Husband Ordered to Produce Privileged Information After Failing to Disclose $30 Million Transaction in Divorce NegotiationsSeptember 2, 2021
In a recent Ontario decision, a husband was ordered to disclose his lawyer’s privileged file in a family law dispute after he failed to disclose a $30 million sale of a business during settlement discussions.
Separated Couple Enter into Minutes Of Settlement
The husband and wife were married in 1994 and separated in 2012. They have two adult children. Their divorce was finalized in June 2014.
Following their separation, the couple entered into mediation and settlement discussions which resulted in the signing of minutes of settlement (the “minutes”) in 2014. Among other things, the negotiations addressed spousal support, child support, equalization and the husband’s ownership interest in his business on the basis of constructive trust and joint family venture.
During the settlement negotiations, the husband represented that his business interests at the valuation date were between $7-8 million, which was corroborated by his chief financial officer in a valuation analysis.
Husband Sells Business and Wife Seeks to Set Aside Minutes
During the same period when the couple was in negotiations, the husband signed a letter of intent to sell his business for $30 million. On April 14, 2014, six days after the husband and wife signed the minutes, the sale was completed.
However, the wife only learned of the sale of the husband’s business in February 2015. She then brought a court application seeking to set aside the minutes on the basis that the husband had materially misrepresented his financial circumstances when they were in negotiations.
In his response, the husband disclosed the letter of intent and acknowledged that he had received approximately $23.7 million from the sale. After taxes, the amount equalled approximately $18 million. The husband also admitted that he had intentionally failed to disclose the sale of the business for $30 million at the time that the minutes were entered into.
Husband Appeals Motion Judge’s Determination on Privileged File
As part of the proceedings, on January 4, 2020, the motion judge issued an order requiring the husband to produce his former lawyer’s matrimonial file and dismissing the husband’s similar request that the wife be required to produce her lawyer’s file.
The husband appealed the order, submitting that he had not waived solicitor and client privilege over the advice he received from his lawyer during the settlement negotiations because he had not made an affirmative allegation placing his state of mind in issue. He also argued that the motion judge erred in finding that he had impliedly waived solicitor client privilege and, in particular, in failing to consider whether he was utilizing the legal advice he received to defend against the wife’s claims. The husband further submitted that the motion judge erred in finding that the wife had not made her state of mind and reliance on legal advice an issue in her claims when she pled that she would not have entered into the minutes had she known about the sale of his business.
The Test for Waiving Solicitor-Client Privilege
The motion judge set out the test for implied waiver of solicitor-client privilege as follows:
“In determining whether privilege should be deemed to have been waived, the court must balance the interests of full disclosure for the purposes of a fair trial against the preservation of solicitor-client privilege. The onus lies on the party seeking to overcome the privilege to establish that the communication ought to be compelled from the party asserting the privilege.
A waiver of privilege may be express or implied. Implicit waiver may arise in two circumstances: (i) waiver by disclosure – once the privileged communication has been disclosed, the privilege attached to it is said to be lost; or (ii) waiver by reliance – by pleading or otherwise relying upon the privileged communication as part of a substantive position taken in the legal proceedings.
A deemed waiver, and an obligation to disclose a privileged communication, requires two elements: (i) the presence or absence of legal advice is relevant to the existence or non-existence of a claim or defence, in other words, the presence or absence of legal advice is material to the lawsuit; and (ii) the party who received the legal advice must make the receipt of it an issue in the claim or defence.
A party will have waived solicitor-client privilege where they have placed their state of mind at issue and given evidence that they received legal advice which, in part, formed the basis of that state of mind. An implicit waiver can also arise by reason of the positions taken by a party which implicitly require the disclosure of communications between solicitor and client.”
Court Dismisses Husband’s Appeal
The court began by observing that solicitor-client privilege is a principle of fundamental justice and a cornerstone of the Canadian justice system. It explained that it protects the fundamental and legal right of citizens to communicate in confidence with their lawyers and has been elevated to a fundamental and substantive rule of law.
After reviewing the motion judge’s reasons, however, the court found that she had correctly interpreted and applied the test for impliedly waiving solicitor and client privilege.
As a result, the court dismissed the husband’s appeal, but clarified that his disclosure would be limited to that part of his lawyer’s matrimonial file that was relevant to the issue of the duty of financial disclosure regarding the negotiation and sale of his business interests.
At Feigenbaum Law, our goal is to help you move forward following the breakdown of a relationship while retaining as much financial stability as possible and ensuring your children are provided for. Mark Feigenbaum is able to counsel his clients on all potential risks that may result from a family law dispute, not just those related strictly to the breakdown of a marriage. Contact Mark online or call him at (905) 695-1269 or toll-free at (877) 275-4792 to book a consultation.