Court File and Parties

COURT FILE NO.: 10-48888 DATE: 2016/08/22 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: THE CORPORATION OF THE UNITED COUNTIES OF PRESCOTT AND RUSSELL Plaintiff (Respondent)

AND

DAVID S. LAFLAMME CONSTRUCTION INC., WATERPROOF CONCRETE (CANADA) LTD. and WSP CANADA INC. Defendants (Moving Party)

BEFORE: Justice Stanley Kershman

COUNSEL: Allan R. O’Brien and Frances Shapiro Munn, for the Plaintiff (Respondent) James M. Brown, WSP Canada Inc., for the Defendant (Moving Party)

HEARD: By written submissions

DECISION ON MOTION FOR LEAVE TO APPEAL

KERSHMAN J.

Introduction

[1] This is a motion for leave to appeal in writing to the Divisional Court brought by the Defendant WSP Canada Inc. from the decision of the Honourable Justice Robert Smith, dated February 4, 2016, together with an order staying the Order of Justice Robert Smith pending appeal. The motion is brought pursuant to Rule 62.02 of the Rules of Civil Procedure, R.R.O. 1990, Reg 194.

Procedural History and Background

[2] In this action, the Plaintiff and Responding Party (“Prescott Russell”) seeks damages from the Defendants, which it alleges it sustained as a result of alleged defective repairs to a bridge.

[3] Prescott Russell originally brought a motion seeking to amend its Statement of Claim to add WSP Canada Inc., the Moving Party (“WSP”), as a Defendant to these proceedings. That motion was opposed on the basis that the relevant limitation period had expired. Prescott Russell’s response relied on the doctrine of discoverability.

[4] That motion has not yet been heard.

[5] In the context of the aforesaid motion, cross-examinations were held. Prescott Russell sought production of an internal document prepared by WSP, which WSP refused to produce, claiming privilege over the document and refusing to answer questions related to the document.

[6] In response, Prescott Russell brought an interlocutory motion seeking to compel production of the internal document and to require WSP to answer questions related to that document.

[7] That interlocutory motion was heard by Justice Robert Smith, who issued Reasons for Decision on February 12, 2016 (“Endorsement”). Justice Smith ordered WSP to produce the internal document and to answer questions with respect to it.

[8] WSP seeks leave to appeal the decision based on the following:

(i) The decision of Justice Smith is in conflict with other decisions within the Province of Ontario with respect to the applicability of common law privilege;

(ii) There is good reason to doubt the correctness of the decision.

Motion Judge’s Decision

[9] At para. 22 of his Endorsement, Justice Smith found that a Risk Management Report (“RMR”) prepared by Ms. Marson of WSP was relevant to the discoverability issue of when Prescott Russell discovered or ought to have discovered the material facts on which to base its claim against WSP.

[10] At para. 25, Justice Smith found that the RMR was prepared as part of WSP’s new Risk Management Policy and constituted a review of all projects on which there was a risk of litigation. The RMR was not prepared for the dominant purpose of this litigation. As such, he found that it was not protected by litigation privilege.

[11] At para. 29 Justice Smith found that the RMR was prepared for Senior Management of the Engineering Firm where litigation was not the dominant purpose.

[12] While the RMR was ultimately sent to WSP’s insurers, Justice Smith found that the relationship between an insured and an insurer is also not one that the Courts have deemed necessary to be privileged, unlike communications between a lawyer and a client.

[13] At para. 31, Justice Smith found that the relationship between an employee and senior management of a professional firm and the relationship between insurer and insured is not a relationship that in the opinion of the community should be privileged, where such communications and reports were not prepared for the dominant purpose of litigation.

[14] At para. 32, Justice Smith found that under the circumstances, the benefits of the correct disposition of the litigation — to be obtained by the production of the information requested — outweighed any possible injury to the relationship between the insurer and the insured, and found that the information requested by Prescott Russell was not protected by common law privilege.

[15] WSP now seeks leave to appeal Justice Smith’s decision dated February 12, 2016.

Cross-Claim

[16] A Cross-motion was filed by Prescott Russell seeking an order to extend the time for service and filing of its material on the Moving Party’s motion.

