Tutt v. Ishakis, 2017 ONSC 7368
MOTION HEARD: 20170410
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: JANET TUTT, LAURA FOLLAND, SHARON BROWN and PETER A. JAMES, ESTATE TRUSTEE OF THE ESTATE OF LINDA BLEMINGS, DECEASED, Plaintiffs
-AND-
YOCHANAN ISHAKIS also known as JASON ISHAKIS, FAIRFAX PARTNERS CORP., FAIRFAX MISSISSAUGA HOLDINGS LTD., FAIRFAX ORILLIA HOLDINGS LTD., KASTNER COMPANY, 2129150 ONTARIO INC. and 2065597 ONTARIO INC., Defendants
AND BETWEEN:
YOCHANAN ISHAKIS also known as JASON ISHAKIS, FAIRFAX PARTNERS CORP., FAIRFAX MISSISSAUGA HOLDINGS LTD., FAIRFAX ORILLIA HOLDINGS LTD., Plaintiffs by Counterclaim
-AND-
JANET TUTT, LAURA FOLLAND, SHARON BROWN and PETER A. JAMES, ESTATE TRUSTEE OF THE ESTATE OF LINDA BLEMINGS, DECEASED, GUSTAV KASTNER, GUSTAV KASTNER HOLDINGS INC. and SPERGEL FORSTER SILVERBERG & GLUCKMAN LLP, Defendants by Counterclaim
BEFORE: Master Lou Ann M. Pope
COUNSEL: Allan Herman, Waldin Barristers, counsel for the plaintiffs/defendants by counterclaim Fax: 416-364-3866
Nancy N. Tourgis, Solmon Rothbart Goodman LLP, counsel for the defendants/plaintiffs by counterclaim Fax: 416-947-0079
HEARD: May 3, 2017 and May 10, 2017
REASONS FOR DECISION
1The defendants/plaintiffs by counterclaim, Yochanan Ishakis, also known as Jason Ishakis (“Ishakis”), Fairfax Partners Corp., Fairfax Mississauga Holdings Ltd., and Fairfax Orillia Holdings Ltd. (“defendants”) seek the following orders:
(a) to compel Peter James (“James”) to answer the undertakings given and refusals made at his cross-examination on his affidavit sworn November 23, 2015 held on February 2, 2016 and March 7, 2016, and
(b) to compel Sharon Brown (“Brown”) to answer all refusals made at her cross- examination on her affidavit sworn November 23, 2015 held on March 8, 2016.
2The plaintiffs/defendants by counterclaim (“plaintiffs”) have moved for summary judgment against the defendants. They filed the affidavits of James and Brown in support of the motion and the defendants cross-examined both of them on their affidavits.
3These Reasons should be read in conjunction with my Reasons given on the plaintiffs’ motion regarding Ishakis’ undertakings and refusals dated December ___, 2017 for the relevant facts and law applicable to both motions.
Waiver of Solicitor Client Privilege
4The issue of waiver of solicitor client privilege relates to refusals given by both James and Brown. Those refusals have been grouped together and counsel made submissions on this category.
James’ refusals: 1, 8, 9, 10
5Ishakis seeks production of James’ entire file from the sale of the business from the plaintiffs to Kastner. James refused to answer questions on the basis that the answers are protected by solicitor-client privilege and lack of relevancy. It is Ishakis’ position that the plaintiffs waived solicitor client privilege between themselves and James both in James’ and Brown’s affidavits which is outlined below.
6It is the plaintiffs’ position that the mere fact that a party received legal advice during the events giving rise to a claim or defence, even if the party relied on the legal advice during those events, does not establish waiver of privilege.
(i) The pleadings and the evidence
7In the amended statement of claim, the plaintiffs seek payment of the Notes from Ishakis and rectification of the Notes relating to the spelling of the names of the Fairfax companies. Also in issue is whether Ishakis personally guaranteed payment of the Notes to the plaintiffs.
8Ishakis’ defence is that he did not personally guarantee the Notes to the plaintiffs and that the plaintiffs are not holders in due course of the Notes. Ishakis’ counterclaim against the plaintiffs includes claims of fraudulent misrepresentation, dishonest and unlawful conduct, constructive trust, unjust enrichment, breach of warranty and conspiracy. In addition, the counterclaim includes a claim for damages on the grounds that the plaintiffs wrongfully interfered with Ishakis’ contractual rights by seeking the consent of a prior encumbrancer, Royal Bank, to commence this action as required under a subordination agreement.
