Court File and Parties

COURT FILE NO.: CV-14-502081

DATE: 20180510

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Canadian Appliance Source Inc., Plaintiff

– AND –

Utradecanada.com Inc. and CBRE Limited, Defendants

AND RE: Utradecanada.com Inc., Plaintiff by Counterclaim

– AND –

Canadian Appliance Source Inc., Canadian Appliance Source Corp., Canadian Appliance Source LLC, Canadian Appliance Source, Canadian Appliance Source (Ottawa) Corp., Yank Holdings Inc. and Yehuda Ari Klein a.k.a “Ari Klein”, Defendants by Counterclaim

COUNSEL: Mark Freake, for the Plaintiff/Defendants by Counterclaim

Marc Kestenberg and James Parker, for the Defendants/Plaintiff by Counterclaim

BEFORE: E.M. Morgan J.

HEARD: May 10, 2018

ENDORSEMENT

[1] This appeal and cross-appeal raise issues of solicitor-client privilege.

[2] On August 21, 2017, in proceedings leading up to a summary judgment motion, Master McGraw ordered Plaintiff’s counsel’s law firm, Minden Gross, to disclose the contents of its entire client file in this matter with the exception of its docket entries and material created after litigation began and litigation privilege takes over.

[3] The Master’s order followed the filing by counsel for the Plaintiff of an affidavit by a solicitor at Minden Gross, Benjamin Radcliffe, in support of the Plaintiff’s motion. The Radcliffe affidavit selectively disclosed privileged information.

[4] Counsel for the Plaintiff submits that the Master never should have heard the motion in the first place, as it was premature. He argues that the motion should have waited for the Defendants to file their own affidavit of a solicitor taking issue with the Radcliffe affidavit. The Plaintiff presents this issue of prematurity as the first ground of its appeal of the Master’s order.

[5] I see no basis to challenge the fact that the Master heard the motion when he did. Paragraph 11 of the Master’s endorsement indicates that this timing of the motion was directed by Penny J. in Civil Practice Court. The Master’s endorsement states specifically that, “Justice Penny directed that this motion should proceed before me…whether or not Utrade files its own competing lawyer’s affidavit on the summary judgment motion”.

[6] I have jurisdiction to hear an appeal of the Master’s order. But I do not have jurisdiction to review a ruling made by one of my Superior Court of Justice colleagues. Penny J. determined that this motion before the Master was not premature. It therefore was not premature.

[7] As Plaintiff’s counsel explains it, the underlying summary judgment motion turns on matters discussed during the negotiations of the parties who were working toward a commercial lease. Since the lease negotiations were conducted by Radcliffe on the Plaintiff’s behalf, it was necessary for the relevant evidence to come from Radcliffe rather than from his client.

[8] Plaintiff’s counsel submits, correctly, that not every affidavit by a solicitor amounts to a waiver of privilege. He relies on a British Columbia case, Mordo v HSBC Bank Canada, 2016 BCSC 282, at para 28, where the court indicated that privilege is impliedly waived only where a solicitor’s affidavit effectively “entered the fray” of the litigation. Here, he submits, Radcliffe’s affidavit was submitted to support certain factual matters germane to the motion because he had first-hand knowledge of those matters. Counsel for the Plaintiff therefore concludes that it was not the kind of lawyer’s affidavit that attempts to swear as to the existence of a genuine issue for trial or other issue that is a matter of legal argument rather than fact: Ferreira v Cardenas, 2014 ONSC 7119, at para 17.

[9] I am cognizant of the high importance attached to solicitor-client privilege. It is a fundamental pillar of the legal system that, as the Master stated at para 17 of his endorsement, should be set aside only where that is truly necessary: see Alberta (Information and Privacy Commissioner) v University of Calgary, 2016 SCC 53, at paras 26, 34.

[10] That said, where extensive reliance is placed on evidence given by a party’s solicitor, the solicitor’s work may become an integral part of the Plaintiff’s case. When that occurs, there is a deemed waiver of privilege, which comes about not as a matter of compulsion but as a result of the party’s own choice: Guelph v Super Blue Box Recycling Corp., 2004 CanLII 34954 (ON SC), [2004] OJ No 4468. Thus, a client is generally deemed to have waived privilege if its counsel supports its case by means of an affidavit of his or her own that addresses matters of substance in the proceeding: Sky Solar v Economical Mutual Insurance Co., 2015 ONSC 4714, at para 108. According to Sharpe J. (as he then was), this includes incidents where a lawyer’s affidavit is submitted to establish the facts necessary to support the client’s case: United States v Friedland, 1996 CanLII 8213 (ON SC), 1996 CarswellOnt 3604, at para 14.

