A recent Ontario Court of Appeal decision serves as a cautionary tale to lawyers and their clients who may inadvertently or deliberately gain access to an opposing party's solicitor-client and litigation privileged information.
In 2177546 Ontario Inc. v. 2177545 Ontario Inc.1, the Ontario Court of Appeal upheld an application judge's decision to strike the respondent's Notice of Appearance and to order that the application proceed undefended, in circumstances where the respondent had accessed damaging privileged documents and information belonging to the other side, and had failed to rebut the presumption of prejudice due to his lack of transparency about what documents and information had been viewed.
Background:
The litigation stemmed from a property dispute between two brothers-in-law and former business partners, Halyk and Labiris, who conducted business through their own personal corporations and worked together on various property ventures under the umbrella of the "Zitia Group".
The parties' relationship broke down, resulting in an application brought by Labiris before the committee of adjustment to sever a jointly-owned property into two equal 51-acre parcels. The application contained signatures from both parties, however, Halyk (the principal of 2177545 Ontario Inc.) claimed that his signature was forged.
The committee of adjustment approved the severance, but Halyk refused to implement it, therefore requiring Labiris (the principal of 2177546 Ontario Inc.) to commence an application in the Superior Court of Justice for a partition of land.
In the midst of the litigation, Labiris suspected Halyk of acting on confidential information. Zitia Group's IT technician later confirmed that he had granted Halyk full access to Labiris' e-mail account when he set up a home office for Halyk in 2021. Labiris' e-mail account contained privileged information, including e-mails relating to his litigation strategy, potential offers to settle, and other communications with his legal counsel.
Upon learning that Halyk had access to his e-mails, Labiris sought a stay of a separate oppression claim that had been brought by Halyk against Labiris. Halyk's counsel did not deny that his client had access to the e-mail account, however, he argued that the account was a general account for the Zitia Group and that his client did not review any privileged information.
The Application Judge's Decision:
The application judge found that Halyk had intentionally accessed privileged documents and information belonging to Labiris, which included proposed settlement terms and discussions with counsel regarding how to negotiate with Halyk, and other strategic advice. The application judge held that in the circumstances, the appropriate remedy was to strike Halyk's Notice of Appearance in the partition application and bar him from filing evidence, and order that the application proceed undefended. Halyk (through 2177546 Ontario Inc.) appealed the application judge's decision to the Ontario Court of Appeal.
The Ontario Court of Appeal's Decision:
The Court of Appeal dismissed the appeal and upheld the application judge's decision.2 Justice Thorburn writing on behalf of the Court applied the three-part test laid out in Continental Currency3 for determining the appropriate remedy where privileged information is received by an opposing party:4
- First, the moving party (in this case, Labiris) must establish that the opposing party obtained access to relevant privileged material;
- Second, prejudice to the moving party is presumed, but the opposing party can rebut the presumption of prejudice by identifying "with some precision" that: (i) the opposing party did not review any of the privileged documents in their possession; (ii) the party reviewed some documents, but they were not privileged; or (iii) the privileged documents were nevertheless not likely to be capable of creating prejudice. The evidence must be clear and convincing such that a reasonably informed person would be satisfied that no use of confidential information would occur; and
- Third, the court must fashion an appropriate remedy. The moving party has the burden to show "special circumstances" where a stay is sought.5
The Court of Appeal found no error in the application judge's articulation or application of the test.
At the first stage, the application judge found that Halyk's conduct was intentional and he indisputably obtained access to confidential and privileged information.6 Specifically, the Court noted that Halyk printed hard copies of some of the documents and attempted to provide the emails to his lawyer.7 The Court of Appeal found no error with the application judge's finding that the first stage of the test was met.
At the second stage, Justice Thorburn noted that the evidence required to rebut the presumption of prejudice must be clear and convincing.8 However, Halyk was not transparent in regards to the information he accessed and provided no reasonable explanation for his actions. The Court of Appeal found no error with the application judge's finding that Halyk failed to rebut the presumption that serious prejudice flowed from his intentional access of privileged materials.
At the third stage, a court will only grant a stay of proceedings where "the right to a fair trial or the integrity of the justice system is prejudiced and there is no alternative remedy to cure it."9
Additionally, the application judge had found that granting judgment without allowing the appellant the right to respond should be limited to the most exceptional cases.10 In the application judge's view, such a remedy was not appropriate in this case.
However, the Court of Appeal agreed with the application judge's finding that it would be inappropriate to order any remedy that would allow Halyk to use, for his benefit, any of the confidential or prejudicial information he may have accessed. To do so would give Halyk an advantage in the litigation and would, in effect, reward him for accessing and reading e-mails that he would have known were privileged communications not intended for him.
The Court also observed that while lesser remedies were ordered in some cases relied upon by Halyk, those cases all involved circumstances in which the person who accessed the confidential information fully disclosed the documents which were reviewed, so the nature and extent of the prejudice could be assessed.11 This was not the case here, as Halyk refrained from fully disclosing the documents he had accessed; accordingly, the Court was unable to evaluate the extent of the harm to the moving party.
Ultimately, the Court of Appeal upheld the Application judge's decision ordering the application to proceed undefended. This ensured that Halyk was not able to benefit from his conduct in viewing Labiris' privileged materials.
Key Takeaways:
- Striking out the respondent's evidence and ordering that the partition application proceed undefended is a significant remedy that would likely result in the applicant obtaining the relief sought. In upholding this decision, the Court of Appeal has affirmed that parties who access privileged materials belonging to an opposing side pose a serious risk to the integrity of the justice system.
- When privileged materials are accessed by the party directly (rather than only their lawyer), any participation in the litigation at all by the offending party may be prejudicial to the opposing party, thereby justifying an order striking evidence or otherwise preventing the offending party from participating in the proceeding.
- Lawyers and their clients should implement safeguards to limit the potential for inadvertently viewing an opposing party's privileged information, and to ensure that if this does occur, appropriate steps are taken to promptly delete the document(s) and notify the sender.
Footnotes
1. 2023 ONCA 693 [217 Ontario].
2. 217 Ontario, supra note 1 at para 8.
3. 2023 ONCA 61 [Continental Currency].
4. 217 Ontario, supra note 1 at para 10. Note, the test was set out in Celanese Canada Inc. v. Murray Demolition Corp., 2006 SCC 36 and more recently applied in Continental Currency.
5. 217 Ontario, supra note 1 at para 12, 13, and 16.
6. 217 Ontario, supra note 1 at para 31.
7. 217 Ontario, supra note 1 at para 32.
8. 217 Ontario, supra note 1 at para 14.
9. 217 Ontario, supra note 1 at para 17.
10. 217 Ontario, supra note 1 at para 43.
11. 217 Ontario, supra note 1 at para 51.
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