Angus v. Salvation Army in Canada, 2011 ABQB 512

Court of Queen ’ s Bench of Alberta Citation: Angus v. Salvation Army in Canada, 2011 ABQB 512 Date: 20110815 Docket: 9901 15873 Registry: Calgary Between: Angus Partnership Inc. and Western Conservatory Realty Group Inc. Plaintiffs (Defendants by Counterclaim) - and - The Governing Council of The Salvation Army in Canada and The Governing Council of The Salvation Army Canada West Defendants (Plaintiffs by Counterclaim) _______________________________________________________ Memorandum of Decision of the Honourable Madam Justice J. Strekaf _______________________________________________________

[1] The Plaintiff Angus Partnership Inc. (“Angus”) is applying for an order compelling the Defendants The Governing Councilof the Salvation Army in Canada and The Governing Council of the Salvation Army Canada West, (“Salvation Army”) to provideresponses to certain questions or requests which it alleges were incomplete, not answered or refused on the basis of litigation privilegeand/or solicitor-client privilege. [2] The Salvation Army produced copies of the documents over which it is claiming privilege for review by the Court to assistwith this application and has also provided a Further and Better Supplemental Affidavit of Records sworn on June 21, 2011.

Thataffidavit identifies the documents for which privilege is claimed and the basis for those claims. [3] The main issue on this application is whether the Salvation Army waived privilege over the documents in question by puttingits state of mind at issue in the litigation. In addition, Angus also argues that any documents in respect of which privilege is claimed mustsatisfy the established criteria to qualify as subject to solicitor-client privilege or litigation privilege. [4] The claim arises out of the failure to close of an agreement for Angus to purchase the Grace Hospital site from the SalvationArmy.

The Statement of Claim alleges that Angus entered into a written Offer to Purchase and Interim Agreement dated June 1, 1998with the Salvation Army to purchase the Grace Hospital site for $8 million, which was to close on July 30, 1999. By a letter dated April26, 1999, the Province of Alberta took the position that it was entitled to a right of first refusal (“ROFR”) with respect to the GraceHospital site pursuant to a prior agreement dated September 26, 1969. Angus became aware of the Province’s position on May 27, 1999and requested an extension of the closing date to determine the validity of the ROFR .

By a letter dated June 4, 1999, the SalvationArmy advised Angus that they were of the opinion that the Provincial Government did not have an enforceable interest in the subjectproperty and that they were not prepared to extend the closing date and that they considered time to be of the essence. The transaction didnot close on July 30, 1999.

Subsequently on August 5, 1999, the Province advised the Salvation Army that it was foregoing its ROFR.Angus alleges that the Salvation Army falsely, dishonestly, recklessly or knowingly failed to disclose the Province’s ROFR, that it actedunreasonably and in a capricious and arbitrary manner in their dealings with Angus and that it acted in bad faith in failing to disclose theProvince’s ROFR and in receiving several offers to purchase the site from third parties between May 27, 1999 and July 30, 1999.

Angusis seeking recovery of its deposit of $250,000, damages of $500,000 for costs incurred dealing with the City of Calgary, damages for lossof bargain of $4.5 million, damages for bad faith of $1 million, punitive and exemplary damages of $1 million, interest and costs. [5] In its Statement of Defence, the Salvation Army alleges that it could not have reasonably foreseen that the Province wouldhave incorrectly asserted a ROFR in relation to the Grace Hospital site and that it acted in good faith in its dealings with Angus. [6] Angus argues that the common law doctrine of implied waiver of privilege applies to the documents in question because theSalvation Army voluntarily put its state of mind at issue in the litigation.

The Salvation Army denies that it waived privilege and arguesthat it did not voluntarily put its state of mind at issue but merely responded to the allegations of bad faith advanced in the Statement ofClaim. [7] The nature and scope of solicitor-client privilege was summarized by the Supreme Court of Canada in Pritchard v. Ontario(Human Rights Commission), 2004 SCC 31 , 2004 S.C.C. 31, [2004] 1 S.C.R. 809, per Major J. at paras. 14 - 18: Solicitor-client privilege describes the privilege that exists between a client and his or her lawyer.

