiduciary duties to the plaintiffs which can also be relied upon to advance a claim for punitive damages. They maintain that these new allegations advance a cause of action previously alleged by them and ought to be admitted as further particulars of the existing claims for breach of fiduciary duty and punitive damages.
[22] The defendants oppose the motion on the basis that the proposed amendments are not tenable at law.
The Use of Evidence on a Motion to Amend
[23] The plaintiffs filed voluminous materials in support of their motion to amend; including a number of affidavits and two volumes of suggested readings. On a motion to amend, no evidence is admissible as to the merits of the claim. The facts as pleaded are deemed to be true or capable of proof.[^1] Evidence may be necessary where there may be an issue of discoverability or where a defendant asserts that there is an issue of a prejudice that cannot be compensated by costs or an adjournment, but that is not the case here. In the end, I saw no need to refer to the extensive evidentiary materials filed by the plaintiffs.
The Law
[24] Rule 26.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 provides:
On motion at any stage of an action the court shall grant leave to amend a pleading on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment.
[25] In Marks v Ottawa (City), 2011 ONCA 248, 280 O.A.C. 251, the Ontario Court of Appeal considered rule 26.01’s mandatory language and concluded as follows at para. 19:
[19] Although the general rule is that amendments are presumptively approved, there is no absolute right to amend pleadings. The court has a residual right to deny amendments where appropriate: Daniele v. Johnson (1999), 1999 19921 (ON SC), 45 O.R. (3d) 498 (Div. Ct.) at paras. 11-15.[^2] Further, I would agree that the proper factors to be considered are those first set out in Simrod v. Cooper, [1952] O.W.N. 720 (H.C.J. Master) at p. 721, aff’d at p. 723 (H.C.J.), and quoted with approval in Vaiman v. Yates (1987), 1987 4345 (ON SC), 60 O.R. (2d) 696 (H.C.J.) at p. 698, which can be summarized as follows:
An amendment should be allowed unless it would cause an injustice not compensable in costs.
• The proposed amendment must be shown to be an issue worthy of trial and prima facie meritorious.
• No amendment should be allowed which, if originally pleaded, would have been struck.
• The proposed amendment must contain sufficient particulars.
[26] In Brookfield Financial Real Estate Group Limited v. Azorim Canada (Adelaide Street) Inc., 2012 ONSC 3818, (2012), 111 O.R. (3d) 580 at paras. 23–24, the Court held that the tenability of a proposed claim is to be assessed with reference to the principles developed under the rule 21.01(1)(b) analysis in the context of a motion to strike.
[27] In Pantaleo, Master Haberman ruled that proposed amendments should not be granted if they are “clearly impossible of success” and it is “plain and obvious” that the claims based on the proposed amendments are certain to fail. Similarly, the Supreme Court of Canada has held in R. v. Imperial Tobacco Canada Ltd., 2011 SCC 42, [2011] 3 S.C.R. 45 that a claim will be struck if it has “no reasonable prospect of success.” The court said at paras. 19 and 20:
[19] The power to strike out claims that have no reasonable prospect of success is a valuable housekeeping measure essential to effective and fair litigation. It unclutters the proceedings, weeding out the hopeless claims and ensuring that those that have some chance of success go on to trial.
[20] This promotes two goods — efficiency in the conduct of the litigation and correct results. Striking out claims that have no reasonable prospect of success promotes litigation efficiency, reducing time and cost. The litigants can focus on serious claims, without devoting days and sometimes weeks of evidence and argument to claims that are in any event hopeless. The same applies to judges and juries, whose attention is focused where it should be — on claims that have a reasonable chance of success. The efficiency gained by weeding out unmeritorious claims in turn contributes to better justice. The more the evidence and arguments are trained on the real issues, the more likely it is that the trial process will successfully come to grips with the parties’ respective positions on those issues and the merits of the case.
[28] In 1317424 Ontario Inc. v. Chrysler Canada Inc., 2015 ONCA 104, 2015 CarswellOnt 1913, the Ontario Court of Appeal recently dismissed a claim in nuisance that had “no reasonable chance of success.”
The Breach of Fiduciary Duty
[29] The amended statement of claim presently contains allegations of a breach of fiduciary duty as against both Mr. Petersen and the NOP defendants. While any fiduciary duties owed to the plaintiffs arise from distinct relationships, the allegations are the same. The existing allegations were restricted to pre-litigation events, whereas the new and proposed amendments expand to include litigation conduct on the part of the defendants. This invites a consideration of whether a fiduciary duty is owed by one party to an adverse party in litigation. For the reasons that follow, I conclude that no such duty exists and such a claim is not tenable at law.
