May 26, 2023

By Brian Babcock

Privilege is a serious matter, as we have explained before.

ISSUE

But what penalty should be imposed when one party intentionally and seriously violates the privilege of another?

THE CASE

In Continental Currency Exchange Canada Inc. v. Sprott, the Ontario Court of Appeal imposes a form of judicial capital punishment, upholding a stay of proceedings, the result of which is that the Plaintiff may no longer pursue their multi-million dollar lawsuit.

The parties had been attempting to use the Plaintiff currency exchange operation as the center piece of a new Canadian bank. The process was sufficiently advanced that the parties had set up joint premises with a joint computer server. Sprott withdrew their funding. The following day, the directing person behind the currency company had 22 of the Sprott files containing thousands of emails and attachments on the joint server copied onto an external hard drive. These files included confidential correspondence between Sprott and his lawyers. The correspondence revealed details of Sprott’s strategy and could be used to his disadvantage in the lawsuit.

Continental refused, on the other hand, to provide Sprott’s lawyers with copies of jointly created files off the joint server, in which there is no presumption of privilege. This was not just playing hardball, this was playing dirty.

This is not the first case to consider the appropriate remedy where privileged information is received by an opposing party. There are similar (but not identical) issues in cases decided by the Supreme Court of Canada going back at least thirty years. So the risk might not have been known to the principals of Continental, but if they had just asked their lawyers, they would have been told just how foolish playing dirty can be.

The focus is on trial fairness and the integrity of the justice system. A breach of privilege “creates a serious risk to the integrity of the administration of justice” and courts will act “swiftly and decisively”.

By “decisively”, they mean that there is a presumption of prejudice, and a common penalty will be a stay of proceedings. A stay does not finally dismiss an action but freezes any further activity. If the stay is not lifted, the injured party may move for dismissal.

Factors that determine whether a stay is appropriate include:

1. How the documents came into the possession of the wrongdoers or their lawyer;
2. What the wrongdoers and their lawyers did upon recognition that the documents were potentially subject to solicitor-client privilege;
3. The extent of review of the privileged material;
4. Contents of the solicitor-client communications and the degree to which they are prejudicial;
5. The stage of the litigation; and
6. The potential effectiveness of a firewall or other precautionary steps to avoid mischief.

In this case, Continental did not ‘fess up as to what documents were reviewed, or their contents. As a result, the onus was on them to show that a stay was not the only appropriate remedy.

The motions judge was satisfied that this situation did not occur by reason of a mistake. Employees of Continental admitted that they reviewed some of the documents. They did not reveal that they possessed the privileged documents. Even after the motion was brought, they continued to review the documents. That is about as bad as it gets.

In less serious situations of misconduct, courts have:

• Ordered the return or destruction of the privileged material;
• Prohibited use of the material, or any knowledge derived from the material; and
• Imposed costs consequences.

In order to achieve these results, the lawyers for the offending party may be required to withdraw from the case and be replaced by lawyers who are not tainted by having seen the privileged material or having received privileged information from others who had seen it.

But, in this case, it was easy for both the motions judge and the Court of Appeal to conclude that a stay was the only viable remedy. The barn door was open, and the horse had been stolen.

TAKEAWAYS

• The penalty for reviewing your opponent’s privileged information will depend upon the seriousness of the offence.
• Courts take playing dirty especially seriously when it involves privilege.
• Do NOT intentionally obtain documents that might include privileged information.
• If you accidentally obtain privileged information, do NOT review it – admit the mistake, and return or destroy the documents.
• If you do not reveal what you obtained, and what you reviewed, the courts will assume the worst.
• In those situations, even if you have a valid lawsuit, you may be subject to a stay, which means that you may never “get your day in court” on the merits of your claim.

WHAT WEILERS LLP CAN DO TO HELP YOU

We do not have a “proud tradition” by accident. We take upholding the administration of justice seriously. Whether you are the victim of a breach of privilege, or are the guilty party, we have the experience, knowledge, and reputation to vigorously defend your rights.

In an appropriate situation, we are willing to work with your primary lawyers by assisting on specific issues of privilege. We may also be suitable replacement lawyers if your existing lawyers are removed from the case because they, rather than you, left that barn door open.

If your case involves a serious issue of privilege, consider whether Weilers LLP may be the right lawyers for you.