Case: 2177546 Ontario Inc. v. 2177545 Ontario Inc., 2023 ONCA 693 (CanLII)
Keywords: privileged information; access by opposing party; Celanese Canada Inc. v. Murray Demolition Corp., 2006 SCC 36; Continental Currency Exchange Canada Inc. v. Sprott, 2023 ONCA 61
This case is about the appropriate remedy for accessing an opposing party’s privileged materials. (See para. 1). The Application Judge (Chalmers J.) finds the Appellant’s principal deliberately accessed the Respondent’s privileged materials and provides the following remedies:
- striking the Appellant’s notice of appearance;
- barring the Appellant from filing evidence; and
- ordering that the underlying matter proceed undefended, subject to leave being granted by the judge hearing the matter. (See para. 2).
The Court of Appeal (Harvison Young, Thorburn, and Favreau JJ.A.) dismisses the Appellant’s argument that the Application Judge erred by imposing these remedies, and failing to consider alternative means to cure the prejudice (e.g., the appointment of a litigation trustee) which results from accessing privileged materials. (See paras. 5-8).
This issue was recently considered by the Supreme Court of Canada, albeit at the Leave stage. In Continental Currency Exchange Canada Inc. v. Sprott, 2023 ONCA 61, the Court set out a “three-part test” for resolving issues related to unauthorized access to privileged documents. (See para. 10; Celanese Canada Inc. v. Murray Demolition Corp., 2006 SCC 36). On August 31, the Supreme Court of Canada dismissed a Leave brought against that decision. (Continental Currency Exchange Canada Inc., et al. v. Eric Sprott, et al., 2023 CanLII 79348 (SCC)).
Without further guidance from the Supreme Court of Canada, the Court of Appeal applied the three-part test developed in Continental. At the first part of the test, the moving party is required to establish whether the opposing party obtained access to relevant privileged material. (See para 12). At the second part of the test, the risk of significant prejudice is presumed and the responding party, who accessed the information, bears the onus to rebut the presumption that prejudice flows from receipt of the privileged information. (See para. 13).
Finally, at the third part of the test, a number of non-exhaustive factors are considered to determine the appropriate remedy. As outlined by the Court of Appeal, this includes:
- how the documents came into the possession of the appellants or their counsel;
- what the appellants and their counsel did upon recognition that the documents were potentially subject to solicitor-client privilege;
- the extent of review of the privileged material;
- contents of the solicitor-client communications and the degree to which they are prejudicial;
- the stage of the litigation; and
- the potential effectiveness of a firewall or other precautionary steps to avoid mischief. (See para. 18; Celanese at para. 59).
At a practical level, the Court of Appeal pointed out that, where a party in receipt of privileged information fails to identify what documents they reviewed, the court is put in “an ‘invidious position’ of being unable to determine the extent of the actual review of the material and the degree of resulting prejudice”. (See para. 19). In other words, a party in receipt of privileged materials should strongly consider the relative risks and advantages of full and complete disclosure.
At the remedy part of the analysis, the Application Judge herein found that “to require the [moving party] to put forward evidence that the privileged documents reviewed contained such prejudicial content that the extraordinary remedy was justified, would require them to disclose further confidential or privileged materials.” (See para. 48). The Court of Appeal determined that this was a ‘correct’ application of the test articulated in Continental – the decision specifically states that relying on the adverse presumption is proper, “even though the burden at the remedy stage shifts to the [moving party]” to show that a particular remedy is appropriate. (See para. 49; Continental at para. 45).
The Appellant cited several cases demonstrating the use of less severe remedies. (See para. 51; O’Dea v. O’Dea, 2019 NLSC 206, at paras. 68-69; Morneault v. Dynacorp Acquisition Ltd., 2006 ABQB 831; and Dixon v. Lindsay, 2021 ONSC 1360). The Court of Appeal, however, distinguished each of those cases on the basis that the Appellant here failed to disclose the extent of the review of privileged documents. (See para. 51). Without the Appellant’s principal disclosing the documents he reviewed, why he reviewed the documents, and without leading evidence to rebut the presumption of prejudice, the Appellant “must ‘shoulder the consequences’ at the remedy stage”. (See para. 52; Celanese at paras. 62-63).
Ultimately, the Court of Appeal upheld the Application Judge’s order. The remedy provided was found to be warranted in this case – a remedy that ensured Mr. Halyk could not “use to his benefit any confidential and prejudicial information he may have accessed.” (See para. 44).
Counsel for the Appellants: Thomas Curry, Derek Knoke, Nikolas De Stefano (Lenczner Slaght, Toronto)
Counsel for the Respondent: Chris Paliare, Daniel Rosenbluth, Janet-Lee Song (Paliare Roland Rosenberg Rothstein LLP, Toronto)