COURT FILE NO.: FS-17-21818-00 and CV-18-00607821 DATE: 20200302 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

T.O.E. Applicant – and – I.S. Respondent

Counsel: Sean Zeitz, for the Applicant Charles Wagman, for the Respondent

Heard: February 26, 2020

E.L. Nakonechny, J.

Reasons on Motion

[1] This case consists of two files which have been joined to be heard together: the family law Application between M.S. and I.S. who have a young child from their relationship and the civil action commenced by T.O.E., a company controlled by M.S., for Power of Sale on a mortgage it holds on a home owned by I.S.

[2] In 2013, M.S. purchased a home in I.S.’s name alone for $1,187,000. The purchase price was financed by an interest free first mortgage to T.O.E. in the amount of $1,187,000. The mortgage originally had a two-year term. It was amended in November, 2015 to extend the maturity date to June 30, 2018.

[3] M.S. and I.S. signed an Agreement in October 2015 which gave I.S. options for dealing with the home at the time the mortgage to T.O.E. matured. The relevant paragraphs are as follows:

62(c) The parties agree that on or before June 30, 2018, I. shall have the right to deal with the property in one of the two following manners, at her sole discretion:

i. Should I. not wish to retain the property beyond June 30, 2018, then the property shall be listed for sale at a price mutually agreed to by the parties. In the event that there is any disagreement between the parties in connection with any of the terms relating to the sale, then the parties agree to accept the recommendations of the real estate agent chosen by I. to list the property. Upon the sale of the property, I. shall be entitled to retain one third of the net sale proceeds and M. 2/3 of the net sale proceeds, less all proper and reasonable costs of disposition, including, real estate commissions, legal fees incurred to close the transaction and all other necessary disbursements to close the transaction. The mortgagee will arrange for the discharge of the aforementioned mortgage at the time of the sale. For the sake of clarity, there will be no reduction for the mortgage amount when calculating I.’s one-third share of the net sale proceeds. For example, if the home sells for $1,500,000 gross, the amounts deducted from the gross will be agent’s commission, outstanding taxes, utilities, etc., if any. Assuming those costs, for illustrative purposes only, equal $100,000, the remainder amount of $1,400,000 would be apportioned 2/3rds ($933,333 in this example) to M. and 1/3 ($466,667 in this example) to I. I. would have no obligation or liability in respect of the redemption of the existing mortgage. Any reasonable and agreed upon costs for marketing and staging of the property, as recommended by the real estate agent, shall be paid off the top of the sale proceeds and shall be reimbursed to the payor of such expenses; or

ii. In the alternative, and if I. wishes to retain the property, then, on or before June 30, 2018, I. shall pay to the mortgagee two-thirds of the principal amount then owing on the mortgage and M. shall cause the mortgagee to discharge the mortgage upon receipt of the said funds. M. and the mortgagee, will, thereafter, have no further claim against the property whatsoever.

[4] The Agreement states that if I.S. does not redeem the mortgage or sell the property by June 30, 2018, she must give vacant possession to M.S. who may then sell the home.

[5] I.S. states that in September, 2017 she attempted to discharge the mortgage by paying T.O.E. two thirds of the mortgage principal in accordance with the Agreement. She arranged a loan with Scotiabank and retained Darlene Richards as her solicitor to act on the refinancing. I.S. states that T.O.E. failed to provide a discharge statement when asked to do so by Ms. Richards so she could not discharge the mortgage.

[6] T.O.E. argues that I.S. failed to pay the principal sum owing on June 30, 2018 and was in default of the mortgage. It commenced the civil action to enforce payment of the mortgage by Power of Sale and for vacant possession of the home.

[7] M.S. commenced the family law Application to set aside the Agreement based on I.S.’s breach. He also claims the entire mortgage principal is owing.

[8] This motion arises from an Order made by Gilmore, J. dated August 13, 2019 (“the Gilmore Order”) on a motion brought by T.O.E. for answers to undertakings given and questions taken under advisement at the questioning of I.S. on May 6, 2019.

[9] At the Trial Management Conference before Goodman, J., on July 2, 2019, I.S. agreed to produce Ms. Richards’ entire file. Both counsel agree that on that date there was no discussion between them regarding solicitor/client privilege being claimed over any part of the file.

[10] Mr. Wagman received Ms. Richards’ file and sent the documents he received to Mr. Zeitz on July 24 and 26, 2019. Mr. Zeitz wrote to Ms. Richards asking why the file did not contain e-mails sent or received from Mr. Rana, I.S., Scotiabank or Dominion Lending Centres. Ms. Richards responded that the majority of her file was subject to solicitor/client privilege. Mr. Zeitz took the position that I.S. had waived privilege by agreeing to produce the file. Mr. Wagman took the position that solicitor/client privilege had not been waived and that the privileged documents are immaterial to I.S.’s claim or defences in the litigation.