[17] On consent, the Moving Party agreed to the extension of time. Therefore, the Cross-motion has been resolved.

The Test for Granting Leave to Appeal

[18] The test for granting leave to appeal under Rule 62.02(4) is well-settled. It is recognized that leave should not be easily granted and that the test to be met is a very strict one. There are two possible branches upon which leave may be granted. Both branches involve a two-part test and in each case, both aspects of the two-part test must be met before leave may be granted.

[19] Under Rule 62.02(4)(a), the Moving Party must establish that there is a conflicting decision of another judge or court in Ontario or elsewhere (but not a lower level court) and it is, in the opinion of the judge hearing the motion, “desirable that leave to appeal be granted”. A “conflicting decision” must be with respect to a matter of principle, not merely a situation in which a different result was reached in respect of particular facts: Comtrade Petroleum Inc. v. 490300 Ontario Ltd. (1992), 7 O.R. (3d) 542 (Div. Ct.).

[20] Under Rule 62.02(4)(b), the Moving Party must establish that there is good reason to doubt the correctness of the order in question and that the proposed appeal involves matters of such importance that leave to appeal should be granted. It is not necessary that the judge granting leave be satisfied that the decision in question was actually wrong — he or she must only be satisfied that the correctness of the order is open to “very serious debate”: Nazari v. OTIP/RAEO Insurance Co.; Ash v. Lloyd’s Corp. (1992), 8 O.R. (3d) 282 (C.J. (Gen. Div.)).

[21] In addition, the moving party must demonstrate matters of importance that go beyond the interests of the immediate parties and involve questions of general or public importance relevant to the development of the law and the administration of justice: Rankin v. McLeod, Young, Weir Ltd. (1986), 57 O.R. (2d) 569 (H.C.); Greslik v. Ontario Legal Aid Plan (1988), 65 O.R. (2d) 110 (Div. Ct.).

Conflicting Decisions

WSP’s Position

[22] WSP argues that Justice Smith erred in his application of the principles of common law privilege to the evidence before him. It argues that he added his own requirement that communications be for the dominant purpose of litigation, contrary to the decision in Slavutych v. Baker, [1976] 1 S.C.R. 254.

[23] It argues that Justice Smith erred in ignoring the authorities where the doctrine of common law privilege had been applied between the insured and its insurers. It relied on the cases of R. v. Westmoreland (1984), 48 O.R. (2d) 377 (H.C.), and Agrico Canada Ltd. v. Northgate Insurance Brokers Inc. (1994), 35 C.P.C. (3d) 370 (Ont. C.J. (Gen. Div.)).

Prescott Russell’s Position

[24] Prescott Russell argues that Justice Smith did consider all four criteria under the Slavutych test:

a. At para. 28, Justice Smith concludes that the report did not originate in confidence, but was created to be shared with senior management (criteria #1);

b. At para. 29, Justice Smith concludes that the relationship between employee and senior management is one where confidentiality is important but not one where privilege can be asserted (criteria #2);

c. At para. 31, Justice Smith finds that the relationship between an employee and senior management of a professional firm and the relationship between insurer and insured is not one that in the opinion of the community should become privileged where the report was not prepared for the dominant purpose of litigation (criteria #3);

d. At para. 32, he concludes that the benefit of the production outweighs any possible injury to the relationship (criteria #4).

[25] Prescott Russell submits that Westmoreland is consistent with Justice Smith’s findings, at para. 30, that communications between the insurer and the insured are not ones that the Courts have deemed necessary to be privileged. Rather, whether privilege attaches to the document depends on the circumstances at issue — i.e. was the dominant purpose of the communication for litigation or was there only a mere risk of litigation?

[26] Based on the facts before him, Prescott Russell argues that Justice Smith concluded that the RMR was prepared for internal management and not for WSP’s insurer in anticipation of litigation (paragraph 28).

Analysis

[27] In the Court’s view, it does not appear as though the cited cases represent conflicting decisions on common law privilege. A conflicting decision is one which demonstrates a difference in principles chosen by the judges, not simply a decision which reaches a different result.

