Mathews, Dinsdale & Clark LLP v. 1772887 Ontario Limited and Anthony Gagliano

COURT FILE NO.: CV-19-00630375-0000

DATE: 20210406

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Mathews, Dinsdale & Clark LLP Moving Party, Plaintiff/Defendant by Counterclaim

– and –

1772887 Ontario Limited and Anthony Gagliano Responding Party, Defendant/Plaintiff by Counterclaim

Tim Gleason, agent for the Moving Party, Plaintiff/Defendant by Counterclaim

George Corsianos, for the Responding Party, Defendant/Plaintiff by Counterclaim

HEARD: December 2, 2020

VELLA J.

REASONS FOR DECISION: RULE 21.01(a)

[1] This is a motion brought by Mathews, Dinsdale & Clark LLP (“MDC LLP” or the “Lawyers”) for a determination of a question of law raised by a pleading pursuant to r. 21.01(a) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 concerning whether the Defendant, 1772887 Ontario Limited (“1772887” or the “Client”) has waived solicitor-client privilege in the within proceedings.

[2] In the alternative, the parties jointly seek an order sealing the three preceding statements of claim filed by MDC LLP, should I find that solicitor-client privilege has not been waived.

[3] The claim against Anthony Gagliano has been discontinued.

[4] I am satisfied, as are the parties, that a determination of the question of law posed by the moving party, MDC LLP, is appropriate in this case, having in mind the objectives of r. 21.01(a).

Background

[5] This action concerns a dispute over fees between MDC LLP and its former client, 1772887. MDC LLP was retained to deliver legal services relating to a collective bargaining matter. The solicitor and client relationship broke down and 1772887 terminated its relationship with MDC LLP. The Client notified the Lawyers that it was disputing the fees and would not pay them.

[6] MDC LLP then commenced this action for payment of outstanding accounts for legal services rendered.

[7] MDC LLP commenced the action by way of statement of claim issued November 4, 2019. Concerns were raised by 1772887 that certain paragraphs in the statement of claim pled solicitor-client privileged communications and it threatened to bring a motion to strike. MDC LLP then voluntarily withdrew some of those paragraphs, without prejudice to its position that the impugned paragraphs did not constitute a breach of solicitor-client privilege.

[8] This exercise of MDC LLP voluntarily, and without prejudice, withdrawing paragraphs from successive (amended) statements of claim, after further solicitor-client privilege related concerns were raised by 1772887, resulted in three subsequently amended statements of claim: the fresh as amended statement of claim, the amended fresh as amended statement of claim, and then the current (second) fresh as amended statement of claim amended December 20, 2019 (the “current claim”).

[9] The original statement of claim, fresh as amended statement of claim filed December 6, 2019, and amended fresh as amended statement of claim filed December 11, 2019 will be collectively referred to as the “antecedent claims”.

[10] 1772887 filed a statement of defence and counterclaim to the current claim (collectively, the “current pleadings”).

[11] For the reasons that follow, I find that 1772887 waived privilege over communications with MDC LLP insofar as relevant to the current pleadings. However, this finding is without prejudice to the parties seeking further relief from the court in relation to measures to preserve the confidentiality of the subject solicitor-client communications from the public should they or either of them deem it appropriate.

Analysis

[12] As this is a motion under r. 21.01(a), the focus of the analysis is on the pleadings. The current claim and the antecedent claims all contain references to solicitor-client communications, though in less detail as each successive claim was amended. The statement of defence and counterclaim also contains references to solicitor-client communications, as will be explained.

[13] As well, 1772887 filed an affidavit reflecting communications between MDC LLP and 1772887’s current lawyer concerning the propriety of the various iterations of the claim. This evidence shows that the Client, through its lawyers, raised objections to certain paragraphs of the pleadings on the basis of solicitor-client privilege, and that the Client was therefore aware of the existence of the issue of privilege before filing its statement of defence and counterclaim. The evidence further demonstrates that the concessions made by the Lawyers were made on a without prejudice basis to their position that they had not breached solicitor-client privilege owed to the Client. The evidence also confirms that the Client is disputing the quantum of the fees charged by the Lawyers. There was no objection to the filing of this affidavit by MDC LLP and so it is appropriately before this court.

Solicitor-Client Privilege

[14] The Supreme Court of Canada, in Solosky v. The Queen, 1979 CanLII 9 (SCC), [1980] 1 S.C.R. 821, 1979, at p. 835, quoted with approval the following definition of solicitor-client privilege as the “modern principle”:

Wigmore [8 Wigmore, Evidence (McNaughton rev. 1961) para. 2292] framed the modern principle of privilege for solicitor-client communications, as follows:

Where legal advice of any kind is sought from a professional legal adviser in his capacity as such, the communications relating to the purpose made in confidence by the client are at his instance permanently protected from disclosures by himself or by the legal adviser, except the protection be waived.