[11] The Master’s endorsement reproduced the essential parts of the Radcliffe affidavit. The material presented in that affidavit was extensive. The part excerpted by the Master runs to some 30 paragraphs, and covers every significant detail of the parties’ negotiations. It includes Radcliffe’s views on what was important and what was not in those negotiations, his descriptions of the Plaintiff’s reaction to and perspective on the positions taken by the Defendants in the negotiations, speculation on what the Defendants may have been thinking during those negotiations, Radcliffe’s own thoughts on what was within his client’s rights and what was not, his recommendations to his client at various steps in the negotiations, etc. It also containes his views on the Defendants having breached an enforceable lease agreement, and his opinion as to the supposed bad faith of the Defendants.

[12] Radcliffe’s affidavit was not, in other words, a discrete filling in of a missing fact, or an affidavit that was “innocuous at best” as a solicitor’s affidavit was described in Mordo, at para 28. Rather, it was an extensive review of the entire negotiations between the parties, and contained a combination of fact, legal analysis, opinion, and negotiation strategy. As the Master stated at para 38 of his endorsement, “The collective effect and weight of the many statements [by Radcliffe] referenced above lead me to the conclusion that by filing and relying on the Radcliffe Affidavit on the summary judgment motions, CASI’s counsel has ‘entered the fray’ by advancing evidence, opinions and positions which put the strength of CASI’s case and its state of mind forward in support of CASI’s positions on the motions.”

[13] In filing this kind of lengthy supporting affidavit, Plaintiff’s solicitor disclosed some, but not all, of the privileged communications between himself and his client. Having done so in this way, he was obliged to produce all of those communications. The Radcliffe affidavit fits the description that my colleague Perell J. gave in Creative Career Systems Inc. v Ontario, 2012 ONSC 649, at para 30, that a deemed waiver occurs upon “the intentional act that the party makes legal advice an aspect of his or her case.”

[14] The Master was correct in ordering that the Plaintiff’s lawyer’s transaction file be produced in its entirety – that is, up until March 7, 2014, when the material in counsel’s file became subject to litigation privilege. The aborted transaction between the parties is what is in issue, and from the Plaintiff’s side the witness that is most knowledgeable is Radcliffe. Like any other representative of a party being deposed or cross-examined as an affiant, Radcliffe’s (or his firm’s) relevant file material with respect to the transaction must be produced to the opposing side.

[15] The Master was also correct in excluding from his order Plaintiff’s law firm’s docket entries, retainer agreement, and accounts. As the Master stated, these are not probative of the issues between the parties. The fact that there has been a deemed waiver of privilege over the solicitor’s file does not make irrelevant material relevant.

[16] The substance of any communication or involvement of Radcliffe is contained in the documents found in the transaction file. The dockets, on the other hand, go well beyond this and represent the overall scope of the firm’s retainer by the Plaintiff. Allowing opposing counsel to rummage through the dockets would be to allow a fishing expedition. While the Master was correct in saying that the lawyer’s affidavit has been used here as a “sword” on behalf of the Plaintiff and privilege cannot therefore used as a shield to protect it, so too the request for production of dockets seems to be a sword used to attack the Plaintiff rather than a shield to protect the Defendants and their counsel from being misled.

[17] The Defendants also cross-appeal against the Master’s costs award. The Master indicated in his Costs Endorsement dated January 19, 2018 that the Defendants were almost entirely successful in the motion before him. Indeed, he was critical of the Plaintiff in even fighting the motion, especially since it would appear that Plaintiff’s counsel mid-motion all but conceded the waiver of solicitor-client privilege. The Master was also critical of a cross-examination by the Plaintiff of a law clerk from Defendants’ counsel’s office, and indicated that this tactic alone could prompt costs sanctions.

[18] The Master awarded the Defendants $9,500 in costs. In doing so, he rejected their request for $26,120.26, which was the amount that the costs actually came to on a partial indemnity scale. In the Master’s view, the amount sought was “not proportionate to an action which is proceeding on consent under the Simplified Rules and does not reflect the reasonable expectations of the parties on a motion of this nature.”

[19] As it turns out, the Master was under a misapprehension. The action is not proceeding under the Simplified Rules. The Master must have misread something in the materials. While the Master may have meant to exercise his discretion to reduce Defendants’ counsel’s request, he did so by articulating an erroneous assumption about the action.

[20] Counsel for the Defendants concedes that there were suggestions by the Master that one or two of the steps in the litigation should not be the subject of a costs award – e.g. the appearance of both sides at Civil Practice Court. He submits that this would not have amounted to more than a $5,000 reduction in the costs award.

