COURT FILE NO.: CV-19-00624929
DATE: 20210326
SUPERIOR COURT OF JUSTICE – ONTARIO
RE: KURT BERGMANIS, ALAN PREYRA and BERGMANIS PREYRA LLP (Appellants)
AND:
DAVID DIAMOND, JAMES DIAMOND, DIAMOND & DIAMOND, SALVATORE GRILLO, JASMINE DAYA, GREG NEINSTEIN and WENDY SOKOLOFF (Respondents)
BEFORE: Mr. Justice Chalmers
COUNSEL: G. Pratte and H. Meighan for the Appellants
D. Bleiwas for the Respondents, David Diamond, James Diamond and Diamond & Diamond
U. Sheikh, S. Sofer and E. Hayes for the Respondents, Salvatore Grillo and Jasmine Daya
J. Katz for the Respondent, Greg Neinstein
J. Persehian for the Respondent, Wendy Sokoloff
HEARD: March 9, 2021 by videoconference
AMENDED ENDORSEMENT
OVERVIEW
[1] On February 1, 2007, Bergmanis Preyra LLP, Kurt Bergmanis, and Alan Preyra (“BP”) entered into a Personal Services Agreement (the “PSA”) with Diamond & Diamond, David Diamond, and James Diamond (“Diamond”). Pursuant to the PSA, Diamond was to refer all personal injury matters to BP for the period from February 1, 2007 to January 31, 2013. Diamond would receive a referral fee of 30 percent.
[2] BP takes the position that Diamond breached the PSA by referring matters to other law firms. BP brought commercial arbitral proceedings against Diamond. The arbitrator is Harvey Spiegel (the “Arbitrator”).
[3] During the arbitral proceedings, BP sought the referral lists and referral fee records from Diamond and its employee, Jeremy Diamond (“Jeremy”). BP alleges that Diamond and Jeremy did not keep adequate records. BP then sought the information from the law firms that Diamond and Jeremy had referred clients to and from which referral fees were received.
[4] At BP’s request, the Arbitrator issued summonses to the lawyers who were referred files from Diamond. Those lawyers were required to produce the names of all clients that were referral sources from either Diamond or Jeremy. The summonses also required the lawyers to provide a list of all referral or related fees paid to Diamond with respect to each client, along with the date of payment, and to produce any contract, e-mail, or documents as between the lawyers and Diamond about how the referral fees were calculated.
[5] Some of the lawyers voluntarily complied with the summonses. The Responding Lawyers – Salvatore Grillo (“Grillo”), Jasmine Daya (“Daya”), Greg Neinstein (“Neinstein”), and Wendy Sokoloff (“Sokoloff”) – objected to producing the information on the basis that it was protected by solicitor-client privilege. The Responding Lawyers brought a motion before the Arbitrator for an order to quash the summonses. By order dated June 12, 2019, the Arbitrator granted the motion to quash. Following the release of this decision, BP made a request for a reconsideration. By order dated August 8, 2019, the Arbitrator refused the request for a reconsideration.
[6] BP appeals the Arbitrator’s decision to quash the summonses and to not reconsider. Grillo and Daya brought a cross-appeal with respect to the cost award made by the Arbitrator. Before the hearing of the appeal, I was advised that Sokoloff had settled with BP. The appeal proceeded with the remaining Respondents. For the reasons set out below, I dismiss the appeal. I also dismiss the cross-appeal.
BACKGROUND FACTS
The Personal Services Agreement
[7] On February 1, 2007, BP entered into the PSA with Diamond. Paragraph 16 of the PSA states that all enquiries for personal injury services received by Diamond are to be referred to BP at a referral fee of 30 percent. At paras. 17 and 18, the PSA states that Diamond is to keep records with respect to the referrals. Paragraph 29 provides that all disputes are to proceed to arbitration.
[8] In 2012, BP noticed a decrease in the number of referrals from Diamond and learned that Diamond was referring files to other firms. BP requested documents with respect to the referrals from Jeremy. For his part, Jeremy took the position that after 2009 he was not an employee of Diamond, but instead an independent contractor, and therefore was not bound by the PSA. He refused to produce documentation with respect to the referrals.