[30] Ours is an adversarial system. The conduct of the parties during litigation is governed by the Rules of Civil Procedure. In addition, counsel are bound by their respective Rules of Professional Conduct and their duties as officers of the court. The plaintiffs do not plead any breach of these Rules although the defendants argue in reply that the conduct complained of is more properly dealt with under Rule 57.07 and may be an appropriate consideration in the costs phase of the litigation.
[31] In Chancery Estate Holdings Corp v. Sahara Real Estate Investment Inc., 2013 BCCA 145, (2013), (2013), 361 D.L.R. (4th) 74, leave to appeal refused 2013 65406 (SCC), the B.C. Court of Appeal considered a dispute between a client and her former lawyer. The Court said this at para. 56:
[56] Once Ms. Jetha and Mr. Lakhani became adversaries in litigation, there was no continuing relationship of trust or confidence between them which placed a special burden on him to establish the validity or fairness of any settlement she had agreed to with the benefit of independent legal advice. This is reflected in the following dictum of Lord Chelmsford L.C. in Johnson v. Fesemeyer (1858), 3 De G. & J. 13 at 22, 44 E.R. 1174 (H. Ct. Ch.), in discussing the validity of a mortgage executed by a client to secure a debt owed to his solicitor:
The counsel for the assignees insisted that if the Defendant intended to act in his character of creditor, he ought to have separated himself from his relation as solicitor; and they cited various authorities to shew that in contracts between a solicitor and his client, as the former stands in a relation which gives or may give him an advantage, the onus lies upon him to prove that the transaction was fair, that he has made a reasonable use of the confidence placed in him, and that he has given honest advice to his client against himself. The smallest reflection, however, will shew that these principles are applicable only to cases of voluntary agreements, in which the client is dealing with his solicitor under the influence of that confidence which he has reposed in him, and upon which he relies for his protection in the transaction. They never can apply to a case where the solicitor assumes the hostile attitude of an urgent and pressing creditor and where the parties, to use Lord Eldon’s expression in Gibson v Jeyes (6 Ves. 277), “are put at arm’s length;” …
[Emphasis added.]
[32] In Canada v. Stoney Band, 2005 FCA 15, leave to appeal refused [2005] SCCA No 122, the Federal Court of Appeal had to consider a dispute between Aboriginals and the Crown which brought into consideration two principles: Fiduciary Duty and Honour of the Crown. The Court held at paras. 22-24:
In litigation, the Crown does not exercise discretionary control over its Aboriginal adversary. It is therefore difficult to identify a fiduciary duty owed by the Crown to its adversary in the conduct of litigation. It is true that an aspect of the claim against the Crown by the Stoney Band is based on an allegation of breach of fiduciary duty with respect to the surrender and disposition of reserve land. But even if such a fiduciary duty existed, that duty does not connote a trust relationship between the Crown and the Stoney Band in the conduct of litigation.
As indicated in Haida at paragraph 18 and in Wewaykum at paragraph 81, the term "fiduciary duty" does not create a universal trust relationship encompassing all aspects of the relationship between the Crown and the Stoney Band. Any fiduciary duty imposed on the Crown does not exist at large but only in relation to specific Indian interests.
Focussing specifically on litigation practices, I find it impossible to conceive of how the conduct of one party to the litigation could be circumscribed by a fiduciary duty to the other. Litigation proceeds under well-defined court rules applicable to all parties. These rules define the procedural obligations of the parties. It seems to me that to impose an additional fiduciary obligation on one party would unfairly compromise that party in advancing or defending its position. That is simply an untenable proposition in the adversarial context of litigation. Even where a fiduciary relationship is conceded, the fiduciary must be entitled to rely on all defences available to it in the course of litigation.
[33] A short time later, the Ontario Court of Appeal in Stoody v. Kennedy, 2005 7647 (Ont. CA) reversed the trial judge’s finding that a corporate defendant should have disclosed that it had no officers and directors and that it was “no longer properly constituted.” The Court held:
[30] I see no basis upon which to impose an obligation on Westsun Show to disclose corporate information to a party adverse in litigation. Imposition of such a duty is incompatible with both the duties owed by directors and officers to the corporation and with the operation of our adversarial system of law. Directors and officers owe fiduciary duties to the corporation, not to its current and former employees. The obligation to act honestly and in good faith, with the best interests of the corporation in mind, includes a positive duty to disclose to the corporation facts that may have an impact on the corporation. That duty does not extend to disclosing facts to current or former employees of the company.
