Morvay v. Warke

2012 BCSC 1696 Morvay v. Warke

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Morvay v. Warke, 2012 BCSC 1696 Date: 20121113 Docket: E103713 Registry: Vancouver Between: Carlotte Morvay, also known as Carlotte Warke Claimant And Richard William Warke, Monday Investment Corporation, Inc. No. 409239, Augusta Capital Corporation, The Warke Family Trust and Robert Stuart Angus, Richard William Warke and Donald Barry Clark, Trustees of the Warke Family Trust, Augusta Investments Inc., Augusta Properties Corp., 0896755 B.C. Limited and Lions Gate Capital Corporation Respondents Before: Master MacNaughton Reasons for Judgment Counsel for the Claimant: John P. Sullivan M. Kathleen Kinch Counsel for the Respondent Richard William Warke: Irwin G. Nathanson, Q.C. Counsel for the Respondents Augusta Capital Corporation, The Warke Family Trust, Robert Stuart Angus, Richard William Warke (in his capacity as Trustee of The Warke Family Trust), August Investments Inc., Augusta Properties Corp., and 08696766 B.C. Limited: J. Killam and J. Currie (appearing as agent) Counsel for Carmen Thériault and Bull, Housser & Tupper LLP: Kimberley-Anne Kuntz Counsel for Lions Gate Capital Corporation: J. K. McEwan, Q.C. Place and Date of Hearing: Vancouver, B.C. November 2, 2012 Place and Date of Judgment: Vancouver, B.C. November 13, 2012 The Application [1] Ms. Morvay seeks an order that: i. the legal file pertaining to the

creation of the Warke Family Trust (the "File") be produced by Carmen Thériault, Mr. Warke, the Trust Respondents, and Bull, Housser & Tupper LLP ("BH&T") within three business days, including but not limited to correspondence (including emails) between Richard Warke and counsel, counsel notes of solicitor-client communications and meetings, drafts of trust documents, and any other documents which contain information or instructions regarding the creation of the trust; ii. alternatively, that Richard Warke authorize and direct Ms. Thériault, BH&T, or the person now in possession of the File, to produce it to counsel for the applicant; iii. in the further alternative, that those portions of the File which contain communications to or from Ronald Walsh, Mr. Warke's accountant, be produced; and iv. Costs. [2] Although the application seeks a disclosure order against a number of respondents, I will not refer to them separately in this decision. Richard Warke was the primary party opposing the production and he did so on the basis that the File is protected from disclosure by solicitor-client privilege. The other respondents, referred to collectively as the Trust respondents, and Carmen Thériault and Bull Housser & Tupper LLP, all adopted Mr. Warke's position and made no separate submissions. [3] Ms. Morvay denies that the File is privileged as against her or, in the alternative,

submits that any such privilege has been waived. The Factual Context [4] This application arises in the context of a fiercely contested family law matter between Ms. Morvay and Mr. Warke, two high net worth individuals. [5] The parties married on November 17, 1990 and separated in the fall of 2010. They have three children. [6] The parties do not agree about the date on which they separated but it makes no difference to this decision because, as explained below, the events leading to the creation of the File occurred about three years before the parties separated. [7] In the late fall of 2007, as confirmed by email exchanges between the parties, Mr. Warke and Ms. Morvay were having difficulties in their marriage, although the parties agree that none of the triggering events, set out in s. 56 of the Family Relations Act, RSBC 1996, c. 28 (the "FRA"), had occurred. The creation of the Trust [8] In Ms. Thériault's affidavit, filed in response to this application, she says that she was retained by Mr. Warke, on November 1, 2007, to provide legal advice and services to him in respect of the creation of the Warke Family Trust (the "Trust"). Ms. Thériault says that the Trust was formally created on December 19, 2007 to effect an estate freeze. [9] The parties agree that Mr. Warke did not advise Ms. Morvay that he intended to create the Trust or that he had retained Ms. Thériault to

