Windsor (City) v. MFP Financial Services Limited

Windsor (City) v. MFP Financial Services Limited Collection Decisions of the Court of Appeal Date 2004-12-01 Docket numbers C41890 Judges Moldaver, Michael James; Sharpe, Robert J.; Killeen, Gordon Patrick Subject Civil Decision Content DATE: 20041201 DOCKET: C41890 COURT OF APPEAL FOR ONTARIO MOLDAVER, SHARPE JJ.A. and KILLEEN J. (ad hoc) BETWEEN: THE CORPORATION OF THE CITY OF WINDSOR, THE CORPORATION OF THE COUNTY OF ESSEX, ESSEX-WINDSOR SOLID WASTE AUTHORITY and TRANSIT WINDSOR Appellants - and - MFP FINANCIAL SERVICES LIMITED, DAVID ROBSON, MFP STRUCTURED FINANCE LTD., BO PELECH, ROBIN WILKINSON, PETER WOLFRAIM, MONTREAL TRUST COMPANY OF CANADA, TRUSTEE FOR LEASING-INFRASTRUCTURE FINANCING TRUST 1, CLARICA LIFE INSURANCE COMPANY, SUN LIFE ASSURANCE COMPANY OF CANADA, CIBC MELLON TRUST COMPANY, TAMS FIRST LIMITED PARTNERSHIP, and AZTEC LIMITED PARTNERSHIP and BONDY RILEY KOSKI STEWART Respondents Paul J. Pape, for the appellants Harry Underwood and Christopher Wayland, for the respondents, MFP Financial Services, MFP Structured Finance, R. Wilkinson, P. Wolfraim, TAMS First Limited Partnership and Aztec Limited Partnership Peter Wardle and Daniel Bernstein for the respondents Bondy Riley Koski Stewart October 22, 2004 On appeal from order of the Divisional Court, dated January 19, 2004, allowing an appeal from the order of Justice John H. Brockenshire requiring Bondy Riley Koski Stewart to return to the appellants the report of KPMG as a privileged document. SHARPE J.A.: [1] This appeal concerns litigation privilege. In anticipation of litigation of a claim for fraud and misrepresentation, the appellants commissioned an investigative report. A senior official, employed by one of the appellants, provided a copy of the report to a lawyer who had acted for the appellants on the transaction that is the subject of their claim. The senior official mistakenly thought the lawyer was still a member of the appellants’ “legal team”. In fact, the lawyer was only involved in the litigation as a potential witness for the appellants. The appellants later joined the lawyer’s former firm as a defendant without first retrieving the report. The question posed on this appeal is whether the appellants are now entitled to have the report returned to them as a privileged document. Facts [2] The appellants are plaintiffs in a negligent misstatement and fraud action arising from the financing of landfill and other municipal projects. In that action, the appellants seek to set aside certain transactions and claim damages of some $300 million. The solicitors for the appellants (not Mr. Pape, their appellate counsel) commissioned KPMG Investigation and Security Inc. (“KPMG”) to investigate and prepare a report in preparation for the litigation. Copies of the report, marked “Privileged and Confidential”, were provided to counsel and to members of the City of Windsor and County of Essex councils as well as to certain senior municipal administrators. [3] Bondy Riley Koski Stewart, (“Bondy Riley”) a law firm, acted for the County of Essex in connection with the financing of a landfill site that is the subject of negligent misstatement and fraud action. Gregory Stewart, a member of the firm, was primarily responsible for this work. Stewart left the firm in late 2000. However, before the negligent misstatement and fraud action was commenced, the appellants’ solicitor interviewed Stewart with respect to his knowledge of the events surrounding the landfill financing and Stewart reviewed his files in preparation for that interview. Stewart’s new firm billed one of the appellants for the time he spent assisting their solicitors. However, Stewart has not acted as a lawyer for the appellants since he left Bondy Riley and he was never retained in connection with the litigation. [4] The action against MFP was commenced on December 28, 2001. The original statement of claim did not name Bondy Riley as a defendant. [5] On February 1, 2002, Brian Gregg, the Chief Administrative Officer for the County of Essex, sent a copy of the KPMG report to Stewart to get Stewart’s thoughts and impressions. Accompanying the KPMG report was a Receipt and Undertaking that Stewart was asked to sign and return. The Receipt and Undertaking indicated that the KPMG report had been prepared in preparation for litigation and that it was to be kept confidential and not disclosed. Gregg swore that when he sent the KPMG report to Mr. Stewart, he “believed Stewart was acting as a member of our legal team” and that he “intended to maintain the privileged and confidential nature of the Report and believed that the Report would not be available to anyone but the plaintiffs and their officers, employees involved with our lawyers and professional advisors.” On his cross-examination, Gregg testified that on many occasions the appellants’ solicitors had directed him and others about the importance of maintaining confidentiality and that he did not believe that he had made the decision to send the report to Stewart on his own. Although he could not recall the details, the decision to send the report to Stewart “would have been made…with other members of the County team or other members of legal counsel.” [6] In May 2002, one of the named defendants, Clarica Life Insurance Company, brought third party proceedings against Bondy Riley. In June 2002, the appellants