Date:
20130130
Docket:
T-877-11
Citation:
2013 FC 101
Vancouver, British Columbia,
January 30, 2013
PRESENT: The
Honourable Mr. Justice Harrington
ADMIRALTY ACTION IN REM
AGAINST THE VESSEL
“HELIOS I” AND IN PERSONAM
BETWEEN:
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RUDY HAGEDORN, GREGORY SHERWOOD,
PAMELA FEATHERSONE, ADRIAN BARRETT, GREG ROHLAND and BAYSHORE GARDENS
REAL ESTATE HOLDINGS LIMITED
and JOSEPH LOUIS GORFINKLE
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Plaintiffs
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and
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THE OWNERS AND ALL OTHERS
INTERESTED IN THE SHIP "HELIOS I", THE SHIP "HELIOS
I" and
SHASTA EQUITIES LTD., LORNE
SHANDRO,
JOHN DOE REPAIRER,
JOHN DOE REPAIR COMPANY and
WEBASTO PRODUCT NORTH AMERICA,
INC.
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and
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Defendants
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WEBASTO PRODUCT NORTH AMERICA,
INC., KENT CARBIS YACHT SALES LTD.,
SHASTA EQUITIES LTD. and
LORNE SHANDRO
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Third Parties
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REASONS FOR ORDER AND
ORDER
[1]
The
issue in this appeal from an order of Prothonotary Lafrenière is whether
certain documents in the possession of the Defendants and Third Parties, Shasta
Equities Ltd. and Lorne Shandro, are immune from discovery on the grounds of
privilege.
[2]
The
learned Prothonotary held that they were not privileged and therefore were
subject to discovery.
[3]
The
Appellants Shasta and Sandro are the owners or otherwise interested in the
yacht “Helios I”. A fire broke out within her the morning of October 13, 2009,
at a marina located in Coal Harbour, Vancouver. The fire quickly spread to
nearby yachts.
[4]
Paul
Mendham, the broker who placed the insurance on the “Helios I”, quickly came to
learn of the incident. He appointed Timothy McGivney of Aegis Marine
Surveyors Ltd. and Chris Reed of Sereca Fire Consulting Ltd. to, to use
his words “attend the scene and investigate the Fire on behalf of
underwriters on risk. Believing that third parties may advance claims against
the Respondents, I advised both Mr. McGivney and Mr. Reed that they were being
retained on behalf of counsel, and that counsel would be in touch with
them shortly to instruct them and guide them in their investigation. I also
advised that they would be reporting directly to counsel.”
[5]
Thereafter,
he retained Kim Wigmore of Whitelaw Twining Law Corporation. He informed him
that he believed the “Helios I” was heavily damaged as a result of the fire and
that third party vessels were also damaged: “I therefore retained Mr. Wigmore on
behalf of underwriters at risk to conduct all necessary investigations in order
to defend any claims that I believed would be advanced by the owners of those
third party vessels.” There is no suggestion Mr. Wigmore was to probe insurance
cover, or that Mr. Mendham was not authorized to make the appointment.
[6]
Mr.
Wigmore in his affidavit says that later that same afternoon his office was
contacted by one John Bromley, a partner at Bull Housser & Tupper,
solicitors. He stated he was representing owners of a number of vessels damaged
in the fire and requested a joint inspection of the “Helios I”. An agreement
was reached.
[7]
He
then spoke to Mr. Reed and instructed him “to conduct an inspection of the
Helios I to determine both the cause and origin of the fire and to report
directly to our office with a preliminary opinion to assist our office in
investigating.”
[8]
Mr.
Reed carried out a joint survey with experts retained by counsel for third
party vessel owners and subsequently prepared a report which was addressed to
Mr. Wigmore.
[9]
Later
on, Mr. Wigmore retained Canadian Claims Services Inc. to conduct an interview
with Mr. Shandro, the dominant purpose of which was to assist in defending any
claims against Shasta and Mr. Shandro.
[10]
In
the litigation a finger of blame is pointed at Webasto Product North America,
Inc., a defendant and third party, on the basis that the “Helios I” was
equipped with a Webasto diesel-fired coolant heater, the failure of which
created, caused, or exacerbated the fire.
[11]
Webasto
wants production of the documents prepared and sent to Mr. Wigmore.
