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  • JUN
  • 02

New Decision Addressing Issue of Privilege

by AMANDA BAFARO & GRACE TSANG from LISC on JUNE 3, 2016

Summary:

Master Short, confirms that:

(a) A discovery question about the existence of legal cost protection is a proper question and ought to be answered; and
(b) A discovery question about the particulars of the protection is an improper question and properly refused.

Master Short’s decision maintains the concept of privilege as it relates to Legal Cost Protection agreements and terms.

Case Commentary:

Since our launch in 2013, BridgePoint Indemnity Company (Canada) Inc. ("LISC") has been routinely asked if our indemnity agreements are privileged and if a defendant can demand disclosure of the cost protection we offer.

In prior blogs, LISC noted that our indemnity agreements are subject to privilege and should not be disclosed (please see our December 31, 2015 blog on the topic). Some recent decisions on point confirm this.

In Hayes v. The City of Saint John ("Hayes") the Court reaffirmed that an indemnity agreement was subject to "litigation privilege" as the agreement was an integral part of the plaintiff's litigation strategy.  The Judge noted:

The agreement in this case is a communication between the plaintiff and the third party with the input and advice of the plaintiff's solicitor. It is an integral part of the plaintiff's case and, in my view, is protected by litigation privilege, the object of which is to protect the adversarial process, not the solicitor-client relationship.

I find that disclosure of it in this case would impair the process by giving an unfair advantage to the defendants. I base that conclusion, not only on a reading of the agreement itself but also on the finding that the third party funding agreement is necessary to provide access to justice in this case.

Justice Carson went on to note that redacting the agreement to provide a copy to the defendant would harm the plaintiff as "seemingly innocuous portions of the agreement [could] take on significance as the case evolves, significance that was not apparent at the time of the redactions".

Subsequent to Hayes, an Ontario decision by Master Short was released in Abu-Hmaid v. Napar, 2016 ONSC 2894 (Master) ("Abu-Hmaid")reiterating privilege as it relates to legal cost protection agreements in the personal injury context.

In Abu-Hmaid, the plaintiff was involved in two motor vehicle accidents after which he commenced action. At discovery, the defendant lawyer asked if the plaintiff had legal cost protection. The plaintiff refused the question and the defendant brought a motion to compel a response.

The defendant argued that Rule 30.02(3) of the Rules of Civil Procedure (Ontario) necessitates disclosure. The defendant submitted that the plaintiff should be compelled to advise whether he currently has cost protection or whether he obtains such protection in the future.

Master Short closely examined Rule 30.02(3) and noted the Rule with the following emphasis:

"A party shall disclose and, if requested, produce for inspection any insurance policy under which an insurer may be liable,

(a) to satisfy all or part of a judgment in the action; or
(b) to indemnify or reimburse a party for money paid in satisfaction of all or part of the judgment,

But no information concerning the insurance policy is admissible in evidence unless it is relevant to an issue in the action."

Master Short was satisfied that "judgment", defined in Rule 1.03 as "a decision that finally disposes of an application or action on its merits, and includes a judgment entered into as a consequence of the default of a party", would include a judgment dismissing the action and awarding costs and Rule 30.02(3) would therefore seem to apply.

The Master concluded that the "existence" of legal cost protection was relevant to the resolution of personal injury actions and should be disclosed at the same stage as disclosure by the defendant is required under Rule 30.02 and ordered that the plaintiff advise whether or not any adverse costs insurance had been obtained and imposed an ongoing obligation to keep that information current up to the date of trial.

In other words, Master Short, confirms that:

(a) A discovery question about the existence of legal cost protection is a proper question and ought to be answered; and
(b) A discovery question about the particulars of the protection is an improper question and properly refused.

Master Short's decision maintains the concept of privilege as it relates to Legal Cost Protection agreements and terms. The Master did however, leave the door open to further challenges on this issue by saying:

"However, I am not convinced that with respect to this novel coverage, the specifics of the policy or the carrier are of any probative value in this case. It may be in the future that the factual situation in a case would justify the coverage quantum details equivalent to what is required by the rule with respect to tort claims." (emphasis added)

We understand that although a Notice of Appeal was filed, the defendant does not intend to proceed with the appeal in Abu-Hmaid. As a result, this decision will remain the status quo until challenged. It is well supported by an abundance of case law in the class action arena which has long supported that indemnity agreements are privileged.

