Two recent decisions — one from the British Columbia Court of Appeal and one from an Ontario class action case management judge — have revisited the ambiguous question of whether solicitor-client privilege attached to a lawyer’s accounts. One might have thought that following the Supreme Court’s decision almost 10 years ago in Maranda v. Richer that the issue was resolved. However, these latest decisions suggest that the question is still live.
By the time of the appeal, the Crown asserted that it did not want the actual accounts, just the raw data of bills and payments, which it asserted were “facts,” not solicitor-client communications, and therefore outside the cone of privilege. The court rejected an analogy to cases drawn from the civil context, warning that in this case, it was important for the court to also protect the fundamental principles of criminal procedure, including the accused’s right to silence and the constitutional protection against self-incrimination. It also warned that the courts should be wary when engaging in the fact/communication distinction.
Ultimately, the Supreme Court concluded that: “The existence of the fact consisting of the bill of account and its payment arises out of the solicitor-client relationship and of what transpires within it. That fact is connected to that relationship, and must be regarded, as a general rule, as one of its elements.” Prima facie, the fact of the fees billed and paid will be protected by solicitor-client privilege, and the lawyer cannot be compelled to provide the account information, in an investigation or in evidence against his or her client. However, as with every other type of privilege, there are exceptions to the rule, and the Crown can still obtain the information if it satisfied the court that an exception, such as the crime exception, applied.
The scope of Maranda in the civil context was recently revisited by the B.C. Court of Appeal in Donell v. GJB Enterprises Inc. The plaintiff receiver sought production from the B.C. law firm of documents and records belonging to the defendant company and its principals. The law firm claimed they were subject to solicitor-client privilege. On appeal the receiver narrowed its request to production of the law firm’s trust account ledgers pertaining to Gerald Berke for a limited time period. The focus of the inquiry was to trace funds that the receiver alleged flowed from a Ponzi scheme operated by GJB and Berke. The receiver sought to limit the scope of Maranda to the criminal context, which the court largely accepted. Justice Edward Chiasson, for the majority, gave Maranda a narrow reading:
“Maranda neither does away with the distinction between facts and communications nor holds that entries in a lawyer’s trust account ledgers are presumptively privileged. It does mandate that such entries must be considered in light of any connection between them and the solicitor-client relationship and what transpires within it.”
Chiasson concluded that a trust ledger is a record of facts, not communications, and is not presumptively subject to solicitor-client privilege. However, while the record of deposits to and payments from the trust account, will generally be regarded as unprotected facts and not protected communications, the issue has to be determined in the context of the retainer. In some circumstances, the disclosure of the fact of the retainer and the payments made will result in the “assiduous inquirer” being able to glean privileged information.
1. at a minimum, Maranda establishes that lawyers’ bills, in the criminal law context, are presumptively subject to solicitor-client privilege;
2. this presumption flows from the connection between lawyers’ bills and the nature of the relationship between lawyers and clients; the account reflects work done on behalf of the client, which involves communications that are privileged;
3. the presumption may be rebutted if it is established that there is no reasonable possibility that disclosure will directly or indirectly reveal any communications protected by privilege;
4. Maranda did not do away with the distinction between communications, which are privileged, and facts, which are not;
5. other financial records of lawyers, i.e. trust ledgers, are not presumptively subject to solicitor-client privilege, as they merely represent records of actions or facts, but they should not be produced automatically solely for that reason;
6. particularly, Maranda mandates that it is necessary to consider such records in order to determine whether they arise out of the solicitor-client relationship and what transpires within it, that is, communications to obtain legal advice; and,
7. if it is concluded that the records do arise out of the solicitor-client relationship and what transpires within it, they are presumed to be privileged, however the privilege can be rebutted and the document produced, if it is established that production will not permit the deduction or acquisition of communications protected by solicitor-client privilege.
