Litigation Privilege – What About Communications Amongst the Board of Directors?

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Does Litigation Privilege Apply to Communications Amongst the Board of Directors?

Litigation privilege prevents a party to litigation from having to disclose documents that were made in anticipation of or for the purpose of litigation. Litigation privilege ensures the efficacy of Canada’s adversarial process by giving parties a “zone of privacy” to conduct investigations and prepare for litigation.[1]

While solicitor-client privilege is broader in scope, litigation privilege is distinct in that it is not limited to confidential communications between a solicitor and client. Litigation privilege does not require a solicitor to be a party to the communications whatsoever. However, the courts have noted that litigation privilege, in comparison to solicitor-client privilege, is “less absolute, more fact-driven and subject to challenge.”[2]

A pertinent question then arises: does litigation privilege protect communications among directors of a corporation or society?

Litigation Privilege Criteria

The short answer is it depends. For litigation privilege to apply, the party asserting privilege must establish for each document over which privilege is being claimed:

(1) that litigation was ongoing or was reasonably contemplated at the time the document was created; and

(2) that the dominant purpose of creating the document was to prepare for that litigation.[3]

The two-prong test is objectively assessed, meaning very little consideration is given to the party’s subjective thoughts. The first prong of the test is assessed by asking: “Would a reasonable person being aware of the circumstances conclude that the claim will not likely be resolved without litigation?”[4] The analysis of the second prong is fact-driven, focusing on the surrounding circumstances in which the document was created.[5] Considerations in this analysis include “when [the document] was created, who created it, …and what use was or could be made of it.”[6]

How to Protect Directors’ Correspondence

If directors intend to rely on litigation privilege to protect their correspondence, they must ensure that the documents are created in the face of litigation, and that the dominant purpose of the documents is for the impending litigation. It is prudent practice for directors to specify that the dominant purpose of the document is for litigation. Additionally, directors should avoid including disparaging or irrelevant comments in the correspondence to maintain the dominant purpose of litigation.

[1] Blank v Canada (Minister of Justice), 2006 SCC 39 at paras. 27 and 34.
[2] Stone v Ellerman, 2009 BCCA 294 at para. 27.
[3] Gichuru v British Columbia (Information and Privacy Commissioner), 2014 BCCA 259 at para. 32.
[4] Raj v Khosravi, 2015 BCCA 49 at para. 11.
[5] Ibid, at para. 17.
[6] Birring Development Co. Ltd. v Binpal, 2021 BCSC 1298 at para. 31.

 

Contact Heath Law in Nanaimo for any questions.

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Fraudulent Misrepresentations in Real Estate Transactions: The Truth Hurts, But Lies Kill Contracts

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Understanding Fraudulent Misrepresentations in Real Estate Contracts

A recent decision out of Ontario (1000425140 Ontario Inc. v 1000176653 Ontario Inc., 2023 ONSC 6688) illustrates how fraudulent misrepresentations in real estate transactions can lead to the rescission of the contract. The case involved Aiden Pleterski, the self-described “Crypto King”, and NBA basketball star, Shai Gilgeous-Alexander. The defendants fraudulently misrepresented to the plaintiff, Gilgeous-Alexander, that the luxury home was private and secure, and omitted to disclose the ongoing safety risk of defrauded investors attending the property and threateningly demanding to know where Mr. Pleterski was. There was ample evidence to support the ongoing safety risk, including Mr. Pleterski being kidnapped, held hostage and physically harmed by people he had defrauded. The Court found that the defendants knew of the safety risk at the property. The Court held that the safety concerns of the plaintiff were legitimate and not simply “sensitivities or superstitions.”

The defendants argued that they were shielded from liability by the “buyer beware” doctrine and argued that they did not make any fraudulent misrepresentations. However, the Court held that rescission of the contract was the appropriate remedy in this case, putting the parties back to their original positions.

What is a Fraudulent Misrepresentation?