[34] Stoney Band confirms that no fiduciary duty exists between opposing parties in the conduct of litigation. The court system is, by its very nature, adversarial and no defendant is required to act in the best interests of a plaintiff in conducting its defence and that this principle applies regardless of whether a fiduciary duty existed between the parties in a previous relationship outside the context of the litigation.
[35] In applying these decisions, it is clear that there cannot have been any relationship of trust or confidence between the defendant lawyers and the plaintiffs during the conduct of the present litigation. The parties were “at arm’s length” and clearly adverse in interest. Simply put, the plaintiffs cannot claim to have trusted or relied upon the defendant lawyers to act in their best interests in the context of document production. The defendant lawyers were required to comply with the Rules of Civil Procedure and no more. There is no allegation that the plaintiffs were entitled to the production of the documents outside of the discovery process.
[36] The plaintiffs cite the decision of the Supreme Court of Canada in R. v. Neil, 2002 SCC 70, but I find that it has no application to this case. There, the duty to avoid conflicting interests was in issue. The plaintiffs maintain that that there is a duty of good faith in litigation and rely on a number of decisions involving insurers where the courts had held that insurers have a duty to treat an insured fairly. In Khazzaka v. CGU Insurance Company of Canada, 2002 45018 (C.A.), the Court of Appeal upheld the trial judges’ award of punitive damages with respect to the insurers pre-litigation conduct and conduct during litigation up to and including trial, based on an insurer’s duty of good faith toward its insured.[^2]
[37] The issue of punitive damages and the good faith obligations of insurers were thoroughly examined in the Supreme Court of Canada decision Whiten v. Pilot Insurance Co. 2002 SCC 18. The Court noted this at para. 129:
Insurance contracts, as Pilot’s self-description shows, are sold by the insurance industry and purchased by members of the public for peace of mind. The more devastating the loss, the more the insured may be at the financial mercy of the insurer, and the more difficult it may be to challenge a wrongful refusal to pay the claim. Deterrence is required. The obligation of good faith dealing means that the appellant’s peace of mind should have been Pilot’s objective, and her vulnerability ought not to have been aggravated as a negotiating tactic. It is this relationship of reliance and vulnerability that was outrageously exploited by Pilot in this case…
[38] An insurer has an ongoing contractual duty to assess and adjust a client’s loss and that continues until the claim is finally resolved. This does not apply to the relationship of a solicitor and a former client. The case law cited above is clear that there is no fiduciary duty to a former client once litigation between them has commenced. Plaintiff’s counsel argues that fiduciary duties are severable and that the duties of honesty and candour set out in the Rules of Professional Conduct are owed to a former client. From my own review of those Rules, only the duty of confidentiality continues after a solicitor client relationship is at an end.[^3]
Punitive Damages
[39] If there is no fiduciary duty, can litigation conduct, on its own, form the basis for a claim of punitive damages? In Honda Canada Inc. v. Keays, 2008 SCC 39, the Supreme Court Canada reviewed its earlier decisions in Vorvis v. Insurance Corp of British Columbia, [1989] 1 S.C.R. as well as the Whiten decision and held at para. 62:
In Vorvis, McIntyre J., for the majority, held that punitive damages are recoverable provided the defendant’s conduct said to give rise to the claim is itself “an actionable wrong”. This position stood until 2002 when my colleague Binnie J., writing for the majority, dealt comprehensively with the issue of punitive damages in the context of the Whiten case. He specified that an “actionable wrong” within the Vorvis rule does not require an independent tort and that a breach of the contractual duty of good faith can qualify as an independent wrong. Binnie J. concluded at para. 82 that: “[a]n independent actionable wrong is required, but it can be found in breach of a distinct and separate contractual provision or other duty such as a fiduciary obligation.” In the case at hand, the trial judge and the Court of Appeal concluded that Honda’s “discriminatory conduct” amounted to an independent actionable wrong for the purposes of allocating punitive damages. This being said, there is no need to discuss the concept of “actionable wrong” here; this was done in Whiten. What matters here is that there was no basis for the judge’s decision on the facts. I will therefore examine the facts and determine why punitive damages were not well justified according to the criteria in Whiten. I will also discuss the need to avoid duplication in damage awards. Damages for conduct in the manner of dismissal are compensatory; punitive damages are restricted to advertent wrongful acts that are so malicious and outrageous that they are deserving of punishment on their own. This distinction must guide judges in their analysis.