Clients must feel free and protected tobe frank and candid with their lawyers with respect to their affairs so that the legal system, as we have recognized it, may properlyfunction: see Smith v. Jones, (SCC), [1999] 1 S.C.R. 455, at para. 46. Dickson J. outlined the required criteria to establish solicitor-client privilege in Solosky v. The Queen, (SCC), [1980] 1S.C.R. 821, at p. 837, as: "(

i) a communication between solicitor and client; (ii) which entails the seeking or giving of legal advice; and(iii) which is intended to be confidential by the parties". Though at one time restricted to communications exchanged in the course oflitigation, the privilege has been extended to cover any consultation for legal advice, whether litigious or not: see Solosky, at p. 834. Generally, solicitor-client privilege will apply as long as the communication falls within the usual and ordinary scope of the professionalrelationship. The privilege, once established, is considerably broad and all-encompassing.

In Descôteaux v. Mierzwinski, (SCC), [1982] 1 S.C.R. 860, the scope of the privilege was described, at p. 893, as attaching "to all communications made within theframework of the solicitor-client relationship, which arises as soon as the potential client takes the first steps, and consequently even

before the formal retainer is established". The scope of the privilege does not extend to communications: (1) where legal advice is notsought or offered; (2) where it is not intended to be confidential; or (3) that have the purpose of furthering unlawful conduct: see Solosky,supra, at p. 835. As stated in R. v. McClure, [2001] 1 S.C.R. 445, 2001 SCC 14, at para. 2: Solicitor-client privilege describes the privilege that exists between a client and his or her lawyer. This privilege is fundamental to thejustice system in Canada. The law is a complex web of interests, relationships and rules.

The integrity of the administration of justicedepends upon the unique role of the solicitor who provides legal advice to clients within this complex system. At the heart of thisprivilege lies the concept that people must be able to speak candidly with their lawyers and so enable their interests to be fullyrepresented. The privilege is jealously guarded and should only be set aside in the most unusual circumstances, such as a genuine risk of wrongfulconviction. In Lavallee, Rackel & Heintz v.

Canada (Attorney General), [2002] 3 S.C.R. 209, 2002 SCC 61, this Court confirmed that the privilegemust be nearly absolute and that exceptions to it will be rare. Speaking for the Court on this point, Arbour J. reiterated what was stated inMcClure: ... solicitor-client privilege must be as close to absolute as possible to ensure public confidence and retain relevance.

Assuch, it will only yield in certain clearly defined circumstances, and does not involve a balancing of interests on a case-by-case basis.[Emphasis in original.] (Arbour J. in Lavallee, supra, at para. 36, citing Major J. in McClure, at para. 35.) [8] Solicitor-client privilege applies equally to communications involving the provision of legal advice between corporateemployees and in-house legal counsel as to communications with external legal counsel. [9] Litigation privilege applies to documents that were created or obtained for the dominant purpose of actual or contemplated litigation: General Accident Assurance Co. v.

Chrusz (1999), (ON CA), 180 D.L.R. (4th) 241 (Ont. C.A.). [10] Privilege can be waived in criminal or civil proceedings by a party either expressly or by implication. Implied waiver occurswhere a party: 1. voluntarily puts its state of mind at issue; 2. relies upon privileged communications to ground its claim or base its defence; or 3. attempts to support a good faith argument by undisclosed advice from legal counsel. [11] As example of the first situation is Rogers v.

Bank of Montreal, (BC CA), [1985] 4 W.W.R. 508 (B.C.C.A.),where the plaintiffs (the principal shareholders of Abacus Cities Limited) were seeking to recover losses suffered as a result of what theyalleged was the wrongful appointment of a Receiver by the Bank of Montreal. The Receiver third partied the Bank seeking indemnity. In its defence to the third party notice, the Bank alleged that it relied upon the professional advice of the Receiver. The Receiver soughtdisclosure of correspondence between the Bank and its solicitors to enable it to assess the claim of reliance.

In upholding the orderrequiring disclosure of advice given to the Bank by its solicitors concerning the bank’s right to have a receiver appointed without notice,the court stated at paras. 17 - 18:

The issue in this case is not the knowledge of the Bank. The issue is whether the Bank was induced to take certain steps in reliance uponthe advice from the Receiver on legal matters. To take one instance, the Receiver, according to the Bank, advised the Bank that it wasnot necessary to allow Abacus time for payment before the appointment of the Receiver. A significant legal decision had been renderedsome months earlier to the opposite of that advice.