[12]
Rule
223 of the Federal Courts Rules requires every party to serve an
affidavit of documents including a separate list of documents over which
privilege is claimed, with a statement of the grounds for which each claim of
privilege is asserted.
[13]
The
Prothonotary first found that the affidavit was inadequate in its description
of the documents and the grounds on which privilege was being asserted. A
revised schedule was issued and the documents were delivered to the Court under
seal. Both Mr. Wigmore and Mr. Mendham provided affidavits setting out the
circumstances in which the documents had been created.
[14]
In
a six-page ruling, the Prothonotary ordered that documents 3 to 20 and 22 of
the revised affidavit of documents be produced.
THE
DOCUMENTS IN QUESTION
[15]
Document
3 is the initial report of Aegis Marine Surveyors Ltd. issued to Mr. Wigmore
the day following the fire. Its author, Mr. McGillivray, states “the
survey was undertaken in order to ascertain the cause, the nature and
extent of damage sustained in consequence of a fire on the morning of October
13, 2009—.” He notes that in addition to Mr. Shandro, also in attendance were
other yacht owners, personnel from Vancouver Police and Fire, representatives
of the marina and representatives of the Vancouver Port Corporation, and the
Canadian Coast Guard. He provided a list of other yachts damaged by the fire,
and gave particulars of the incident based on a discussion with Mr. Shandro,
and limited details of the inspection.
[16]
Document
4 is Sereca’s report of October 20, 2009. It comprises a report of the
inspection and various causation scenarios which warranted further analysis.
The author, Mr. Reed, also said he was coordinating examination of the “Helios
I” with parties representing the other yachts damaged.
[17]
Document
5 is a report prepared by Canadian Claims Services at the request of
Mr. Wigmore. That firm was retained on November 4, 2009, to meet with Mr.
Shandro for the purposes of obtaining a recorded statement from him and
additional documentation with respect to the fire. Attached were reports
Mr. Shandro provided of surveys prepared by Western Marine Surveyors years
earlier, including a market evaluation.
[18]
Documents
6 through 20 are updates from the surveyors as to damage to the other yachts
and whether it was economically feasible to repair them.
[19]
Finally,
document 22 is another report from Canadian Claims Services to Mr. Wigmore
dated March 19, 2011, advising as to the then current status.
THE
DECISION UNDER APPEAL
[20]
The
Prothonotary noted that the issue was whether the documents were covered by
litigation privilege as opposed to solicitor-client privilege. Relying on Blank
v Canada (Minister of Justice) 2006 SCC 39, [2006] 2 S.C.R. 319, he held that
the party asserting privilege must prove (a) that litigation was ongoing or
reasonably contemplated at the time the document was created, and (b) the
dominant purpose of creating the document was to prepare for that litigation.
After considering the evidence in the affidavits of Mr. Wigmore and Mr. Mendham
and the documents, the gist of his decision is as follows:
It
appears that on the date of the fire, and for at least a certain period
thereafter, the Respondents’ insurer’s agents were investigating the facts and
circumstances surrounding the cause and origin of the fire and the resulting
damage. Although there may have been a prospect of litigation by third party
claimants, neither the Respondents nor their insurer were in a position to
determine whether any claim would be covered, or the nature of any dispute, let
alone whether the dispute could be resolved without litigation, until a
preliminary investigation into the cause of the fire was conducted.
[21]
He
was not satisfied that the documents in question were “wholly or mainly”
created with litigation in mind. He relied upon Waugh v British Railways Board [1980] AC 521 (HL) at p 541 and Hamalainen
v Sippola, 9 BCAC 254, 1991 CanLII 440 (BC CA), [1991] BCJ No 3614 (QL) at pages
9, 14 and 16.
POINTS
IN ISSUE
[22]
There
are three points in issue. The first is whether the Prothonotary’s decision was
discretionary in nature. The second is whether the documents are privileged,
and the third is whether they should nevertheless be disclosed.
ANALYSIS
[23]
The
parties have proceeded on the basis that the decision was discretionary. If so,
the judge sitting in appeal must first determine whether the potential effect
of the order was vital to the issue in the case. If so, the matter must be
determined de novo irrespective of whether or not the judge is in
agreement. If not vital, the Court should not interfere unless the order was
clearly wrong in the sense that the discretion was exercised upon a wrong
principle or a misapprehension of the facts (Merck & Co v Apotex Inc
2003 FCA 488, [2004] 2 FCR 459).
[24]
If
the decision is not discretionary, on a question of law the standard is
correctness. On findings of fact, the decision should not be set aside
unless there is a palpable and overriding error (Stein v Kathy The,
[1976] 2 S.C.R. 802, Housen v Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235).