In Australia, where the Judges have extensive experience with third party litigation funding arrangements, the Courts have confirmed confidentiality regarding them, noting:

But that first blush view is not the view that I would, on consideration adopt. To deny legal privilege to a funding agreement of this sort would fail to give proper weight to its inextricable connection with the very subject matter of the legal advice that might be given and the nature of the professional legal services to be rendered. It has the potential to reveal the litigant's likely legal strategy. The funding agreement in a literal and substantive sense, fulfils the purpose of providing legal services in terms not only of the overall capacity to have them at all, but also their availability at critical junctures in the case. While it may not reveal the content of legal advice, it reveals the confidential circumstances of its availability and throws oblique light on the confidential circumstances to which the advice is directed.

One could, for example, infer from a funding agreement the likelihood of tactical advice being given of a particular kind at different stages of the litigation or, for that matter, of the likelihood of an appeal being advised or not advised. I consider this funding agreement could do so. (at paras. 7-8)1

These principles were also adopted in other Australian cases including Apple v. Wiley, [2002] NSWSC 855, In the matter of Bauhaus Pyrmont Pty Ltd (in liq) [2006] NSWSC 543 (6 June 2006) at para. 46, and Green v CGU Insurance Ltd. (May 1, 2008) 50177/04 (NSW Comm. District) at paras. 27-28.

In Ontario, Mr. Justice Winkler (as he then was) excluded a defendant from a hearing of a funding application made to the Ontario Class Proceedings Fund absent the Plaintiff's consent on the following basis:

It is my view that the preferred approach would be for the Committee to obtain the consent of the plaintiff to inform the defendant of the pending application for funding, in order to obtain the defendant's analysis of the claim and its defence to it, so as to properly assess the merits of the case. If consent is forthcoming, the Committee may proceed directly to contact the defendant. If refused, the Committee must not disclose the application to the defendant and must proceed ex parte. (at para.42)2

LISC's affiliate has been at the forefront of obtaining approval on such agreements in the Canadian class action realm, including:

  1. In Hobshawn v. ATCO Gas and Pipelines Ltd., the Alberta Court of Queen's Bench granted an ex-parte Order approving the representative plaintiff's financing and indemnity agreement with the terms sealed by Court Order on the basis that the agreement was protected by common interest privilege. This was the first Order obtained by a litigation financing organization in Canada. The Alberta Court of Queen's Bench would make similar orders in Allen v. Direct Energy Marketing Ltd. and Windsor v. Canadian Pacific Railway.
  2. A Confidentiality Order was obtained in MacQueen v. Sydney Steel Corp. when plaintiff's class counsel obtained ex-parte approval of the financing and indemnity agreement.
  3. In British Columbia, the Court permitted a redacted version of a financing and indemnity agreement to be reviewed by defendant's counsel in Stanway v. Wyeth Canada Inc. ("Stanway") when class counsel sought approval of the agreement.  The Court made this exception because approval of the agreement was sought well after certification of the action and the action was approaching trial and wrote that in future cases, "the defendant may not always be granted [standing to make submissions] with respect to applications for court approval of [litigation funding agreements]."

In conclusion, the same principles that are true in class actions concerning privilege over indemnity agreements can be applied to indemnity agreements in personal injury actions:

  1. The agreement is fundamental to establishing a strategy for managing litigation risk and the conduct of the litigation. Disclosing the indemnity agreement to the defendant in a class action provides a "road map" for the representative plaintiff's litigation plan by revealing the limits, conditions, and staging of funding; changes in the amount of indemnity protection during the course of litigation; and potentially the valuation of the claim by plaintiff's class counsel where fees are usually a percentage of the claim;
  2. Privilege allows the plaintiff to deal with, obtain advice from, and make decisions with his or her counsel uninfluenced by the defendant's actions; and
  3. Knowledge of the terms of an indemnity agreement would be of tactical advantage to the defendant.

We will continue to monitor the area and report as decisions come to our attention.

1 Re Global Medical Imaging Management Limited (in liq), [2001] NSWSC 476
2 Garland v. Consumer's Gas, 22 O.R. (3d) 767 (S.C.)

Read Abu-Hmaid Decision
Read Hayes Decision

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