[15] It is trite law that only the privilege holder has the ability to waive privilege; in this case 1772887. It is also trite law that solicitor-client privilege is a fundamental right and central to the integrity and functioning of the justice system: Blank v. Canada (Minister of Justice), 2006 SCC 39, [2006] 2 S.C.R. 319, at paras. 24-26.

[16] As the Supreme Court of Canada held in Descôteaux et al. v. Mierzwinski, 1982 CanLII 22 (SCC), [1982] 1 S.C.R. 860, solicitor-client privilege is a substantive right, and not just a rule of evidence. As such it must be protected and should be interfered with only to the extent necessary to achieve a just result.

[17] MDC LLP states that solicitor-client privilege was waived by 1772887, both by 1772887’s announced intention to dispute the fees, and through allegations made in its statement of defence and counterclaim.

[18] 1772887 maintains it has not waived solicitor-client privilege. The Client maintains that it is only challenging the quantum of fees being charged, and not the quality of the legal services. The Client states that it is the Lawyers who have purported to waive the Client’s privilege through issuing the publicly filed antecedent claims and current claim.

Waiver of Solicitor-Client Privilege

[19] There are two ways in which a client can waive privilege: express or voluntary waiver, and waiver by implication (sometimes referred to as deemed or implicit waiver).

[20] The test for determining whether a client has waived privilege is an objective one: see, for example, Camosun College v. Levelton Engineering Ltd., 2014 BCSC 1190, at para. 10.

[21] Furthermore, the burden is on those seeking to rely on the communications to prove that the client waived privilege over them.

Express Waiver

[22] In order to constitute express waiver, the client must have known of the existence of the privilege and evinced an intention to waive that privilege: Camosun College, at para. 9.

[23] In its statement of defence and counterclaim, 1772887 pleaded the antecedent claims at para. 16. As a result, the pleadings in the antecedent claims are incorporated by reference into the counterclaim. 1772887 is represented by a lawyer, and the affidavit evidence demonstrates that it was well aware of the existence of the solicitor-client privilege at the time the statement of defence and counterclaim was prepared. The Client intentionally pleaded the antecedent claims as the basis of its fiduciary duty claim against MDC LLP alleging breach of solicitor-client privilege.

[24] Clients waive solicitor-client privilege when they intentionally re-publish the communications in materials filed before the court, including in pleadings: see Teixeira v. Hamburg Olson LPC, 2017 ONSC 7532, at para. 19; Camosun College, at paras. 10, 12.

[25] In McCreight et al. v. The Attorney General, 2010 ONSC 2817, at para. 32, aff’d 2013 ONCA 483, the court confirmed that documents will be incorporated, in their entirety, into a pleading when they are pleaded. In other words, those documents become a part of the pleadings as if the contents had been repeated verbatim in the pleading. See also r. 25.06(7).

[26] Therefore, the Client has expressly waived solicitor-client privilege over the antecedent claims by having intentionally pleaded reliance on them in the statement of defence and counterclaim. Once there has been a partial waiver, all the communications that are relevant to the issue in question, in this case the fiduciary duty claim, are deemed to have been waived: R. v. Dunbar (1982), 1982 CanLII 3324 (ON CA), 138 D.L.R. (3d) 221 (Ont. C.A.), at para. 66.

[27] However, as this waiver occurred at the time 1772887 filed its statement of defence and counterclaim, and was made in the context of the counterclaim, privilege is waived over relevant solicitor-client communications for the purposes of a determination of the counterclaim only.

[28] Accordingly, it is necessary that I proceed with the analysis under the doctrine of waiver by implication.

Waiver by Implication

[29] Under limited circumstances, the court will deem that a client has waived solicitor-client privilege, absent an evinced intention by the client to waive that privilege. Given the fundamental importance of solicitor-client privilege, each case must be decided on a fact driven basis.

[30] Courts will imply waiver when the fairness and consistency of the matter requires the disclosure of solicitor-client communications in the interests of justice.

[31] Braid J., in his oral ruling released in Martin v. GiesbrechtGriffin, 2018 ONSC 7794, framed the fairness analysis as follows:

Deemed waiver and disclosure will be limited to circumstances where the relevance of the evidence in question is high and the principles of fairness and consistency require disclosure to allow a party to adequately defend: see Roynat Capital Inc. v. Repeatseat Ltd., 2015 ONSC 1108 (DC).

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 privilege. Fairness to a party facing a trial has become a guiding principle in Canadian law. Privilege will be deemed to have been waived when the interests of fairness and consistency; or when a communication between solicitor and client is legitimately brought into issue in an action.

