2011 QCCA 1558, 2011 QCCA 1558

Kansa General International Insurance Company Ltd. (Winding up of) 2011 QCCA 1558 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No: 500-09-021153-101 (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 IMPERIAL TOBACCO CANADA LIMITED ET AL. APPELLANTS – Claimants v.

FERDINAND ALFIERI, in his capacity as liquidator of Kansa General International Insurance Company Ltd. 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 appellants’ motion in part, but ordered that they communicate to the respondent any document related to its 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 Carine Bouzaglou, Mtre Sandra Abitan and Mtre Julien Morissette Osler, Hoskin & Harcourt, S.E.N.C.R.L. / s.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 appellants’ motion in part, but ordered that they communicate to the respondent any document related to its claim, subject to a sealing order. [ 5 ] Appellants are beneficiaries of liability insurance policies issued by Kansa General International Insurance Company Ltd. (hereinafter “Kansa”) between 1983 and 1986, covering legal fees and damages that it may be ordered to pay as the result of lawsuits. Kansa was ordered to wind-up in 1995 pursuant to the Winding-Up and Restructuring Act [1] and respondent was appointed liquidator.

Respondent transmitted to Appellants a notice under s. 75 of the WURA “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.” [ 6 ] Appellants filed in November of 2007 a proof of claim for a substantial amount on the basis of the various claims, including legal fees, brought against them by individuals and governments.

Respondent did not take position as to whether it has a duty to defend appellants in the lawsuits brought against them and requested in 2009 “all relevant particulars and supporting invoices regarding the amount claimed against [it]”. [2] [ 7 ] On June 20, 2010, appellants filed an Amended motion for a declaratory order relating to privilege and for related orders , seeking a declaration that the invoices for legal fees are privileged and not subject to disclosure until it is confirmed that respondent has a duty to represent appellants and that, if any, disclosure must be limited to

Summary Statements of Account and subject to a sealing order. [3] These

Summary Statements of Accounts would only contain financial information, and not indicate the nature of the services rendered or the tenor of the advice given. JUDGMENT IN FIRST INSTANCE [ 8 ] Respondent sought to obtain copies of the invoices from the appellants' lawyers, as well as those of Rothmans, Benson & Hedges Inc., which was also party to the proceedings and have also sought an appeal from the judgment in first instance. Appellants demanded in response that they be ordered to provide only

Summary Statements of Accounts within 60 days of receiving confirmation that their claim would be covered and that these statements would remain subject to a sealing order against third parties. [ 9 ] The Superior Court 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. The motions judge was of the view that appellants had renounced their lawyer-client privilege by claiming their lawyers’ expenses.

Finally, the judge granted the sealing order demanded in view of protecting the lawyer-client privilege towards third parties. QUESTIONS IN DISPUTE 1. Are the invoices prima facie privileged? 2. Did Justice Lalonde err in failing to postpone the disclosure of the invoices until a final determination of the existence of a duty to defend? 3. Did Justice Lalonde err in not limiting appellant’s disclosure obligations to the

Summary Statements of Account? 4. Did Justice Lalonde err in concluding that appellants waived privilege by filing the Proof of Claim? 5. Did Justice Lalonde err in refusing to interfere with the Liquidator’s discretion without first examining the effect it had on Imperial’s right to solicitor-client privilege? ANALYSIS 1. Are the Invoices prima facie privileged? [ 10 ] The Supreme Court restated in Solosky v.

The Queen the importance of the solicitor-client privilege to the workings of our justice system, indicating that citizens should be able to place “unrestricted and unbounded confidence in the professional agent” they hire. [4] More recently, the Supreme Court stressed in Descôteaux et al. v. Mierzwinski that “ all communications made within the framework of the solicitor-client relationship” are confidential . [5] Finally, in the criminal context of Maranda v.

Richer , the Supreme Court ruled that “ [the amount of lawyer fees] falls prima facie within the privileged category”. [6] [ 11 ] Respondent is right to argue that this question is not at issue, inasmuch as the trial judge recognized the privileged nature of the statements of account in the present case. Consequently, I would answer this first question affirmatively and note that the motions judge did not err in this respect.

2. Did Justice Lalonde err in failing to postpone the disclosure of the invoices until a final determination of the existence of a duty to defend? [ 12 ] 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. [ 13 ] The objective of the Act is described by Justice Gonthier in Coopérants, Mutual Life Insurance Society (Liquidator of) v.