advise him in that regard. It appears that Ms. Morvay only learned of the Trust in this matrimonial litigation. [10] Mr. Warke and the parties' three children are the primary beneficiaries of the Trust. Ms. Morvay is a contingent beneficiary and will only benefit in the very unlikely event that Mr. Warke, all of her children, and any of her children's children, predecease her. [11] In her affidavit, Ms. Thériault sets out the detailed steps involved in effecting the estate freeze. Briefly, she explains that the estate freeze was effected by altering the share structure of Augusta Capital Corporation ("ACC"), Mr. Warke's holding company. Prior to the implementation of the freeze, Mr. Warke was the only common shareholder in ACC. To "freeze" the value of Mr. Warke's interest in ACC, on December 20, 2007, the plan effectively exchanged Mr. Warke's common share for redeemable preference shares with a fixed value intended to represent the value of ACC at that date, and the Trust was issued common shares with a nominal value of $1 a share. The effect of this "freeze" was that Mr. Warke retained the value of ACC at the date of the Trust's creation, but future increases in ACC's value would accrue to the benefit of the Trust. It is agreed that the estate freeze proceeded on the basis that ACC was worth $13.2 million on December 20, 2007 although, in her pleadings and submissions, Ms.

Warke disputes this value and suggests it was much greater. The dispute about ACC's value in December 2007 is a key issue in this family litigation. [12] Ms. Thériault says that in order to effect an estate freeze on behalf of a client, she requires a memorandum explaining the nature of the client's assets and the corporate steps necessary to implement the trust and estate freeze. In her experience, clients often rely on their accountant to gather, and communicate, the information she requires. [13] Mr. Warke has produced the final version of the documents by which the Trust was created and the estate freeze effected. [14] Ms. Thériault says that the File contains handwritten notes of a November 2007 meeting between Ms. Thériault, Mr. Warke, and Ron Walsh, his accountant. She advised them of the information she required to provide legal advice regarding the creation of the Trust and then gave legal advice regarding its creation. [15] In this case, Mr. Walsh was familiar with Mr. Warke's holdings and, on Mr. Warke's behalf, he communicated to Ms. Thériault information about Mr. Warke's financial affairs. Ms. Thériault further says that Mr. Walsh was a necessary participant in the November 2007 meeting and, following it, he sent Ms. Thériault an email, with an attached memorandum, which contained the information she required. In particular, Mr. Walsh advised that ACC's value was

$13.2 million. Ms. Morvay's legal arguments [16] Ms. Morvay pleads, and submits in this application, that Mr. Warke created the Trust to deprive her of assets which would otherwise have been family assets. She relies on Mr. Warke's admission that, during their marriage, Ms. Morvay was responsible for effective management of their household and child rearing as the basis for her claim, under s. 59 of the FRA that, what would otherwise be Mr. Warke's excluded business assets, are family assets. [17] It is also Ms. Morvay's position that Mr. Warke significantly undervalued the assets, which she describes as being "transferred" into the Trust, for the purpose of defeating her family claim. [18] Mr. Warke denies these claims and asserts that the Trust was created for family and tax reasons and not for an improper purpose. He relies on the value ascribed to ACC for the purpose of the estate freeze. [19] Ms. Morvay takes two primary positions on this application for access to the File. First, she says that the file is not solicitor-client privileged as against her. Alternatively, she says that, if privilege exists, it has been waived.

1. Is the File privileged? [20] First, Ms. Morvay submits that the burden is on a party asserting that materials are privileged to establish the privilege. She submits that Mr. Warke has not done so here because he has not filed an affidavit stating that he intended the File to be privileged against her. [21] Alternatively, Ms. Morvay submits that she has a joint interest in the subject matter of the communications between Mr. Warke and Ms. Thériault due to her interest in the assets themselves. Ms. Morvay also argues that she has an interest in the communications because of her status as a contingent beneficiary of the Trust. Ms. Morvay also argues that Mr. Warke's status as a Trust beneficiary of the Trust disentitles him to claim privilege over legal advice he obtained in his personal capacity relating to its creation. [22] Finally, Ms. Morvay argues that she has a joint interest in the communications because Mr. Walsh and his firm were also her accountants so that, when Mr. Walsh attended meetings with Mr. Warke and Ms. Thériault, he did so as her accountant and that privilege cannot be established against her. [23] The importance of legal advice privilege has been explained in a number of court decisions. In Smith v. Jones, [1990] 1 S.C.R. 455, the Supreme Court of Canada said, that clients seeking legal advice must be able to: ...speak freely ... secure in the knowledge