[32] In S. & K. Processors Ltd. v. Campbell Ave. Herring Producers Ltd. (1983), 1983 CanLII 407 (BC SC), 45 B.C.L.R. 218 (S.C.), at para. 10, McLachlin J., as she then was, added that implied waiver always requires an intentional act on the part of the client:

In the cases where fairness has been held to require implied waiver, there is always some manifestation of a voluntary intention to waive the privilege at least to a limited extent. The law then says that in fairness and consistency it must be entirely waived.

[33] In Dunbar, at para. 66, the Ontario Court of Appeal explained that waiver of solicitor-client privilege will be appropriate in disputes between clients and their former lawyers:

Dean Wigmore states that when the client alleges a breach of duty by the attorney the privilege is waived as to all communications relevant to that issue: 8 Wigmore on Evidence, (McNaughton Rev.), p. 638. In McCormick on Evidence, 2nd ed., the author states at p. 191:

As to what is a controversy between lawyer and client the decisions do not limit their holdings to litigation between them, but have said that whenever the client, even in litigation between third persons, makes an imputation against the good faith of his attorney in respect to his professional services, the curtain of privilege drops so far as necessary to enable the lawyer to defend his conduct. Perhaps the whole doctrine that in controversies between attorney and client the privilege is relaxed, may best be based upon the ground of practical necessity that if effective legal service is to be encouraged the privilege must not stand in the way of the lawyer’s just enforcement of his rights to be paid a fee and to protect his reputation. The only question about such a principle is whether in all cases the privilege ought not to be the same qualification, that it should yield when the evidence sought is necessary to the attainment of justice.

[34] Several courts have held that where a communication between lawyer and client is legitimately brought into issue in an action, fairness requires that privilege be implicitly waived: Laurent v. Laurent, 2019 ONSC 3535, at para. 37; Teixeira, at para. 19; Hodge v. Neinstein, 2014 ONSC 4503, at para. 172; Lipson v. Cassels Brock & Blackwell, LLP, 2014 ONSC 6106, at para. 119; and Woodglen & Co. v. Owens (1995), 1995 CanLII 7070 (ON SC), 24 O.R. (3d) 261 (Gen. Div.).

[35] Hodge involved a motion for certification in a proposed class proceeding by former clients of a law firm challenging the content of their law firm’s contingency fee agreement. In the course of the reasons, Perell J. held that an implied waiver will be inferred from actions that are inconsistent with an intention to maintain solicitor-client privilege.

[36] In Lipson, the court affirmed that when a client makes allegations of misconduct or professional negligence against his, her, or their lawyer, the client will have implicitly waived privilege to the extent necessary for the defence by the lawyer.

[37] In Harich v. Stamp et al. (1979), 1979 CanLII 1904 (ON CA), 27 O.R. (2d) 395 (C.A.), the court affirmed that when a client alleges breach of his, her, or their lawyer’s duty owed to them, the client effectively waives privilege as to all communications relevant to that issue. The court quoted from McCormick on Evidence, 2nd ed. (1972), at p. 194: “Waiver includes, as Wigmore points out, not merely words or conduct expressing an intention to relinquish a known right but conduct, such as a partial disclosure, which would make it unfair for the client to insist on the privilege thereafter.”

[38] 1772887 took the position before this court that its conduct and pleading do not amount to a waiver because it is only disputing the quantum of the fees charged, and not the quality of services. Further, it only issued the counterclaim alleging breach of fiduciary duty against MDC LLP because of the Lawyer’s conduct in having pleaded facts relating to meetings with the Client and other communication in breach of solicitor-client privilege.

[39] In my view, 1772887 has put the quality of the work product and reasonableness of the disputed fees and, therefore the related solicitor-client communications, in issue through its own pleadings. In its statement of defence at paras. 6-9, 1772887 pleaded that:

(a) it was “never advised” by MDC LLP what hourly rate would be charged, nor provided with any estimate of fees (para. 6);

(b) the fees charged were excessive (para. 7);

(c) the preparation and research work by the lawyer should have been the subject of a lower fee (para. 7);

(d) 1772887 “communicated its dissatisfaction to the plaintiff regarding the services provided and disputing the legal fees charged” (para. 8);

(e) MDC LLP had not “achieved any progress in negotiating a new collective bargaining agreement” (para. 9); and

(f) it terminated the retainer relationship with MDC LLP as a result of the unsatisfactory progress and the excessive fees charged (para. 9).

