Court File and Parties
COURT FILE NO.: CV-20-00000212
DATE: 2021-07-07
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: MediPharm Labs Inc., Plaintiff
AND:
Hexo Operations Inc., Defendant
AND BETWEEN
Hexo Operations Inc., Plaintiff by Counterclaim
AND:
Peter Hwang and MediPharm Labs Inc., Defendants to the Counterclaim
BEFORE: Garson J.
COUNSEL: Jennifer Teskey for Hexo Operations Inc., Defendant / Plaintiff by Counterclaim Eli Lederman for Peter Hwang, Defendant to the Counterclaim
HEARD: June 14, 2021
ENDORSEMENT
Introduction
[1] Peter Hwang (“Hwang”), defendant by counterclaim, brings a motion to determine whether certain documents withheld by Hexo Operations (“Hexo”), defendant and plaintiff by counterclaim, as well as respondent in this motion, are relevant to the matters in this action, are subject to privilege, and are required to be produced as part of a further and better affidavit of documents, in accordance with rr. 30.06 (b) and (c) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.
[2] In this action, MediPharm Labs Inc. (“MediPharm”) seeks damages from Hexo for unpaid invoices relating to a supply agreement entered into between MediPharm as supplier and UP Cannabis Inc. (“UP”) as customer, dated February 11, 2019 ( “supply agreement”). MediPharm and UP entered into this agreement a few months before Hexo acquired UP’s parent company, Newstrike Brands Ltd. (“Newstrike”), as part of a $263,000,000 all-share transaction (“Newstrike acquisition”).
[3] In its pleadings in this action, Hexo counterclaims against Hwang, a former director and officer at UP and Newstrike, for breach of fiduciary duty or, in the alternative, breach of a duty of good faith and fair and honest dealing. Hexo claims that Hwang intentionally mislead Hexo and withheld certain information regarding the supply agreement from Hexo while Hexo conducted its due diligence before closing the transaction.
[4] For the reasons that follow, I dismiss Hwang’s motion and find that Hwang has failed to satisfy me that:
• the additional production and disclosure sought is relevant to this action;
• that no privilege attaches to the production and documents sought; and
• that Hexo has waived such privilege.
Facts
[5] MediPharm is a licensed cannabis extractor and producer, producing oils and concentrates for cannabis-derivative products.
[6] Hexo is a licensed producer and seller of cannabis products.
[7] UP is licensed to cultivate, produce, process, and sell cannabis for the recreational market.
[8] Newstrike is UP’s parent company.
[9] Hwang was a director at Newstrike and, in January 2019, was appointed President, Operations at Newstrike. Hwang was responsible for leading new product development.
[10] On February 11, 2019, MediPharm and UP entered into a $35,000,000 supply agreement, which contemplated MediPharm selling UP cannabis oil concentrate over a 12-month period (with an option for an additional purchase of $13,500,000).
[11] On March 12, 2019, approximately one month later, Hexo and Newstrike executed an arrangement agreement for Hexo to acquire Newstrike in an all-share transaction (“arrangement agreement”).
[12] In November 2018, Hexo retained a team of professionals to assist and advise it during the lead-up to the Newstrike acquisition. These professionals included
• Norton Rose Fulbright Canada (“NRFC”)’s legal advisors;
• Cinaport’s financial advisor;
• Marsh Canada Ltd. (“Marsh”)’s insurance advisor; and
• Ernst & Young LLP (“EY”)’s tax advisor.
[13] After conducting due diligence, Hexo acquired Newstrike on May 24, 2019.
[14] Hwang was terminated effective June 30, 2019 and has not been involved with the business since then.
[15] On January 24, 2020, MediPharm issued a Statement of Claim against Hexo, claiming that Hexo failed to pay invoices totalling $9,802,032.78 for cannabis resin delivered between October 2019 and January 2020, pursuant to the terms of the supply agreement.
[16] On February 26, 2020, Hexo responded with its Statement of Defence and Counterclaim against MediPharm and Hwang. Hexo claims damages of $35,000,000 against Hwang for breach of his fiduciary duty or, in the alternative, breach of his obligations of good faith and fair and honest dealing. Hexo claimed that Hwang entered into the supply agreement in bad faith.
