The Context

In 1998, Domtar Inc. acquired E.B. Eddy Limited and E.B. Eddy Paper, Inc., subsidiaries of Weston. In 2007, Weston advised Domtar that the agreement pursuant to which it had merged with Weyerhaeuser Co. the previous year was in violation of its reasonable expectations as a Domtar shareholder. As a result, it was claiming the amount of $100M.

Faced with Domtar’s refusal to follow up on this claim, Weston instituted an oppression remedy before the Ontario Courts. Domtar’s insurers, Chubb Insurance Company of Canada and American Home Insurance Company, denied coverage and were refusing to assume Domtar’s defence in this dispute.

On June 24, 2013, Domtar and Weston reached an agreement and settled the case for the amount of $50M. A parallel claim instituted by Domtar against its insurers before the Superior Court of Quebec, which sought to determine whether Chubb and AIG must pay their insurer the amount of $50M in addition to the defence fees incurred as part of the Ontario case, was reactivated on December 3, 2014.

In February 2014, in preparation for examinations on discovery, both parties’ lawyers exchanged requests for the disclosure of documents. Arguing, among other things, the protection assured by the lawyer’s professional secrecy in the province of Quebec and solicitor-client privilege in Ontario and the other common law provinces, Domtar refused to provide the documents it had exchanged with its lawyers.

According to Domtar, the purpose of these documents was to provide legal opinions in the following situations: 1) in the framework of the transaction pursuant to the Share Purchase Agreement between Domtar and Weston; 2) in the framework of the transaction between Domtar and Weyerhaeuser leading to the merger of both companies; 3) in the framework of Weston’s claim against Domtar under the Share Purchase Agreement; 4) in the framework of Domtar’s representation in the Ontario case; 5) with respect to the analysis of the insurance coverage under the policy at the core of the present dispute; 6) with respect to the insurer’s denial of coverage regarding the Domtar claim under this insurance policy; 7) with respect to the action instituted by Domtar against its insurers, Chubb and AIG, in the present case, and 8) in the framework of the mediation and settlement of the Ontario case.

In response to the insured’s refusal to disclose these documents, Chubb and AIG maintained that 1) Domtar waived its professional secrecy/solicitor-client privilege, 2) they have the right to a full and complete defence, and 3) the insured’s obligation to cooperate with the insurer precludes it from invoking professional secrecy/solicitor-client privilege.

The Decision

Justice Gérard Dugré concluded that the documents requested by the insurers are in principle covered by professional secrecy/solicitor-client privilege and that the three arguments raised by Chubb and AIG do not allow them to remove themselves from it. The present summary will focus on the first and third arguments, i.e., the existence of a waiver and the insured’s obligation to cooperate.

The Importance of the Protection of Professional Secrecy

From the outset, Justice Dugré specified that his analysis would need to consider the special nature of professional secrecy. Indeed, this right, which is provided for in Section 9 of the Charter of Human Rights and Freedoms, is now well-established in Quebec Law. In fact, its status has been raised to that of a fundamental right and it enjoys quasi-constitutional protection.

Indeed, as the Supreme Court mentioned in a decision rendered last June 3rd, “Solicitor-client privilege has evolved from being treated as a mere evidentiary rule to being considered a rule of substance and, now, a principle of fundamental justice[1].”

Consequently, Justice Gérard Dugré reminds us that according to the decisions rendered by the Supreme Court in Descôteaux v. Mierzwinski[2] and Goodis v. Ontario (Ministry of Correctional Services)[3]_, this principle can only be infringed in cases where it is absolutely necessary—a criterion ranked just below an absolute ban in all situations.

Once these legal standards had been established, Justice Dugré proceeded to analyze the three arguments raised by Chubb and AIG regarding the disclosure of the documents.

