COURT FILE NO.: CV-15-540309
DATE: 2019 12 18
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: SCHINDLER ELEVATOR CORPORATION, Plaintiff
- and -
WALSH CONSTRUCTION COMPANY OF CANADA, BONDFIELD CONSTRUCTION COMPANY LIMITED, WALSH CONSTRUCTION/BONDFIELD PARTNERSHIP and WOMEN’S COLLEGE HOSPITAL, Defendants
BEFORE: Master Todd Robinson
COUNSEL: P.E. Du Vernet and L. Wang, for the plaintiff
F. Bogach, P. Conrod, and K. Thavaraj, for the defendants, Walsh Construction Company of Canada, Bondfield Construction Company Limited, Walsh Construction/Bondfield Partnership
HEARD: December 16, 2019
REASONS FOR DECISION
[1] Schindler Elevator Corporation (“Schindler”) moves for production for inspection of fully unredacted minutes of settlement as executed between Yuanda Canada Enterprises Ltd. (“Yuanda”) and Walsh Construction Company of Canada, Bondfield Construction Company Limited and Walsh Construction/Bondfield Partnership (collectively, “WBP”). WBP has already produced a partially redacted version of the minutes of settlement, and opposes production of a fully unredacted version on the basis that WBP is not required to disclose either the settlement amount or its calculation. WBP’s position is that only those portions of the minutes of settlement have been redacted.
[2] Schindler’s original relief on this motion was much broader, also seeking production of unredacted minutes of settlement between WBP and Black & McDonald Limited (“BMcD”), confirmation of the relationship or correlation between paragraphs of affidavits tendered for trial and the settlement with BMcD, and particulars of any settlement of WBP’s claim against its design consultants for the subject project. Schindler and WBP have reached resolution on that relief, including production of the unredacted minutes of settlement between WBP and BMcD. Production of those minutes of settlement has been made without prejudice to the parties positions at trial, including admissibility of evidence and positions on the impact of settlement terms. Schindler’s remaining motion seeks only production for inspection of the unredacted minutes of settlement between WBP and Yuanda, leaving the parties’ rights and all issues regarding the minutes, including admissibility, to be addressed at trial.
[3] Having considered the evidence filed and the submissions of the parties, I have determined that a further version of the minutes of settlement with substantially reduced redactions is required. My reasons for that decision follow.
Reference History
[4] Schindler’s motion is brought within a consolidated reference that currently continues before me under the new lead reference file in CV-15-540309. Three proceedings currently remain subsumed in the consolidated reference. Schindler is a party in two of those proceedings: Schindler’s lien action in CV-15-540309 and an extant third party claim by WBP against Schindler in CV-15-536536-A1, commenced in a now-resolved action by BMcD against WBP.
[5] This consolidated reference was previously under Yuanda’s lien action in CV-13-484688 as the lead reference file, which was referred to a master for determination by a judgment of reference made pursuant to the now-former Construction Lien Act (the provisions of which remain applicable to these proceedings by operation of Section 87.3 of the current Construction Act, hence references in the balance of this decision are to provisions of the now-former Construction Lien Act). Schindler’s lien action in CV-15-540309 was subsumed into the reference in CV-13-484688 by operation of the provisions of the Construction Lien Act.
[6] Orders directing a reference pursuant to Rule 54 of the Rules of Civil Procedure were made in CV-15-526601 (now resolved and dismissed), CV-15-543298 and CV-15-536536-A1. The last two are the other actions remaining in this reference. Following WBP’s settlement with Yuanda, the action and counterclaim in CV-13-484688 were dismissed, among other relief, by order dated December 12, 2019. Schindler’s lien action in CV-15-540309 was subsequently made the lead reference file in the consolidated reference proceeding.
Analysis
[7] Schindler and WBP are in agreement that settlement privilege is a class privilege, which gives rise to a prima facie presumption of inadmissibility: Sable Offshore Energy Inc. v. Ameron International Corp., 2013 SCC 37 at para. 12. They also agree that the existence of settlement agreements between parties that “alter the litigation landscape” must be disclosed, together with the terms of those agreements: Aecon Buildings v. Brampton (City), 2010 ONCA 898 at para. 13.
[8] I agree with WBP that both negotiations leading to a settlement and the concluded settlement, including the negotiated amount of a settlement, are protected by settlement privilege: Sable, supra at paras. 17-18. However, I also agree with Schindler that settlement privilege is subject to being overridden “when the justice of the case requires it”: Sable, supra at para. 12. To do so, there must be a competing public interest outweighing the public interest in encouraging settlements, which have been held to include preventing overcompensation to a plaintiff: Sable, supra at para. 19. Production of settlement documents may be appropriate where “equality of arms” for a fair trial is engaged, given the fundamentality of the principle that a party is entitled to know the case that it must meet and must be given a fair opportunity to meet that case: IPEX Inc. v. AT Plastics Inc., 2011 ONSC 4734 at paras. 55-59.