[25]
Both
parties proceeded on the basis that the Prothonotary’s decision was
discretionary in nature. Webasto pointed out that discretionary orders relating
to discovery of documents have rarely been held to be vital to the outcome of
the case. Shandro and Shasta submit that there is a time and place for the
production of expert reports, and that that time and place is not at the
discovery of documents stage. Both parties were guided by the decision of Mr.
Justice Russell in Brass v Her Majesty the Queen, 2012 FC 927. The
facts of that case were far more complicated than the facts in this. That was
another appeal from a decision of Prothonotary Lafrenière with respect to
the production of documents. Some documents over which privilege had been
claimed had been inadvertently produced, and others got into the hands of the
plaintiffs by means unknown. The case related to compensation issues
arising from Manitoba Hydro constructing a dam on the Saskatchewan River. There
had been 30 years of discussion, followed by 20 years of litigation. When all
was said and done, documents which were subject to solicitor-client privilege
remained immune from disclosure. Documents which had once been subject to
litigation privilege were produced.
[26]
In
Brass, as in this case, the parties proceeded on the assumption that the
Prothonotary’s order was discretionary in nature. Their difference of opinion
was whether documents were vital, whether privilege had been waived, and
whether in any event some of the documents should be produced in the public
interest to prevent equitable fraud.
[27]
At
paragraph 80, Mr. Justice Russell stated “it seems to me that whether or not a
particular document is privileged cannot, per se, be vital to the case.”
Unfortunately, I cannot ascribe to that view. In my opinion, the issue is not
whether production of the documents is vital to the outcome of the case,
but rather whether it is vital to our fundamental sense of justice. For
instance, having found that the documents in this case did not attract
litigation privilege it may have been open to the Prothonotary to delay
production of the expert reports until the parties were preparing for a
settlement conference. Such a decision would be discretionary in nature.
[28]
Suppose,
however, that the Prothonotary had found that some or all of the documents were
subject to litigation or to solicitor-client privilege. Could he nevertheless,
in his discretion, order their production? I think not.
[29]
The
leading case is the decision of the Supreme Court in Blank, above.
There, it was necessary to distinguish between solicitor-client or legal advice
privilege on the one hand and litigation privilege on the other, as the
litigation with respect to which the documents had been created had long ended.
[30]
Mr.
Justice Fish noted that solicitor-client privilege has been firmly entrenched
for centuries as our system of justice “depends for its vitality on full, free
and frank communication between those who seek legal advice and those who are
best able to provide it” (para 26).
[31]
Turning
to litigation privilege, he said at paragraph 27:
Litigation privilege, on the other hand, is not directed at, still
less, restricted to, communications between solicitor and client. It
contemplates, as well, communications between a solicitor and third parties or,
in the case of an unrepresented litigant, between the litigant and third
parties. Its object is to ensure the efficacy of the adversarial process and
not to promote the solicitor-client relationship. And to achieve this purpose,
parties to litigation, represented or not, must be left to prepare their
contending positions in private, without adversarial interference and without
fear of premature disclosure.
[32]
He
referred to R.J. Sharpe, now Mr. Justice Sharpe of the Ontario Court of
Appeal’s lecture “Claiming Privilege in the Discovery Process”, in Law in Transition:
Evidence [1984] Special Lectures Law Society of Upper Canada 163. He
said, in part:
Litigation privilege, on the other hand, is geared directly to the
process of litigation. Its purpose is not explained adequately by the
protection afforded lawyer-client communications deemed necessary to allow
clients to obtain legal advice, the interest protected by solicitor-client
privilege. Its purpose is more particularly related to the needs of the
adversarial trial process. Litigation privilege is based upon the need for a
protected area to facilitate investigation and preparation of a case for trial
by the adversarial advocate. In other words, litigation privilege aims to
facilitate a process (namely, the adversary process), while solicitor-client
privilege aims to protect a relationship (namely, the confidential relationship
between a lawyer and a client).
[33]
Nevertheless,
as Mr. Justice Fish went on to say, there is a commonality to both, i.e.