[11] The Gilmore Order requires I.S. to direct Ms. Richards to give Mr. Wagman a copy of all of the e-mails in her real estate file sent or received by I.S., Ms. Richards, Mr. Rana, Scotiabank or Dominion Lending Centre. Mr. Wagman was to itemize the documents by date, sender and recipient, identify the documents over which privilege was claimed and explain why. The issue was to be conferenced before Goodman, J. and a further motion scheduled if necessary.

[12] Ms. Richards produced the e-mails to Mr. Wagman. He produced the required chart to Mr. Zeitz on September 6, 2019. Thirty six e-mails are noted as solicitor/client privileged. One document is noted as “not relevant”.

[13] Mr. Zeitz advised Mr. Wagman that he would not challenge the claim to privilege if I.S. did not call Ms. Richards as a witness at trial. Mr. Zeitz asked for copies of all of Ms. Richards’ e-mails that had been copied to third parties on the basis that privilege had been waived.

[14] M.S. and I.S. attended a further Trial Management Conference before Goodman, J. on December 6, 2019. Ms. Richards remains on I.S.’s witness list. Mr. Zeitz requested a Will Say statement and production of Ms. Richards’ entire file. I.S. has produced Ms. Richards’ Will Say statement.

[15] On January 31, 2020, Mr. Wagman sent Mr. Zeitz 12 documents from Ms. Richards’ file which had previously been noted as solicitor/client privileged on the chart. The documents were both e-mails and hand-written notes. Mr. Wagman states that he produced these documents to reduce the conflict in the case and because “nothing turned on” the documents.

[16] Mr. Wagman argues that the remaining documents listed as privileged are e-mails between I.S., Ms. Richards and I.S.’s family law counsel. The communication relates to legal advice given by family law counsel regarding M.S. resiling from the parties’ Agreement. It would be improper for the other side to see these e-mails and they should not be produced on the grounds of privilege.

[17] T.O.E. believes that I.S. intended to pay out the mortgage at the lower rate and then “flip” the property shortly afterward for a profit. T.O.E. claims this would be a breach of the Agreement. T.O.E. seeks production of Ms. Richards’ entire file to determine if there is any evidence of a planned sale by I.S. Mr. Wagman says the privileged e-mails do not go to that issue. This does not satisfy T.O.E.

[18] T.O.E. acknowledges that solicitor/client privilege is a fundamental civil and legal right and that where legal advice is sought, confidential communication between solicitor and client are permanently protected from disclosure. Leitch v. Novac, 2017 ONSC 6888 at para. 60 citing Guelph (City) v. Super Blue Box Recycling Corp. (2004), 2 C.P.C. (6th) 276 (Ont. S.C.J.), paras. 74-100. There are limited circumstances where privileged communication may be compelled from the party asserting privilege. T.O.E. states that such circumstances exist here: I.S. has implicitly waived privilege by disclosing some privileged communication and by calling Ms. Richard’s evidence as a witness in her case.

[19] I.S. argues that she received advice from her family law lawyers regarding M.S.’s attempt to set aside the Agreement. This advice may be in the privileged communication between her, Ms. Richards and her family law lawyers. The e-mails are privileged and not material to I.S.’s claim or defence in the litigation.

[20] I.S. states that Ms. Richards’ testimony at trial will be limited to the refinancing transaction only. She will not make reference to her communication with I.S.’s family law lawyers relating to M.S. resiling from the Agreement. The e-mails are not part of Ms. Richards’ evidence regarding the refinancing.

Analysis

[21] Gilmore, J. ordered the production of all of the e-mails in Ms. Richards’ real estate file with identification of those over which privilege was claimed and why. In September, 2019, Mr. Wagman sent Mr. Zeitz the chart identifying the documents over which privilege was claimed and explaining the context of the claim.

[22] In January 2020, I.S. chose to produce documents previously claimed as privileged. I.S. determined that these documents, although privileged, were not material to the matters at issue. These documents do not disclose a plan by I.S. to transfer the property after she refinances the mortgage. This, of course, heightens the suspicion of T.O.E. that the documents not produced do.

[23] In my view, the production by I.S. of documents previously claimed as privileged amounts to an implicit waiver of privilege of all of the documents. “When privilege is waived, the waiver applies to the entire subject matter of the communications: a party may not “cherry-pick” privileged communications, disclosing what is helpful for that party and claiming privilege over the rest”. Leitch, supra, at para. 60 citing Guelph (City).