A fraudulent misrepresentation occurs where a representation of fact is made without any belief in its truth, with the intent that the person to whom it is made shall act upon it and actually causing that person to act upon it. A fraudulent misrepresentation may be a direct lie or a significant omission, also known as a half-truth. Generally, an executed contract for the sale of land can only be rescinded if fraud is present.

What is the “Buyer Beware” Doctrine?

The “buyer beware”, or caveat emptor doctrine operates to protect sellers of land by holding buyers responsible for defects that would be discoverable upon a reasonable inspection. Simply put, a seller is not responsible for everything that could potentially impact a property, but they may be responsible where they knew of, or ought to have known of the presence of the defect and failed to disclose it to the purchaser. As such, fraudulent misrepresentations are one exception to the doctrine. A seller who makes a fraudulent misrepresentation cannot rely on caveat emptor to shield themselves from liability.

Could this Outcome Occur in British Columbia?

Had this case occurred in British Columbia, it is possible that the outcome would be the same. However, it would require exceptional facts. In a case out of the Court of Appeal for British Columbia (Wang v Shao, 2019 BCCA 130), the seller’s omission about a murder on the property was not found to be a fraudulent misrepresentation, and the buyer was not entitled to rescission. In another case out of BC (Karner v Kuhnke, 2021 BCSC 1942), a couple selling a home failed to disclose a geotechnical report identifying a dangerous rock wall behind the house requiring costly remediation work. The sellers only disclosed that some rocks had fallen onto the deck but did not disclose the full extent of the risk. By intentionally revealing only parts of the truth, the buyers were led to believe that the rock wall was not an issue. The Court found that the half-truths told by the sellers regarding the rock wall amounted to a fraudulent misrepresentation. The sellers were liable for the tort of deceit. The plaintiff buyers in this case did not seek rescission, however, rescission of the contract may have been an alternative remedy had they not wanted to keep the property.

If you think you’ve been a victim of a fraudulent real estate transaction, book a consultation with Nanaimo’s best team of legal experts in real estate law and litigation.

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Removing a Builders Lien in BC

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I have had a Builders Lien filed against my property; what can I do to remove it?

Generally, a builders’ lien is a charge on property by a person who has supplied work or material to a building under construction. Since builders’ liens are typically simple and inexpensive to file against property, an owner may find themselves in a situation with multiple liens against their title. The filing of a builders’ lien can have an immediate and serious impact. It may affect the ability to gain financing or interfere with the sale of the property. Therefore, it may be necessary for persons affected by a lien to have methods at their disposal to obtain a discharge of the lien.

The Builders Lien Act (“BLA”), ss. 22 to 25, outline procedures for how persons who have interests in the liened property can obtain the discharge of liens. For example, section 24 of the BLA provides that a claim of lien can be cancelled by “giving security”. This process essentially involves money being paid into court. The money paid is considered to be sufficient to cancel the claim of lien and allows the person who has the interest in the property to carry on activities as usual. There are other legal means to discharge a builders’ lien, and our team of real estate and litigation experts can provide you with this advice. Call our office at 250-753-2202 to request an appointment.

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Filing a Builders Lien

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Filing a Builders Lien against the owner of a property for lack of payment

The Builders Lien Act (BLA) can be an important tool for those in the construction industry.

One of the main purposes of a builders lien is to ensure that owners are not able to obtain an improvement to their land without paying for work and materials used to create such an improvement. In order to claim a builders lien a person may be a contractor, subcontractor, or worker as defined under s. 1(1) of the BLA; and have performed or provided work, supplied material or both in relation to an improvement. For example, a subcontractor can file a lien to recover monies owed for improvements made on the construction of a new multi-residential building. Section 1(1) of the BLA provides clarification in the form of definitions of contractor, subcontractor and worker. They are as follows:

  • Contractor: A person contracting with or employed directly by an owner to perform or provide work and/or to supply materials in relation to an improvement.
  • Subcontractor: A person engaged by a contractor or another subcontractor to perform or provide work or supply materials in relation to an improvement. Note that the definition does not include a worker or person engaged by an architect, engineer, or material supplier.
  • Worker: A person engaged by an owner, contractor, or subcontractor for wages in any kind of work, whether employed under a contract of service or not, but the definition does not include an architect or engineer, or person engaged by an architect or engineer.