[40] A claim for punitive damages can only succeed where the plaintiff can prove that the defendant’s conduct constituted an “independent actionable wrong.” None of the acts complained of in paragraphs 38-52 constitute an independent actionable wrong.
[41] Paragraph 39 misstates Master MacLeod’s ruling of April 3, 2009 which addressed the inadvertent disclosure of one document. The formal order prepared by the plaintiffs confirms that. This fact alone undermines the tenability of these amendments.
[42] Paragraph 40 cites an explicit waiver over the same issues, but at paras. 41 and 42, it is alleged that the defendant Petersen continued to assert privilege and this continues up to paragraph 45. At this point, there is no allegation that the NOP defendants have done anything wrong. If anything, the record establishes that these defendants did the “correct” thing in seeking to have the privilege issues resolved.
[43] Paragraph 46 alleges that the plaintiffs have suffered increased costs and delay. These are factors listed in Rule 57.07. The plaintiffs have not put forward any authority that there is a cause of action for increased costs and delay.
[44] Paragraphs 47 and 48 do not set out an independent actionable wrong. If every delay in producing documents in litigation was actionable, there would be no end to any litigation.
[45] Paragraph 49 refers to an amendment that was sought and dismissed.
[46] Paragraph 50 refers to evidence. Paragraphs 51 and 52 refer to a motion that was brought but not heard. This is not the basis of a cause of action. This is another matter for costs.
[47] The plaintiffs rely on a number of decisions, but on closer review, they are of no assistance. In 968703 Ontario Ltd. v. Vernon 2002 35158 (ON CA), the Court of Appeal upheld an award of punitive damages because the conduct of the defendant was at the level of attempted fraud. The conduct was arbitrary and high-handed, and was illegal in the sense that it was contrary to three court orders to pay funds into a joint account. There was also a clear finding of a fiduciary duty in that case.
[48] In Envoy Relocation Services Inc. v. Canada (Attorney General), 2013 ONSC 2034, [2013] O.J. No. 1553, at para. 1749, Justice Annis cited the conduct of witnesses “coming to court and concealing documents” as conduct that could ground award of punitive damages. This was conduct during the trial, and moreover, Justice Annis declined to make an award of punitive damages.
[49] In Kegel v. Tessler, 2002 Carswell Ont 3404, the trial judge found a number of reasons to award punitive damages, the failure to produce documents at trial being but one of these. More importantly, the defendant had not cured that problem by trial.
[50] The same is true in the matter of Hilltop Group v. Katana, 2002 9075 (ON SC) where the trial judge commented on a number of reasons as being grounds for punitive damages including being “less than forthright at trial.” He said this at para. 10:
...In light of the conduct of the Defendants throughout the proceedings to obfuscate, delay, be less than forthright in their evidence leads to punitive damages. I must look at the totality of the evidence before me, which, in my view shows the malicious, oppressive and high-handed conduct of the Defendants as a whole. Frank Katana, as a Defendant who participated in the fraudulent conveyances as found by me, cannot be separated from his role as a principal player of Valleywood and as its agent in all his dealings, as found by me at Trial….
[51] In this case, the defendants have produced all of the subject documents months in advance of the trial. Master MacLeod concluded that the NOP defendants’ conduct in bringing the motion for directions “was the correct thing to do.” Mr. Petersen was sanctioned with costs. There is no allegation that the plaintiffs were entitled to receive the documents other than through the discovery process prescribed by the Rules of Civil Procedure. There are no allegations of “advertent wrongful acts that are so malicious and outrageous that they are deserving of punishment on their own.”
[52] The plaintiffs’ proposed claim for punitive damages arising out of alleged litigation misconduct is certain to fail as against the defendants because the defendants owed no fiduciary duty to the plaintiffs during the litigation, and any failure to produce documents was cured before trial.