In my view, this is a reasonable summary of the state of the law regarding the extent to which a lawyer’s accounts are protected by solicitor-client privilege. To the extent that the content of the accounts or statements is part of the communications between a lawyer and a client, the privilege is paramount. If the fact that the lawyer has been retained, sent bills, or been paid is not prima facie confidential, then the fact of the retainer and the flow of funds should not be protected under this head of privilege.
The privacy of the terms of engagement between a lawyer and client in the class action context adds a different twist, much of which is addressed through the statutory oversight provided by the Class Proceedings Act, 1992. While class counsel is retained by the representative plaintiff, and a contingency-fee retainer agreement is usually signed by the representative plaintiff, the agreement will not be enforced without court approval. Of course this makes sense, since class counsel is ultimately not paid just by the representative plaintiff, but by the class as a whole. The court plays an essential role in overseeing the fairness of class counsel’s remuneration on behalf of the absentee class members.
In this context, the terms of the retainer, the amounts paid by class counsel to prosecute the case, and the amounts they are requesting in compensation will necessarily become a matter of public record. There is a very real potential that some class members may object to the quantum of the fees sought by class counsel or the value of the work performed. Those grievances are aired in the public forum of the fee approval hearing. The normal veil of privacy provided in the ordinary solicitor-client relationship is simply not present.
Another new dynamic has been added with the possibility of the representative plaintiff seeking third-party funding to cover the costs of disbursements and an indemnity for adverse costs awards. This new layer of complexity is in its infancy in Ontario, and the kinks are still being worked out. One of the key issues that the court is now struggling with is whether the third-party funder should have the benefit of being considered to be “in the tent” and included as party to the solicitor-client relationship.
In the newly released decision in Fehr v. Sun Life Assurance Company of Canada, Ontario Superior Court Justice Paul Perell has directed that any third-party funding agreement must be promptly disclosed to the court, and it cannot come into force until it has received court approval.
“Third party funding must be transparent and it must be reviewed in order to ensure that there are no abuses or interference with the administration of justice.”
According to Perell, the purpose of court approval is to ensure that the third-party funder does not have the ability to control and direct the proceeding, and to ensure that the fees are fair to the class.
Since the court must approve the fee agreement before class counsel are remunerated, and since there is public disclosure of the nature of the fee agreement through the notices published to the class, there can be no presumption of privilege for that retainer agreement. Perell rejected the argument that under Maranda the fee agreement is privileged. In the class action context, the presumption of the retainer agreement containing privileged communications is rebutted, as the retainer — which will be reviewed in court — will not (or should not) contain any communications protected by privilege.
With respect to the third-party funding agreement, in addition, Perell warned:
“Put differently, if a third party funding agreement contained information that disclosed counsel’s legal opinion about the merits of the litigation or disclosed how counsel proposed to carry out the litigation beyond what might be disclosed in litigation plan that would be disclosed for a certification motion, then it was both unnecessary and wrong to include that information. Including the information is unnecessary because it does not have to be included in order to obtain court approval, as is evidenced by the Dugal case. Including the information is wrong or improper because it would mean that the third party had assumed control of the client’s litigation, which is improper and would cause the court to reject the third party funding agreement.”
The ingrained assumption in this quote is that it is improper to disclose to a third-party funder class counsel’s opinion on the merits of the case, because the third-party funder is to remain a stranger to the solicitor-client relationship. While the Class Proceedings Fund requires an opinion on the merits from class counsel, there is no risk of the fund becoming an officious intermeddler in the conduct of the proceeding.
The third-party funder stands in a different position. In the case of unregulated litigation bankers, the court is very alive to the fact the funder has a substantial stake in the outcome of the litigation, and there is therefore a heightened risk the funder will, intentionally or unintentionally, seek to influence the manner in which the case is prosecuted.
Accordingly, this direction from Perell serves as a strong reminder that the funder is not a party to the litigation, and should not be treated as a member of the class counsel litigation team. No privilege will attach to the communications or agreements with third-party funders, or ultimately to the accounts for which class counsel will seek approval. In the class action context, the general rules of solicitor-client privilege are substantially abridged.