[17] Hexo pleads that the supply agreement was void ab initio as a result of
• Hwang agreeing to inflated prices on the eve of Hexo acquiring Newstrike;
• the agreement providing for the sale of a product (cannabis resin) that UP was not licensed to process or sell; and
• the agreement providing for quantities of cannabis resin that were much larger than what UP could reasonably use, produce, process, or sell during the products’ usable shelf life.
[18] Both MediPharm and Hwang have moved for summary judgment and the parties have agreed that both motions be heard together.
[19] Initial materials were exchanged in October and November 2020. Delays adjourned the first date set for the summary judgment hearings to March 10, 2021. Delays also ensued at that time due to failure to complete scheduled cross-examinations. These delays resulted from MediPharm and Hwang making last-minute requests for further documents.
[20] More specifically, on the eve of scheduled cross-examinations, Hwang made his first request for production of the due diligence documents from both Hexo and its advisors. Hwang repeatedly requested production thereafter.
[21] Hexo, through NRFC, immediately began requesting and compiling documents. By February 3, 2021, some 25,500 documents were identified by Hexo for review.
[22] By March 3, 2021, Hexo delivered a Supplemental Schedule A to its Affidavit of Documents, with 1029 additional documents, several of which related to due diligence around the supply agreement. By March 12, 2021, a detailed Schedule B followed with 1105 privileged documents.
[23] By April 26, 2021, Hexo delivered an updated Supplemental Schedule A, with an additional 57 due diligence documents relating to the Newstrike acquisition, and an updated Schedule B with 1055 documents to Hwang.
[24] By May 28, 2021, Hexo again updated its Schedule A to now list 3593 documents and Schedule B to now list 1069 documents.
Positions of the Parties
Hwang
[25] Hwang argues that Hexo’s concerns about the supply agreement require Hwang to be given access to the Newstrike acquisition due diligence files for both Hexo and its legal (NRFC) and financial (Cinaport) advisors.
[26] Hwang submits that Hexo has put the Newstrike acquisition due diligence “in issue” in its pleadings by claiming that Hwang did not disclose information relating to the supply agreement to Hexo by during the due diligence process.
[27] Hwang also submits that Hexo put the Newstrike acquisition due diligence in issue by suggesting, in its affidavit materials, that Hwang intentionally withheld specific information about the supply agreement and its implementation.
[28] Hwang argues that, by pleading bad faith on the part of Hwang, Hexo has put all of its due diligence during the relevant timeframe at the heart of this action and squarely at issue.
[29] Hwang argues that due diligence is central to Hexo’s claim, Hwang’s defence, and Hwang’s position on the pending summary judgment motion. By putting Hexo’s due diligence in issue, Hwang contends that Hexo has waived any privilege that may have existed over such due diligence documents.
[30] Hwang submits that Hexo’s efforts to distinguish between business advice and legal advice is artificial and amounts to restrictive categorization. Hwang submits that fairness should permit Hwang, in his defence, to depend on information Hexo compiled and reviewed as a part of its due diligence for the Newstrike acquisition.
[31] Hwang further submits that NRFC and Cinaport’s due diligence files relating to the Newstrike acquisition are within Hexo’s “control and power” and, therefore, that Hexo is required to disclose and/or produce those files for inspection.
[32] Hwang suggests Hexo produced only a few internal communications during the crucial time, i.e., the time between the arrangement agreement and the Newstrike acquisition when Hexo was doing due diligence. Hwang submits this scant volume of communications alone creates concerns that more production is outstanding and required.
[33] Hwang submits that the documents it requests are relevant and that any privilege that may attach to such documents has been unequivocally and impliedly waived.
Hexo
[34] Hexo readily acknowledges that some of the due diligence it carried out forms part of the factual matrix of the case. Hexo disputes the extent of what is relevant and asserts privilege over much of what Hwang requests it disclose.
[35] Hexo acknowledges the relevance of due diligence carried out for the supply agreement but not due diligence carried out for the Newstrike acquisition.
[36] Hexo counters that Hwang’s request for disclosure is overbroad. Hexo argues that the only Newstrike acquisition due diligence documents that are relevant are those that establish or form part of the factual matrix related to the supply agreement.