“the secure and effective administration of justice according to law.”
[34]
He
added, at paragraph 34: “the purpose of the litigation privilege, I repeat, is
to create a “zone of privacy” in relation to pending or apprehended
litigation.” Blank dealt with litigation which was over. This case deals
with litigation which had not yet begun.
[35]
As
noted by Prothonotary Lafrenière, there is a burden on the party asserting
litigation privilege to prove that (a) litigation was ongoing or reasonably
contemplated at the time the document was created and (b) the dominant purpose
of creating the document was to prepare for that litigation, on a document by
document basis.
[36]
Having
determined the Prothonotary’s order was not discretionary in nature, I must now
determine whether he erred in law or made a palpable and overriding error in a
finding of fact, based on the evidence which was before him, being the
affidavits of Messrs. Mendham and Wigmore, and the documents themselves.
[37]
In
my opinion, he erred in law with respect to Document 5, the report of the
interview with Mr. Shandro carried out by Canadian Claims Services at Mr.
Wigmore’s request. That interview was subject to solicitor-client privilege,
just as it would have been if the interview had been carried out by Mr.
Wigmore, himself, or by an employee of his office, rather than by an agent.
However, the survey reports attached thereto which had been prepared by Western
Marine Surveyors before the fire are not privileged.
[38]
The
other documents are all subject to litigation privilege. There are a number of
cases which have held that there is a demarcation between the investigation
stage and the litigation stage, depending of course on the facts of each case.
See for instance Hamalainen v Sippola, above.
[39]
In
the marine context, outturn surveys may be ordered as a matter of course as it
is always possible that cargo might be damaged and a claim submitted. That was
the situation in Marubeni Corp v Gear Bulk Ltd, (1986) 4 FTR 265, [1986]
FCJ No 364. Mr. Justice Strayer, as he then was, stated that such surveys had
to have been prepared for the purpose of being provided to counsel and for the
purpose of counsel using it in respect of litigation existing, or contemplated,
at the time of its preparation. As he found on the evidence that such surveys
were done routinely, no litigation was in existence when they were prepared nor
was there any evidence to indicate that any litigation was specifically in
contemplation.
[40]
One
of the cases Mr. Justice Strayer referred to was Santa Ursula Navigation SA
v St Lawrence Seaway Authority, [1981] FCJ No 428, 25 CPC 78. The facts
were quite different. The shipowners had sued for damage to their ship
allegedly caused by the defective condition of fenders along the approach wall
to one of the locks within the Seaway. The documents in question were created
after the incident and at the request of the defendant’s solicitors in
anticipation of an action. Mr. Justice Dubé went through the documents one by
one and held that certain documents were privileged.
[41]
I
must conclude, on the facts of this case, that the Prothonotary clearly erred
in his findings of fact as per the Kathy K and Housen v
Nikolaisen, above. The third party yacht owners, through solicitors, had called
for a joint survey of the “Helios I” the very day of the fire. The only purpose
was to determine the cause of the fire in order to ascertain whether a claim
against the “Helios I” would be successful. The only purpose to have Mr.
Wigmore involved was to defend or pursue claims if circumstances warranted. The
parties were in an adversarial situation before any of the documents were
created. This type of situation is far different from that in Hamalainen
which dealt with certain adjusters reports prepared for the Insurance
Corporation of British Columbia under a compulsory insurance scheme. More to
the point is Canada (Privacy Commissioner) v Air Canada, 2010 FC 429, 367 FTR 76, [2010] FCJ No 504 (QL). Reports of an incident on
board an Air Canada Jazz flight were prepared when the airline and the
passenger were clearly in an adversarial relationship. They were held to be
protected by litigation privilege.
[42]
The
other documents were follow ups and are also subject to litigation privilege.
[43]
The
parties are well aware that a fact is not immune from disclosure because it was
ascertained by a surveyor, or even by a lawyer. When a representative of a
party on discovery is asked what his or her information, knowledge or
belief is on a certain point, the facts and information must be disclosed
irrespective of source.
ORDER
FOR
REASONS GIVEN;
THIS
COURT ORDERS that:
1.
The
appeal is maintained, save with respect to the surveys prepared by
Western Marine Surveyors attached to Document 5.
2.
The
Appellants are entitled to their costs.
“Sean Harrington”
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