Dubois as being 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. [7] [ 14 ] The question put to us is whether an insurer’s duty to defend must be established before the liquidator can request the proof of claims against it under s. 75 of the WURA . The motions judge answered the question negatively. Appellants argue that this

interpretation is erroneous in view of the fundamental importance of the solicitor-client privilege. [ 15 ] Royer and Lavallée note that, in private law matters of federal jurisdiction, the solicitor-client privilege originates in the common law. [8] The codification of s. 9 of the Charter of Human Rights and Freedoms applies in a complementary manner: 9 . Every person has a right to non-disclosure of confidential information.

No person bound to professional secrecy by law and no priest or other minister of religion may, even in judicial proceedings, disclose confidential information revealed to him by reason of his position or profession, unless he is authorized to do so by the person who confided such information to him or by an express provision of law. The tribunal must, ex officio , ensure that professional secrecy is respected. [ 16 ] The Civil Code of Quebec provides: 2858.

The court shall, even of its own motion, reject any evidence obtained under such circumstances that fundamental rights and freedoms are breached and that its use would tend to bring the administration of justice into disrepute. The latter criterion is not taken into account in the case of violation of the right of professional privilege. [ 17 ] The Professional Code imposes obligations of confidentiality upon lawyers [9] and the Code of ethics of advocates requires them to refrain from using confidential information obtained in the course of their professional activities. [10] In Descôteaux et al. v.

Mierzwinski , Justice Lamer indicated that the solicitor-client privilege was more than a rule of evidence, but a substantive rule. Applying the principles established in Solosky v.

The Queen , he was of the opinion that interpreting a statute which might breach confidentiality should be done “with a view to not interfering with it except to the extent absolutely necessary in order to achieve the ends sought by the enabling legislation.” [11] This case concerned the censorship of an inmate’s correspondence with his lawyer to the extent considered necessary or desirable for the rehabilitation of the inmate or the security of the institution under the Penitentiary Act. [12] [ 18 ] The importance “of keeping impairments of solicitor-client privilege to a minimum” was restated in Maranda. [13] The case concerned the search of a lawyer’s office for documents related to the criminal activities of one of his clients.

It must be noted that the Supreme Court, declaring the search unreasonable and abusive, explicitly distinguished its ruling from “civil or commercial cases” [14] and from the ruling of our Court in Kruger Inc. v. Kruco Inc. in which case objections to questions regarding legal statements of account were dismissed, on the basis that the statements where only of

summary nature. [15] [ 19 ] From this review of the cases, one may conclude that statutes should be interpreted as allowing strictly limited invasions of the solicitor-client privilege in civil contexts, albeit to a degree less stringent than in criminal ones. [ 20 ] A question similar to the present one was put to our Court in Kansa General International Insurance Co. (Liquidation de) . [16] The Government of Ontario challenged the liquidator’s request that it establish both Kansa’s duty to defend claims brought against it for infections caused by poisoned blood and the amount of these claims under s. 75 of the WURA .

It claimed that this was premature in view of the fact that Kansa’s insolvency had not been established and that it was up to the Superior Court to request the proof of the amounts claimed under s. 74. Justice Beauregard was of the opinion that both determinations could be made at the same time upon request by the liquidator:

Dans les circonstances je ne vois absolument aucune objection à ce que le tribunal statue le plus rapidement possible et en même tempssur les deux prétentions de Kansa suivant lesquelles elle ne doit ni s'occuper de la défense judiciaire de l'Ontario ni indemniser celle-ci.[17] [21] In her dissenting reasons, Justice Rousseau-Houle was of the opinion that this would cause undue hardship to the claimantbecause some claims had not yet been proven, although she did recognize that proceeding in a single step would be acceptable in somecircumstances : En forçant la Couronne à prouver qu'elle a non seulement des réclamations qui sont prima facie admissibles, mais égalementindemnisables même si plusieurs réclamations n'ont pas encore été prouvées et encore moins quantifiées, le liquidateur cause indûmentpréjudice à cette dernière.

Puisque Kansa est toujours considérée comme une compagnie solvable au Canada, la Couronne est justifiée dedemander, à cette étape des procédures, que soit d'abord déterminée l'obligation de défendre de Kansa dans le dossier du sang contaminéoù elle nie toute couverture.

S'il est vrai qu'en matière de liquidation d'une compagnie d'assurance insolvable, l'obligation de défendre et d'indemniser pourrait êtredéterminée dans le même temps, il me paraît que ce n'est pas le cas ici. […][18] [22] Despite the differences between this case and the present case, the same basic principles should apply here by analogy. [23] Finally, respondent rightly argues that he must be free from interference in the process of protection of the creditors’ interests.This proposition draws support from Justice Gonthier’s opinion in Coopérants, where he indicated that the liquidator’s discretion in thedisposition of the assets should not be restricted, except by orders of the Court.[19] It was also confirmed by Justice Rousseau-Houle ofthis Court in her dissent in Kansa: […] La loi donne, en effet, au liquidateur une certaine discrétion dans l'exercice de ses fonctions dont celle de requérir, avecl'approbation du tribunal, les preuves de réclamations.