[37] Hexo submits that it has listed most of the documents sought in its Schedule A and does not waive its privilege on any of the Schedule B documents.
[38] Hexo also submits that it has produced documents where legal counsel is copied and documents that relate to business issues and do not contain legal advice.
[39] Hexo claims privilege over documents from both in-house counsel and from its legal advisor from NRFC, which either contain legal advice or were created primarily for the purpose of obtaining legal advice.
[40] Hexo also claims privilege over communications with Cinaport, Marsh, and EY, which are a part of the continuum of the provision of legal advice in connection with the Newstrike acquisition.
[41] Hexo submits that it has not, expressly or impliedly through its pleadings or other actions, waived this privilege.
The Issues
[42] There are two primary issues for determination on this motion:
• Are the documents sought relevant to this action and within Hexo’s power and control?
• Are the documents sought properly the subject of privilege and, if so, has privilege been waived?
Are the documents sought relevant to this action and within Hexo’s power and control?
Relevance
[43] Hwang bears the burden of satisfying me, using specific evidence, that documents it seeks are relevant and have been omitted from Hexo’s affidavit of documents.
[44] Hwang seeks broad disclosure of all due diligence documents related to the Newstrike acquisition. More specifically, he seeks:
• a declaration that no privilege attaches to, or that privilege has been waived over, communications between Hexo and NRFC and Hexo and Cinaport and correspondence between Hexo and NRFC, Hexo and Marsh, and Hexo and EY relating to due diligence;
• a declaration that no privilege attaches to, or that privilege has been waived over, NRFC’s and Cinaport’s due diligence files; and
• a declaration that Hexo has power, possession, and control over the NRFC and Cinaport due diligence files for the purposes of r. 30.02 (2), an order compelling NRFC and Cinaport to release these files to Hexo, and an order compelling Hexo to produce these files and serve a better affidavit of documents.
[45] Hexo concedes that the due diligence documents relating to the supply agreement are relevant, but it notes that it has already produced those documents, subject to any valid claims of privilege.
[46] Hexo carried out a preliminary round of due diligence between February 28 and March 13, 2019, before the arrangement agreement was announced, and a further round of due diligence between March 13 and May 24, 2019, before the Newstrike acquisition closed.
[47] It is this further round of due diligence, a period of almost 72 days, that Hwang takes issue with. Hwange argues that, during this time, Hexo has produced very few correspondences and pinpointed very few privileged documents.
[48] Hwang also provides examples of Schedule A documents which contain attachments which were not produced. Hwang requests that Hexo cure these deficiencies.
[49] Hexo suggests that Hwang’s requests amount to no more than a fishing expedition based solely on speculation. They point to Hwang’s earlier opportunities, i.e., in July 2020, to request such documents and his earlier and repeated failure to do so.
[50] Relevance is a pre-condition to the disclosure requirements under rr. 30.02 and 30.03 and requires that the documents sought be relevant to “any matter at issue.”
[51] Relevant documents are those documents that contain information that permit the requesting party, directly or indirectly, to fairly advance their case or challenge the opposing case: Apotex Inc. v. Richter Geodeon Vegyesgeti Gyar RT, 2010 ONSC 4070 at para. 10.
[52] Relevance is primarily determined by reference to the pleadings: Hollo v. Toronto Transit Commission, 2010 ONSC 1656.
[53] I have reviewed Hexo’s Statement of Defence and Counterclaim and its Reply to Defence and Counterclaim. These pleadings are as instructive for what they don’t include as they are for what they do include.
[54] They do advance a claim against Hwang, alleging breach of fiduciary duty or, in the alternative, breach of obligations of good faith and fair and honest dealing, which Hexo argues arises from the execution of the supply agreement with MediPharm.
[55] The only time Hexo references due diligence in the Newstrike acquisition in its pleadings is at para. 10 of its Reply to Counterclaim. This reference is made in the context of responding to a specific meeting Hwang refers to in his pleadings, which Hwang alleges happened, with respect to the supply agreement, on May 21, 2019.