9In the defence to Ishakis’ counterclaim, the plaintiffs deny having any knowledge of the state of Kastner’s business in the period leading up to the 2010 sale to Ishakis. They deny all allegations of misrepresentations and conspiracy with Kastner. Further, they deny having any input in the negotiations between Kastner and Ishakis. The plaintiffs allege to have received only partial payment from Ishakis on the sale from Kastner. At paragraph 17(c), it is pled that the plaintiffs relied on the assignment of the Notes to their detriment in agreeing to release their asset security. Paragraphs 31 and 32 state what the plaintiffs were told about the terms of sale between Kastner and Ishakis and that the plaintiffs “reluctantly” accepted those terms.
10The following is a summary of the plaintiffs’ allegations at paragraph 48 of their defence to the counterclaim: they had no input into the formation or structure of the agreements governing the sale to Ishakis, including no input in the purchase price; they had no communications with Kastner regarding the transaction or agreements before they closed; they had no knowledge of the terms or any representations made in the agreements between Kastner and Ishakis; they had no knowledge about the financial affairs, assets and condition of the properties of the Kastner companies following the sale to Kastner in 2005; they received no financial statements from Kastner after the 2005 sale; they had no information about the value of the inventory, accounts receivable or payables; they were not aware of the terms of the covenants that Ishakis alleges were breached; they deny conspiring with anyone relating to the sale to Ishakis. Lastly, in response to Ishakis’ allegation of interference with contractual relations by notifying the Royal Bank of Ishakis’ default under the Note, the defence to counterclaim specifically refers to a letter from James to the Royal Bank dated November 14, 2013.
11The plaintiffs produced some 50 documents listed in their affidavit of documents. (I will assume these documents were listed in Schedule “A” of the plaintiffs’ affidavit of documents as paragraph 9 of the affidavit of Christina Garisto, sworn November 2, 2016, does not specify same.) The documents are mainly email communications between the plaintiffs and their counsel, James, and emails between the plaintiffs or James and Dan Short, the plaintiffs’ accountant.
12In addition, the instances where Ishakis’ contends that the plaintiffs waived solicitor client privilege in James’ affidavit are as follows: James’ knowledge of the proposed sale from Kastner to Ishakis; his communications with Christine Renaud, counsel for Kastner, prior to the closing; documents he received prior to closing and what documents he provided to the plaintiffs, his communications with the plaintiffs; the plaintiffs’ acceptance of his advice not to demand payment from Kastner, discussions at a meeting with the plaintiffs and Dan Short, their accountant, including a copy of his outline of advice that he provided to the plaintiffs attached as an exhibit to his affidavit; particulars of what the plaintiffs wanted on the sale to Ishakis including his and Dan Short’s advice to them and the plaintiffs’ conclusions.
13The following are the instances where Ishakis’ contends that the plaintiffs waived solicitor client privilege in Brown’s affidavit: Brown states that the plaintiffs were “completely naive in business matters” when they inherited Embury Company from their late father in 2003; they sold the business to Kastner in 2005 for $6,396,000; the plaintiffs had no input and took no part in negotiations of the agreements between Kastner and Ishakis; they did not see a draft or signed copies of said agreements; they were told what was expected to happen under the agreements; they had to decide whether to allow Kastner and Ishakis to close by releasing the plaintiffs’ asset security and taking the other security offered; particulars of advice they received and their options regarding Kastner’s proposed sale to Ishakis; particulars of legal advice they received regarding deferring payments from Kastner; particulars of the plaintiffs’ request that James inquire about details of the proposed sale to Ishakis in 2010, including written communications between the plaintiffs and James regarding the proposed terms of sale and James’ advice to them; particulars of their meeting with James and Mr. Short on October 5, 2010; James and Mr. Short’s advice regarding the terms of sale; the plaintiffs’ reluctance to release their security on the assets and the advice received; the basis for the plaintiffs’ decision to release their security.
14In addition, James attached as exhibits to her affidavit copies of numerous email communications between the plaintiffs and James.
(ii) Law Regarding Solicitor-client privilege and Waiver
15The law regarding solicitor-client privilege and waiver is well-established. The Supreme Court of Canada made the following salient statement regarding these principles in R. v. McClure, 2001 SCC 14, 2001 S.C.C. 14, 2001 CarswellOnt 496, at paras. 33-35:
The importance of solicitor-client privilege to both the legal system and society as a whole assists in determining whether and in what circumstances the privilege should yield to an individual’s right to make full answer and defence. The law is complex. Lawyers have a unique role. Free and candid communication between the lawyer and client protects the legal rights of the citizen. It is essential for the lawyer to know all of the facts of the client’s position. The existence of a danger in eroding solicitor-client privilege is the potential to stifle communication between the lawyer and client. The need to protect the privilege determines its immunity to attack.