[40] As stated, 1772887 submits that it is only challenging the quantum of the lawyer’s fees, not the quality of the services. However, I fail to see how the quantum of the account can be assessed or adjudicated without delving into the scope of the retainer, communications relating to the reasonable expectations of the client in terms of fees and work authorized to be done, the terms of instructions provided, the quality of the work itself in terms of assessing reasonableness of time spent, and the other factors commonly considered in an assessment of a solicitor-client account. Under an assessment, whomever commences the process, the burden of proof is on the lawyer to justify the work done and the fees charged. If the lawyer was not permitted to delve into solicitor-client privileged communications for the limited purpose of an assessment, the client could thwart any such assessment.

[41] Clearly, 1772887 has put squarely into issue the quality of the work product for which it was charged as the main justification for complaining about the quantum of the fees in its pleading. In order for MDC LLP to have an opportunity to make out its case and justify the quantum of fees charged, MDC LLP must be able to lead evidence regarding the expectations it may have set in place at the outset and throughout its retainer, and justify the work it did. Furthermore, the Client placed the Law Firm in the position of having to commence either a lawsuit or an assessment when it announced it was disputing the fees and terminated the retainer through its own conduct. Pursuant to the doctrine of fairness and consistency, 1772887 in these circumstances has implicitly waived privilege over relevant solicitor-client communications to the extent necessary for MDC LLP to justify the quantum of its fees.

[42] Furthermore, once 1772887 announced its intention to dispute the fees and terminated the retainer, it should have been within its reasonable expectations that MDC LLP would engage either in an assessment process or a litigation proceeding to justify and enforce its legal accounts. Alternatively, 1772887 may have chosen to assess the accounts pursuant to the Solicitors Act, R.S.O. 1990, c. S.15. In either case, the Client’s act of disputing the fees triggers implied waiver over privileged solicitor-client communications relevant to an assessment of those fees. Thus, the Client, in essence, put solicitor-client communications in issue when it announced to the Lawyers that it was disputing the fees.

[43] In my view, by corollary to the lawyer-client professional misconduct and negligence cases, and following the above passage cited from Dunbar, a client’s conduct in repudiating its lawyer’s legal account and refusing to pay is conduct that would render it unfair for that client to raise privilege against the lawyer, in the context of a proceeding to assess and enforce payment of the disputed account.

[44] Therefore, 1772887 implicitly waived privilege over the solicitor-client communications relevant to adjudicating the fairness and reasonableness of MDC LLP’s fees, charged in the disputed accounts, that are the subject of the current claim.

[45] Finally, 1772887 has issued a statement of defence and counterclaim alleging breach of fiduciary duty against the Lawyers alleging the same breach of solicitor-client privilege. The Lawyers are entitled to defend their reputation, as a matter of fairness and consistency. Accordingly, by issuing the counterclaim and impugning the reputation of the Lawyers, 1772887 has waived solicitor-client privilege over relevant solicitor-client communications to the extent needed for MDC LLP to defend itself within the context of the counterclaim.

Conclusion

[46] For these reasons, I find that the Client, 1772887, waived solicitor-client privilege over communications between it and MDC LLP to the extent required to permit MDC LLP to advance its current claim and defend the counterclaim, and, similarly, for 1772887 to mount a full defence to MDC LLP’s current claim and advance its counterclaim.

[47] I have not been asked to rule on the merits of the counterclaim, so I will not.

[48] Furthermore, the parties advised that in the event I found that privilege has been waived, they are withdrawing their joint request for an order sealing the antecedent claims.

[49] However, I am concerned that the solicitor-client communications relevant to the issues raised in the current pleadings might contain sensitive corporate information relative to its employees and collective bargaining strategies. Accordingly, this order is made without prejudice to the right of either party to seek relief from the court in the form of safeguards to protect the confidentiality of the solicitor-client communications from the public. In so doing, I am not to be taken as pre-judging any such motion. The test for publication bans, sealing orders, and other relief that has the effect of excluding the public from court proceedings, in any measure, is a high one, and the Rules of Civil Procedure have some protections already built in, such as r. 30.1 (the deemed undertaking rule).

Costs

[50] The parties should attempt to resolve the costs of this motion. However, if they cannot, then the Moving Party, MDC LLP, is to deliver its costs outline and brief written submissions (if necessary, and not to exceed three pages double spaced) by April 23, 2021. The Responding Party, 1772887, is to deliver its costs outline and brief written submissions (if necessary, and not to exceed three pages double spaced) by April 30, 2021.

Justice S. Vella

Released: April 6, 2021

COURT FILE NO.: CV-19-00630375-0000

DATE: 20210406

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Mathews, Dinsdale & Clark LLP Moving Party, Plaintiff/Defendant by Counterclaim

– and –

1772887 Ontario Limited and Anthony Gagliano Responding Party, Defendant/Plaintiff by Counterclaim

REASONS FOR DECISION

Vella J.

Released: April 6, 2021