[56] This fleeting reference to due diligence, standing alone, does not put due diligence in issue in Hexo’s pleadings. The mere mention of due diligence does not suffice. Although Hexo may well have known or ought to have known that its due diligence regarding the supply agreement would come under scrutiny, the same cannot be said for its much broader due diligence relating to the overall Newstrike acquisition.
[57] Hexo does not plead due diligence. Hexo’s due diligence and Hwang’s alleged withholding are not material facts Hexo is required to prove to establish Hwang’s alleged breach of fiduciary duties.
[58] The gist of Hexo’s claim is that Hwang entered into a deal that made little commercial sense in light of the inflated volumes, inflated prices, and UP subsequent ability to sell these products.
[59] There is little doubt that Hexo’s due diligence, done before entering into the supply agreement, is relevant. The affidavits of James McMillan, sworn on October 28 and November 20, 2020, describe Hexo’s due diligence, which revealed that misleading representations were made to Hexo regarding the supply agreement and that specific information regarding the supply agreement was withheld. Hexo maintains, at para. 18 of its November 20, 2020 McMillan affidavit, that it did not learn about these concerns until after the closing of the Newstrike acquisition.
[60] It is also evident that, during that same timeframe, Hexo was doing due diligence as a part of the Newstrike acquisition. The mere fact that the due diligence overlapped in time is insufficient to bring the Newstrike acquisition due diligence in issue.
[61] This action is about the supply agreement, not about the Newstrike acquisition. Returning to Hexo’s pleadings, they have not pled or advanced any claims for fraudulent or negligent misrepresentation or for a breach of the Newstrike acquisition arrangement agreement against Hwang.
[62] Hexo’s claim against Hwang focuses only on Hwang’s alleged bad conduct with respect to the supply agreement.
[63] I reject Hwang’s assertion that, based on Hexo’s pleadings, there can be no doubt that Hexo’s entire due diligence process for the Newstrike acquisition is relevant to the issues or somehow comprises a central component to this action. That is not the case.
[64] In Hwang’s pleadings and, more specifically, his Statement of Defence to Counterclaim, Hwang refers to certain aspects of Hexo’s due diligence.
[65] More specifically, at para. 19, Hwang refers to Hexo’s “extensive due diligence” between the arrangement agreement and the Newstrike acquisition. Hwang notes Hexo’s failure to raise any concerns about the supply agreement during that timeframe.
[66] At para. 25, Hwang references a May 21, 2019 meeting between Hexo executives and himself to discuss the supply agreement and the business case in support of it. At para. 27, Hwang notes that Hexo had 3 months of deliveries under the supply agreement prior to the Newstrike acquisition and failed to raise any issues or concerns during those 3 months.
[67] There can be little doubt that Hwang’s pleadings incorporate due diligence issues and make it a part of the factual matrix of the case. The determination before me is the extent to which all due diligence is relevant in this action.
[68] I conclude that Hexo’s due diligence leading up to the Newstrike acquisition is not relevant to this action. Hexo’s $263,000,000 acquisition of Newstrike and the substantial volume of due diligence that appropriately preceded it have little bearing on the commercial sensibility of the supply agreement. They share a common timeframe and little else.
[69] The production of the due diligence related to the supply agreement, subject to a claim for privilege, has been made.
[70] I am mindful of r. 1.04 and the need for any orders made to be proportionate to the importance and complexity of the issues.
[71] In Hyrniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, the Supreme Court of Canada made clear that judges must utilize the principle of proportionality to promote both timely and affordable access to justice.
[72] I must consider the time and expense required to produce documents and whether requiring a party to do so would cause undue prejudice or unduly interfere with the orderly progress of the action: r. 29.2.03(1).
[73] I must also consider whether the document is readily available to the party from another source and whether a production order would result in a party producing an “excessive volume of documents”: r. 29.2.03(2).
[74] Hwang’s specific evidence on this motion is in the form of an affidavit sworn by a law clerk that mainly sets out the history and chronology of this matter but does not particularize specific documents missing or being sought. Hwang instead engages in speculation to suggest that other documents exist and are relevant to this action.
[75] Hwang chose not to file an affidavit of specific and direct evidence to explain how the affidavit of documents is insufficient.