The BLA also defines an owner as:

  • a person who has any legal or equitable interest in the land on which an improvement is made, at whose request and
    • 1. on whose credit or behalf,
    • 2. with whose knowledge or consent, or
    • 3. for whose direct benefit the work is done, or material is supplied. [section 1(1)]

Filing a builders lien can be complicated as there are many important deadlines. Obtain legal advice and direction from a lawyer when considering filing a lien to ensure that the lien is filed correctly and within the permitted time.

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An Eye for an Eye: False Accusations by one Parent Against the Other in Family Law Proceedings

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There are multiple possible outcomes and effects that may come from a parent making false accusations/allegations against the other parent, and none are positive for the accusing parent. These outcomes may range from increased costs against the accusing parent to having the Ministry for Child and Family Development become involved with the family, and the accusing parent may potentially lose their parenting time.

False accusations by one parent against another, or against professionals employed in the process of the proceedings, may reflect poorly on the accusing parent’s ability to parent their child. Making false accusations has been a factor demonstrating the accusing parent’s inability to act in the child’s best interests, which is the only relevant factor when the Court is considering how to allocate parenting responsibilities and parenting time (previously known as custody). Making untrue and harmful accusations against the other parent has been found by the Court as evidence that the accusing parent is attempting to alienate the child from the other parent, an act that cannot be considered to be in the child’s best interest. Parental alienation may occur when one parent tries to get a child to hate or be fearful of the other parent. In trying to make the other parent look bad through untrue statements or accusations, the accusing parent is more likely to be hurting their own case and showing to the court that they are unable to behave in their child’s best interests. In the vast majority of cases, the child’s best interest includes fostering a positive relationship with both parents. When a parent shows they will go to extreme lengths to hurt the other parent, it demonstrates to the Court that the accusing parent is unable to put their child’s needs before their own.

When a parent makes false accusations or allegations against the other parent, the Ministry of Child and Family Development may have to become involved with the family. Depending on the nature of the false accusations/allegations, there may be serious disruptions to the child’s life. The Ministry may stay involved if they determine that the accusing parent is attempting to alienate the child from the other parent, and it may be found that the accusing parent is partaking in family violence by trying to weaponize the court process or Ministry against the other parent or the child. This kind of behaviour is not in the best interests of the child, and the accusing parent may have their parenting time supervised, restricted, or removed until they can show they can genuinely act in the best interests of the child.

The accusing parent may also have special costs awarded against them based on their conduct during the family law proceedings, which includes whether they have made false accusations against the other parent, and the nature and severity of those accusations. Generally, when a matter is brought to court, the successful party is entitled to costs. Costs awarded at Court are not intended to completely cover the legal costs of the successful party but to provide a set-off. Costs are generally set in accordance with the Tariff scale and may be increased or decreased slightly based on the complexity of the matter. In certain extreme circumstances, an unsuccessful party may be forced to pay what was previously known as solicitor-client costs, now known as special costs.

Special costs are awarded when the conduct of a party was so egregious that the courts finds that the successful party should be indemnified for all or most of their legal fees in lieu of using the Tariff scale. False accusations and allegations in many cases are likely to fall into this category, especially when there is a pattern of behaviour by the accusing parent. In other words, if a party to lawsuit conducts themselves in a way that earns the rebuke of the Court, they may be paying for both their own and the other party’s legal fees. False accusations by parents in family law proceedings have been found to be a factor the court may take into account when awarding special costs. Considering the steep costs of taking a matter to trial, this can cost the accusing parent tens of thousands of dollars just in paying for the other parent’s costs, in addition to their own costs.