that what they say will not be divulged without their consent...The privilege is essential if sound legal advice is to be given...Without this privilege clients could never be candid and furnish all the relevant information that must be provided to lawyers if they are to properly advise their clients. It is an element that is both integral and extremely important to the functioning of the legal system. (para. 46) [24] I accept that establishing that materials are protected by legal advice privilege is a factual matter and that the burden of proving it rests on the party asserting the privilege: Kwok v. Kwok, 2008 BCSC 52, para.

46. However, I conclude that privilege has been established in this case by Ms. Thériault's affidavit which clearly sets out the nature and scope of her retainer to provide legal advice and services. In my view, nothing meaningful would have been added by Mr. Warke, or Mr. Walsh, filing an affidavit confirming this information. [25] Turning now to Ms. Morvay's argument that she has an interest in the assets themselves. [26] I accept Ms. Thériault's evidence that it is a misconception to describe the estate freeze as involving a "transfer" of assets into the Trust. She explains that there was no transfer of assets. Rather, the estate freeze was effected by a change in the share structure of ACC. [27] I also accept that, had a FRA triggering event occurred prior to the creation of the Trust, Ms. Morvay could argue that she had an interest in the assets which were the subject of the estate freeze. At a minimum, she could argue that Mr. Warke's entitlement to share in any increase in ACC's value was transferred from him to the Trust. However, the triggering event in this family law case did not occur until more than three years after the Trust was created. Because the FRA creates a deferred community of property regime, until a triggering event occurs, spouses own their own property and may deal with it without the consent of their spouse. While their marriage continued, and unlike

true community property regimes, Ms. Morvay and Mr. Warke were not joint venturers in relation to their separate assets. I conclude therefore that Ms. Morvay had no common interest in the assets which were the subject of the discussions with Ms. Thériault and that she cannot, on this basis, compel production of the File. [28] I do not agree that Ms. Morvay's status as a contingent beneficiary of the Trust entitles her to disclosure of the File. In this regard, it is of note that Ms. Morvay's application seeks production of the File with respect to the creation of the Trust. Until it was created, she did not have any status with respect to it. [29] The law appears settled that, as a Trust beneficiary, Ms. Morvay is entitled to access those documents necessary for her to hold the trustees to for their management of the Trust. So, for example, in MacPherson v. MacPherson, 2005 BCSC 207, Justice Humphries determined that a beneficiary is entitled to production of documents relating to advice sought by a trustee in connection with the administration or management of, for instance a pension plan or an estate, but not to documents that arise in the course of an adversarial relationship between the trustee and a beneficiary (para. 18). [30] Ms. Morvay relies on a statement in Kwok, where the court cited O'Rourke v. Darbishire, [1920] A.C. 581 (U.K. H.L.), for the proposition that a

beneficiary is entitled to see all trust documents because they are trust documents and because he is a beneficiary. Until the Trust came into existence, Ms. Morvay had no beneficial interest in it and therefore no right to hold the trustees to account. Here, Ms. Morvay does not seek access to the File for the purpose of holding the Trustees to account, rather she seeks them to challenge the validity of the Trust itself and in the context of contentious matrimonial proceedings with Mr. Warke. Even if she were seeking the File to challenge the administration of the estate, Ms. Morvay has not provided any authority for her argument that a beneficiary's rights extend to accessing the documents and legal advice pursuant to which the Trust itself was created. These are not documents which belong to the Trust which was not in existence when they were created. [31] In my view, the same reasoning applies to Ms. Morvay's argument that Mr. Warke, as a Trust beneficiary, should produce the File by which the Trust was created. Mr. Warke's beneficiary status arose only after the Trust was created and, I conclude that he has the same limited access rights as Ms. Morvay. [32] Finally, I do not agree that, Mr. Walsh's role as the accountant for both of these parties, means that the work he performed for them individually, and with respect to what were their separately owned assets, results in