[76] Hwang has not referred me to a single missing document but instead suggests that, if I cast a wide enough net in sweeping in all due diligence documents from both Hexo and its advisors as related to the Newstrike acquisition, then he might find something of relevance. I do not accept this proposition. There is no proper place in our over-clogged civil justice system for these types of onerous and excessive requests.
[77] Hwang’s assertion that production of all due diligence files would provide a clear picture of everything Hexo considered, discussed, and depended upon in acquiring Newstrike speaks to both the speculative and overbroad nature of his request. Hwang’s additional assertion that such broad disclosure may serve as a means of comparison is neither persuasive nor compelling.
[78] Hexo has voluntarily produced over 3500 documents, of which almost 900 pertain to due diligence.
[79] I agree with Hexo that Hwang has not met his burden to establish relevance of the broad sweep of documents sought to this action.
[80] In addition to not being relevant, I apply the principle of proportionality which requires that I exercise my discretion in a manner that allows the action to proceed in a proportionate, i.e., timely and cost-effective manner, in light of the nature and complexity of the issues.
[81] I am puzzled about how Hwang could have moved for a summary judgment motion but still suggest he requires the volume and breadth of production he seeks.
[82] At its core, this action is about non-payment of monies under a supply agreement and whether Hwang acted in bad faith in entering into this supply agreement on the eve of the agreement between Hexo and Newstrike.
[83] Hwang is not entitled to make a sweeping demand for Hexo to produce everything it reviewed, discussed, depended on, and communicated about with its advisors, which led to the Newstrike acquisition.
[84] Hwang is not entitled to engage in a fishing expedition where he tests what Hexo ought to have considered or the validity or accuracy of what it considered before closing the Newstrike deal.
[85] Simply asserting that there is evidence that another deal was renegotiated during due diligence is insufficient to claim that such renegotiation makes all that Hexo and its agents did in reviewing the Newstrike acquisition relevant and makes it necessary for Hwang to assess all this. This is precisely the type of uncontrollable and unreasonable request that must be curtailed.
[86] I do not understand how the legal (NRFC), financial (Cinaport), insurance (Marsh), and tax (EY) advisors’ due diligence on the Newstrike acquisition is relevant to Hwang’s conduct under the supply agreement. The proportionality principle alone would require that the thousands of documents already produced relating to due diligence of the supply agreement (and even some involving the Newstrike acquisition) are more than sufficient to meet Hexo’s requirements for production and disclosure.
[87] Hwang has not satisfied me that his ability to mount a full and fair defence is contingent on the production and disclosure of the remaining due diligence materials.
Power and Control
[88] In any event, I agree with Hexo that, in these circumstances, Hwang should have served NRFC and Cinaport with notice of a motion seeking relief under r. 30.10.
[89] In these circumstances, both NRFC and Cinaport are third parties and non-parties to this action. Therefore, the documents Hwang seeks are not under Hexo’s “control or power.”
[90] This is not a situation where Hexo can make a simple request to its advisors to produce the entirety of the due diligence files sought. This is not a patient seeking his own medical records.
[91] Therefore, these third-party documents are not in Hexo’s possession, power, and control.
[92] In any event, Hexo has already produced relevant and non-privileged correspondence in its possession involving these advisors. As such, further orders against Hexo would likely result in duplicative, costly, and fruitless further disclosure.
[93] Having determined that the documents sought need not be produced by Hexo on the basis of relevance and, further, that the due diligence files for Hexo’s advisors are not within Hexo’s possession, power or control, I next turn to the issue of privilege.
Are the documents sought properly the subject of privilege and, if so, has privilege been waived?
[94] Solicitor-client privilege (“privilege”) is a fundamental and well-guarded principle in our system of justice. It permits persons to confidently communicate with their lawyers with the understanding that these communications are private and protected. This privilege is a substantive right and not merely an evidentiary rule: Solosky v. R., 1979 9 (SCC), [1980] 1 S.C.R. 821; Alberta (Information and Privacy Commissioner) v. University of Calgary, 2016 SCC 53, [2016] 2 S.C.R. 555.
[95] This privilege is subject to the well-established exception of waiver, whereby the privilege-holders can waive their privilege over some or all of their communications with their lawyers.
