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Summaries Sunday: OnPoint Legal Research

One Sunday each month OnPoint Legal Research provides Slaw with an extended summary of, and counsel’s commentary on, an important case from the British Columbia, Alberta, or Ontario court of appeal.

Do Process LP v. Infokey Software Inc., 2015 BCCA 52

Areas of Law: 

Solicitor-client privilege; Waiver; Mootness

~In determining whether solicitor-client privilege has been waived, the court must consider whether fairness and consistency in the litigation requires that waiver be implied.~

BACKGROUND: This appeal arose from a complicated proceeding about the development, ownership and licensing of software. The plaintiffs in the underlying action, ProSuite Software Limited (PSL) and the Society of Notaries Public of British Columbia (Society), alleged that the software was developed for and on behalf of them by the defendant Mr. Lounine and another individual. The plaintiffs also indicated that for tax reasons Mr. Lounine was employed as a contactor through the defendant Infokey Software Inc. They asserted ownership over the software and sought, among other things, damages for breach of contractual, fiduciary or professional duties owed them by the defendants. The defendants argued that they were joint authors and owners of the software, and that in November 2007 the Society delayed payments owed to Infokey in order to force Infokey to assign all rights to the source codes to the Society. The defendants argued that, as independent contractors, they retained copyright in the software and that despite the termination of a temporary licence granted in 2008, the plaintiffs had continued to use the software without Infokey’s consent or agreement. The defendants brought a counterclaim against the plaintiffs and third parties, including the Appellant, Do Process LP, alleging that PSL assigned all rights in respect of the software to Do Process in contravention of Infokey’s copyright. On December 27, 2007, Infokey and Mr. Lounine entered into a letter agreement with the plaintiffs in which the defendants confirmed PSL’s ownership of copyright in the software. The defendants pleaded that Mr. Lounine had signed the letter agreement under duress, without legal advice, and without any or adequate consideration, and that it was therefore not enforceable. Counsel for Do Process requested the production of documents relating to any legal advice Mr. Lounine or Infokey had received prior to the December 2007 letter agreement. The defendants refused, asserting privilege. Do Process then applied in the BC Supreme Court for a declaration that the defendants had waived privilege over all documents relating to any legal advice Mr. Lounine received prior to December 24, 2007 relating to his rights in respect to or the ownership of the software. The chambers judge ruled that privilege had not been waived. She found that while privilege is waived where the legal advice or other representations are relied upon by a party in its pleadings, this does not mean the opposite is true: merely alleging the absence of legal advice does not by itself constitute a waiver of solicitor-client privilege. Do Process appealed, and at some point after the application for leave to appeal was heard, the defendants removed the allegations of duress and lack of legal advice from their pleadings.

APPELLATE DECISION: The appeal was allowed. Do Process alleged that the chambers judge erred in law in holding that “an affirmative plea in the absence of legal advice made in conjunction with a plea of duress, which is said to render an agreement unenforceable, does not constitute a waiver of privilege over the legal advice received on the subject matter of that agreement.” The defendants argued that the real questions were whether Mr. Lounine actually took advice regarding the letter agreement and whether he could have taken such advice. The majority found that these questions were not before the chambers judge nor before the Court of Appeal. They held that the proper issue to be decided on appeal was whether the chambers judge applied the correct test in finding no waiver of privilege. The majority found that she took an overly narrow view of the law respecting waiver, or asked herself the wrong question. She did not consider whether fairness and consistency in the litigation required that waiver be implied. By pleading duress, the defendants had put their state of mind in issue, and this plea along with the allegation of having taken no legal advice led to the conclusion that if advice was received, fairness required it to be disclosed. The majority ordered the defendants to disclose the documents in question.

In her dissent, Stromberg-Stein JA found the appeal moot following the defendants’ amendment to delete the allegations of duress and lack of legal advice. She held that the pleadings that may have given rise to a waiver of solicitor-client privilege were no longer extant and the Court of Appeal should not order the production of privileged documents in these circumstances. She also rejected Do Process’s submission that the appeal should nevertheless be decided because the documents in issue might also be relevant to other live issues, concluding that there was an insufficient record before the Court of Appeal to make a determination on that basis.

Comments by David Garner,
Counsel for the Respondents, Infokey Software Inc. and D. Lounine

“This case is interesting for both what it decided and what it did not. So far as counsel and the court were able to determine, Do Process LP v. Infokey Software Inc. 2015 BCCA 52, appears to be the first case where the pleaded absence of legal advice concerning the legal effect of a proposed agreement has led to a waiver of solicitor-client privilege over prior legal advice given on a different (albeit “related”) occasion.

