Privileged, I presume . . .

It all started with a simple question to a lawyer: Who is paying you?

In Re Kaiser, a trustee in bankruptcy asked the question of a lawyer representing Morris Kaiser, who had declared bankruptcy more than three years ago. The trustee suspected Kaiser was shielding money from the trustee through the use of a “straw man,” Cecil Bergman, and his company Bergman Capital.

Milton A. Davis represented the trustee. He wanted to know if Bergman was bankrolling Kaiser’s lawyer, Melvyn L. Solmon, to pursue expensive litigation in proceedings arising from the bankruptcy. Davis says he was merely seeking “administrative” or purely “peripheral” information about the lawyer’s account. He only wanted to know who paid Solmon. Solmon, representing Kaiser, said the information is protected by solicitor-client privilege, since it could potentially be used to prejudice his client’s case in the wider bankruptcy proceedings.

Ontario’s Superior Court and Court of Appeal came to different conclusions about the merits of the case. Nevertheless, they did agree on one thing: “administrative” or purely “peripheral” information about a lawyer’s account is presumed to be privileged, although that presumption may be challenged and rebutted.

In this respect, the courts have come a long way from Greymac v. the Ontario Securities Exchange Commission. In 1986, Greymac initially distinguished between “factual” components of a lawyer’s relationship with the client (payment of fees, for example), to which no privilege attaches, and the “communications” or “advice” part of the relationship, which is protected by solicitor-client privilege. Within legal circles, support for the reasoning in Greymac persists, even as the law regarding solicitor-client privilege has evolved.

Re Kaiser settled one day before the Court of Appeal confirmed that solicitor-client privilege applied to Davis’ question about the lawyer’s bill. The appeal court found the presumption could be rebutted by alleging fraud, but the trustee did not advance that argument.

The case is now officially in the books, and Davis says he wished he had a chance to seek leave to the Supreme Court of Canada on the issue. “While I am respectful of the Court of Appeal, I really disagree with what they had to say because the ‘who?’ should not be privileged,” he says. “The privilege should simply be the communication between the lawyer and the client. If it’s a third person [paying the lawyer], it’s not covered by privilege or shouldn’t be covered by privilege.”

Solmon says the Supreme Court of Canada took the position in Maranda v. Richer and R. v. Cunningham that seeking “factual” information about a lawyer’s account may still be privileged, even if this information does not reveal “communications” between the client and his or her lawyer. “Because of the difficulties inherent in determining the extent to which the information contained in lawyers’ bills of account is neutral information, and the importance of the constitutional values that disclosing it would endanger [i.e. such as the right not to self-incriminate], recognizing a presumption that such information falls prima facie within the privileged category will better ensure that the objectives of the solicitor-client privilege are achieved and helps keep impairments of solicitor-client privilege to a minimum,” the Supreme Court found in Maranda.

Solmon adds that the Supreme Court’s decision in Cunningham linked the potential prejudice to a client of revealing solicitor-client privileged information to whether or not the presumption of privilege can be rebutted.

Cunningham addressed whether a portion of solicitor-client privilege might be waived so that a lawyer could prove his client had not paid his fees. This allowed the lawyer to defend his application to withdraw from a legal aid case. “Where payment or non-payment of fees is relevant to the merits of the case, or disclosure of such information may cause prejudice to the client, solicitor-client privilege may attach,” the Supreme Court found in Cunningham. The application of solicitor-client privilege to the question of who paid a lawyer’s bill formed the basis of Re Kaiser.

Morris Kaiser had been bankrupt for more than three years, and claimed to have been impecunious at the time of his bankruptcy, the Court of Appeal found. “In spite of this, however, he appears to have continued to live a life of some means in Toronto,” wrote Justice Robert A. Blair. “He has made a number of trips to various casinos in the United States, gambling many hundreds of thousands of dollars in pursuit of this hobby, and made numerous cash withdrawals on credit cards allegedly paid for by a third party, Mr. Cecil Bergman, and by various companies under Mr. Bergman’s control.”

This led Kaiser’s trustee in bankruptcy, Soberman’s Inc., to suspect Kaiser was hiding assets from the trustee and using Bergman as a “straw man” to do so. “Both Kaiser and Bergman deny that Bergman has provided Mr. Kaiser with any funds since the date of his bankruptcy, but this controversy underpins the issue arising on this appeal,” the appellate court wrote.