. . . solicitor-client privilege must be as close to absolute as possible to ensure public confidence and retain relevance. As such, it will only yield in certain clearly defined circumstances, and does not involve a balance of interests on a case-by-case basis.
16In Leadbeater v. Ontario, 2004 CarswellOnt 1158, at paragraph 32, the court followed Ground J.’s statement of the law of waiver:
Privilege may be waived expressly or impliedly. . . . When determining whether privilege should be deemed to have been waived, the court must balance the interests of full disclosure for purposes of a fair trial against the preservation of solicitor client and litigation privilege. Fairness to a party facing a trial has become a guiding principle in Canadian law. Privilege will be deemed to have been waived whether the interests of fairness and consistency so dictate or when a communication between a solicitor and client is legitimately brought into issue in an action. When a party places its state of mind in issue and has received legal advice to help form that state of mind, privilege will be deemed to be waived with respect to such advice.
17What constitutes waiver by implication? The courts have held that in deciding this question, regard must be had to the “double elements that are predicated in every waiver, i.e., not only the element of implied intention, but also the element of fairness and consistency.” Rothstein J. in K.F. Evans ltd. v. Canada (Minister of Foreign Affairs) (1996), 106 F.T.R. 210 (Fed. T.D.) at paragraph 15, opined:
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.
18On the summary judgment motion herein, the issue of the quality of James’ advice to the plaintiffs is not in issue. In other words, this is not a professional negligence action.
19However, Ishakis placed in issue in the statement of defence and counterclaim the role the plaintiffs played in the negotiations and terms of sale of the business from Kastner to Ishakis. For example, it is alleged that the plaintiffs conspired with Kastner. The plaintiffs responded in length to the numerous allegations pled by Ishakis in their defence to the counterclaim. Further, the plaintiffs addressed the issue of conspiracy indirectly in the affidavits of Brown and James. Specifically, they addressed this issue indirectly not by denying any conspiracy but by statements that they had little or no knowledge, information or input in the terms of sale. They gave evidence about what information they had about the terms of sale at the relevant times. In addition, they gave evidence about their discussions with their counsel and their subsequent decisions. Furthermore, Brown gave evidence about the plaintiffs’ state of mind regarding the sale in general, what they wanted from the sale and their concerns about protecting their interests. Moreover, James gave evidence about his knowledge of the terms of sale. His evidence includes a written copy of a chart he provided to the plaintiffs that sets out his advice to them. Lastly, the plaintiffs included on the evidence filed for the summary judgment motion copies of email communications between them and their counsel, many of which set out their instructions to James and James’ legal advice to them.
20Further, the issues raised in the counterclaim against the plaintiffs are at issue on the summary judgment motion. In my view, the affidavit evidence filed by the plaintiffs, as summarized above, is relevant to the issues raised in the defence and counterclaim including conspiracy. As such, Ishakis is entitled to cross-examine on those issues.
21For the above reasons, it is my view that the plaintiffs did much more than discuss communications with their lawyers as set out in the affidavits as submitted by the plaintiffs. I find that the plaintiffs waived their solicitor-client privilege. By their own evidence, the plaintiffs are essentially attempting to pick and choose some communications between them and their counsel and exclude others. The main issue raised in the defence and counterclaim is the plaintiffs’ involvement in the sale from Kastner to Ishakis. The plaintiffs responded to those allegations in their defence to counterclaim and the affidavit evidence of both James and Brown addressed directly those issues.
22Therefore, James shall produce his entire file regarding the sale of the subject business from Kastner to Ishakis.
James’ Refusal: 5
James’ Undertakings: 2, 4, 5
23These refusals and/or undertakings involve questions asked of James in his capacity as estate trustee for the estate of the plaintiff, Linda Blemings, when they signed the Assignment of Guarantees as Collaterial Security (“Assignment of Guarantees”) on February 1, 2013.
24At his cross-examination, James was asked to produce communications he received from either Mr. Waldin, plaintiffs’ counsel, or McLean & Kerr, counsel for Kastner, regarding the Assignment of Guarantees prior to its execution on February 1, 2013.
25As background, the Assignment of Guarantees involved Kastner assigning to the plaintiffs the three guarantees of the three promissory notes given by Ishakis and the Fairfax companies. The Assignment was executed on February 1, 2013, while the closing of the sale from Kastner to Ishakis took place in November 2010. The Assignment of Guarantees was prepared by Mr. Waldin as counsel for the plaintiffs.
26This action was commenced on October 31, 2014. The statement of claim herein was amended by order dated February 12, 2015 which amended the title of proceedings to add James as estate trustee.
