2011 QCCA 1557, 2011 QCCA 1557

Kansa General International Insurance Company Ltd. (Winding up of) 2011 QCCA 1557 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No: 500-09-021156-104 (500-05-002760-955) DATE: August 31, 2011 CORAM: THE HONOURABLE J.J. MICHEL ROBERT, C.J.Q. MARIE-FRANCE BICH, J.A. JACQUES DUFRESNE, J.A. IN THE MATTER OF THE WINDING UP OF: KANSA GENERAL INTERNATIONAL INSURANCE COMPANY LTD. Debtor and ROTHMANS, BENSON & HEDGES INC. ET AL. APPELLANTS – Claimants v.

FERDINAND ALFIERI, in his capacity as liquidator of Kansa General International Insurance Company in Canada RESPONDENT – Liquidator JUDGMENT [ 1 ] THE COURT: On appeal from a judgment of the Superior Court, District of Montreal (the Honourable Mr. Justice Jean- Yves Lalonde) rendered on October 27, 2010 which granted in part the motion filed by appellants, but ordered that they communicate to the respondent any document related to their claim, subject to a sealing order; [ 2 ] For the reasons of Robert, C.J.Q., with which Bich and Dufresne, JJ.A. agree; [ 3 ] DISMISSES the appeal, with costs. J.J.

MICHEL ROBERT, C.J.Q. MARIE-FRANCE BICH, J.A. JACQUES DUFRESNE, J.A. Mtre Mark Bantey Gowling, Lafleur, Henderson s.e.n.c.r.l. For appellants Mtre Eugène Czolij and Mtre Mathieu Thibault Lavery, de Billy s.e.n.c.r.l. For respondent Date of hearing: April 12, 2011

REASONS OF THE CHIEF JUSTICE FACTS AND PROCEEDINGS [ 4 ] This is an appeal from a judgment of the Superior Court (the Honourable Mr. Justice Jean-Yves Lalonde, October 27, 2010). The judge granted in part the motion filed by appellants, but ordered that they communicate to the respondent any document related to their claim, subject to a sealing order. [ 5 ] Appellants were beneficiaries of liability insurance policies issued by Kansa General International Insurance Company Ltd. (hereinafter “Kansa”).

Kansa was ordered to wind-up in 1995 pursuant to the Winding-Up and Restructuring Act [1] and respondent was appointed liquidator. [ 6 ] In August 2007, respondent transmitted appellants a notice under s. 75 of the WURA requiring them “to prove, to the satisfaction of the Superior Court […] all their alleged claims against Kansa in Canada.” In September 2007, appellants filed a proof of claim for a substantial amount, including legal fees.

At a case management conference held in March 2010, appellants undertook to “Transmit to the Liquidator all relevant particulars and supporting documents and invoices regarding the amount claimed against Kansa”. Accordingly, they transmitted to respondent a Spreadsheet containing a series of bill numbers, bill dates, fees and names of the corresponding legal firm, along with total amounts per action brought against them.

The document contains no description of the services provided. [ 7 ] Furthermore, on June 30, 2010, they filed a Motion for directives and confidentiality order , seeking a declaration that the invoices requested by respondent are privileged and not subject to disclosure until confirmation that Kansa had a duty to represent them. JUDGMENT IN FIRST INSTANCE [ 8 ] The judgment on appeal also rules on a motion presented by Imperial Tobacco Canada Ltd. (file number 500-09-021153- 101). Respondent sought to receive copies of appellants' invoices for legal fees, as well as those of Imperial Tobacco Canada Ltd.

Appellants provided respondent with a Spreadsheet of its defence costs and demanded that they be allowed to provide detailed invoices only upon receiving confirmation from respondent that their claim would be covered under the insurance policy. They also demanded that these remain subject to a sealing order against third parties. [ 9 ] The Court refused to grant the order sought and ruled that respondent’s demand was reasonable in view of all the other pending claims he faced, his need to evaluate their merit, and his right to a full and fair defence.

It held that appellants had renounced their lawyer-client privilege by claiming their lawyers’ expenses. Finally, the Court granted the sealing order demanded in view of protecting the lawyer-client privilege towards third parties. QUESTION IN DISPUTE [ 10 ] I find useful to address the issues raised by appellants by answering the two questions put forth by respondent: 1. Did Justice Lalonde err in refusing to make the disclosure of the invoices subject to the respondent first confirming that a duty to defend exists under the Insurance Policies? 2.

Did Justice Lalonde err in reaching the conclusion that appellants had waived their solicitor-client privilege regarding the invoices? ANALYSIS 1. Did Justice Lalonde err in refusing to make the disclosure of the Invoices subject to the respondent first confirming that a duty to defend exists under the Insurance Policies? [ 11 ] The WURA provides: 75 .