[24] The e-mails between Ms. Richards, I.S. and the family law lawyers took place during the period of the refinancing. The Agreement gives I.S. the right to retain the home by paying two thirds of the principal amount of the mortgage on or before June 30, 2018. The ability of I.S. to refinance and pay out the mortgage to T.O.E. at the relevant time is at issue in the litigation.

[25] I.S. cannot produce some privileged documents from the file she says, “nothing turns on” and refuse to produce other e-mails. This amounts to “cherry-picking”. The e-mails between Ms. Richards, I.S. and her family law lawyers about the validity of the Agreement and I.S.’s rights under it are part of the subject matter of the litigation and must be produced.

[26] In Canadian Appliance Source Inc. v. Ultradecananda.com Inc. 2018 ONSC 2960 at paras. 8-10, Morgan, J. sets out the limited circumstances in which courts have set aside privilege due to a deemed waiver. One of these circumstances is where a party chooses to use the evidence of their counsel to establish facts that go to matters of substance in the proceeding to support their case.

[27] Ms. Richards is expected to give evidence about I.S.’s ability to carry out the refinancing in accordance with the terms of the Agreement. I.S. is calling Ms. Richards as a witness to support her claim that I.S. was ready to pay the required amount of the mortgage at the relevant time and, therefore, not in breach of the Agreement. This evidence is being tendered to prove the substance of I.S.’s case. The e-mails from Ms. Richards’ file must be produced to permit the other side to cross-examine and test the evidence being put forward. Canadian Appliance, supra, at para.14.

Order

[28] The Respondent shall produce to the Applicant within two business days a complete and unredacted copy of all undisclosed documents in Darlene Richards’ file in connection with the Respondent’s refinancing of the Applicant’s mortgage on the property known municipally as 121 Neville Park Avenue, Toronto, identified in the chart attached as Schedule “A” to the Applicant’s Notice of Motion dated February 7, 2020 as document numbers 32, 40, 43, 54-62, 64, 67, 69, 70, 76, 77, 86, 89-92 and 97. Document 98 is a void cheque and need not be produced.

Costs

[29] The Applicant seeks full indemnity costs in the amount of $16,508.50 inclusive of HST and disbursements. The Respondent’s full indemnity costs are $15,330.85 inclusive of HST and disbursements. Neither side takes issue with the quantum of costs claimed by the other.

[30] Mr. Zeitz refers me to the costs award of the Gilmore Order. The Applicant was successful on that motion. T.O.E. claimed costs of $21,000. Gilmore, J. ordered costs of $7,500. The discount was to take into account the fact that, despite the Court’s agreement with the Applicant’s position, no further documents were ordered produced at that time.

[31] The Applicant argues that, if successful, the motion was not a “bootless quest” and costs should follow. The Applicant states that the motion had to be brought and the Respondent’s failure to produce the documents in the circumstances was unreasonable and obstructionist.

[32] The Respondent argues that the Applicant’s claim to a waiver of privilege is extraordinary relief and should not be granted based on looking for a “smoking gun”. Solicitor/client privilege is a fundamental right and it was not unreasonable for I.S. to oppose the motion to protect communication made in confidence with her counsel.

[33] I have considered the factors set out in Rule 24 (12) of the Family Law Rules which reads as follows:

24(12) In setting the amount of costs, the court shall consider,

(a) the reasonableness and proportionality of each of the following factors as it relates to the importance and complexity of the issues:

(i) each party’s behaviour;

(ii) the time spent by each party;

(iii) any written offers to settle, including offers that do not meet the requirements of rule 18;

(iv) any legal fees, including the number of lawyers and their rates;

(v) any expert witness fees, including the number of experts and their rates;

(vi) any other expenses properly paid or payable; and

(b) any other relevant matter

[34] Rule 24(5) provides criteria for determining the reasonableness of a party's behaviour in a case (a factor in clause 24(12)(a) (1) above). It reads as follows:

Decision on Reasonableness

(5) In deciding whether a party has behaved reasonably or unreasonably, the court shall examine,

(a) the party's behaviour in relation to the issues from the time they arose, including whether the party made an offer to settle; (b) the reasonableness of any offer the party made; and (c) any offer the party withdrew or failed to accept.

[35] The Applicant was successful on the motion. T.O.E. is entitled to its costs. However, in all of the circumstances and having regard to the extreme importance of protecting privileged communication between solicitor and client, the Respondent’s behaviour was not unreasonable.

[36] In consideration of all of the above, I award costs to the Applicant in the amount of $13,000 inclusive of HST and disbursements, fixed and payable by the Respondent in 30 days.

E.L. Nakonechny, J.

Released: March 2, 2020