27Issue: Whether James gave an undertaking to review his file. Having reviewed the evidence and the transcript of the cross-examination of James, I find that James did not undertake to advise whether he received any communications from Mr. Waldin’s office and McLean & Kerr relating to the Assignment of Guarantees. At Question 252, James was asked if he would review his file, to advise defence counsel of the results of his file review, and produce any such documents he received. He refused to do so based on the grounds of privilege.
28Issue: Whether the subject documents are protected by solicitor client privilege. The solicitor client privilege in issue relates to the solicitor client relationship between the plaintiffs and their counsel in this action, Mr. Waldin.
29A review of the evidence and the pleadings is necessary in order to determine this issue.
30The Assignment of Guarantees was executed on February 1, 2013. Mr. Waldin stated on the record during the cross-examination of James that he prepared this document. Litigation had commenced between Kastner and Ishakis in March 2012 when Kastner claimed that he was wrongfully dismissed by Fairfax Partners Corp. By November 1, 2012, default had occurred on the Notes and a few months later on February 1, 2013, the plaintiffs and Kastner executed the Assignment of Guarantees, which was prepared by Mr. Waldin. Although there is no evidence of the date Mr. Waldin was retained by the plaintiffs, based on the evidence, I accept that Mr. Waldin was acting for the plaintiffs in respect of the default on the Notes prior to the execution of the Assignment of Guarantees on February 1, 2013.
31The refusal and undertakings charts do not direct me to any portion of the evidence or pleadings on this issue. However, I note that James refers to the Assignment of Guarantees at paragraph 52 of his affidavit and attaches a copy of it as an exhibit.
32For the above reasons, I find that any communication James may have received from Mr. Waldin or McLean & Kerr regarding the Assignment of Guarantees are protected by solicitor client privilege that existed between the plaintiffs, including James as estate trustee, and Mr. Waldin. The fact that James produced a copy of the Assignment of Guarantees as an exhibit to his affidavit does not, in my view, entitle the defendants to production of communications between the plaintiffs and their counsel.
33Also for the above reasons, I agree with the plaintiffs’ assertion that the requested documents are protected by litigation privilege as they were documents that were prepared in contemplation of litigation by the plaintiffs. The plaintiffs commenced this action on October 31, 2014 in which they seek to enforce the Assignment of Guarantees at paragraphs 11 and 12 of the amended statement of claim.
34I find further that there is no evidence to support the assertion that the privilege was waived.
35In conclusion, firstly, the alleged undertakings were not given by James and, secondly, the refusal was proper as they are protected by privilege.
James’ Refusals: 6 and 7
36James refused to produce his legal accounts rendered to the plaintiffs on the grounds of privilege and relevancy.
37Ishakis submits that they are entitled to production of the accounts to see what work was performed by James. Although it was my finding above that the plaintiffs waived solicitor client privilege over James’ legal file regarding the sale from Kastner to Ishakis, I am not satisfied that the accounts are in any way relevant to any of the issues in this proceeding. Simply put, James’ accounts are not in issue in this action--not the work he performed nor the amount charged.
38Therefore, Questions 6 and 7 were proper refusals.
James’ Refusal: 11
39James refused to answer whether he had any discussions with the plaintiffs regarding the Roynat postponement on the grounds of privilege and lack of relevance.
40The refusal chart fails to set out the portion of the pleadings or the evidence that refers to the Roynat postponement. Ishakis’ evidence is that as part of the closing documents, a Subordination and Postponement Agreement was entered into with the Royal Bank of Canada which was providing an operating line of credit to Ishakis and Kastner as vendors. This Agreement included an Acknowledgment signed by the plaintiffs.
41In addition, Ishakis pled that he had no knowledge that the plaintiffs and Kastner entered into the Assignment of Guarantees.
42In oral submissions, defence counsel referred me to paragraph 6 of the Assignment of Guarantees which states that the plaintiffs agreed to be bound by the Postponement Agreement by Embury Company in favour of Roynat Inc. and the Postponement Agreement between 2129150 Ontario Inc. in favour of Roynat Inc.
43I find that James’ refusal was improper and that the question is relevant to the issue raised by Ishakis regarding the plaintiffs’ involvement in the negotiation of the agreement and his claim of conspiracy between the plaintiffs and Kastner. In February, 2013, over two years from the closing of the sale transaction, the plaintiffs and Kastner entered into the Assignment of Guarantees in which the plaintiffs acknowledged and agreed to be bound by the Postponement Agreements in favour of Roynat Inc. As such, it is reasonable to assume that the plaintiffs may have had involvement in the said Postponements, if only to the extent as to whether they had a choice to agree or not agree to the Postponements at the relevant times.