[96] A waiver may be express or implied. There is no express waiver by Hexo before me. Hexo has not demonstrated a clear intention to waive privilege and, to the contrary, has demonstrated the clear intention to assert privilege. Therefore, the focus on this motion is on implied waiver.
[97] The onus of proving waiver lies on the party seeking to override the privilege to establish that the communications in issue ought to be compelled from the party seeking to depend upon privilege: Laliberté v. Monteith, 2021 ONSC 14 [Laliberté].
[98] An implied waiver may occur by disclosure or by reliance on the privileged communications as part of a substantive position in the pleadings: Guelph (City) v. Super Blue Box Recycling Corp., 2004 34954 (Ont. S.C.).
[99] In these circumstances, for an implied waiver of privilege to have occurred, Hexo must have made the receipt of legal advice an issue in its pleadings.
[100] In other words, Hexo must be shown to have put its “state of mind” at issue by raising the receipt of legal advice to help form and inform its state of mind in its pleadings: Roynat Capital Inc. v. Repeatseat Ltd., 2015 ONSC 1108, 125 O.R. (3d) 596 (“Div. Ct.”) [Roynat] at para. 40, citing Creative Career Systems Inc. v. Ontario, 2012 ONSC 649 at paras. 26-29, and Laliberté at paras. 22-23.
[101] The guiding principles for determining whether an implied waiver of privilege has occurred are fairness and consistency. The relevance of the evidence must be high and is case-specific and factually dependent. These guiding principles must trigger disclosure in order to permit the requesting party to fully and fairly defend themselves: Roynat at para. 84.
[102] Hexo depends heavily on the decision of Master MacLeod (as he then was) in L’Abbé v. Allen-Vanguard Corp., 2011 ONSC 7575 [Vanguard], where Master MacLeod dealt with the inadvertent disclosure of some documents in an action where the plaintiff purchaser claimed it overpaid for shares and sought to recoup some of that overpayment from an escrow fund.
[103] At para. 29 of his reasons, Master MacLeod outlined the following requirements for privilege to attach to a document:
• the written or oral communication was confidential in nature; and
• the written or oral communication was between a client and a lawyer in relation to seeking or receiving legal advice.
[104] At paras. 40-53 of his reasons, Master MacLeod engaged in a careful and helpful analysis on the issues of due diligence and privilege.
[105] Master MacLeod defined due diligence as the steps taken by the plaintiff to “assess the merits and the risks of proceeding with the purchase …at the agreed upon price.” Master MacLeod recognized that not all due diligence would be privileged but there was clearly a legal component to it. He identified the ultimate outcome of the due diligence exercise as informing a business decision, not a legal decision.
[106] Master MacLeod concluded that due diligence documents are not inherently privileged but may become so if they involve legal documents or were created for the principal purpose of creating legal advice.
[107] Master Macleod ultimately determined that, in its pleadings, the plaintiff had implicitly put due diligence and its “state of mind” at issue, which he regarded as constituting an express waiver of privilege.
[108] I am presented with a different set of circumstances than those in Vanguard and, therefore, reach a different conclusion on the evidence before me.
[109] Hexo, through its pleadings, has not implicitly put its Newstrike acquisition due diligence at issue and, therefore, has not expressly waived privilege. Simply acknowledging that due diligence occurred neither put that due diligence in issue nor constitutes an implied waiver of privilege on that due diligence.
[110] In Vanguard, the plaintiff claimed for overpayment of a company where a blanket claim for privilege was asserted. That is not the claim here. In Vanguard, the plaintiff claimed negligent and fraudulent misrepresentation. That is not the claim here. I reject Hwang’s argument that the lack of such claims constitutes a distinction without a difference.
[111] Hwang depends on Choquette v. Vickzo, 2017 SKQB 191 [Choquette] for the proposition that a claim of bad faith can still create circumstances where pleadings place the issue of reliance on legal advice at issue and require privilege to yield to the principles of fairness and waiver.
[112] I have little difficulty distinguishing Choquette from the facts before me. Choquette dealt with an executor who transferred estate land to two trustees, the testator’s son and daughter-in-law. An interested party sought to set aside the transfer and brought an application for the production of the files of the solicitor who prepared the will and acted on the transfer.