To summarize, false accusations and allegations may hurt the accused parent, will almost certainly hurt the child in question, and will likely to have a profound negative effect on the parent making the false accusations/allegations. The falsely accusing parent may have special costs awarded against them, and they may lose parenting time and responsibilities with their child. They may have to be supervised when spending time with their child, or not be able to see their child at all. Parents must be able to show that they can and will act in the child’s best interest, and false accusations and allegations against the other parent (or against professionals employed during the family law proceedings such as counsellors, doctors, and ministry employees) demonstrates a parent’s inability to put the needs of their child before their own.

 

 

 

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The Advantages and Disadvantages of Arbitration Clauses

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Introduction:

 

Arbitration has become a popular alternative to court proceedings for resolving disputes. It offers a range of benefits, including privacy, informality, and efficiency, making it an attractive option for many businesses. However, like any legal process, it also has its downsides. This article will explore the advantages and disadvantages of arbitration clauses to help you make an informed decision when choosing this method for dispute resolution.

 

Advantages

 

Privacy and Confidentiality:

One of the main reasons for the inclusion of an arbitration clause in contracts is the ability to keep the proceedings private. Unlike court proceedings, where documents are public and hearings are open, arbitration takes place behind closed doors, shielding the parties from public scrutiny. This confidentiality enables the parties to argue their case without fear of reputational damage, which can be critical for maintaining a positive business image.

 

Informality and Speed:

Arbitration offers a more informal process compared to court proceedings. The rules of procedure and evidence before an arbitrator are more relaxed, providing a less rigid and intimidating atmosphere. Additionally, arbitration is typically much faster, allowing cases to be resolved in a matter of months, whereas court cases can drag on for years due to backlogs in the legal system.

 

Specialized Decision-Maker:

In arbitration, parties have the advantage of selecting an arbitrator with specialized knowledge and expertise in the area of law relevant to their case. This is in contrast to the court system, where judges are assigned randomly and may lack experience in specific legal fields. The ability to choose a knowledgeable decision-maker can lead to more informed and fair judgments.

 

Cost Flexibility:

Arbitration offers flexibility in cost allocation. Parties can negotiate who pays for the arbitrator’s fees, the venue, and the legal fees of the winning party. Moreover, by avoiding complex legal procedures like discovery, which occurs in court, parties can limit their overall costs. However, it is worth noting that the availability of qualified arbitrators on Vancouver Island and the potential high costs may be a drawback.

 

Disadvantages:

 

Limited Discovery:

One significant drawback of arbitration is the limited discovery process. Unlike court proceedings, arbitration may not allow for an extensive exchange of information about witnesses and evidence before a trial. This can make it challenging to gather sufficient evidence to prove a party’s position.

 

Finality of Decisions:

Perhaps the most significant downside of arbitration is the limited avenue for appeal. Once an arbitrator renders a decision, it is usually final and binding on both parties. In contrast, court decisions can often be appealed to higher courts. This finality can leave parties with little recourse if they believe the arbitrator made a mistake.

 

Conclusion:

 

Arbitration offers several advantages that can be highly beneficial in resolving disputes. It provides privacy, efficiency, and the ability to choose a specialized decision-maker. However, it also comes with its drawbacks, such as limited discovery and the finality of decisions. Before including arbitration clauses in contracts, it is crucial for parties to carefully consider their specific needs and preferences, seeking legal advice to ensure the chosen method aligns with their goals.

 

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Secret Recordings by Parents in Family Law Cases

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In Canada, it is legal to record a party without their knowledge as long as one of the parties being recorded (which includes the person doing the recording) consents (Criminal Code s. 184(2)). However, simply because something is legal does not mean it will be admissible in court. This is especially so when it comes to secret recordings in family law cases.

A recent case in Ontario, Van Ruyven v Van Ruyven, 2021 ONSC 5963, dealt with two parties who put into evidence secret recordings they had taken of the other. The judge decided that the recordings could not be considered as evidence, and that such conduct was to be discouraged by the courts. This case has been cited by courts in BC, Alberta, and Saskatchewan, as well as Ontario, as judges caution family law litigants from engaging in the questionable activity of secretly recording one’s ex; or worse, one’s child.