L'article 75 me paraît, à cet égard, compléter l'article 35 qui porte sur les pouvoirsdu liquidateur. Dans Kansa General International Insurance Co. (Liquidation de), (affaire Maska), (QC C.A.),[1998] R.J.Q. 1380 (C.A), la juge Mailhot, exprimant l'opinion de la Cour, écrit: The general scheme of the Winding-up and Restructuring Act and of the Winding-up Order is to have the liquidator take overall chargeof the winding-up operations, although this is always subject to the court's authority.

If the liquidator does not have a specific power, hecan ask to be authorized to do whatever may be necessary for winding up the affairs of the company (s.35 (1) (h)), and he should not berestricted to only matters of an administrative or technical nature.[20] [24] Various principles can be found in the cases reviewed. Firstly, the solicitor-client privilege is a substantive rule. In a civilcontext, it demands that legislation authorizing its curtailment be interpreted in a restrictive way and that the infringement be limited,although not as strictly as in the criminal context.

Secondly, a liquidator may request at the same time that creditors prove the amounts oftheir claims and demonstrate prima facie that the liquidator has the duty to defend them. Thirdly, the legislative objectives of orderly andexpeditious liquidation of the company and of limitation of harm to interested parties should guide the action of the liquidator under theAct.

Finally, the liquidator has the overall charge of the winding-up operations, he or she enjoys broad discretion in the exercise of itstasks, and should not be bound by the creditors’ preferences. [25] Unlike the appellants’ disclosure obligation stemming from its insurance contract with Kansa, this duty is created by statute.Section 75 of the WURA requires that creditors “prove their claims to the satisfaction of the court.” The purpose of this process is topermit the Court to “allow or disallow” the claims according to s. 76 of the WURA after the relevant proof has been transmitted.

It aimsat validating particular amounts and necessitates that the claims be supported by relevant evidence. [26] In view of the foregoing, I am of the opinion that the motions judge has not erred by treating the questions of the duty todefend and the nature and the quantum of legal fees jointly. I will address the question of the level of detail required in the next chapter. Iapply the standard put forth by Justice Rousseau-Houle and do not see how proceeding jointly on the duty to defend and the quantum ofthe legal fees claimed would cause appellants undue hardship.

They have raised the question of the costs and delays related to producingdetailed information relating to its claims (the scope and nature of the service rendered or advice given), but producing “l’ensemble de ladocumentation relative aux preuves de réclamation des requérantes/réclamantes” is both necessary to the evaluation of the amountsclaimed and proportional to the size of these sums. The motions judge has not erred in assessing the absence of hardship imposed,especially since, unlike in Kansa, the insurance company has already been ordered to wind up in the present case.

As Justice Beauregarddecided, there is absolutely no useful purpose to be achieved by proceeding in two separate steps.[21] [27] In conclusion, the motions judge did not err in interpreting the WURA as allowing a liquidator to evaluate both admissibilityand quantum of the claimed legal fees in a single step where this does not impose undue hardship on the appellants, and in requiringdetailed proofs of claim in order to do so. 3. Did Justice Lalonde err in not limiting appellants’ disclosure obligations to the

Summary Statements of Account? [28] As discussed previously, the principle according to which disclosure obligations can be limited in the present case is that ofthe solicitor-client privilege. In Kruco, our Court confirmed judgments dismissing objections to questions regarding

summary statementsof lawyers’ accounts on the basis that they did not violate solicitor-client privilege. The Court noted that these only contained names andamounts, rather than indications as to the services rendered or opinions given.[22] [29] In the present case, the motions judge ordered communication of “l’ensemble de la documentation relative aux preuves deréclamation des requérantes/réclamantes”, which by far exceeds what was at issue in Kruco. However, as I indicated in the precedingquestion, respondent is empowered by statute to assess the duty to defend and the quantum of the claims.

Summary Statements ofAccount limited to financial information, akin to those transmitted by Rothmans, Benson & Hedges Inc. in file 500-09-021153-104,would only contain the date of the relevant invoices, the identity of the issuer of invoices, the identity of the Court file to which eachinvoice relates and the aggregate amount of legal fees and disbursements charged. This is inadequate to prove the validity of the amounts

claimed for legal services and allow for their verification. Consequently, I would also answer this question in the negative. 4. Did Justice Lalonde err in concluding that appellants waived privilege by filing the Proof of Claim? [ 30 ] The motions judge decided that appellants had tacitly waived their solicitor-client privilege at the moment they filed a claim for their legal fees: [L]e Tribunal est d’avis que les « cigarettiers » ont tacitement renoncé au privilège avocat-client en revendiquant sans distinction les honoraires de défense encourus.