them having a joint interest in the communications with Ms. Thériault. Ms. Morvay cites no authority for that proposition. [33] The privilege over the File extends to Mr. Walsh in his capacity as a representative of Mr. Warke in seeking legal advice: Susan Hosiery Ltd. v. Canada (MNR), [1969 2 Ex. C.R. 27 (Ex. Ct.), page 36 and College of Physicians of British Columbia v. British Columbia (Information and Privacy Commissioner), 2002 BCCA 665, para. 47. [34] I conclude that Mr. Warke's communications with Ms. Thériault are solicitor‑client privileged and that Ms. Morvay has not persuaded me that she has a common interest in the advice that Ms. Thériault gave such that solicitor-client privilege cannot be maintained against her.

2. Has Mr. Warke waived solicitor-client privilege? [35] In this case, Ms. Morvay says that Mr. Warke and the Trust Respondents have pled that the Trust was created to facilitate Mr. Warke's estate and tax planning, and not with the intent of, or for the purpose of, putting assets beyond Ms. Morvay's reach or defeating or delaying her claims to a share of the family assets. Ms. Morvay submits that, in so doing, the pleadings positively assert the Trust's purpose and Mr. Warke's intent thereby putting Mr. Warke's state of mind in issue and entitling Ms. Morvay to challenge those assertions by review of the File. [36] In his response, Mr. Warke has denied that the Trust is a family asset. He has the onus of proving that fact and cannot selectively assert the purpose of the Trust's creation without disclosing the File by which it was created. [37] Ms. Morvay also submits that by his discovery evidence, Mr. Warke further put his state of mind in issue by asserting that the trust was created "to do tax planning and to plan ahead for [his] children's future." Ms. Morvay argues that Mr. Warke cannot succeed his response or counter-claim without placing his position in the context of the instructions given to Ms. Thériault for the creation of the Trust and the legal advice he was given that led to the formation of the Trust in its existing structure. [38] Ms. Morvay also relies on the

fact that ACC, one of the Trust respondents, has produced an email from Mr. Walsh setting ACC's value at $13.2 million on December 20, 2007. In so doing, Ms. Morvay says that privilege has been waived with respect to other information that Mr. Walsh provided to Ms. Thériault and BH&T. It would be unfair to permit the respondents to rely on part of the File while the balance remains undisclosed. [39] Ms. Morvay further relies on the fact that the respondents have filed an expert report which comments on the "income tax and estate planning benefits associated with the establishment of the [Trust]". Ms. Morvay submits that the expert's report lacks a factual connection to Mr. Warke's state of mind in creating the Trust and, by inference, brings that into question. [40] Because of the importance of privilege to the functioning of our legal system, the onus is upon a party wishing to set aside privilege to justify doing so. As explained by Justice McLachlin, as she then was, in S. & K. Processors Ltd. v. Campbell Ave. Herring Producers Ltd., [1983] B.C.J. No. 1499 (B.C.S.C.), waiver of privilege can either be express or implied: ...the possessor of the privilege (1) knows of the existence of the privilege, and (2) voluntarily evinces an intention to waive that privilege. However, waiver may also occur in the absence of an intention to waive, where fairness and consistency so

require. (para. 6) [41] The following principles can be taken from other cases in which waiver of privilege was considered: a) solicitor-client privilege should only be interfered with to the extent necessary to achieve a just result: Descôuteaux v. Mierzwinski, [1982] 1 S.C.R. 860. b) waiver of privilege of part of a communication will result in waiver with respect to the entire communication. Where a litigant relies on legal advice as an element of his claim or defence, the privilege which would otherwise attach to that advice is lost: S. & K. Processors, supra. c) a party will waive solicitor-client privilege when it voluntarily injects into the proceeding the question of its state of mind, and in doing so, uses as a reason for its conduct the legal advice that it has received: Morrison v. Bank of Montreal (1985), 69 B.C.L.R. 54 (C.A.). d) to displace solicitor-client privilege, there must be an affirmative allegation which puts the party's state of mind in issue: Pax Management Ltd. v. C.I.B.C. (1987), 14 B.C.L.R. (2nd) 257 (C.A.). e) solicitor-client privilege does not permit a client to disclose otherwise privileged information for their own benefit in litigation while protecting the full content of that information from discovery by the other side: Biehl v. Strang, 2011 BCSC 213. (para. 55) [42] Ms. Morvay relies on Rogers v. Bank of Montreal (1985), 62 B.C.L.R. 387