The extent to which the Bank had been advised about that decision, not merely of itsresult, is important in the resolution of the issue whether the Bank relied upon the advice of the Receiver. There do not appear to be any decided cases in Canada that raise the facts that we have in this case. Cases have been referred to us fromjurisdictions in the United States and I have found one decision in particular to be persuasive. I refer to United States v. ExxonCorporation [1981] 94 F.R.D. 246, a decision of the District Court of Columbia.

At p. 247 the judge said: "Exxon has asserted the attorney-client privilege with respect to 395 documents sought by the government in interrogatories 9-19 anddocument requests 1 and 2.

In this motion to compel, plaintiff claims that these documents are not privileged because Exxon waived theattorney-client privilege by interposing the affirmative defense of good faith reliance on the government's regulations andcommunications." At p. 248: "Most courts considering the matter have concluded that a party waives the protection of the attorney-client privilege when hevoluntarily injects into the suit the question of his state of mind. For example, in Anderson v.

Nixon, 444 F.Supp. 1195, 1200 (D.D.C.1978), Judge Gesell stated that "as a general principle "a client waives his attorney-client privilege when he brings suit or raises anaffirmative defence that makes his intent and knowledge of the law relevant." And, finally, at p. 249: "Exxon's affirmative defenses necessarily revolve around whether Exxon did, in fact, primarily or solely rely upon a particular DOEregulation or communication when the company made its pricing decisions.

Thus, the only way to assess the validity of Exxon'saffirmative defenses, voluntarily injected into this dispute, is to investigate attorney-client communications where Exxon's

interpretationof various DOE policies and directives was established and where Exxon expressed its intentions regarding compliance with thosepolicies and directives. There is no other reasonable way for plaintiff to explore Exxon's corporate state of mind, a consideration nowcentral to this suit." [12] Another example is Toronto-Dominion Bank v. Leigh Instruments Ltd. (Trustee of) (1997), (ON SC), 32O.R. (3d) 575 (Ont. Ct. JUS, Gen. Div.).

In both of these cases, it was the party seeking to maintain its claim for privilege that hadinitially raised the issue of its state of mind in the proceedings. [13] An example of the second situation is Petro Can Oil & Gas Corp. v. Resource Service Group Ltd. (1988) (AB KB), 90 A.R. 220 (Q.B.) where an agreement for the purchase of certain oil and gas assets of a limited partnership contained acondition precedent that the purchaser “shall have received an opinion in form and substance satisfactory to the purchaser from MacleodDixon, Barristers and Solicitors, as to the title” to the interests conveyed.

The purchaser refused to close and the vendor sued fordamages. In its Statement of Defence the purchaser claimed it was relieved from the obligation to close because the condition precedentwas not satisfied. Mason J. directed the defendants to produce all of the Macleod Dixon opinions which related to the title issues stating: The Defendant also objected to the production of the Macleod Dixon opinions on the basis of solicitor-client privilege. In my view, anysolicitor-client privilege which may have attached to the Macleod Dixon opinions was clearly waived by the Defendant.

It is wellaccepted that a party may impliedly waive solicitor-client privilege where it relies in part upon the privileged communications to eitherground its claim or base its defence to a claim made against it. See Rogers v. Bk. of Montreal (BC SC), [1985] 4W.W.R. 503 (B.C.S.C.) aff'd (BC CA), [1985] 4 W.W.R. 508 (C.A.); Alta. Wheat Pool v. Estrin (1986) (AB KB), 75 A.R. 348 (Q.B.). The underlying rationale for finding implied waiver in such circumstances is based on fairness.

Itwould be unfair to permit a party who has set up a claim or defence based on privileged communications to preclude his opponent fromdiscovering against that claim by relying upon the privilege. If privilege were successfully raised, the opponent would be left with noreasonable method for exploring the validity of the claim or defence. See: 8 Wigmore on Evidence (McNaughton Revision) at S2327 and

S2388; and Craig, J.N., "Privilege in Discovery of Documents", (1985) 23 Alta. Law Review 388 at 393. In the case at bar, by allegingthat clauses 9.1(

v) and 9.1(xii) had not been fulfilled, the Defendant put the opinions of Macleod Dixon referred to in those clauses inissue. In other words, the Defendant is relying in part on communications that might be privileged to base its defence that clauses 9.1(v)and 9.1(xii) had not been fulfilled. Consequently, the Defendant must be taken to have waived any privilege attaching to the MacleodDixon opinions.