[113] In finding that the evidence of the testator’s intentions may be relevant to the central issue of whether the transfer took place in good faith, the court in Choquette found that the testator had waived privilege when he allowed his executor to be present during his instructions to his lawyer and that the executor had also waived privilege over the solicitor’s file by supporting the interested party’s claim and raising the receipt of legal advice as an issue.
[114] At para. 21, Choquette refers to the connection between any legal advice the executor received and whether reliance on such advice, when placed in issue in the pleadings, impacts whether the defendants were acting in good faith.
[115] At para. 23, the court in Choquette clearly determined that the issue of what legal advice the executor received was inextricably connected to the good faith of the defendants and that privilege had therefore been waived.
[116] Those facts are a far cry from the facts before me. The mere reference to receipt of legal advice does not meet the test. Hwang has failed to establish an inextricable link between the due diligence files relating to the Newstrike acquisition and this action. Therefore, Choquette is neither binding on me nor of assistance to me in these circumstances.
[117] Hwang’s argument that due diligence is potentially dispositive of the action is lacking in fact and evidence and is no more than mere speculation based on what it hopes to find.
[118] Turning to the evidence before me regarding Hexo’s team of advisors, it is clear that NRFC and Cinaport were part of a seamless team of third-party advisors assembled by Hexo to provide Hexo, including Hexo’s internal counsel, with legal advice on drafting the various terms of the agreement.
[119] It may well be that the advisors’ advisory documents also served a business purpose but that was secondary to the primary purpose. In any event, these advisory documents related to the drafting of terms for the Newstrike agreement and not for the drafting of the terms of the supply agreement.
[120] The legal, financial, insurance, and tax advisors worked collaboratively to advise Hexo on the Newstrike acquisition. Hexo sharing privileged information with its advisors neither constitutes Hexo waiving its privilege nor dilutes Hexo’s reasonable understanding and expectation that these communications and documents would remain privileged: Trillium Motor World v. General Motors et al, 2014 ONSC 1338 at paras. 153 and 155
[121] Hexo has already produced many documents where only business issues were discussed, where no legal advice was discussed, and where legal counsel were merely copied. Hexo has also produced several redacted documents where such communications involve these advisors.
[122] I accept Hexo’s position that the majority of the correspondence that Hwang expects to find relates to the Newstrike acquisition. I also accept Hexo’s explanation that the scant materials Hexo pinpointed from between March 13 and May 24, 2019 are communications between itself and its advisors.
[123] NRFC has completed the r. 30.03(4) certificate certifying that they have explained to Hexo the types of documents likely to be relevant in this action and the requirements for full disclosure of the relevant documents in this action.
[124] However, what is not before me is specific evidence of Hwang’s personal knowledge with respect to existing documents that are missing from the affidavit of documents and that may, nonetheless, have some relevance to the issues.
[125] As already indicated, the mere fact that due diligence for the supply agreement and the acquisition agreement overlap in time does not, standing alone, constitute waiver. Not even close.
[126] Unlike in Vanguard, I do not conclude that the pleadings demonstrate Hexo’s dependence upon legal counsel’s advice regarding due diligence with the Newstrike acquisition. Indeed, nothing in the pleadings, except the fleeting reference referred to earlier, demonstrate dependence upon such legal advice. I am not satisfied that such legal advice was material to Hexo’s action by counterclaim.
[127] I am also not satisfied that the Newstrike acquisition due diligence is inextricably linked to Hexo’s claims of Hwang’s bad faith or to Hwang’s defence. Hwang has failed to establish that Hexo relied on the receipt of legal advice to support its claim and Hwang is therefore not entitled to disclosure of the content of that advice: Roynat at para. 56.
[128] Hexo has not placed its state of mind in issue. Therefore, fairness does not require a finding of implied waiver and the setting aside of privilege. That is because nothing before me demonstrates Hexo’s voluntary intention to waive such privilege. As noted, Hexo’s disclosure of the receipt of legal advice is insufficient as intention to waive privilege about the advice.
