Man with unauthorized access to solicitor-client communications barred from defending application

A man who accessed his litigation opponent’s privileged solicitor-client communications will not be permitted to defend a court application brought by the opposing party, the Ontario Court of Appeal has confirmed.

With the court dismissing the man’s appeal, the partition application to sever a jointly owned property will proceed. After it was determined that he had access to the opposing party’s email account and emails between him and his lawyer detailing litigation strategy, settlement terms, and negotiation tactics, the application judge struck the man’s notice of appearance in the application, barred him from filing evidence, and ordered that the application proceed undefended.

“It is a further confirmation that the court is going to take a very proactive stance to deal with abuse of process,” says Dan Rosenbluth, a partner at Paliare Roland Rosenberg Rothstein and counsel for the respondent in the dismissed appeal.

He says the court sought to remedy two forms of prejudice in the case. The first was trial fairness between the parties in the dispute. The second was the integrity of the administration of justice, generally.

The court was clear that the remedy was intended to be remedial, not punitive, says Rosenbluth. He says that such a strong remedy was necessary to preserve the second form of prejudice because other litigants and the public cannot see someone access privileged emails, not be transparent about it, and still be permitted to litigate the case.

Tom Curry, a partner at Lenczner Slaght, acted for the appellant in the appeal. He says that while the justice system is used to dealing with the inadvertent disclosure of information in a civil action, a different set of problems arise in the context of an application because there is not the same disclosure of information regime.

Curry says the fact that the court was not persuaded to order a less punitive remedy demonstrates that Continental Currency Exchange Canada Inc. v. Sprott, 2023 ONCA 61 applies widely and strictly.

“It will have an impact. It's a strong signal from the Court of Appeal that if a party has access to privileged information, they've got to address it and demonstrate why there has been no prejudice to their opponent,” he says.

“It's a real warning from the court about the consequences of not addressing it in the way that Continental Currency has described. It's very important guidance.”

The dispute in 2177546 Ontario Inc. v. 2177545 Ontario Inc. was between two former brothers-in-law and business partners, Paul Halyk and Peter Labiris. In 2008, their companies purchased 102 acres in Simcoe, Ont. After a breakdown in their relationship, the Committee of Adjustment received an application to sever the property into two equal 51-acre plots. While the application had the signatures of both men, Halyk claimed his was a forgery. Labiris and a colleague swore they witnessed Halyk sign the application, but he said he would not have divided the property because its value would be much greater if sold as a single parcel.

The committee approved the partition application, and Halyk appealed it to the Ontario Land Tribunal. In January 2022, he withdrew his appeal but refused to sign the documents implementing the consent to sever. Labiris responded by applying under the Partition Act to sever the property.

During the litigation, Labiris suspected Halyk had access to and was acting on confidential information. The pair had worked together on various real estate ventures under the corporate banner of the Zitia Group. Labiris found out from an IT technician who provided services to the Zitia Group that he had granted Halyk access to Labiris’ email account while setting up Halyk’s home office.

Labiris applied for a stay of Halyk’s proceeding. Halyk did not deny having access to the account but argued that it was a general email account for the Zitia Group, that he had not seen anything that affected his litigation strategy, and that it was unlikely that the material was privileged.

At the Court of Appeal, Halyk argued the application judge erred by ordering a remedy that Labiris neither pleaded nor proved and for not considering whether lesser remedies would cure the prejudice. Halyk argued that the judge had ignored that Labiris had the onus of demonstrating that striking the notice of application was the only available remedy.

The court applied the three-part test for resolving unauthorized access to privileged documents set out in Continental Currency Exchange Canada Inc. v. Sprott, 2023 ONCA 61 and Celanese Canada Inc. v. Murray Demolition Corp., 2006 SCC 36. First, Labiris had to prove Halyk obtained access to privileged material. Then, with the risk of significant prejudice presumed, Halyk had the onus of rebutting it by demonstrating that he did not review the privileged documents or, if he did, that the documents were not likely capable of creating prejudice.

A court can only grant a stay of proceedings where the right to a fair trial and the integrity of the justice system is prejudiced. In determining a remedy, the application judge was required to consider how Halyk accessed the privileged documents, what he and his lawyer did upon recognizing that the documents were potentially subject to solicitor-client privilege, and the extent of their review of the documents. The judge was also required to contemplate the degree of prejudice arising from the information, the stage of the litigation, and the potential effectiveness of precautionary steps to avoid mischief.

In the first stage of the test from Continental Currency and Celanese Canada, the application judge had found Halyk had intentionally accessed solicitor-client communications about litigation strategy, which was “at the high end of the continuum of serious prejudice.” The appeal court agreed that the first stage of the test was satisfied.

In the second stage, the Court of Appeal agreed that Halyk failed to rebut the presumption of prejudice because he was not transparent concerning the extent of his review of the privileged material. He did not disclose what documents he accessed, what he did with them, and when.

The third stage, according to the court, was the critical question in the appeal: whether the application judge was correct that striking Halyk’s evidence and requiring the matter to proceed undefended was the appropriate remedy. The application judge said it would be inappropriate to order a remedy that allowed Halyk to gain an advantage in the litigation from his access to privileged information.

Halyk argued that because the onus was on Labiris to demonstrate the appropriateness of the remedy, he had to establish what documents Halyk accessed to illustrate that the prejudice suffered justified the extraordinary remedy he sought. In relying on Halyk’s failure to rebut the presumption of prejudice, the application judge incorrectly reversed the onus, he said. But the Court of Appeal endorsed the judge’s view that to require Labiris to submit evidence proving that the accessed documents contained content prejudicial enough to justify such an extraordinary remedy would require them to reveal more privileged material.

Halyk offered examples of cases where lesser remedies were ordered. The appeal court responded that in those cases, the party who accessed the privileged information disclosed which documents were reviewed. This allowed the court to “consider the documents inappropriately accessed in the context of the issues in the litigation, to assess the potential harm and tailor an appropriate remedy,” said the court.

Ultimately the Court of Appeal found the application judge had “ample grounds” to order the matter to proceed in an undefended hearing.