Limits to the inquiry powers of a regulatory body in light of Lizotte v. Aviva Insurance Company of Canada

January 10, 2017

In a landmark unanimous judgment released on November 25, 2016, in the case of Lizotte v. Aviva Insurance Company of Canada, 2016 SCC 52 ("Aviva"), the Supreme Court of Canada clarified various aspects of the litigation privilege, a common law rule which gives rise to an immunity from disclosure of documents and communications the dominant purpose of which is preparation for litigation.

In so doing, the Court confirmed, for the first time, that litigation privilege (i) is a class privilege, (ii) can be asserted against third parties, including third party investigators who have a duty of confidentiality, and (iii) is subject to clearly defined exceptions (and not to a case-by-case balancing test). In the words of the Court: "litigation privilege is fundamental to the proper functioning of our legal system and is central to the adversarial system that Quebec shares with the other provinces. The parties' ability to confidently develop strategies knowing that they cannot be compelled to disclose them is essential to the effectiveness of the adversarial process. Litigation privilege cannot therefore be abrogated by inference, and clear, explicit and unequivocal language is required in order to lift it."

The facts

In the course of an inquiry into the conduct of a claims adjuster working for Aviva, the syndic of the Chambre de l'assurance de dommages (the "Syndic") asked Aviva to produce the complete copy of the claim file pertaining to a specific claim handled by the adjuster. The Syndic based its request on s. 337 of the Act respecting the distribution of financial products and services ("ADFPS"), which creates an obligation ("must") to produce "[...] at the request of a syndic, [...] any required document or information concerning the activities of a representative."

In response, the insurer produced a number of documents, but withheld some on the basis that they were covered by solicitor-client privilege and/or by litigation privilege. The Syndic responded to this refusal by filing a motion for declaratory judgment, the purpose of which was to compel Aviva to produce the documents which were subject to litigation privilege. The Superior Court concluded that litigation privilege could not be abrogated absent an express statutory provision. The Court of Appeal upheld the Superior Court's judgment, holding that even though litigation privilege is distinguishable from solicitor-client privilege, it is, to the same extent, a fundamentally important principle which could not be overridden without express statutory language.

The arguments before the Supreme Court

1. Characteristics of litigation privilege

As indicated above, litigation privilege gives rise to an immunity from disclosure for documents and communications whose dominant purpose is preparation for litigation.

The main differences between solicitor-client privilege and litigation privilege are the following:

  • The purpose of solicitor-client privilege is to protect a relationship, while that of litigation privilege is to ensure the efficacy of the adversarial process;
  • Solicitor-client privilege is permanent, whereas litigation privilege is temporary and lapses when the litigation ends; and
  • Litigation privilege is not directed necessarily at communications between solicitors and clients - it applies to any document or communication whose dominant purpose is preparation for litigation.

2. The Syndic's mission to protect the public does not necessarily trump litigation privilege

While the Court agreed that litigation privilege and solicitor-client privilege are to be distinguished, it also recognized that both privileges "serve a common cause: the secure and effective administration of justice according to law." More specifically, litigation privilege serves that cause by "ensur[ing] the efficacy of the adversarial process" and maintaining a "protected area to facilitate investigation and preparation of a case for trial by the adversarial advocate". Both privileges serve an overriding "public interest."

3. Litigation privilege is a class privilege

The Court put an end to years of conflicting case law and doctrine on the issue. It is now clear that litigation privilege is a class privilege and therefore: "Once the conditions for its application are met, that is, once there is a document created for "the dominant purpose of litigation" and the litigation in question or related litigation is pending "or may reasonably be apprehended", there is a "prima facie presumption of inadmissibility"."

Any document that meets the conditions for the application of litigation privilege will de facto be protected by an immunity from disclosure "unless the case is one to which one of the exceptions to that privilege applies. As a result, the onus is not on a party asserting litigation privilege to prove on a case-by-case basis that the privilege should apply in light of the facts of the case and the 'public interests' that are at issue." [Our emphasis]

4. Litigation privilege is not subject to a case-by-case balancing exercise

The Syndic argued that the Court should adopt the balancing test developed by Justice Doherty J.A. of the Ontario Court of Appeal in General Accident Assurance Co. v. Chrusz (1999), 45 O.R. (3d) 321, namely that litigation privilege should be lifted if in given circumstances, the harm flowing from non-disclosure clearly outweighs the benefit accruing from the recognition of the privacy interest flowing from the privilege.