Family proceedings can be extremely acrimonious. As such, some parents record the other parent or their child, in an often misguided attempt to collect evidence that the recording party thinks will amount to a “smoking gun”. However, this can often backfire and the recordings may cast doubt on the ability of the recording parent to put the needs of their child in front of their own desire to “win”. This was particularly so in K.M. v J.R., 2022 ONSC 111, where both parents secretly recorded each other, and the judge stated that parents need to be strongly discouraged from engaging in such behaviour.

The judge in that case, who had reviewed the recordings, stated in regards to the content of those recordings that

“[t]he adults were so busy arguing and screaming at each other that they didn’t seem to hear the boy say something that should have been obvious. “I’m scared.” (para 203(f)). The judge went on to say “the manner in which the recording was created raises serious questions about parental insight and sensitivity” (para 208 (e)).

In a similar situation, suspiciously obtained evidence was considered in a recent BC case: Steiner v Mazzotta, 2022 BCSC 827, where, in the context of the ongoing COVID-19 pandemic, a parent snuck onto the other parent’s property and took pictures of the parent who was with the child not wearing a mask in contravention of a previous order. The judge in Steiner admitted the picture as evidence, but stated: “Although the respondent’s poor conduct yielded evidentiary material that I could not properly exclude or ignore, such behaviour is not to be encouraged” (para 11(c)).

Note that whether or not secret recordings will be accepted by the court is up to the discretion of the judge, and that the creation and the attempted use of such recordings may backfire.

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Limitation of Liability Clauses in Contracts

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6362222 Canada Inc. v. Prelco Inc., 2021 SCC 39: A Victory for Limited Liability Clauses

In general, limitation of liability clauses are valid in both Quebec’s Civil system and in the Common Law provinces. However, in Quebec limitation of liability clauses are tempered by articles in the Civil Code of Quebec prohibiting the exclusion of liability for intentional fault, bodily injury, and other public order issues. A recent Supreme Court of Canada case has strengthened the power of limited liability clauses and narrowed the applicability of the Breach of Fundamental Obligation Doctrine.

The case centered on a contractual dispute between 6362222 Canada Inc. (“Createch”), and their client, Prelco Inc. Createch is a consulting firm offering integrated management systems and performance improvement solutions. The parties entered into a contract which included a limited liability clause, stipulating that Createch’s liability to Prelco for damages for any cause whatsoever would be limited to amounts paid to Createch under the contract. A further stipulation was that Createch could not be held liable for any damages resulting from the loss of data, profits or revenue, from the use of products, for any other special, consequential, or indirect damages relating to services and/or material provided pursuant to the contract.

Two years into the contract, Prelco opted to terminate the relationship due to numerous problems with the system and Createch’s implementation. Prelco brought an action against Createch for $6,246,648.94 in damages for the reimbursement of an overpayment, costs for restoring the system, claims from customers, and loss of profits. The Superior Court found the limited liability clause to be unenforceable as it went to the essence of a fundamental obligation, and as such ordered a substantial judgment against Createch. The Court of Appeal dismissed the appeal.

The Supreme Court allowed the appeal, stating that the test for unenforceability due to the Doctrine of Breach of a Fundamental Obligation had not been satisfied. In order to find a clause inoperable on this basis, the validity of the clause has to either (a) be contrary to a public order limitation or (b) deprive a contractual obligation of its purpose. The SCC found that the clause did not run contrary to a public order limitation and that since Createch still owed significant obligations to Prelco the validity of the clause would not deprive the contract of its purpose to the extent required by the Doctrine. As such, the principle of freedom of contract supported the enforceability of the limited liability clause.

Takeaway: if you are contracting with a party that is insisting that there be clauses within the contract whereby they are excused from any liability, even for their own negligence, be aware that a Court will probably uphold the limitation of liability clause in the contract. In such a situation, you should consider the extent to which you can insure over the risks that flow from the contracting party’s negligence.