[9] On November 14, 2012, BP brought an action against Jeremy and Diamond. Jeremy brought a motion to strike on the basis that the matter is governed by the PSA and therefore must proceed by arbitration. The motion was settled on the basis that Jeremy agreed to be bound by the findings of the Arbitrator.
[10] In 2012, BP commenced an arbitration against Diamond, claiming damages for breach of the PSA.
The Arbitration Agreement
[11] On June 2, 2015, BP and Diamond entered into an Arbitration Agreement, which, at s. 26, provides for the following appeal rights:
The parties agree that an appeal from the Arbitrator’s award, or any determination of a preliminary motion, including any determination on costs, is permitted on a question of fact, a question of law, or a mixed question of fact and law.
[12] BP again requested documentation with respect to the referrals. Jeremy produced spreadsheets that set out some referral information but stated that he did not have records for the period before 2010. BP took the position that the information contained in the spreadsheets was deficient.
The Summonses
[13] BP requested the Arbitrator issue summonses to the lawyers who were referred files from Diamond. On November 16, 2018, the Arbitrator issued summonses to the lawyers, which ordered production of the following:
a) A list of all clients referred to you or your firm by Jeremy Diamond, his professional corporation, or Diamond & Diamond during the period from February 1, 2007 to January 31, 2013 inclusive;
b) A list of all referral or related fees paid to Jeremy Diamond, his professional corporation, or Diamond & Diamond with respect to the referrals referenced in paragraph a) above, including:
i) The amount of the payment;
ii) The date of the payment;
c) A copy of any contract, e-mail or other document between you or your firm and any of Jeremy Diamond, his professional corporation, or Diamond & Diamond evidencing how the said referral fees were to be calculated;
d) A list of any remaining open files arising from referrals referenced in paragraph a) above.
[14] In November 2018, each lawyer who had been referred files from Diamond was served with a summons compelling their attendance at the arbitration.
The Motion to Quash/Request for Reconsideration
[15] Several of the lawyers who received a summons voluntarily provided the information requested. The lawyers who objected did so on the basis of solicitor-client privilege. The Responding Lawyers brought a motion before the Arbitrator to quash the summonses. The motion was argued over the course of a full day on June 12, 2019.
[16] During argument, counsel for BP conceded that the nature of the information sought falls within solicitor-client privilege. The Arbitrator canvassed with the parties whether the information requested could be provided with the names of the clients redacted. Counsel for BP rejected that option. It was his position that the names were necessary to determine if the file had been referred to BP and turned down. If it had been, those fees would not form part of the claim.
[17] On June 14, 2019, the Arbitrator released his reasons for quashing the summonses. He accepted the Responding Lawyers’ submissions that the requested information was governed by solicitor-client privilege. In his reasons, the Arbitrator stated as follows:
[The Applicants next] submit that the solicitor-client privilege arises only when [a] person consulting with the lawyer has a reasonable expectation that his/her communications with the lawyer will be kept private. They argue that since the clients were referred to the Lawyers by Jeremy that they would have no reasonable expectation that their information would be kept private in so far as Jeremy is concerned. They contend that since the Lawyers have already provided the information to Jeremy that no privilege attached to that information in relation to Jeremy or that such privilege was waived by the client. They submit that if Jeremy had been a good record keeper all the information requested would have been provided by Jeremy pursuant to the order of Justice Moore.
I do not agree with the Applicants’ submissions. It is one thing to say that the clients would have no reasonable expectation that their information would be kept private from Jeremy, the person who referred them to the Lawyers. It is quite another to suggest that they would have no reasonable expectation that this information would be kept private from the Applicants with whom they had absolutely no connection.
I accept that the information sought by the Applicants is relevant to the issues of liability and damages in their claim in this arbitration. Indeed, it was on this basis that I issued the summonses in question. However, section 30 of the Arbitration Act that no person is compelled to give evidence or produce information in an arbitration that the person would not be compelled to produce or give in a court proceeding.
[18] The Arbitrator awarded costs of the motion in the amount of $14,498.92 for Neinstein, $14,766.25 for Grillo/Daya, and $14,064.27 for Sokoloff.