44For the above reasons, James shall answer this question.
James’ Refusal: 12
45James refused to answer whether he agreed that it was his responsibility or obligation to ensure that the security his clients were receiving was correct on the grounds that the question was not relevant to the issues in the action or the evidence filed for the summary judgment motion. The question was asked in the context of the plaintiffs’ claim for rectification of the spelling of the names of the Fairfax companies.
46I find that James’ refusal to answer this question was proper as the question is not relevant to any issue on the summary judgment motion. James’ responsibilities or obligations as counsel to the plaintiffs are not in issue.
Brown’s Refusals: 3 and 4
47Brown refused to answer these questions on the grounds of privilege and lack of relevance.
48In my view, the plaintiffs’ understanding of the nature of the promissory note and the “basis and import” of an intercreditor agreement are not relevant to any issue on the summary judgment motion. The plaintiffs’ evidence is that they had no input into the terms of any of the agreements between Kastner and Ishakis. This evidence does not, in my view, raise any issue regarding the plaintiffs’ understanding of the documents. Further, the plaintiffs are seeking to enforce the Notes and it was not pled, nor is there any evidence, that they did not understand the nature of the Notes and an intercreditor agreement.
49For those reasons, I find that the refusals were proper.
Brown’s Refusals: 5, 6 and 7
50Brown refused to answers these questions on the ground of lack of relevance.
51Regarding refusals 5 and 7, I find that these refusals were proper. The actual amount each plaintiff received from the sale of the business to Kastner in 2005 is not relevant to any issue on the summary judgment motion. Ishakis alleged that he paid too much for the business and that Kastner and the plaintiffs conspired to inflate the selling price. Firstly, in my prior reasons, I ordered that James produce his file for the sale to Kastner. The documents therein will undoubtedly set out the net proceeds of the sale paid to the plaintiffs. Secondly, it will be for Ishakis to prove on expert evidence the value of the business at the relevant times in 2005 and 2010. Therefore, I find the actual amount received by each plaintiff in 2005 has no relevance to any issue on the summary judgment motion. Moreover, in my view, any such evidence will not assist the trier of fact in determining any of the issues.
52Regarding refusal 6, I find that this refusal was proper. The actual amount paid by Kastner to the plaintiffs up to June 15, 2010 from the sale of the business to Kastner in 2005 is not relevant to any issue on the summary judgment motion. The facts are that Kastner owed monies to the plaintiffs at the time negotiations took place for the sale to Ishakis. The fact that it is Ishakis’ evidence that prior to the sale to Ishakis Kastner had defaulted on his payments to the plaintiffs and that on closing Kastner directed closing payments to the plaintiffs, does not, in my view, make the amount of Kastner’s payments to the plaintiffs relevant to the issues in this action. Again, Ishakis alleged that he paid too much for the business and that Kastner and the plaintiffs conspired to inflate the selling price. The selling prices of the business both in 2005 and 2010 are apparent from the evidence. In my view, the actual amount Kastner had paid to the plaintiffs by June 15, 2010 will not assist the trier of fact in any way in determining the issues on the summary judgment motion.
Brown’s Refusal: 9
53Brown refused to answer this question on the ground that it is impermissible as it is a question of law.
54In my view, this question is not permissible for two reasons. Firstly, the question seeks Brown’s opinion and, secondly, it seeks Brown’s opinion on a legal question. Brown is not an expert; therefore, her opinion is not relevant to any issue on the motion. Further, Brown is not a lawyer and is not competent to answer this legal question.
55For those reasons, this refusal was proper.
Conclusion
56I have set out my rulings regarding James’ disputed undertakings and refusals and Brown’s disputed refusals on the Undertakings and Refusals Charts contained in Ishakis’ Supplementary Motion Record, which are attached hereto. The said Charts also contain the agreements between counsel regarding the remaining undertakings and refusals as communicated by counsel to me at the hearing on May 10, 2017.
57Therefore, based on my rulings of the refusals in issue, James shall attend before an official examiner at Toronto to answer refused questions 1, 8, 9, 10 and 11, which includes production of James’ entire file regarding the sale of the subject business from Kastner to Ishakis, within 60 days, at a time this is mutually agreeable by the parties.
58The defendants’ motion with respect to Brown’s refusals is dismissed.
Costs
59If the parties are unable to agree on costs, they may file written costs submissions of no more than three pages double-spaced, as well as a costs outline, within 30 days of the date of this endorsement.
Date: December 19, 2017 (original signed)______
Master Lou Ann M. Pope