[129] Having rejected Hwang’s assertion that Hexo depended upon legal advice as an element of its claim in this action, I have little hesitation in concluding that neither fairness nor consistency require a finding that privilege has been waived. Indeed, it has not.
[130] I reject Hwang’s argument that Hexo is attempting to draw an artificial distinction between business and legal advice.
[131] In this advice, all the advisors participated in correspondence and communication with and other team members were routinely copied on matters considered essential to each team member’s function. These documents were often created for the purpose of providing legal advice and such information is properly protected by privilege.
[132] The advisors passed on information to each other and Hexo authorized and, in fact, expected the advisors to do so. Simply stated, like Hexo, Hexo empowered each of its advisors to obtain legal advice and, accordingly, each of its advisors stood in the same position as Hexo: General Accident Assurance Co. v. Chrusz, 1999 7320 (ON CA), 1999 CarswellOnt 2898 (C.A.) at paras. 120, 122-123.
[133] I do not view Hexo’s partial disclosure as constituting a partial or selective waiver. Hexo has already disclosed all the information that was not subject to privilege regarding the supply agreement. Hexo is not partaking of self-serving, selective disclosure and has clearly and consistently identified what its asserts is privileged and what it asserts is not. Hexo’s approach is therefore neither unfair nor inconsistent.
Conclusion
[134] For the above reasons, Hwang’s motion for further production, for a declaration that privilege does not attach to Hexo’s advisors’ due diligence files, and for a declaration that Hexo has waived privilege for certain communications is dismissed.
[135] For clarity, the documents sought are neither relevant nor in Hexo’s power and control; the Schedule B documents listed as privilege are properly listed as privilege; and Hexo has not expressly or implicitly waived privilege. Hexo is not required to produce the due diligence files of any of its advisors at this time.
[136] It is not this court’s duty to sift through mounds of documents to determine whether some of the examples of alleged deficiencies in the Schedule B documents are legitimate. In fact, to do so would be difficult, if not impossible, since only a list of the documents and a brief description of these documents – and not the documents themselves – were filed.
[137] Accordingly, this court directs Hexo to review the examples of alleged deficiencies, which regards missing attachments or documents from the affidavit of documents for the time period March 13-May 24, 2019, and, where deficient, to address them.
Costs
[138] Hexo filed a costs outline, seeking costs of $26,258.09 on a substantial indemnity scale, inclusive of HST and disbursements, and costs of $17,505.40 on a partial indemnity scale, inclusive of HST and disbursements.
[139] Hexo submits that the amount claimed is proportionate to the amounts sought in the action and the complexity of the issues in this proceeding. Hexo contends that Hwang’s continued conduct, including repeated adjournments of scheduled summary judgment motions, unnecessarily delayed, postponed, and prolonged this action. Hexo contends that Hwang’s request for Hexo to provide third-party documents should have been brought as a separate r. 30.10 motion.
[140] Hwang’s cost outline seeks costs of $16,299.03, on a partial indemnity scale, inclusive of HST and disbursements. Hwang contends that the documents sought are central to the core issues in this action and may well be dispositive of the entire claim. Hwang contends that Hexo’s deficient and piece-meal production was the reason this motion was necessary.
[141] Rule 57.01 outlines the general principles to consider when making a costs award. Costs normally follow an event on a partial indemnity scale.
[142] In these circumstances, I agree with Hexo that it took significant steps leading up to this motion to attempt to address Hwang’s concerns. I accept Hexo’s assertion that Hwang’s request for production of the third-party advisor due diligence files should have been properly made subject to a r. 30.10 motion. I also agree that the issue of solicitor-client privilege remains important and scrupulously protected in our legal system.
[143] Notwithstanding the inherent delays in our system due to the pandemic, I agree with Hexo that Hwang’s actions did little to move this action forward in a meaningful way. The discovery train needs to stay on track. The parties need to move things along.
[144] Taking into account the r. 57.01 factors, I conclude that, in these circumstances, a fair and reasonable award requires Hwang to pay to Hexo, within 90 days of the release of these reasons, the all-inclusive amount of $16,000, calculated on a partial indemnity scale.
“Justice M.A. Garson”
Justice M.A. Garson
Date: July 7, 2021