[19] On July 18, 2019, BP wrote to the Arbitrator requesting a reconsideration of the ruling. BP suggested a compromise of redacting the names of the clients from the records. Counsel for BP acknowledged that the anonymization approach had been rejected at the hearing of the motion. The Arbitrator dismissed the reconsideration request on August 8, 2019. He stated that the purpose of a reconsideration is to correct errors as a result of oversight and found that the reasons for a reconsideration did not apply:
Mr. Rachlin quite fairly does not suggest that he raised [this] alternative relief […] at the hearing and that by oversight I failed to address it, causing an injustice to the applicants. In short, the applicants’ request is based on my failure to consider an alternative relief that was never advanced at the hearing.
[20] BP appeals the Arbitrator’s decision to quash the summonses and his dismissal of the reconsideration request. Grillo and Daya cross-appeal the Arbitrator’s costs award as it relates to them.
THE ISSUES
[21] The following issues will be addressed in this endorsement:
a. Does the Court have jurisdiction to hear this appeal?
b. What is the standard of review?
c. Did the Arbitrator err in quashing the summonses?
d. Did the Arbitrator err with respect to the costs award?
ANALYSIS
Does the Court have jurisdiction to hear this appeal?
[22] BP delivered its Notice of Appeal on August 1, 2019. On September 15, 2019, the parties to the motion consented to an order requiring BP to perfect the appeal within 30 days of a sealing order being issued. The sealing order was issued on December 20, 2019, but BP did not perfect or serve the appeal record or factum until April 16, 2020. The Respondents argue that BP failed to comply with the consent order and is thereby out of time to bring this appeal. Even if the appeal is not out of time, the Respondents argue that there is no right to appeal the Arbitrator’s decision pursuant to the Arbitration Act, 1991, S.O. 1991, c. 17 (the “Act”).
[23] BP and Diamond agreed in the PSA that an appeal of a preliminary matter would be permitted on a question of fact, a question of law, or a question of mixed fact and law. Section 45(1) of the Act provides that parties to an arbitration can address the issue of appeals in an arbitration agreement. However, the Responding Lawyers argue that as non-parties to the Arbitration Agreement, they are not bound by its terms. They submit that in the absence of an agreement, the appeal rights are those set out in the Act.
[24] Section 45(1) of the Act states that if there is no arbitration agreement, a party may appeal an arbitrator’s award in very limited circumstances. Appeals on questions of law are permitted with leave. Appeals on questions of fact and mixed fact and law are not permitted. Section 45 provides as follows:
(1) If the arbitration agreement does not deal with appeals on questions of law, a party may appeal an award to the court on a question of law with leave, which the court shall grant only if it is satisfied that,
(a) the importance to the parties of the matters at stake in the arbitration justifies an appeal; and
(b) determination of the question of law at issue will significantly affect the rights of the parties.
(2) If the arbitration agreement so provides, a party may appeal an award to the court on a question of law.
(3) If the arbitration agreement so provides, a party may appeal an award to the court on a question of fact or on a question of mixed fact and law.
[25] BP argues that the Responding Lawyers are bound by the Arbitration and Amending Agreements and therefore the appeal rights set out therein apply to them. It is BP’s position that the Responding Lawyers attorned to the jurisdiction of the Arbitrator at the time they brought the motion to quash. BP argues that the Responding Lawyers chose to bring the motion to quash before the Arbitrator and not to issue an application with the court. At the motion to quash, they did not question the Arbitrator’s jurisdiction. BP states that by proceeding in this manner, the Responding Lawyers gave the Arbitrator authority to determine whether the summonses ought to be quashed and agreed to give the Arbitrator jurisdiction over them. BP argues that the Arbitrator’s jurisdiction arose out of the Arbitration Agreement and the Responding Lawyers, by their conduct, agreed to be bound by the Arbitration Agreement.