[9] Although both parties have strenuously argued relevant case law in their facta and in oral submissions, the dispute between Schindler and WBP is not genuinely regarding the applicable law. It is a dispute regarding the extent to which disclosure of “financial terms” is required in the particular circumstances of this reference and whether WBP’s redactions are too extensive. WBP’s position is that the minutes of settlement are privileged, that WBP has complied with the extent of its disclosure obligations, and that WBP is not required to further unredact those redacted portions dealing with the financial terms of the payment by Yuanda. Schindler argues that the redactions are so extensive and unexplained that it is impossible to know whether WBP has complied with its disclosure obligations.
[10] There is no question that the minutes of settlement are privileged, and I am satisfied that they sufficiently “alter the litigation landscape” to trigger a disclosure obligation on WBP. I turn, then, to the extent of required disclosure in the circumstances of this reference.
[11] WBP is pursuing a claim against Schindler for losses and damages suffered from project delays. Schindler argues that fault and apportionment of liability for delay as between Schindler, Yuanda, and other trades will be squarely in issue at the pending trial. Schindler advances two primary arguments for production of the unredacted minutes of settlement:
(a) First, it is a term of WBP’s settlement with BMcD that BMcD will cooperate with WBP in advancing WBP’s claims against Yuanda, Schindler and WBP’s design consultants, and that BMcD will share in half of any recovery by WBP above $1.5 million (up to a maximum of $1.5 million payable to BMcD). Schindler argues this term is tantamount to WBP litigating for BMcD’s benefit, similar to the circumstances in Aecon, supra. However, the circumstances of this case are argued to be unlike prior case law argued by both parties on this motion. Prior case law has seen the settling defendant fully removed from the litigation, whereas BMcD continues to be an active participant in support of WBP that will share in the recovery, but without any of the associated risks of litigating itself. BMcD is characterized by Schindler’s counsel as having “all upside and no skin in the game.” That dynamic is argued to be relevant for trial.
(b) Second, WBP has alleged concurrent delays caused by Schindler, Yuanda and other trades, yet is now proceeding to trial only as against Schindler. The settlement with Yuanda, who would have been a party at the same reference trial, is for an undisclosed amount on undisclosed payment terms. Schindler argues that procedural fairness is engaged here in addition to concerns regarding over-compensation and double recovery.
[12] WBP argues that BMcD’s potential recovery is irrelevant to disclosure of financial terms for the settlement with Yuanda, since the same arguments are open to Schindler regarding the admissibility and weight of BMcD’s evidence at trial regardless of whether or not Yuanda’s settlement amount has been disclosed. WBP further argues that WBP's claims against Schindler pertain only to Schindler, with WBP’s expert having performed an analysis that isolates and apportioned delays for which Schindler is responsible. WBP accordingly disputes that there is any issue of fault or apportionment between Schindler and other trades on the project, and that “there was never risk of joint and several liability as between Schindler and Yuanda.”. WBP further submits that settlement with Yuanda does not alleviate or change the burden on WBP to prove its case against Schindler.
[13] Extracts from WBP’s delay expert report have been tendered by Schindler. They demonstrate that WBP’s expert acknowledges there have been periods of concurrent delay between at least Yuanda, Schindler, BMcD, and another trade, Advanced Precast, Inc. WBP’s expert has performed an analysis and apportioned delay. However, that apportionment is not determinative of the issue. It represents WBP’s position on proper apportionment at trial. It will remain open to Schindler to argue both that it did not delay the project and that delay was caused or contributed to by WBP and other trades, such as Yuanda and BMcD.
[14] Schindler argues full pre-trial disclosure of the unredacted minutes of settlement are required in the circumstances. WBP concedes that the settlement figure will be relevant to assessing damages, but argues that it makes no difference in the trial until a determination on liability has been made, at which point disclosure would be relevant to assess the impact of the settlement amount on quantification of damages. WBP argues that approach is appropriate and is consistent with the view taken by Master Graham in IPEX Inc. v. AT Plastics Inc., 2017 ONSC 7706 at paras. 22-24.