The Supreme Court disagreed with this argument citing the uncertainty that would be caused by a case-by-case approach of balancing the advantages and disadvantages of applying the privilege: "What must be done therefore is to identify, where appropriate, specific exceptions to litigation privilege rather than conducting a balancing exercise in each case."

5. The exceptions to litigation privilege

The Supreme Court recognized the following exceptions to litigation privilege: (i) exceptions relating to public safety, (ii) to the innocence of the accused, (iii) criminal communications and (iv) establishing "the claimant party's abuse of process or similar blameworthy conduct". The Court declined the request to recognize an "urgency exception", namely the existence of an urgent investigation in which extraordinary harm is apprehended during the period in which litigation privilege applies.

6. Litigation privilege can be asserted against third parties

At the hearing, the Syndic submitted that litigation privilege could not be asserted against third parties and that it should apply only to parties to the litigation in question. In the alternative, the Syndic proposed the adoption of an exception to the effect that the privilege could not be asserted against third party investigators who have a duty of confidentiality.

The Supreme Court dismissed these arguments as follows:

"These arguments are unconvincing. I instead agree with the courts that have held that litigation privilege can be asserted against anyone, including administrative or criminal investigators, not just against the other party to the litigation."

The Court explained that if the arguments of the Syndic were adopted, there would be nothing to prevent a third party, to whom documents subject to litigation privilege are disclosed, from subsequently disclosing them to the public or to the other party - "This is the very kind of harm that litigation privilege is meant to avoid".

The Court concludes on this argument as follows:

"It would not be appropriate to exclude third parties from the application of this privilege or to expose the privilege to the uncertainties of disciplinary and legal proceedings that could result in the disclosure of documents that would otherwise be protected. Moreover, even assuming that there is no risk that a syndic's inquiry will result in the disclosure of privileged documents, the possibility of a party's work being used by the syndic in preparing for litigation could discourage that party from writing down what he or she has done. This makes it clear why it must be possible to assert litigation privilege against anyone, including a third party investigator who has a duty of confidentiality and discretion. [...] I would add that any uncertainty in this regard could have a chilling effect on parties preparing for litigation, who may fear that documents otherwise covered by litigation privilege could be made public."

7. Express statutory language is necessary to abrogate litigation privilege

In the Syndic's view, the words "any ... document" in s. 337 ADFPS should be interpreted in light of the statute's purpose, namely the protection of the public, and therefore, that litigation privilege cannot be asserted against the Syndic, because that would interfere with its investigations.

The Court disagreed as follows:

"The requirements discussed in Blood Tribe apply with equal force to litigation privilege. Not only is litigation privilege a class privilege, but it serves an overriding 'public interest' [...] The parties' ability to confidently develop strategies knowing that they cannot be compelled to disclose them is essential [...] In Quebec, as in the rest of the country, litigation privilege is therefore inextricably linked to certain founding values and is of fundamental importance. [...] litigation privilege, like solicitor-client privilege, cannot be abrogated by inference and that clear, explicit and unequivocal language is required in order to lift it."

Conclusion and takeaways

In conclusion, the Supreme Court ultimately decided that a provision which compels the production of "any ... document" does not contain sufficiently clear, explicit and unequivocal language to abrogate litigation privilege.

This case has deep ramifications on the investigations carried out by any regulated entity. It is now clear that failing clear and explicit statutory language setting aside litigation privilege, regulators may not compel production of documents or communications subject to litigation privilege.

It is therefore important for regulated entities, when applicable, to make sure, in the context of their own investigations, that the documents and communications subject to solicitor-client and/or litigation privilege are properly identified, segregated and excluded from production to regulators.

Éric Azran and Patrick Girard successfully represented Aviva at all court levels, including the Supreme Court of Canada.

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