En réclamant des honoraires professionnels, ceux-ci ne peuvent refuser l’accès aux documents qui sont au cœur même de leur réclamation. Il n’appartient pas aux réclamantes de décider du moment où il sera permis au liquidateur d’en vérifier la valeur. [ 31 ] Our Court summarized in Commission des normes du travail v. Corporation de sécurité Garda World the three applicable criteria necessary for an implicit waiver of confidentiality of a document: voluntariness, clarity and obviousness. [23] The Supreme Court discussed in Glegg v.

Smith & Nephew Inc. the requirement of clarity, specifying that the waiver of professional secrecy cannot be presumed and must be deduced from the actions of its holder : Although a waiver cannot be presumed, the courts and the commentators have acknowledged this form of waiver and given effect to it. An implied waiver is inferred from actions of the holder of the right that are inconsistent with an intent to maintain professional secrecy or, rather, to avoid the disclosure of confidential information protected by professional secrecy. [24] [ 32 ] Our Court made clear in Boisvert v. Corp.

Planagex ltée that making certain assertions in legal procedures that can only be verified by consulting privileged documents equates to an implicit waiver of such privilege. In this case, a party pleaded that it had acted reasonably to minimize its losses, but refused to communicate the documents exchanged with its counsel to this effect.

The Court concluded that privilege had implicitly been waived: La règle de la confidentialité qui protège les communications entre l'avocat et son client comporte certaines exceptions, dont celles où, comme en l'espèce, (1) le client y renonce de façon implicite dans ses procédures et (2) que justice exige que certaines communications confidentielles soient divulguées à l'autre

partie pour sa défense pleine et entière. [25] [ 33 ] I am of the view that by filing a proof of claim for legal fees according to the WURA , appellants implicitly waived their solicitor-client privilege to the extent necessary for reasonable verification of such claim by the liquidator, considering the insurance contract at stake. However, this renunciation is not erga omnes ; it cannot be invoked by third parties, and is limited to the liquidator. In keeping with the Supreme Court’s formulation in Glegg v.

Smith & Nephew Inc. , it would be inconsistent to claim an amount disbursed for legal fees and, at the same time, prevent access to the invoices establishing the circumstances in which these amounts were spent. [ 34 ] Nonetheless, it is important to note that the present case arises in the context of a liquidation claim, rather than regular civil proceedings, and in the context of an insurance contract. In my view, the proofs of claim transmitted meet the criteria established in Garda to waive privilege regarding statements of accounts insofar as the liquidator is concerned .

The proofs of claim contain indication of the jurisdiction, plaintiffs, defendants and court file number of different actions brought against appellants, as well as a single figure of the legal fees claimed for all these procedures.

They amount to a voluntary, clear, and obvious waiver of privilege regarding the actual invoices, because they alone are insufficient for diligent verification by respondent of the amounts claimed and repartition of Kansa’s assets among creditors. [ 35 ] Furthermore, appellants’ argument according to which the filing of a proof of claim was not voluntary and cannot amount to an implicit waiver does not stand. It is filed for the express purpose of safeguarding a substantial claim and it may be withdrawn at any time.

This line of reasoning was adopted by Justice Vézina of our Court in Société des loteries du Québec v. Brochu , submitted by respondent. [26] [ 36 ] Consequently, I would conclude that the motions judge did not err in this respect and answer this question affirmatively. 5. Did Justice Lalonde err in refusing to interfere with the Liquidator’s discretion without first examining the effect it had on appellants’ right to solicitor-client privilege? [ 37 ] This last question is premised upon the assumption that the motions judge did not examine the effect of his conclusions on appellants’ solicitor-client privilege.

I cannot agree with this assumption, since in at least two instances the judge indicated that he had evaluated the reasonableness of respondent’s demand to communicate documents under s. 75 of the WURA : La demande du liquidateur de prendre connaissance des états de compte et factures détaillées des honoraires d’avocats réclamés n’est pas déraisonnable. […] En l’instance, le Tribunal est d’avis qu’il est opportun, à ce stade, pour le liquidateur d’évaluer la raisonnabilité des réclamations des « cigarettiers » afin de mieux gérer l’ensemble des réclamations par ailleurs pendantes. [ 38 ] In light of the above paragraphs, I am of the view that the motions judge did evaluate the effect his order would have on appellants’ solicitor-client privilege.

For this reason, I would answer the question negatively. CONCLUSION [ 39 ] For the reasons mentioned, I would dismiss the appeal, with costs.

J.J. MICHEL ROBERT, C.J.Q.