[15] I agree that Schindler is entitled to know if the threshold for BMcD to share in recovery has been met by the payments made or to be made by Yuanda as part of its settlement with WBP. That information reasonably impacts how Schindler will approach cross-examination of witnesses from BMcD and submissions regarding their evidence. I do not accept, however, that the quantum of the settlement must necessarily be disclosed to achieve that. WBP could be required to confirm if the threshold has been or will be met by the financial terms of the settlement agreement with Yuanda and any conditions precedent to the threshold being met contained in the redacted terms of the minutes. I agree with WBP that Schindler’s arguments regarding BMcD’s evidence given at trial are unlikely to materially change with disclosure of the settlement amount, although accept that those arguments and the approach may reasonably change if the threshold for BMcD to share in recovery has already been met.
[16] That solution, however, does not end the matter. There has been, as Schindler correctly points out, substantial redaction of the minutes of settlement. WBP asserts that only the financial details of the settlement have been redacted, but Schindler rightly argues that there is no clear evidence before the court explaining the reason for redactions, explaining what is generally contained in the redacted portions, or otherwise supporting that the content falls within the ambit of the case law relied upon by WBP to maintain settlement privilege over financial terms.
[17] WBP points to an email from WBP’s counsel to Schindler’s counsel as evidence of the contents, which is acknowledged by WBP to be the only evidence before the court that only financial terms of the settlement have been redacted. Those financial terms are submitted to be the settlement figure and its calculation. The email states as follows:
With respect to the Yuanda matter, we provided you with the details of the settlement (except those relating to financial components). As the settlement is almost completed, we will provide you with the Minutes of Settlement with the financial information redacted.
[18] The problem with this evidence is that it is at least triple hearsay. The affidavit is that of a law clerk with WBP’s lawyers, which attaches the email sent by one of WBP’s lawyers without a statement by the law clerk that he believes the contents are true (as required by Rule 39.01(4) of the Rules of Civil Procedure). The email itself is tendered for the truth of its contents. The Court of Appeal has previously held that double hearsay does not comply with the hearsay exemption in Rule 39.01(4): Airst v. Airst, [1999] OJ No 5866 (CA) at para 6.
[19] The redactions in paragraph 1 and the exhibits of the minutes of settlement are such that, without evidence from WBP, it is impossible to ascertain what has been redacted. I do not accept WBP’s hearsay evidence regarding the contents of the redacted portions, which leaves the court with no evidence regarding the nature, extent or reasons for redaction. In my view, though, the fair and just result is not to order production of a fully unredacted version of the minutes of settlement. Case law supports that disclosure of settlement amounts and negotiations should only be in exceptional circumstances. I also agree with the comments in Brown v. Cape Breton (Regional Municipality), 2011 NSCA 32 at para. 29, where the Nova Scotia Court of Appeal held as follows:
[29] Protecting settlement details from disclosure owing to their privileged status also serves the public interest by denying non-settling litigants an unfair tactical advantage. As Lord Justice Pill put it:
...It could be a severe disincentive to negotiations generally if, by declining to negotiate, a party can routinely claim the advantage of knowing what other parties have agreed before condescending to negotiate for himself. (Gnitrow Ltd. v. Cape Plc., [2000] 1 W.L.R. 2327 at 2332 (Eng. C.A.).)
[20] It is undisputed that there is a public interest in encouraging settlements. That includes, in this case, protecting against an unfair tactical advantage of Schindler knowing the amounts that Yuanda has agreed to pay in the final available weeks for potential settlement discussions with WBP before trial commences. However, there is also no cogent evidence supporting justification for redaction of 45 pages of the minutes of settlement.
[21] An unredacted version of the motion record was filed with the court in a sealed envelope. WBP’s position is that the unredacted version could be opened following the determination of liability. I specifically asked WBP’s counsel if, in disposing of this motion, there would be any prejudice to WBP or other concerns with the court reviewing the unredacted minutes to assess the propriety of the redactions. WBP’s counsel acknowledged that the court could review the redacted Exhibit B, but was concerned about the court seeing the settlement amount prior to trial.
[22] It is not uncommon for the court to review a redacted document to assess propriety of redactions in disposing of a motion like the one before me. The difference in this case is that I am the reference master for this construction lien reference. Unlike other cases, where the judicial officer reviewing the redactions will not hear the ultimate trial, I will be presiding over the trial in this matter in just over a month. Notwithstanding the foregoing, I have nevertheless determined that the redactions must be reviewed to assess if there is any unfairness to Schindler (or Zurich) from maintaining settlement privilege over them. I am cognizant of WBP’s concern with the court seeing the redacted portions of paragraph 1 of the minutes of settlement, but am less concerned given WBP’s concession that the settlement amount will be relevant in assessment of damages in the event Schindler is found liable for delays, and would be disclosed to the court at that time.