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Relief from Forfeiture under a Commercial Lease

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Relief from forfeiture is an extraordinary equitable remedy that the courts can apply at their discretion, which allows them to forgive imperfect compliance with a contractual or statutory requirement. In choosing to apply relief from forfeiture, the court is deciding to protect a party against a loss that would otherwise occur from that party’s breach on the basis that not to do so would be unequitable.

In a recent case, Airside Event Spaces Inc. v Langley, 2021 BCCA 306, the courts have reiterated that an applicant must act in good faith in order for relief from forfeiture to be appropriate, regardless of the disproportionality between the loss suffered on forfeiture and the loss suffered by the other party due to the breach of contract.

In this case, the company was leasing a hangar at the Langley Regional Airport from the city of Langley, which the city had terminated because the company breached the lease contract. The company admitted that it had breached the lease in numerous ways, and to having failed to remedy the breaches when Langley gave it the chance. Still, the company claimed that the loss that they would suffer compared to the loss that Langley had suffered through their breaches was so disproportionate that the court should use their power to apply relief from forfeiture. The company had paid $440,000 for the premises in 2013, and claimed to have invested in excess of $1.5 million in improvements over the years that it had leased the space. The B.C Supreme Court Judge found that since the company had misled Langley, attempted to conceal breaches of the lease, altered the premises contrary to the lease and without the lessor’s consent, and performed all manner of other misconduct that the company had not remotely acted in good faith. As such, the Judge dismissed the application and refused to apply relief from forfeiture.

On appeal, the Court confirmed that Judge had correctly considered the evidence in this case, and did not commit an error by finding that the consequences of the forfeiture, although significant, did not justify relief from forfeiture due to the company’s clear bad faith.

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What are a Spouse’s Rights upon Foreclosure?

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When a home falls into foreclosure the property is sold to satisfy the owner’s creditors. The sale proceeds first go to the mortgagee, and then to other creditors in order of priority. Priority is generally determined based on various factors such as the type of creditor and the date of registration of the debt. In general, a judgment creditor cannot claim an interest in property beyond that held by the judgment debtor. The Court Order Enforcement Act (CEA) confirms this common law principle, and clarifies in s. 86(3)(a) that a judgment creditor’s interest is subject to any equitable interests that may have existed prior to the registration of the judgment.

In a recent decision, Chichak v Chichak, 2021 BCCA 286 the court had to determine priority between a judgment creditor with a registered judgment, and the unregistered equitable interest of a spouse.

In this case, Mr. Chichak was the sole registered owner of the property subject to a mortgage. Ms. Chichak had transferred her interest in title to him several years earlier. In 2014, Cardero Capital and First West Credit Union both obtained judgments against Mr. Chichak and registered them against the title of the property. The property was foreclosed and sold in 2016, and $312,830.83 of the sale proceeds remained after satisfying the debts owed to the highest ranking creditors. Cardero and First West applied to the courts for access to the remaining proceeds. At the same time, Ms. Chichak applied to have a 50% equitable interest in the property declared in her favour and argued that this interest should outrank the judgment creditors in priority. The chambers judge found in favour of Cardero and First West by applying the statutory presumption of indefeasibility (meaning the only valid interests in reference to the land are those that are registered against the title) and by looking at case law where transfers of title between family members had been considered gifts which extinguished the equitable interests of the giftor.

On appeal, the Court ruled that the chambers judge had mistakenly applied the principal of indefeasibility, stating that while a genuine purchaser for value would take priority over an unregistered equitable interest, a judgment creditor is not a genuine purchaser and therefore does not have the same priority. To allow the judgment creditors to take priority over the equitable interest would be to grant an interest in the property beyond what was held by the debtor, which would be contrary to the CEA. The Court allowed the appeal and sent the case back to the Supreme Court of B.C for redetermination.

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