1)    Domtar’s waiver to invoke professional secrecy/solicitor-client privilege

The Court started by pointing out that contrary to what had been argued by the insurers, the fundamental nature of this right implies that the insured cannot waive it implicitly. Considering the protection offered by Section 9 of the Charter of Human Rights and Freedoms and of the criterion of absolute necessity, the Court specified, on the contrary, that the waiver of the right can only be express:

[Translation]

[66] The Court is furthermore of the opinion that the vague notion of the implicit waiver is incompatible with Section 9 of the Quebec Charter, especially considering the Court’s duty to assure, of its own motion and unconditionally, professional secrecy. In fact, as long as the beneficiary of solicitor-client privilege has not relieved his lawyer of his professional secrecy, or has not concretely communicated the protected facts, information or documents, the Court must, of its own motion, ensure that professional secrecy is respected (section 9 para. 3 of the Quebec Charter). To say the least, it would be illogical for the Court to force a client to divulge privileged information on the basis of an implicit waiver, when this Charter states that it must uphold the privileged nature of this information or documents, especially considering that an implicit waiver does not satisfy the criterion of absolute necessity, which would make it possible to set aside solicitor-client privilege.

Finally, the Court found that the comment, “based on advice of our counsel” included in Domtar’s letter to Weston was clearly insufficient to constitute a waiver, to the extent that such a waiver even exists in Quebec law.

2)    Domtar’s obligation to cooperate

In Quebec law, the insured’s obligation to cooperate with his insurer is codified in Article 2471 of the Civil Code of Québec, which reads as follows:

At the request of the insurer, the insured shall inform the insurer as soon as possible of all the circumstances surrounding the loss, including its probable cause, the nature and extent of the damage, the location of the insured property, the rights of third persons, and any concurrent insurance; he shall also provide the insurer with vouchers and attest under oath to the truth of the information.

Where, for a serious reason, the insured is unable to fulfil that obligation, he is entitled to a reasonable time in which to do so.

If the insured fails to fulfil his obligation, any interested person may do so on his behalf.

The Court gives credence to the insurers’ representations concerning the fact that the insured’s duty to cooperate implies that they have a right to verify (a) the nature of Weston’s claim; (b) the allegations of the parties regarding Domtar’s liability; (c) the allegations of the parties regarding the interpretation of the clause in issue; (d) the nature of the damages being claimed by Weston; (e) the negotiations surrounding the obtaining of this settlement; (f) whether the settlement reached was “reasonable,” and (g) that Domtar must cooperate with them. However, that being stated, the Court decided that these elements were not sufficient to satisfy the criterion of absolute necessity:

[Translation]

[84] First, this obligation to cooperate with its insurers does not meet the criterion of absolute necessity because it is perfectly possible to determine whether the loss suffered by Domtar is covered by looking at the insurance contracts, and, if so, the amount of the indemnity payable under these contracts, without the necessity to set aside solicitor-client privilege in this case.

[85] Next, the terms of the insurance contracts binding the parties do not stipulate that Domtar has an obligation to disclose facts, information, or documents protected by solicitor-client privilege, to the extent that such a contractual obligation can even be validly agreed to.

[86] Finally, and more importantly, the obligation to cooperate stipulated in Article 2471 C.C.Q. does not override solicitor-client privilege (Sections 9 and 52 of the Quebec Charter).

In the end, the Court ruled that each objection based on professional secrecy/solicitor-client privilege must be the subject of a detailed and specific analysis, after having examined each of the requested documents, and reiterated the conditions necessary to conclude that this privilege does indeed exist, namely that there must have been a consultation with a lawyer, that this consultation was intended to be confidential, and that the lawyer’s opinion was sought based on that person’s being a lawyer.

Conclusion

This decision shows that the Superior Court does not call into question the importance of the insured’s duty to cooperate with his insurer, but that this duty can, in certain circumstances, be secondary to the fundamental right to professional secrecy between a client and his lawyer.

Considering the Court’s decision in this regard, Domtar’s objection based on litigation privilege was not analyzed by the Court, other than to state that it would be inapplicable because the dispute between Domtar and Weston was over when the request for the disclosure of documents was made. It will be interesting to see how the Court would analyze such a request by the insurer to its insured in a situation where the request were to be made before a settlement was reached with the third party. Litigation privilege is not a right enshrined in the charters, and the relationship between litigation privilege and the insured’s duty to cooperate could be different.