(C.A.), an appeal from an order requiring the bank to produce documents disclosing its solicitors' advice concerning the appointment of a receiver. The bank, in its defence to a third party notice, alleged reliance upon the professional advice of the receiver. The BC Supreme Court concluded that "the bank's assertion that it relied on legal advice given by the receiver necessarily put in issue the rest of the bank's knowledge of the relevant law and, therefore, the nature of the legal advice it received from others". (p. 242) [43] On appeal, the Court concluded that the issue was whether the bank was induced to take certain steps in reliance upon advice from the receiver on legal matters (para. 16). The Court held this involved an enquiry into the bank's corporate state of mind when it was induced and decided to act and upheld the trial judge's production decision. (p. 392-393) [44] More recently, the Court of Appeal dealt with this issue in Doman Forest Products Ltd. v. GMAC Commercial Credit Corp., 2004 BCCA 512. There, the Court said that waiver of privilege does not result merely from a party placing its state of mind in issue or disclosing that it has received legal advice. The party must actually rely upon the fact that it received legal advice as part of its case. (para. 28) [45] This aspect of Doman was recently commented on by Justice Perrell in Creative Career Systems

Inc. v. Ontario, 2012 ONSC 649 where he explained that: the presence or absence of legal advice itself must be material to the claims or defence to the law suit To justify a party being required to answer questions about the content of privileged communications, that party must utilize the presence or absence of legal advice as a material fact in his or her claim or defence. (para. 28-29) [46] In this case, Mr. Warke has never relied on the fact that he received and acted on legal advice from Ms. Thériault and he has not voluntarily put in issue his instructions to her or the advice he received from her. He has simply responded to the positions put forward by Ms. Morvay. Unlike the wife in Mantella v. Mantella (2008), 55 R.F.L. (6th) 72 (Ont. SCJ), a case relied on by Ms. Morvay, Mr. Warke has not relied on his communications with Ms. Thériault in his defence to this proceeding. [47] Ms. Morvay will be able to challenge Mr. Walsh's valuation of ACC's assets when the Trust was created as she has subpoenaed him to attend trial to give evidence. She may also lead her own expert evidence as to the valuation of ACC's assets. [48] I agree with Mr. Warke's submission that the fact that Mr. Warke has relied on an expert's report, which is based on certain assumptions, including that the fair market value of ACC's shares did not exceed $13.2 million on December 20, 2007, does not lead

to solicitor-client privilege being waived. Ms. Morvay cites no authority for her position and I find no support for it in the cases on which she relies. Ms. Morvay will have access to the documents on which Mr. Warke's expert relied in forming his opinion and to question the expert about the basis for, and validity of, his assumptions. [49] Finally, and considering Ms. Morvay's further argument with respect to waiver of privilege, I conclude that, in his personal capacity, Mr. Warke has not disclosed part of the File. As a result, fairness does not require production of the remainder of the File. It is true that ACC has disclosed a memorandum from Mr. Walsh to BH&T setting ACC's value at $13.2 million on December 20, 2007. However, according to Ms. Thériault's second affidavit, that memo is not part of the File. In any event, according to Ms. Thériault, she was retained by Mr. Warke in his personal capacity and Ms. Morvay has not relied on any authority to support the proposition that, in another capacity (in this case in his role as a principal of ACC), Mr. Warke may be found to have waived his personal solicitor-client privilege. [50] For all the foregoing reasons, I conclude that the File is protected by solicitor-client privilege which has not been waived. As a result, Ms. Morvay's application is dismissed. "Master MacNaughton"