amended the statement of claim to add Bondy Riley as a defendant. They did not ask Stewart to return the KPMG report before joining his former law firm as a defendant. [7] When counsel for Bondy Riley learned that Stewart had a copy of the KPMG report, he advised counsel for the appellants, who demanded its immediate return as a privileged document. Counsel for Bondy Riley declined to return the report and brought a motion for directions. [8] The motions judge found that the report and accompanying documents were sent to Stewart by mistake – “not mistake as to who they are being sent to, but mistake as to Stewart’s legal relationship with the County and his obligations of confidentiality.” In view of that mistake, he ruled that Gregg had no intention of waiving the privilege connected to the documents. He concluded that privilege still attached to the report, that its disclosure to counsel for the other defendants would result in a “windfall gain”, and that requiring its return would cause no unfairness. Accordingly, the motions judge ordered Stewart to return it to the appellants. [9] Misener J. granted the respondents’ application for leave to appeal and the Divisional Court allowed the appeal. The Divisional Court held that the motions judge erred in approaching the case from the perspective of waiver of privilege at the time the report was sent to Stewart. According to the Divisional Court, it was only when Stewart was named as a defendant that waiver became an issue and that, by suing Stewart without first retrieving the report, the appellants lost any claim they had to claim privilege. [10] For the following reasons, I would dismiss the appeal. Analysis [11] It is common ground that the KPMG report was generated for the appellants in preparation for litigation. Had Gregg not given a copy of the KPMG report to Stewart, and had the appellants not sued Stewart without first retrieving the report, the appellants had an iron-clad claim of litigation privilege and they could have refused to produce it to their adversaries in the litigation. [12] Did Gregg waive the appellants’ right to claim litigation privilege when he provided Stewart with a copy of the report? In my view he did not, although I reach that conclusion for a different reason than that offered by the motions judge and urged upon us by the appellants. I do not accept the appellants’ submission that Gregg mistakenly sent Stewart a copy of the report. It seems to me quite clear from the record that Gregg’s decision to send Stewart a copy of the report was a deliberate and considered one, taken only after consultation with others including, quite possibly, members of the law firm representing the appellants. Gregg was mistaken, but only in his legal characterization of the capacity in which Stewart was acting, and that mistake had no bearing on waiver of privilege. Here, I adopt the reasoning of Misener J., granting leave to appeal: Mr. Gregg was under no misapprehension as to the primary facts relating to Mr. Stewart's participation in the preparation of the lawsuit. The mistake attributed to him was his inference or conclusion that that participation made Mr Stewart a continuing member of the plaintiffs’ “legal team”. Notwithstanding the finding that Mr. Gregg would not have sent the copy of the report to Mr. Stewart but for that mistaken conclusion, the fact is that he, acting on behalf of the plaintiffs or one of them, consciously did so under the correct belief (although for the wrong reason) that he was not waiving the privilege that attached to the report in relation to the existing lawsuit…. [13] At the time he was given the report, Stewart was expected to be a witness for the appellants. The appellants were entitled to get his thoughts and impressions on the KPMG report in order to prepare their case for trial. They could do so without waiving privilege against their adversaries in the litigation. In this regard, it is important to distinguish litigation privilege from solicitor-client privilege. As Carthy J.A. pointed out in General Accident Assurance Co. v. Chrusz (1999), 45 O.R. (3d) 321 (C.A.) at 336: “While solicitor-client privilege stands against the world, litigation privilege is a protection only against the adversary.” Carthy J.A. adopted a passage at p. 337 from United States of America v. American Telephone and Telegraph Company, 642 F.2d 1285 (1980 D.C. Cir.) at 1299: “Proper preparation of a client’s case demands that he assemble information, sift what he considers to be the relevant from the irrelevant facts, prepare his legal theories and plan his strategy without undue and needless interference.” [Hickman v. Taylor 329 U.S. 495 (1947) at 510-11] A disclosure made in the pursuit of such trial preparation, and not inconsistent with maintaining secrecy against opponents, should be allowed without waiver of the privilege. We conclude, then, that while the mere showing of a voluntary disclosure to a third person will generally suffice to show waiver of the attorney-client privilege, it should not suffice in itself for waiver of the work privilege. (emphasis in original) Carthy J.A. stated further, at p. 340: There was nothing inconsistent in giving a copy of the statement to this witness, and maintaining privilege against the adversary. This was especially so when a promise of confidentiality was requested. [14] Accordingly, by disclosing the report