Allegations are Relevant to Costs
[53] The allegations of litigation misconduct contained in the proposed amendments are relevant to a costs analysis, rather than an assessment of liability for punitive damages. The court has a wide discretion in determining entitlement to costs arising out of parties’ conduct during the course of litigation. In Ontario, the Rules of Civil Procedure address the exact type of misconduct alleged by the plaintiffs. Rule 57.01(1) states:
57.01 (1) In exercising its discretion under section 131 of the Courts of Justice Act to award costs, the court may consider, in addition to the result in the proceeding and any offer to settle or to contribute made in writing,
(e) the conduct of any party that tended to shorten or to lengthen unnecessarily the duration of the proceeding;
(f) whether any step in the proceeding was,
(i) improper, vexatious or unnecessary, or
(ii) taken through negligence, mistake or excessive caution;
[54] The proposed amendments allege that the defendants improperly delayed production of certain relevant documents until the defendant, Perry Peterson, waived privilege over them. If the allegations are assumed to be true for the purposes of this motion to amend, the defendants’ delay would fall squarely into the category of actions described in rule 57.01(1)(e)-(f) as conduct that tended to lengthen the proceeding or as an unnecessary step in the proceeding.
[55] Canadian courts have held that where the conduct complained of relates to the conduct of litigation, it should be sanctioned by an elevated costs award and not punitive damages.
[56] In Stewart v. Knoll North America Corp., 2007 BCCA 11, the BC Court of Appeal heard an appeal of award of damages by a jury in a wrongful dismissal case. The trial judge had also ruled that evidence with respect to pre-trial proceedings and the inadequate production of documents was inadmissible. The Court of Appeal approved of the trial judge’s reasoning and said this at paras. 30 and 31:
The trial judge ruled the evidence inadmissible. After referring to Vorvis v. I.C.B.C., 1989 93 (SCC), [1989] 1 S.C.R. 1085, 58 D.L.R. (4th) 193, she said this:
Absent an independent actionable wrong giving rise to the potential for punitive damages, the courts have traditionally refused to consider conduct during the litigation as an issue for damages, instead reserving it for costs.
The plaintiff does not take issue with the necessity for an independent actionable wrong on which to found an award of punitive damages, but says conduct during the litigation can constitute such a wrong. The plaintiff wishes to put before the jury evidence that the defendant instituted an action in Ontario in respect of the corporate claim, disputed the venue for resolution of this matter thus putting the plaintiff to the expense of dealing with two actions, and contested the deponent for and the location of discovery. In each case the plaintiff was successful on the motion and received costs in the cause. The plaintiff also says she was prevented from seeing certain documents. She therefore wishes to assert that the defendant has systematically made the case as difficult and expensive for her as it could, thus further justifying an award of punitive damages.
[31] The judge discussed Wallace on this issue as well as Whiten v. Pilot Insurance Company, 2002 SCC 18. She expressed her conclusion as follows:
The plaintiff here, then, must plead and rely on a separate independent tort, breach of contract or fiduciary duty in order to put this evidence before the court. The plaintiff says that each of the unsuccessful motions constitutes an independent actionable wrong. The plaintiff argues that a breach of the Human Rights Code has been held to be an independent actionable wrong in Gigliotti v. Maxev (2004), 2004 BCSC 85, BCJ 94, although it does not give rise to an action within the meaning of the Rules of Court and is resolvable by another tribunal. Therefore, an unsuccessful motion, or series of motions, brought in the course of litigation can constitute an independent actionable wrong.
I do not see the two situations as equivalent. One involves the breach of a statute; the other involves resort to procedural rules governing litigation. The plaintiff cited no support for the proposition that requiring a party to bring a motion, or a series of motions, under the Rules of Court upon which one is ultimately unsuccessful constitutes an independent actionable wrong. I can think of no basis upon which such a characterization might be justified. There is a specific mechanism in the Rules to deal with exactly this situation. If the defendant is eventually found to be guilty of reprehensible conduct and deserving of chastisement, there is the potential for full indemnification through special costs.
In the result, then, I find there is no independent actionable wrong arising out of the conduct in this litigation. There is no basis upon which to find that unsuccessful motions constitute an actionable wrong. No such complaint is pleaded, nor can I see how it could be. Evidence of procedural steps in the litigation, then, may not be led before the jury.