[26] The Responding Lawyers take the position that the Arbitrator had jurisdiction to issue the summonses pursuant to s. 29(1) of the Act, which deals with notice to witnesses. It was appropriate for them to bring the motion to quash to the Arbitrator who issued the summonses. The Responding Lawyers argue that the fact that they brought the motion to the Arbitrator does not result in an attornment or agreement with the terms of an agreement they did not negotiate and to which they are not parties. The Responding Lawyers also take the position that the parties to the Arbitration Agreement did not intend that its appeal rights would apply to non-parties. Paragraph 26 of the Arbitration Agreement provides that the parties agree on the appeal rights; the Responding Lawyers are not parties to the Agreement.
[27] The Responding Lawyers are non-parties to the arbitration. They did not sign the Arbitration Agreement. Although they agree that the Arbitrator had authority to issue the summonses pursuant to s. 29(1) of the Act, they state that the motion to quash cannot result in them being bound by the terms of the Arbitration Agreement. As stated by Echlin, J. in Dian Musical Reproduction Rights Agency Limited v. Canadian Recording Industry Association (2005), 2005 CanLII 62970 (ON SC), 68 C.P.R. (4th) 241 (Ont. S.C.):
[9] BMG was not a party to the arbitration. The arbitrator had no inherent jurisdiction, unlike a Superior Court judge. The jurisdiction did not arise from the arbitration agreement nor from the Arbitration Act, 1991, S.O. 1991 c.C.17.
[11] While the arbitration agreement purports to give the arbitrator the jurisdiction, an arbitration agreement cannot give an arbitrator jurisdiction over a non-party.
[28] I conclude that the Responding Lawyers are not bound by the Arbitration Agreement. The fact that they brought a motion to quash to the Arbitrator who issued the summonses pursuant to his authority under the Act does not result in an attornment to the Agreement or acceptance of the appeal rights under it. The Responding Lawyers were not parties to the Arbitration Agreement, and I find they are not bound by the appeal rights set out therein.
[29] Having found that the Arbitration Agreement does not apply to the non-party Responding Lawyers, BP’s right to appeal the decision to quash the summonses is governed by the Act. The Act only permits an appeal on a question of law with leave. The Act does not permit an appeal on questions of fact or mixed fact and law.
[30] This appeal involves the application of the law of solicitor-client privilege to the unique facts of the dispute and therefore is a question of mixed fact and law. I note that the Arbitrator described the motion to quash as being “fact-specific”. I also note that BP, at para. 24 of its factum, states that the appeal is one of mixed fact and law. An appeal of mixed fact and law is not permitted under the Act. And even if the appeal involved a question of law, it would only be available with leave. BP did not seek leave.
[31] I conclude that BP has no right to appeal the Arbitrator’s decision to quash the summons served on the non-party Responding Lawyers.
What is the standard of review?
[32] BP argues that the standard of review of the Arbitrator’s decision is correctness. BP relies on the Supreme Court of Canada decision Canada (Minister of Citizenship) v. Vavilov, 2019 SCC 65, 441 D.L.R. (4th) 1, which establishes a correctness standard for appeals of an administrative decision where the legislated standard of review is correctness, the legislation contains appeal rights to a court, or the rule of law requires the standard of correctness be applied. It is BP’s position that, based on Vavilov, the starting point for an appeal of an arbitral decision should be correctness. If Vavilov does not apply, BP argues that the starting point is reasonableness, but that the circumstances of this case require a correctness standard because the application of solicitor-client privilege is a question of law of central importance to the legal system as a whole.
[33] The Respondents argue that Vavilov did not change the longstanding approach to appellate review of commercial arbitration awards, which is on a reasonableness standard. The effect of Vavilov on the appeal of arbitral awards was specifically addressed by Hainey, J. in Ontario First Nations (2008) Limited Partnership v. Ontario Lottery and Gaming Corporation, 2020 ONSC 1516:
[69] In Creston Moly Corp v. Sattva Capital Corp., 2014 SCC 53 (S.C.C.) (“Sattva”), Rothstein, J. stated as follows at paras 104 and 106:
Appellate review of commercial arbitration awards takes place under a tightly defined regime specifically tailored to the objectives of commercial arbitrations and is different from judicial review of a decision of a statutory tribunal. For example, for the most part, parties engage in arbitration by mutual choice, not by way of statutory process. Additionally, unlike statutory tribunals, the parties to the arbitration select the number and identity of the arbitrators. …
… In the context of commercial arbitration, where appeals are restricted to questions of law, the standard of review will be reasonableness unless the question is one that would attract the correctness standard, such as constitutional questions or questions of law of central importance to the legal system as a whole and outside the adjudicators’ expertise. …
[70] In Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32 (S.C.C.) (“Teal Cedar”), Gascon, J. held as follows at para. 74:
- In an arbitral context like this one, where the decision under review is an award under the Arbitration Act, Sattva establishes that the standard of review is “almost always” reasonableness … This preference for a reasonableness standard dovetails with the key policy objectives of commercial arbitration, namely efficiency and finality.