[23] I have accordingly unsealed the envelope and reviewed the unredacted minutes, beginning only with pages 45-99 of the unredacted version of WBP’s responding motion record. Those pages are, as expected, Exhibit “B” to the minutes of settlement. In my view, the Exhibit “B” document is not itself privileged. As a result, it became necessary to review the redactions in paragraph 1 of the minutes, at pages 6-7 of WBP’s responding motion record, in order to assess the relationship of Exhibit “B” to the redacted financial terms of settlement. In doing so, I have focused solely on the redacted terms without regard to settlement amounts.
[24] I am satisfied that the specific settlement amounts should remain protected by privilege. As in Sable, supra at para. 29, it is not clear to me how Schindler’s knowledge of the settlement amounts materially affects its ability to know and present its case. However, WBP has redacted other information that, in my view, Schindler is entitled to review and assess in order to properly prepare for trial, and on which the court will require Schindler’s submissions.
[25] As discussed above, one of the live issues for determination at trial will be apportionment of responsibility for project delays as between WBP and/or its subtrades. The court will be required to weigh the evidence of delay and consider the submissions of both WBP and Schindler in reaching a determination on causes of, liability for and apportionment of delay.
[26] As noted, WBP concedes that the redacted content will need to be disclosed once a determination on liability is made (if WBP is successful) to address concerns of potential double-recovery. WBP further acknowledges that Schindler should be entitled to make submissions on the impact of the settlement on damages. If the court determines that Schindler is liable for delay, a determination on whether that liability is distinct from liability of Yuanda must also be made. Concurrency of delays by Yuanda and Schindler complicates the issue of apportionment. Allocation of the payment from Yuanda to WBP’s damages, particularly the extent to which payment from Yuanda has been allocated to delay-related damages, is relevant to Schindler’s ability to argue how to quantify WBP’s compensable damages in periods of concurrent delay.
[27] Trial in this matter will not be bifurcated. All evidence from each party on all issues of liability and damages will be tendered concurrently. Closing submissions will necessarily include each party’s position on evidence and law in the event that WBP’s counterclaim is successful. Accordingly, both Schindler and WBP are expected to make submissions on proper allocation of delay and quantification of delay-related damages in the event the court finds in favour of WBP. Absent the settlement, Yuanda would also have been a party at the same trial giving evidence in support of its own claim, causes of delay, and apportionment of delay. In my view, in the circumstances, it is unfair to deny Schindler the opportunity before trial to consider its position on how allocation of Yuanda’s settlement amounts may impact a potential damages award in favour of WBP against Schindler. It is also unfair to deny Schindler the opportunity to consider if any evidence may be required to support such a position. It is, in my view, both inefficient and contrary to subsection 67(1) of the Construction Lien Act to disclose the complete minutes of settlement and entertain submissions from Schindler only after liability has been determined in circumstances where there will be no bifurcation of liability and damages at trial.
[28] For the foregoing reasons, a further version of the minutes of settlement must be produced for inspection, in which the only redactions shall be the specific settlement amounts and any dates for payment outlined in paragraph 1. Schindler must also be advised if the threshold for shared recovery provided in the minutes of settlement between WBP and BMcD has been or will be met as a result of the settlement with Yuanda.
Orders
[29] I accordingly order as follows:
(a) WBP shall, within ten (10) days of this order, disclose if the threshold for BMcD sharing in recovery has been or will be met by the financial terms of the settlement agreement with Yuanda.
(b) WBP shall, within ten (10) days of this order, produce for inspection a further version of the minutes of settlement between WBP and Yuanda, in which the only redactions shall be the specific settlement amounts and any dates for payment outlined in paragraph 1 thereof. Such production shall be without prejudice to the parties’ positions on use of the document at trial, including its admissibility.
(c) Production in accordance with subparagraph (b) above shall be deemed documentary production by WBP to which the deemed undertaking in Rule 30.1 of the Rules of Civil Procedure applies. Notwithstanding the exceptions in Rule 30.1.01(5)-(7), Schindler shall maintain confidentiality of the minutes of settlement from any non-parties absent leave of the court.
(d) The unredacted copy of WBP’s responding motion record filed with the court shall be sealed, subject to further court order at or after trial.
(e) This order is effective without further formality.
Costs
[30] Given the proximity to trial, if the parties cannot agree on costs of this motion, then costs submissions may be made at the conclusion of trial. If the parties prefer to address the issue of costs prior to trial, then a case teleconference may be arranged with my Assistant Trial Coordinator to make brief oral submissions as to costs, not to exceed 10 minutes per side, with costs outlines and any case law relied upon filed at least five (5) days prior to such case teleconference.
MASTER TODD ROBINSON
DATE: December 18, 2019