[21] I note from the Statement of Claim that the entire action is for return of a deposit in the amount of $45,861.52. Given the extent of the litigation to date, nothing that the two sides and their counsel have been doing is proportionate. I also note that the Master spoke not just about this matter proceeding under the Simplified Rules – which, as indicated above, was in error – but also about the reasonable expectations of the parties. He is without a doubt right that the parties would not expect to spend half the value of the entire action on a procedural motion over production and privilege. The reasonable expectations of the parties is a valid factor for the Master to have taken into account in fixing costs: Rules of Civil Procedure, Rule 57.01(1)(0.b).

[22] Costs are always discretionary under section 131 of the Courts of Justice Act. The Master referenced two factors as the basis for his exercise of discretion: the Simplified Rules and the reasonable expectations of the parties. One was incorrect while the other was open for him to consider. I have no idea how much of the reduction in costs he attributed to one as opposed to another.

[23] Given that proportionality was his primary concern, the amount that he ultimately awarded seems reasonable. It reflects the Defendants’ success on the motion without being disproportionate to the size of the claim. I am not prepared to interfere with the Master’s exercise of discretion in this regard.

[24] Turning to the costs of the appeal and cross-appeal, each party has been partially successful. That is, the Defendants have been successful in upholding the Master’s ruling with respect to the waiver of privilege over the transaction file, and the Plaintiff has been successful in upholding the Master’s ruling on costs and on excluding from the Plaintiff’s production obligation the dockets, retainer letter, and accounts of Radcliffe and his law firm.

[25] That said, the argument with respect to the Defendants’ appeal took almost no time at all – a couple of sentences on the possibility of dockets memorializing conversations not otherwise evidenced in writing, and another sentence correcting the Master’s observation about the Simplified Rules. The Defendants’ appeal added very little in the way of costs to the overall proceedings before me.

[26] The majority of the time and effort spent on these appeals was on the Plaintiff’s appeal with respect to the question of waiver of privilege. The Plaintiff was unsuccessful in that appeal, and so the Defendants deserves its costs.

[27] What I do not understand is why the Plaintiff appealed the Master’s ruling at all. At paras 12-14 and 16 of his endorsement, the Master stated:

[12] At the commencement of the motion, Ms. Francis, counsel for CASI, advised that she had reviewed the entirety of the Transaction File and handed up e-mail correspondence which she states represents the balance of documents from the Transaction File which CASI had not already produced…

[13] Ms. Francis further advises that CASI is not prepared to produce Minden Gross’ retainer agreement, accounts or docket entries with respect to the Transaction…

[14] As a result of Ms. Francis’ submissions, mid-way through the motion, I encouraged her to provide these documents to Mr. Kestenberg, counsel for Utrade. She did so during the break…

[16] While the relief sought on this motion would appear to be substantially moot, both counsel requested that they be permitted to complete their submissions that I provide reasons in order to, as Justice Penny indicated, set out the principles and scope of waiver…

[28] In other words, counsel for the Plaintiff had conceded the very thing that the two sides spent the entire appeal arguing about: whether Radcliffe had effectively waived privilege over his law firm’s transaction file. It should not have been contentious. Both sets of counsel have confirmed that Ms. Francis, who was Plaintiff’s counsel at the hearing before the Master, handed over the entire transaction file up until March 7, 2014 to Defendants’ counsel at the break in that hearing, but then took the file back and has never provided it again or made copies for the Defendants.

[29] In argument before me, counsel for the Plaintiff characterized his colleague’s concession before the Master as a form of offer to settle. He contended that the Plaintiff was always willing to offer up the contents of the Transaction file, but only if the Defendants would drop their further demands. However, that is not how the Master described it. That may well have been the Plaintiff’s position prior to the hearing. But in open court the Plaintiff, through its counsel, abandoned, with prejudice, any opposition to the Defendants’ argument that the Radcliffe affidavit amounted to a waiver of privilege.

[30] The Plaintiff should not have appealed something that it had conceded, and the Defendants should not have been put to the task of responding to that appeal.

[31] Defendants’ counsel has submitted a Costs Outline in which he seeks just over $13,300 on a partial indemnity scale and just over $17,300 on a substantial indemnity scale. Rule 57.01(1)(g) authorizes me to take into account in fixing costs “a party’s denial of or refusal to admit anything that should have been admitted”. That seems an apt Rule to apply under the present circumstances. The Plaintiff should have admitted what its counsel had already admitted before the Master – that the transaction file was producible in its entirety, up until the date that litigation privilege kicked in.

Disposition

[32] The Plaintiff’s appeal is dismissed.

[33] The Defendants’ appeal is dismissed.

[34] The Plaintiff shall pay the Defendants $17,300 in respect of the costs of the appeal. These costs are payable within 30 days of today.

Morgan J.

Date: May 10, 2018