[71] The Supreme Court of Canada’s comprehensive decision in Vavilov does not refer to the court’s previous decisions in either Sattva or Teal Cedar. It is not reasonable to conclude that the Supreme Court meant to overrule these important decisions without making any reference to them or to the area of law to which they relate.
[72] Further, as a matter of legal principle it is appropriate that Vavilov does not apply to commercial arbitrations. The administrative law standard of review established in Vavilov derives from constitutional considerations that justify deference by the judiciary to the legislature. This principle does not apply to commercial arbitrations. The standard of review for commercial arbitrations is guided by commercial considerations about respect for the decision-makers chosen by the parties. As a result, deference is justified by the parties’ contractual intent. It is for this reason that Rothstein, J. identified the key differences between administrative decisions and arbitral awards in Sattva and concluded that the judicial review framework for administrative decisions is not applicable in the commercial arbitration context.
[34] I am satisfied that the standard of review of the Arbitrator’s decision to quash the summonses is reasonableness. The issue on this appeal is not a question of law of central importance to the legal system as a whole. There is no dispute as to the legal principles that apply to the scope of solicitor-client privilege. The Arbitrator noted that the legal principles were agreed upon, and his decision was based on the application of those agreed-upon principles to the facts.
Did the Arbitrator err in quashing the summonses?
[35] The Arbitrator issued the summonses. He was satisfied that the information requested was relevant with respect to both liability and damages. On the motion to quash, the Arbitrator concluded that the requested information was subject to solicitor-client privilege and the Responding Lawyers would not have been compelled to produce the material in a court proceeding. He held that, pursuant to s. 30 of the Act, the Responding Lawyers could not be compelled to produce this information on the arbitration.
[36] Solicitor-client privilege is broad and protects all communications between a solicitor and client that are connected with that relationship: see Minister of National Revenue v. Thompson, 2016 SCC 21, [2016] 1 S.C.R. 381, at para. 19. The privilege applies not only to advice provided by the lawyer but to all information that arises out of the relationship. It therefore applies to the names of the clients and their fees and accounting records: see Canada (Attorney General) v. Chambre des notaires du Québec, 2016 SCC 20, [2016] 1 S.C.R. 336, at paras. 73-74.
[37] The information requested in the summonses included clients’ names and accounting information with respect to referral fees. I am satisfied that this is information concerning the carriage of the clients’ files and is presumptively privileged. The Arbitrator concluded that the documentation was privileged and quashed the summonses. I am satisfied that the decision of the Arbitrator was within the range of reasonable outcomes.
[38] On the appeal before me, BP argues that, even though the Arbitrator concluded that the information sought was privileged, solicitor-client privilege can be adequately protected if the names of the clients are redacted. This is a reversal from BP’s position on the motion to quash. On the motion, BP rejected a compromise suggested by the Arbitrator to produce lists of referral fees paid without client names. After the Arbitrator’s decision quashing the summonses was released, BP, in the request for reconsideration, asked that the names be redacted. The Arbitrator refused that request on the basis that a reconsideration is permitted only if a matter that was raised before him was overlooked or not addressed in his reasons. In this case, the redaction of the names was not raised by BP on the motion. It was not overlooked by the Arbitrator, but instead had been raised by him and rejected by counsel.
