Bilateral confidentiality terms could not supersede court ordered production of relevant documents

Creditor W Corp. agreed to provide services to debtor on basis that W Corp.’s claim for fees would be secured by general security agreement. W Corp. alleged debtor owed it fees for services rendered, but debtor denied liability. W Corp. brought action against debtor to enforce its security interest. Debtor alleged security interest had not become effective and also that it was to be discharged if debtor reached settlement with creditor Z, which it did. Meanwhile, proposal filed by debtor under Bankruptcy and Insolvency Act had been approved, and W Corp. intended to bring motion to have approval annulled. W Corp. brought motion for order requiring debtor to produce settlement agreement and related correspondence. Application granted. Central relevancy of settlement agreement was obvious. Any settlement privilege claimed, if it applied, had to yield to interests of justice in assessing appropriateness of approval of proposal and parties’ competing claims on facts of this case. If facts asserted by W Corp. about Z’s improper involvement in proposal vote were proven true, then integrity of proposal process, including proposal trustee’s role, was very much in question. Need for scrutiny of agreements among proposal debtors and interested parties necessarily implied that such agreements could not be confidential. Bilateral confidentiality terms could not supersede court ordered production of relevant documents, and apart from questions of proportionality, production did not turn on strength of underlying case.

Re Emery Silfurtun Inc. (2017), 2017 CarswellOnt 13270, 2017 ONSC 5768, F.L. Myers J. (Ont. S.C.J. [Commercial List]).