To hold otherwise would in effect amount to providing the Defendant with an unfair advantage in this litigation whichthe Plaintiffs would quite likely be unable to overcome. [14] An example of the third situation is R. v. Campbell, (SCC), [1999] 1 S.C.R. 565 which arose out of a reversesting operation where the RCMP sold a large quantity of hashish to some alleged senior members of drug trafficking organization. Thetrial judge convicted the accused purchasers of conspiracy to traffic in cocaine.

Before sentencing, the accuseds sought a stay ofproceedings on the basis that the reverse sting constituted illegal police conduct which was so detrimental to the proper administration ofjustice that it warranted judicial intervention. In response to the application for the stay, the Crown sought to establish that the police hadacted in good faith in the belief that the sting was legal.

No direct evidence was addressed by the Crown regarding any consultations withlegal counsel, however, in response to a question on cross examination it was disclosed that the RCMP had obtained legal advice fromthe Department of Justice. The Crown successfully objected to further questioning with respect to the actual advice that had been givenon the basis of solicitor-client privilege. However, in argument before the trial judge and the Ontario Court of Appeal, the Crown arguedthat the RCMP had consulted with the Department of Justice with regard to any problems of illegality.

Binnie J., writing for the Court,drew an important distinction as to when privilege was impliedly waived in that case. He concluded that no implied waiver of privilegehad occurred by the Crown opposing the stay on the basis that it had acted in good faith in the belief that the reverse sting was lawful orwhen Constable Reynolds acknowledged in cross-examination that he had sought an opinion from the Department of Justice, but thatwaiver did arise by the arguments advanced by the Crown which referenced the legal advice that had been sought.

He stated at paragraph70: The present case presents a stronger argument for waiver than Rogers. The Crown led evidence from Cpl. Reynolds about his knowledgeof the law with respect to reverse sting operations - he testified that he had read the Superior Court decision in Lore, supra, and was ofthe view that the operation in question was legal. But Cpl. Reynolds also testified, in answer to the appellants' counsel, that he sought outthe opinion of Mr. Leising of the Department of Justice to verify the correctness of his own understanding.

The appellants' counselrecognized that this alone was not enough to waive the privilege. Cpl. Reynolds was simply responding to questions crafted by theappellants, as he was required to do. Appellants' counsel accepted that he had no right at that point to access the communications. Hiscomment to the judge was simply that "I certainly don't want to hear the argument that 'Oh well, the police acted in good faith becausethey acted on legal advice'". The critical point is that the Court did hear that precise argument from the Crown at a later date.

The RCMPand its legal advisers were explicit in their factum in the Court of Appeal, where it was argued that "regard must be had to the followingconsiderations ... (

f) The R.C.M.P. ... consulted with the Department of Justice with regard to any problems of illegality" (emphasisadded). We understand that the same position was advanced to the trial judge. As Rogers, supra, shows, it is not always necessary for theclient actually to disclose part of the contents of the advice in order to waive privilege to the relevant communications of which it forms apart.

It was sufficient in this case for the RCMP to support its good faith argument by undisclosed advice from legal counsel incircumstances where, as here, the existence or non-existence of the asserted good faith depended on the content of that legal advice. Theclear implication sought to be conveyed to the court by the RCMP was that Mr. Leising's advice had assured the RCMP that theproposed reverse sting was legal. [15] In this action, it was Angus who initially raised the issue of the Salvation Army’s state of mind by alleging in the Statement ofClaim that the Salvation Army had acted in bad faith.

In its Statement of Defence, the Salvation Army claimed that it “acted honestly,fairly, in good faith and in accordance with all applicable standards in dealing with the Plaintiffs”. A denial that a party acted in bad faithdoes not constitute voluntarily injecting that party’s state of mind into the proceedings. If that was the effect, then any allegation of badfaith that was challenged by a party would have the effect of constituting an implied waiver of privilege of that party’s privilege.