[39] In any event, if the anonymizing option had been raised before the Arbitrator, it would have been reasonable for him to reject the proposal. Even with the names redacted, the accounting information requested is privileged and a comparison with previous client lists provided could result in disclosure of the clients’ identities.
[40] The Arbitrator has been involved in this arbitration for over six years. He is familiar with the parties and the matters in issue. He has a good appreciation of the factual matrix and how the information requested from the Responding Lawyers applies to BP’s case. He applied the agreed upon principles of solicitor-client privilege to the facts and quashed the summonses. He is entitled to deference. I conclude that the Arbitrator’s decision to quash the summonses is within the range of reasonable outcomes.
Did the Arbitrator err with respect to the costs award?
[41] BP appeals the award made by the Arbitrator with respect to costs. The Arbitrator awarded costs to the Responding Lawyers in the amount of $10,000 for counsel fee for each firm. With disbursements and HST, he fixed costs in the amount of $14,498.92 for Neinstein, $14,766.25 for Grillo/Daya, and $14,064.27 for Sokoloff. Grillo and Daya bring a cross-appeal with respect to the Arbitrator’s award of costs.
i) Appeal of Costs
[42] For the reasons set out above, BP’s right of appeal is governed by s. 45(1) of the Act. BP may only appeal on questions of law with leave. Leave was not sought with respect to the costs appeal. In any event, I am not satisfied that the Arbitrator’s decision on the costs award is an issue of law.
[43] No question of law is identified by BP in the appeal. BP notes that the Arbitrator found that costs should follow the event, so if the decision to quash is set aside, the costs decision should also be set aside. I do not set aside the Arbitrator’s decision with respect to the summonses and therefore there is no basis to interfere with the Arbitrator’s award that costs are payable by BP to the Responding Lawyers.
ii) Cross-appeal of Costs
[44] On cross-appeal, Grillo and Daya take the position that the costs award made by the Arbitrator is unreasonable and the Arbitrator erred in law. They argue that the Arbitrator failed to follow the well-established principle that strangers brought into litigation who are wholly successful on a motion should be awarded costs on a full indemnity basis. They also argue that the Arbitrator erred in awarding the same amount for counsel fee for each of Neinstein, Grillo/Daya and Sokoloff, and he did not take into account the fact that Grillo and Daya served as lead counsel on the motion.
[45] The appeal is governed by s. 45(1) of the Act, which permits an appeal on a question of law with leave. Grillo and Daya did not seek leave. The standard of review is reasonableness.
[46] Grillo and Daya argue that they are strangers to the arbitration between Diamond and BP and were entirely successful on the motion to quash the summonses. They say that in those circumstances, the Arbitrator ought to have awarded them full indemnity costs: see Disabatino v. National Gallery of Canada, 2016 ONSC 4978, at paras. 8-9. BP argues that costs are discretionary and the Arbitrator’s decision with respect to such is entitled to deference.
[47] The determination of costs on a motion to quash a summons does not involve questions of law of central importance to the legal system. The decision made by the Arbitrator to not award full indemnity costs and to award equal costs to each of the three responding sets of lawyers is within the range of reasonable outcomes. I dismiss the cross-appeal.
DISPOSITION
[48] I make the following order:
a. I dismiss BP’s appeal of the Arbitrator’s decision to quash the summonses;
b. I dismiss Grillo and Daya’s cross-appeal with respect to the Arbitrator’s award of costs.
[49] The Responding Lawyers are presumptively entitled to their costs of the appeal and BP is presumptively entitled to its costs of the cross-appeal. If the parties are unable to agree on costs, the Responding Lawyers may file written submissions of no more than 3 pages in length, excluding case law and bill of costs, within 20 days of the date of this endorsement. BP may file written submissions in response, along with its submissions with respect to the costs of the cross-appeal, within 20 days of receiving the Responding Lawyers’ submissions. BP’s cost submissions are restricted to 5 pages in length, excluding case law and bill of costs. Grillo and Daya may file written submissions in response to BP’s claim for costs of the cross-appeal within 10 days of receiving BP’s submissions. Grillo and Daya’s submissions in response to BP’s claim for costs of the cross-appeal are limited to two pages.
DATE: MARCH 26, 2021