[28] A judge who exercises his or her discretion when the circumstances of the case are different than those in other jurisprudence is not necessarily making a “conflicting decision”. A motion judge’s decision is entitled to deference. Therefore, in order to be successful on a motion for leave to appeal, it is necessary for the appellant to demonstrate that there is a difference in the principles chosen by the motions judge as his or her guide to the exercise of discretion, and not simply a different set of facts leading to a different conclusion (Nikore v. Proper, 2010 ONSC 2307, at para. 33, 101 O.R. (3d) 469 (Div. Ct.)).

[29] It appears as though the broad principles applied by Justice Smith conform to the principles used by the judges in Westmoreland and Agrico. Justice Smith correctly applied the Slavutych test and found that the criteria were not met.

[30] In particular, Justice Smith emphasized that the RMR was not prepared for the dominant purpose of litigation, and used this to inform his analysis of the first and third factors: he found that the communication had not originated in confidence, but was instead a standard internal corporate document addressed to senior management (at para 28).

[31] Furthermore, he found that the context of the document’s creation suggested that the relationship between the employee and manager, and between insured and insurer, is not one which ought to be slavishly fostered by the application of privilege, particularly in this case where communications were not prepared for the dominant purpose of litigation (at para. 31).

[32] While Westmoreland and Agrico come to different conclusions, the underlying principles are the same. All three judges apply the test from Slavutych, recognizing that this is the leading case.

[33] The prospect of litigation was also a key consideration in all three cases. In Agrico, Justice Wilkins notes that the prospect of litigation was “more than probable” and was anticipated by the individual claiming privilege (at paras. 24–27). Jones, an insurance broker, consulted with an underwriter about a prospective claim against him relating to declined coverage for one of his clients. In the eyes of the court, “litigation and the contemplation of litigation was one of the substantial purposes of the meeting”, at which time the information was gathered and recorded (at para. 28). The information had arisen in confidence (at para. 26) and, in the circumstances of the case, the relationship of confidence was one which should be fostered (at para. 38). The court found that the conversation had taken place in circumstances “very similar to an interview which might be conducted by an agent, servant or employee of a solicitor” (at para. 26).

[34] In Westmoreland, Justice Steele found that the statements and photographs gathered by an insurance company were subject to privilege, even though they were collected months before the insurance company consulted legal counsel. The Court specifically noted that, while legislation requires the insured to inform the insurer of any accident with full particulars, “[t]his does not mean that all statements given by an insured to an insurance company are the subject of privilege…. In all accidents there is a possibility of litigation, but this is not enough to create a privilege” (at pp. 341–42). Here, the insurance company had probable cause to believe that litigation was contemplated before any of the relevant information was gathered. This helped ground privilege. Justice Steele stated that the test from Slavutych was satisfied, but did not provide any detailed analysis.

[35] In all three cases, the analysis is the same: the court applies the test set out by the Supreme Court in Slavutych and considers the context in which the documents were created to help inform this analysis. In Westmoreland and Agrico, the court found that the circumstances of imminent litigation helped establish that the documents originated in confidence, and that the relationship should be fostered.

[36] Justice Smith was faced with a different set of facts. He made a finding of fact that the report was an internal document not created for the purpose of litigation. This finding of fact resulted in a different conclusion.

[37] Further, Justice Smith’s finding that “the relationship between an insured and insurer is also not one that the courts have deemed necessary to be privileged” (at para. 30) is not in conflict with the cited case law. In particular, as cited above, the court in Westmoreland specifically noted that not all communications between an insurer and an insured are subject to privilege — a case specific analysis must be undertaken, as it was by Justice Smith.

[38] Therefore the Court finds that there is no conflicting decision which would, in the Court’s opinion, make it desirable that leave to appeal be granted.

Correctness

WSP’s Position

[39] WSP argues that Justice Smith erred in finding that the internal communication was not prepared for the dominant purpose of the litigation.

[40] WSP argued that, since at least June 21, 2006, it was clear that David S. LaFlamme Construction Inc. (DSL) pointed the litigation finger at WSP and alleged that WSP was to blame for the problems with the bridge. It also alleges that there was a reasonable prospect of litigation on or about October 29, 2009, when it was clear that DSL had again alleged that WSP was responsible for the problems with the bridge.