Lawyers are very familiar with the fact pattern where legal advice is taken after an agreement or other ‘situation’ presents itself and litigation ensues following the taking of such advice and either an act or omission in reliance thereupon. Where the advice is put up as a defence (generally described as putting one’s “state of mind” in issue), for example to combat a plea of bad faith or unreasonable delay, the waiver of privilege and scope of resulting document production is relatively straightforward: the documented advice to be made available to the other side is limited both temporally and by relation to the ‘situation’ at hand. Earlier advice given before the ‘situation’ arose, or advice on other subjects, is not opened up to scrutiny.

This case is different. The plea here was that a particular agreement purporting to transfer ownership of the copyright in part of the software at issue (the December 2007 letter) was unenforceable for several reasons, including that it was signed under duress and without the benefit of legal advice. One can imagine attacking such a plea on the basis that there was no actual duress, as that term is understood in the law, and that either legal advice was taken (in fact), or ought to have been taken where the opportunity for such advice was available to the party, thus removing the “I didn’t know my rights” defence. The decision in this case provides an additional weapon in the litigator’s arsenal – an exploration of prior legal advice received by the party that was “regarding a subject dealt with in the agreement” (see paragraph 29 of the Reasons).

That is the bare essence of what was decided. Documents embodying legal advice received some 3-4 years prior to the delivery of the December 2007 letter on the “subject” of ownership of copyright (which advice was given in the context of earlier and different licensing and maintenance contract negotiations) were ordered disclosed. The court made it clear that the trial judge would still have the final say on the relevance and ultimate admissibility of the documents.

What was not decided was the limit of the temporal connection to the contract or “situation” at issue, nor was guidance given respecting the determination of the “subject dealt with” in the situation (contract) and how to relate that to prior advice in order to determine which earlier advice might be subject to production. Both of these issues are topics upon which reasonable counsel can (and very likely will) disagree. In addition, it is not clear that the specific pleading of a lack of legal advice having been taken was the key pleading that the court concluded put the defendant’s state of mind in issue. The plea of duress is a plea of “a coercion of the will so as to vitiate consent” (per Lord Scarman in Pao On v. Lau Yiu, [1979] 3 All ER 65 at 78), thus opening up situations that are analogous to duress, or a lack of consent, or impediments to consent, as possible pleadings that will constitute a waiver of solicitor client privilege over earlier communications with counsel that may have occurred in different (but somehow related) circumstances.

As a final thought, practitioners should carefully consider the effect of a waiver over general as opposed to specific advice concerning the “subject” of whatever ‘situation’ is being litigated. In the context of specific advice being given about the actual terms and conditions of a particular contract, or current steps a litigant is being asked to take, the scope of potential waiver and disclosure can be temporally and subject matter limited with relative certainty. However, what is the limit of disclosure of advice received about “contract law”, or “ownership,” or “transfers,” or other legal terms appearing in or “related” to the current dispute that were given at some time in your client’s past? Pleadings that may put a party’s state of mind in issue can now permit a waiver of privilege argument to reach back, way back…”

Counsel Comments provided by Scott Griffin and Miriam Isman,
Counsel for the Appellant Do Process LP

“This decision is a critical reminder to all counsel of the importance of careful pleadings, and the very real consequences of putting a party’s state of mind in issue at the pleadings stage.

First, it reaffirms that in any case involving a question of implied waiver of privilege, the key consideration is “fairness in litigation” – did the party voluntarily take a position in the litigation that makes it unfair for the holder of the privilege to retain the benefit of the privilege? While the fundamental legal right of citizens to communicate confidentially with their lawyers is an important value, this case highlights that fairness must be the governing consideration and solicitor-client privilege may be waived when a party’s state of mind is put in issue. This can occur in a variety of ways. For example, in this case, it occurred when a party pleaded an absence of legal advice in conjunction with a plea of duress. The case shows that “you can’t have your cake and eat it too” – here, voluntarily portraying yourself as lacking the will and capacity to be bound by an agreement, while seeking to protect what would otherwise be privileged information that you do have but which could be used to undermine the position pleaded.

Second, the case is an illustration of how privilege once waived, remains waived – or, “you can’t put the genie back in the bottle”. In this case, after persisting in the use of the previously discussed plea to its advantage in the litigation, the Respondent amended its pleadings to remove the allegations after leave to appeal was granted on the privilege appeal. Here again the Court affirms that fairness is key, referring to its own authority that “once a waiver of privilege has been made it cannot be retracted. This is a logical consequence of the waiver, as being able to retract it would result in untenable litigation advantages and general unfairness.”

In short, lawyers drafting pleadings must consider the value of pleading each material fact related to a party’s state of mind and ask: might this pleading create any unfair litigation advantage if solicitor-client privilege is maintained and if so, is it in my client’s interest to risk a finding of implied waiver of privilege?”

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