[57] Pleading amendments relating exclusively to costs issues are not allowed. In Eli Lilly & Co. v. Apotex Inc., 2003 FC 978 (FC Protho) aff’d 2004 FCA, there was a delay in production of documents in a patent infringement case. The Federal Court of Appeal held that an alleged delay in producing documents was only relevant to the issue of entitlement to costs. Here in Ontario, the Superior Court summarized the rational for refusing amendments going exclusively to costs in Ludmer v. Ludmer, 2011 ONSC 4448, [2011] O.J. No. 3421. Justice Czutrin reviewed the case law and cited, with approval, the analysis conducted by Master Short in Arthur Andersen LLP v. Premier Fitness Clubs Inc., 2010 ONSC 3686:
[37] The amendments are not required to advance a claim so as to avoid any surprises. The requested amendment might, as the cases suggest, set a dangerous precedent, expand the litigation and provide a new weapon to compel the removal of counsel opposite. I agree with the view of the Master quoted above, that costs are not part of the lis between these parties but a separate matter to be decided after all of the issues have been settled. As Master Short quoted, “If a party is allowed to plead facts which are only relevant to the issue of costs pleadings could conceivably become, to a large degree, involved with that issue. [Emphasis in Arthur Andersen]” The costs rules and the Courts of Justice Act assist judges when exercising their discretion in deciding costs issues, and the Family Law Rules include the possibility of costs against counsel, without the need to plead the claim, but only after the conclusion of a case or specific step.
[38] I also share the Master’s view, cited in his decision, that pleadings must not be expanded to address ancillary matters:
[I]t is not procedurally just or expedient to allow matters unrelated to the lis, and going exclusively to an entitlement of costs to detract from the substantive issues to be decided at trial. To allow such pleading to stand, is to invite grievances as to a party's conduct, to become a basis to amend allegations of fact, as these grievances arise, thereby engendering delays and potentially, needlessly, expanding the ambit of discoveries. [Emphasis in Arthur Andersen]
[58] I conclude that the amendments should not be permitted. There is no unfairness to the plaintiffs as they can argue the defendants’ litigation conduct in the costs phase of the trial. To do otherwise would create, as Justice Czutrin said, a “dangerous precedent” and detract from the issues for trial.
The Voir Dire
[59] In their factum, the plaintiffs have identified at least the following questions that they propose to ask a trial:
i) whether the defendants knew the plaintiff SOU was asserting an interest in as an inventor of the IP;
ii) whether the defendants knew that GRIDS was asserting an ownership interest in the IP;
iii) whether the defendants knew, or ought to have known that they owed by the fiduciary duties to the plaintiffs;
iv) whether the defendants cooperated in concealing their conduct from the plaintiffs; and
v) whether the defendants considered the vulnerability of the plaintiff GRIDS in choosing their course of conduct.
[60] Plaintiffs’ counsel has left the door open to other questions. The plaintiffs maintain that these proposed questions are relevant to the determination of the issues raised in both their existing and proposed pleadings. In argument, counsel for the plaintiffs argued that these are necessary to establish credibility, and went so far as to say that they would show that the defendants were prepared to lie about the matters in issue.
[61] Having determined that there is no fiduciary duty that arises between the defendants and the plaintiffs after litigation, and having concluded that the plaintiffs’ proposed amendments are untenable at law, only the first two proposed questions are relevant to the issues at trial. Questions relating to the conduct of the defendants relating to the production of the documents in issue or with regard to any other conduct during litigation are not relevant. Examination in these areas needlessly extends the litigation into collateral areas that go beyond the central issues to be decided in the litigation; namely the ownership of the intellectual property.
[62] The costs of this motion are reserved to the conclusion of the trial.
Beaudoin J.
Released: August 6, 2015
COURT FILE NO.: 10-48359
DATE: 20150806
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
Geographic Resources Integrated Data Solutions Ltd. and The State of Oregon, acting by and through its State Board of Higher Education, on behalf of Southern Oregon University
Plaintiffs
– and –
Perry Peterson, Nelligan O’Brien Payne, Nelligan O’Brien Payne LLP and Wing T. Yan
Defendants
REASONS FOR DECISION
Beaudoin J.
Released: August 6, 2015
[^1]: Pantaleo v Wood, 2015 ONSC 1850, [2015] O.J. No. 1455 at para. 18
[^2]: See also Craig-Smith v. John Doe 2009 51513 (On SC)
[^3]: Rules of Professional Conduct. Section 3.3 CONFIDENTIALITY; Commentary [3] A lawyer owes the duty of confidentiality to every client without exception and whether or not the client is a continuing or casual client. The duty survives the professional relationship and continues indefinitely after the lawyer has ceased to act for the client, whether or not differences have arisen between them.