[41] There was also a reasonable prospect of litigation on or about December 17, 2009, when the Plaintiff put DSL on a notice of an intention to advance a claim. Lastly, the reasonable prospect of litigation became actual litigation when, on July 2, 2010, Prescott Russell commenced proceedings with respect to the bridge.

[42] WSP argues that while it may not have been included as a party to the litigation when it was commenced, the allegations advanced by DSL created a reasonable prospect that WSP might become involved in the litigation.

[43] WSP argues that there is reason to doubt the correctness of the decision with respect to relevance and litigation privilege.

[44] WSP argues that there are significant implications for all types of professionals, the insurance industry at large, and the public.

[45] WSP argues that the Court must protect the early and complete disclosure between an insured and its insurer.

Prescott Russell’s Position

[46] Prescott Russell argues that Justice Smith did properly consider the four criteria set out in the Slavutych case, at paras. 28, 29, 31, and 32 of his decision.

[47] In addition, Prescott Russell argues that the Westmoreland decision is consistent with Justice Smith’s findings at para. 30 that the communications between insurer and insured are not those that the Court deems to be privileged.

[48] Prescott Russell argues that, in the Agrico case, the Court determined that the relationship between the plaintiff and his insurance company was similar to a client and a lawyer relationship. The interview that was conducted between the Defendant and his insurer was similar to an interview that might have been conducted between a client and a solicitor, justifying the application of the privilege.

[49] Prescott Russell submits that Justice Smith correctly relied on the case of Ferrara v. Lorenzetti, Wolfe Barristers and Solicitors, 2012 ONCA 851, 113 O.R. (3d) 401, in concluding that the RMR was relevant to the discoverability of its claim against WSP.

[50] Prescott Russell argues that the RMR is relevant to the issue of whether and when WSP was aware that it made an error in recommending the Everdure Caltite mixture to Prescott Russell, and if and when it failed to disclose that error to Prescott Russell.

[51] Prescott Russell submits that Justice Smith was correct in holding that the RMR was not prepared for the dominant purpose of litigation and, therefore, that it is not subject to litigation privilege.

Analysis

[52] WSP alleges that there is good reason to doubt the correctness of Justice Smith’s decision.

[53] Justice Smith’s decision on this point is brief. He cited para. 6 of Mercaldo v. Poole (1986), 13 C.P.C. (2d) 129 (Ont. H.C.), where the court found that a possibility of litigation is not enough to trigger litigation privilege.

[54] The issue of litigation privilege was dealt with by the Supreme Court in Blank v. Canada (Minister of Justice), 2006 SCC 39, [2006] 2 S.C.R. 319, at paras. 59–60, where the Court affirmed that litigation privilege only attaches to documents created for the dominant purpose of litigation. This form of privilege is “a limited exception to the principle of full disclosure and not … an equal partner of the broadly interpreted solicitor-client privilege” (at para. 60). The dominant purpose test requires that “(a) litigation was ongoing or reasonably contemplated at the time the document was created; and (b) the dominant purpose of creating the document was for that litigation” (Webasto Product North America Inc. v. Shasta Equities Ltd., 2014 FCA 135, at para. 25, (sub nom Hagedorn v “Helios I” (The)) 374 D.L.R. (4th) 757).

[55] In the Court’s view Justice Smith’s findings are in accordance with the leading authorities on litigation privilege. He found that the document had been prepared as part of WSP’s Risk Management Policy as part of a review of all projects in which there was a risk of litigation. It was not prepared for the dominant purpose of litigation, and therefore did not fall under the protection of litigation privilege (see para. 25).

Conclusion

[56] For the aforesaid reasons, the motion to grant leave to appeal is dismissed.

Stay Pending Appeal

[57] Since the motion for leave to appeal has been dismissed, the relief for a stay pending the appeal is also dismissed.

Costs

[58] The parties are encouraged to resolve the issues of costs. If they are unable to do so, they shall contact the Trial Coordinator and obtain a date with a 9:30 am start time. Both parties shall provide costs outlines at the hearing. Each party will be allowed a maximum of 15 minutes to argue the issue of costs.

[59] The parties shall comply with the provisions in Rule 4.01 of the Rules of Civil Procedure.

[60] Order accordingly.

Justice Stanley Kershman Date: August 22, 2016