to Stewart to assist them in the preparation of their case for trial, the appellants did not waive their right to refuse to disclose the report to their (then) adversaries in the litigation. Despite Gregg’s mistake as to the capacity in which Stewart was acting, litigation privilege against the parties then named as defendants was maintained and not waived. [15] The issue that has to be addressed, however, is whether the appellants are now entitled to insist that Stewart return his copy of the KPMG report on the ground that it is privileged. In my view they are not. As I have already stated, I reject the appellants’ submission that Stewart’s possession of the report was “improper”. The appellants willingly gave it to him so that he could help them prepare the case for trial. This is not a case where a privileged document was inadvertently sent to the wrong person. Gregg’s mistake as to the capacity in which Stewart was acting had no bearing on the propriety of Stewart being in possession of the KPMG report. [16] As between the appellants and Stewart, I see no basis upon which the appellants can assert a claim of litigation privilege. First, I will consider the matter on the basis of the true state of affairs, namely, that Stewart was a third party outsider, consulted by the appellants in anticipation of litigation. The appellants did not waive their right to claim litigation privilege against the parties then named as defendants by providing him with a copy of the report. However, the copy in his hands did not attract litigation privilege. It was Stewart’s contractual undertaking to keep the report confidential, not litigation privilege, that precluded him from revealing the report to the appellant’s adversaries. As Carthy J.A. pointed out in Chrusz, at p. 336, while “[i]t may not be inconsistent with litigation privilege vis-à-vis the adversary to communicate with an outsider, without creating a waiver, …a document in the hand of an outsider will only be protected by a privilege if there is a common interest in litigation or its prospect.” As there was never any prospect that the appellants and Stewart would have the “selfsame interest” in the litigation, they did not present a common front giving rise to a shared litigation privilege: see Chrusz at p. 336. [17] In this light, it is difficult to see how a claim of litigation privilege could arise after the appellants decided to join Stewart as a defendant. At the moment Bondy Riley was named as a defendant, Stewart was properly in possession of a copy of the report to which no privilege attached. I know of no legal principle that would, at that point, confer upon the appellants the right to assert a claim of litigation privilege against Stewart. The appellants certainly could have asked Stewart to return the report to them at any time and he would have been obliged to comply with their demand. However, the appellants did not retrieve the report before joining Stewart as a party. In my view, their failure to do so is fatal. [18] Simply put, I fail to see how Gregg’s initial mistake about Stewart’s capacity has any bearing on the status of the report at the point the appellants decided to join Stewart as a defendant. Once again, I adopt the reasoning of Misener J.: The concern about Mr. Stewart's possession arose only when the plaintiffs, of their own volition, decided to add Mr. Stewart and his former law partners as defendants in the action, and to make a claim for damages for negligence arising out of the very transactions with which the report was concerned. It now no longer suited the plaintiffs’ purposes to include Mr. Stewart within the “zone of privacy” that the continuing litigation privilege had established. Indeed the potential benefit of that inclusion was now replaced by potential prejudice. The plaintiffs seek the assistance of the court in redefining the boundaries of that zone. I know of no case where a court has granted that assistance in such circumstances, and indeed it seems to me that a serious argument can be made that it ought not to be a party to such inconsistency by doing so. [19] The other possibility is to consider the issue of privilege on the basis of Gregg’s mistaken assumption that Stewart was a member of the appellants’ legal team. Even if the appellants’ could assert that, by virtue of that mistake, privilege should attach to the copy of the report in his hands as if he were a member of their legal team, I do not see how that assists them now. Simply put, the impact of the mistake was long since spent. By the time they named Stewart’s firm as a defendant, the appellants knew or ought to have known that Stewart had a copy of the report. They could have asked him to return the report and he would have been obliged to do so. They did not make that demand. In my view, by their own actions, the appellants have lost any right they might once have had to assert a claim of privilege over the copy of the KPMG report in Stewart’s hands. [20] Accordingly, I would dismiss the appeal. [21] If the parties are unable to agree as to the costs of the appeal, brief written submissions may be filed. Respondents’ submissions to be delivered within ten days of the release of these reasons; appellants’ submissions to be delivered within five days thereafter. “Robert J. Sharpe J.A.” “I agree M.J. Moldaver J.A.” “I agree Gordon Killeen J. (ad hoc) RELEASED: December 01, 2004