Thatwould not be a sensible or fair result, which is the underlying rationale for implied waiver of privilege: per McLachlin J. (as she thenwas) in S & K Processors Ltd. v. Campbell Avenue Herring Producers Ltd. (1983), (BC SC), 35 C.P.C. 146 (B.C.S.C.)at pp. 148 - 150. [16] Moore C.J. pointed out in Husky Oil Operation Ltd. v.

MacKimmie Matthews, 1999 ABQB 54, 241 A.R. 115 at paragraphs 4 -5 that an implied waiver or privilege does not automatically arise when a party’s state of mind was put in issue by the opposing party: The law permits intrusion into solicitor-client privilege if a party has raised a defence or asserts a claim which puts its own state of mindinto issue: see Petro Can Oil & Gas Corp. v.

Resource Service Croup Ltd. (1988), (AB KB), 90 A.R. 220 (Q.B.).Moreover, this exception will not automatically apply in cases where a party's state of mind has been put in issue by the opposing party.As Berger J. held in Ed Miller Sales & Rentals Ltd. v. Caterpillar Tractor Co. (1992), (AB KB), 3 Alta. L.R. (3d) 210(Q.B.) at 214:

"None of these cases, in my opinion, is authority for the proposition that whenever and however state of mind is placed in issue, knowledge of the law is invariably relevant and solicitor-client privilege will yield. I am comforted in this view by the following statement by Van Camp J. in Lloyds bank [ Canada v. Canada Life Assurance Co. (1991), 47 C.P.C. (2d) 157 (Ont. Gen.

Div.) ] at p. 167: '... there is not waiver in every instance where the state of mind is in issue.'... “Van Camp J. added at p. 168: 'Certainly it will not be waived where it is the person who seeks the information that has raised the question of reliance.' “I would not, with respect, adopt so rigid a formulation.

In a proper case, considerations of fundamental adjudicative fairness may be so compelling that the court may be persuaded to order disclosure of an adverse party's legal advise though such solicitor-client communications were not voluntarily placed in issue by that party. “Such cases, it seems to me, would be rare, indeed. The court will not lightly penetrate the shield of solicitor-client privilege in reliance upon unilateral assertion of an issue by an adverse party." (Original emphasis) Solicitor-client privilege is a right which must be zealously guarded.

Since Defendants’ have brought the Plaintiffs' state of mind into issue, the onus lies on the Defendants to demonstrate a compelling need to see the privileged documents based on considerations of fundamental adjudicative fairness. In my view they have failed to do so. [ 17 ] In that case, Moore C.J. found “no compelling reason of fundamental adjudicative fairness which justifies violating the solicitor-client privilege which protects the documents in question” (paragraph 7). I am of the same view in this case.

Angus has not demonstrated any exceptional justification to violate any solicitor-client or litigation privilege that would otherwise apply. [ 18 ] To date the Salvation Army has not attempted to justify its conduct on the basis of advice obtained from counsel and there has been no express or implied waiver of privilege established at this stage of the proceedings.

However should the Salvation Army elect to do so as the action progresses, that may effect an implied waiver of privilege, as was the case of the Crown in Campbell . [ 19 ] Angus also points out that privilege does not automatically apply to all documents contained in in-house or external legal files and that each documents must satisfy the criteria outlined above to qualify as subject to solicitor-client or litigation privilege. I have reviewed the privileged documents produced by the Salvation Army.

In some instances, copies of documents from third parties were included in the materials which would not appear to qualify as privileged documents.

If there are any such documents that have not already been produced (except for documents that are not relevant but were simply produced for completeness), they should be produced to Angus. [ 20 ] I have reviewed the outstanding requests for undertakings No. 26, 91, 110, 116, 136, 136, 159 and 206 by Angus and the responses provided to date by the Salvation Army and am satisfied that no further information or documentation need be provided at this time, subject to the comments above. [ 21 ] The application is dismissed. The parties may arrange to speak to costs if they are unable to agree.

Heard on the 11 th day of March, 2009. Dated at the City of Calgary, Alberta this 15 th day of August, 2011.

J. Strekaf J.C.Q.B.A. Appearances: William R. Piechel, Q.C. Parlee McLaws LLP for the Plaintiffs Angus Partnership Inc. and Western Conservatory Realty Group Inc. Natasha Bazant Fraser Milner Casgrain LLP for the Defendants The Governing Council of The Salvation Army in Canada and The Governing Council of the Salvation Army Canada West