Plaintiff controlled the email server and reviewed the respondents' emails about the transaction
The Ontario Superior Court of Justice has permanently stayed a failed joint business lawsuit after the plaintiff accessed the respondent’s emails, including privileged communications about the proposed transaction. His lawyers were unable to establish another remedy to fix the prejudicial problem.
Superior Court Justice Peter Cavanagh wrote that, without a stay order, the respondents would unfairly defend litigation brought against them by plaintiffs who accessed and reviewed privileged emails about the transaction at issue. “I am unable to find that the material that was reviewed is not significant to the litigation and not capable of creating significant prejudice.”
The lawyer for the respondent, Paul Le Vay, says the case highlights a very modern problem where information databases are shared by two or more parties who later become adverse. “It’s the kind of thing that can arise if data isn’t properly analysed and managed from the beginning.”
Le Vay says the usual consequence for accessing the privileged communications of another party is for the lawyer recipient to recuse themselves and the litigant to retain another counsel.
“The judge found this case to be extreme where there would be no semblance of fairness to continuing the litigation because of the prejudice suffered by the innocent party having their privileged material exposed to the other side.”
Le Vay says Justice Cavanagh relied his judgement on the Supreme Court of Canada McDonald Estate and Celanese case, which highlights the difficulty of a party whose privileged communications are accessed and requires proving prejudice by showing privileged information was read and aggravating the harm through disclosing more confidential material.
Another lawyer for the respondent, Sam Robinson, says the court’s decision is the second case in Ontario where a court granted a stay because one party has accessed and reviewed the other side’s privileged communications.
If a party cannot prove that there would be no harm from having access to the privileged material, Robinson says the court is prepared to do everything, including throwing out the entire lawsuit permanently, and lawyers have to caution their clients.
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“He didn’t tell his lawyer, and he was out to help himself, and there’s nothing the lawyer could have done,” he says. “Going forward, lawyers would be well advised to warn their clients that this is the ultimate outcome of trying to obtain an unfair advantage by accessing the other side’s privileged communications.”
The respondent’s third lawyer and computer forensic expert, Ted Marrocco, says a party possessing privileged information must make more than a simple blanket denial. “It’s not enough to come to court and say, ‘Well, I didn’t look at it.’ That’s not going to do it. You have to put forward evidence explaining why or how you didn’t make use of it.”
The lawyer for the plaintiffs declined Law Times’ request for comment.
In Continental Bank of Canada (CBOC) v. Continental Currency Exchange Canada Inc (CCEC), the court found evidence that directly after a failed proposed business transaction between both parties, the shareholders of CCEC, Scott Penfound and his family, obtained CBOC’s emails without the permission of Eric Sprott, owner of Sprott Continental Holdings Ltd (SCHL) under which CBOC is an owned subsidiary.
The emails contained communications with CBOC general counsel and agreements regarding the transaction in dispute. The same day, a letter was written by CCEC’s lawyers, stating they would contact SCHL and CBOC counsel to discuss substantial damages.
Penfound reviewed the CBOC emails and received weekly reports from his assistant over a long period. He gave the data to his lawyers for documentary production in the litigation, and they continued to review the CBOC emails even after receiving Sprott’s motion to stay the claim citing abuse of process.
CCEC’s lawyers argued that they did not view the privileged documents and suggested that the court order the respondents to identify the relevant information Penfound accessed and make submissions on them.
Relying on the Supreme Court of Canada Celanese case, Justice Cavanagh wrote that prejudice is presumed once an opposing party has access to relevant confidential information protected by privilege. The obligation rests on the recipient to show there is no risk that the exposed information will be prejudicial.
The documents were accessible for a lengthy period, and the absence of Penfound’s lawyers’ reasons would lead to significant prejudice that “impermissibly” reverses the court’s directive in these circumstances, Justice Cavanagh wrote.
“The onus is on the Penfound Parties to identify with some precision what privileged information they saw and then show that there would be no real risk of significant prejudice from use of that information.”
Justice Cavanagh wrote that CCEC failed to rebuttal the presumption of prejudice that arose when they had access to relevant confidential and privileged documents over an extended period, and the difficulties in discharging their duty should not fall on the respondents.
“To allow the Penfound parties’ action to proceed in these circumstances would be manifestly unfair to the Sprott parties and would bring the administration of justice into disrepute.”
Lawyers for the CECC argued that a stay order should be limited to Scott Penfound and not other family members, but Justice Cavanagh disagreed, stating that they aligned with him in action.
Penfound’s wife and children gave affidavit evidence that they did not receive or review privileged information. However, Justice Cavanagh wrote that the Supreme Court in MacDonald Estate cautioned against this kind of evidence as unacceptable to rebut the presumption of prejudice following access to confidential and privileged information.
If the litigation continued, even if the CCEC had new lawyers, he wrote that the other party would be apprehensive that no use of confidential information would happen.
Read more on the case here.