The trustee applied to the court for the appointment of a receiver over the property of Bergman and his company Bergman Capital, alleging the property belonged to Kaiser and therefore to the trustee as a result of the bankruptcy. It also moved for an order requiring Kaiser, or any person so requested by the trustee, to disclose the source of “any and all funds” received by Kaiser since the bankruptcy.

Milton Davis and his law firm Davis Moldaver LLP represented the trustee in the proceedings. Kaiser and Davis had a long history of litigation against one another, the appeal court observed. Kaiser brought a motion to have Davis Moldaver LLP removed as solicitor for the trustee. The motion failed, and the Court of Appeal rejected Kaiser’s leave to appeal that decision. Kaiser did not pay costs associated with the motion to remove Davis Moldaver LLP. At that point, the trustee pursued an order compelling Kaiser and his lawyer, Solmon, to disclose the identity of the person paying Solmon’s legal fees.

Superior Court Justice Frank Newbould ruled the presumption of privilege over the information applied. Nevertheless, he concluded, the presumption could be rebutted because revealing the information would not prejudice Kaiser. “. . . I cannot see how such information would directly or indirectly reveal any communication between Mr. Kaiser and Mr. Solmon that was protected by privilege,” Newbould wrote.

The appeal court ruled Newbould “had taken too narrow a view both of the potential prejudice and the impact of disclosure on Mr. Kaiser’s right to confidentiality.” It observed that Solmon had been retained by Kaiser for both the motion to remove Davis Moldaver LLP from the case and for the wider bankruptcy proceedings initiated by the trustee. “The identity of the person paying Mr. Kaiser’s legal fees on the removal motion is not merely tangential information,” the appeal court ruled. “It has relevance beyond that motion. Mr. Bergman is the trustee’s primary suspect as the ‘straw man,’ if there is one. . . . In that sense, the information sought to be disclosed impacts directly on the merits of the overall dispute and its revelation might well be prejudicial to Mr. Kaiser in that overall context. Thus, the presumption of privilege cannot be rebutted using the Cunningham criteria.”

Davis maintains the trustee was not seeking privileged information, because the question did not relate to the solicitor-client relationship between Solmon and Kaiser. “We said, ‘OK, who’s paying for all of this legal work, because this is expensive.’ So we brought a motion to compel his lawyer, Mel Solmon, to disclose who’s paying. He claimed privilege. But the point is, it wasn’t really Kaiser’s money. He says he had no money. . . . That’s why we brought the motion.”

By ruling that the identity of the person paying the lawyer’s fees was privileged information, Davis says the courts have essentially closed the door on Greymac. “The courts have extended the umbrella that privilege will protect, so that transactions that were otherwise contemplated not to be privileged in the Greymac case are now privileged,” he says. “Where the Court of Appeal erred is extending the blanket of privilege over transactions and over the names of people who are not in the solicitor-client relationship. Assuming that a third person was the person paying the bill, how could the privilege ever extend to somebody who was not the client of the solicitor? It makes no sense, and that’s where the error occurred. Hopefully one day someone will have the opportunity to take this issue to the Court of Appeal.”

Cameron Wetmore, of Solmon Rothbart Goodman LLP, worked with Solmon in Re Kaiser and suggests the link in Cunningham between solicitor-client privilege and any potential prejudice to clients will always make it difficult to rebut the presumption of privilege. “An adversary in litigation is always going to want [the information] for some purpose in the litigation — it’s always going to be prejudiced,” he says.

Solmon says the Supreme Court of Canada has addressed the rebuttal of the presumption of privilege in two different contexts, and some might be “curling the two together.” In Maranda, the court dealt with solicitor-client privilege as it related to a third party — or “the outside world,” as Solmon more broadly characterizes it — seeking information from a lawyer. In this case, police sought information in a search warrant executed on a law firm. In Cunningham, solicitor-client privilege addressed a situation in which the lawyer had a dispute with his client when the lawyer tried to withdraw a legal aid case.

Solmon suspects that Cunningham is being “adopted as an approach to all solicitor-client privilege. I think the court seemed to distinguish between solicitor-client privilege where you are involved with your client [in Cunningham], and where you are involved with the outside world [in Maranda],” says Solmon. “Cunningham doesn’t really distinguish between solicitor-client privilege vis-à-vis the client and solicitor-client privilege vis-à-vis the rest of the world. Using that test [in Cunningham], it’s hard to find any information that wouldn’t prejudice the client vis-à-vis the third party.”

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