(1) The liquidator may give notice in writing to creditors who have sent in their claims to him or of whose claims he has notice, and to creditors whose claims he considers should not be allowed without proof, requiring them to attend before the court on a day to be named in the notice and prove their claims to the satisfaction of the court.

(2) Where a creditor does not attend in pursuance of the notice given under subsection (1), his claim shall be disallowed, unless the court sees fit to grant further time for the proof thereof.

(3) Where a creditor attends in pursuance of the notice given under subsection (1), the court may on hearing the matter allow or disallow the claim of that creditor in whole or in part. 76 .

(1) After the notices required by sections 74 and 75 have been given, the respective times specified in the notices have expired and all claims of which proof has been required by due notice in writing by the liquidator in that behalf have been allowed or disallowed by

the court in whole or in part, the liquidator may distribute the assets of the company or any part of those assets among the persons entitled to them and without reference to any claim against the company, or, in the case of an authorized foreign bank, against the authorized foreign bank in respect of its business in Canada, that has not then been sent to the liquidator.

(2) The liquidator is not liable to any person whose claim has not been sent in at the time of distributing the assets or part thereof under subsection (1) for the assets or part thereof so distributed. [ 12 ] As I indicated in my reasons for judgment in file number 500-09-021153-101, the objective of the Act is the orderly and expeditious closing down of a company’s business by a court-appointed liquidator with a view to minimizing the losses of creditors and other interested parties. [ 13 ] Appellants argue that, in cases involving an insurance company, the existence of the insurer’s duty to defend a lawsuit should be established before the liquidator can request transmission of a lawyer’s invoices as proof of the insured company’s claim.

They add that the Supreme Court has held that, by reason of the “pleadings rule”, mere pleadings are sufficient to establish an insurer’s duty to defend, regardless of whether the facts alleged are true or not. [2] [ 14 ] I do not think that the proposed approach can be applied in the present case. While the “pleadings rule” is relevant to determine an insurer’s duty to defend pursuant to an insurance contract, the present case arises in a liquidation context.

Section 75 of the WURA empowers liquidators to request claimants “to prove their claims to the satisfaction of the court” and this process is aimed, as s. 76 indicates, at allowing “the liquidator [to] distribute the assets of the company or any part of those assets among the persons entitled to them”.

This renders apparent that, contrary to the determination of a duty to defend, the transmission of pleadings is not sufficient, in the specific context of a winding-up, to establish a claim’s amount for the purpose of distribution among creditors. [ 15 ] Our Court addressed specifically the relevance of following a two-step process in similar circumstances in Kansa General International Insurance Co. (Liquidation de) . [3] As I indicated in my reasons in file number 500-09-021153-101, Justice Beauregard was of the view that both the determination of the duty to defend and of the amounts claimed could be made at the same time upon request by the liquidator.

In dissent, Justice Rousseau-Houle was of the opinion that, in view of the facts before her, this would cause undue hardship to the claimant because some claims had not yet been proved or evaluated. Nonetheless, she recognized that proceeding in a single step would be acceptable in some circumstances. [4] [ 16 ] In the present case, I can see no hardship being caused by proceeding with the determination of the duty to defend and the proof of the claimed amount jointly.

This is especially true since the amounts of lawyer’s expenses have been evaluated by appellants during the preparation of the Spreadsheets, that lawyers have an ethical obligation to prepare detailed accounts for their clients and that these can easily be organized and transmitted to respondent. For these reasons, I would conclude that the motions judge did not err in evaluating the appropriateness of proceeding in a single step and would answer this first question negatively. 2.

Did Justice Lalonde err in reaching the conclusion that appellants had waived their solicitor-client privilege regarding the invoices? [ 17 ] The fact that lawyer’s invoices are protected by solicitor-client privilege cannot be overlooked.

In file number 500-09- 021153-101, I emphasized that the solicitor-client privilege constitutes a substantive rule, which demands that impairments be limited to a minimum. [ 18 ] Nonetheless, I am convinced that when a party files a proof of claim for legal fees according to the WURA , it implicitly waives its solicitor-client privilege regarding the documents containing the information referred to. However, this renunciation is not erga omnes ; it cannot be invoked by third parties, and is limited to the liquidator.

In the present case, the Spreadsheet transmitted contains various references to bills and totals amounts calculated per action brought against appellants, but it allows no verification of the nature of the services provided.

As in file number 500-09-021153-101, I am of the view that this equates to an implicit waiver of solicitor-client privilege regarding invoices, since appellants’ assertions as to their fees can only be verified by referring to the actual invoices. [5] This meets the three applicable criteria necessary to for an implicit waiver of confidentiality of a document established by our Court in Commission des normes du travail v. Corporation de sécurité Garda World : voluntariness, clarity and obviousness. [6] [ 19 ] For these reasons, I would also answer the second question by the negative.

CONCLUSION [ 20 ] I would dismiss this appeal, with costs. J.J. MICHEL ROBERT, C.J.Q.