In the recent decision of Ontario Securities Commission v Go-To Developments Holdings Inc et al, 2023 ONSC 5921 (“Go-To Developments”), the Court affirmed a receiver’s ability to control solicitor-client privilege in order to perform their mandate. The Court specifically considered whether a receiver could access email correspondence between the principal of the companies under receivership and other interested parties. Here, the Court concluded that where solicitor-client privilege applies to the companies under receivership, and the receiver possesses the necessary authority to review or investigate such materials, solicitor-client privilege does not preclude investigation by the receiver. Go-To Developments, is an important reminder that solicitor-client privilege cannot be used as a shield by a company’s former director in investigatory proceedings against them.
KSV Restructuring Inc., the Court-appointed receiver (the “Receiver”) of 23 related companies (collectively, the “Go-To Group”), sought an order to compel the Principal of the Go-To Group to release more than 11,000 emails to the receiver. In response, the Principal argued that either solicitor-client or common interest privilege precluded such disclosure.
The Go-To Group were developers of real property in Ontario, and had raised significant funds from investors by selling partnership units. At the time of the receivership application, the development projects were incomplete. The Court placed the Go-To Group in receivership on application of the Ontario Securities Commission (“OSC”), due to concerns regarding certain business practices which potentially indicated statutory breaches and fraud. The Court did not extend the receivership order to the Principal in his personal capacity.
The concerns around statutory breaches and fraud included certain dealings between the Go-To Group and a third-party developer. The emails that the Receiver sought to investigate were correspondence between the Principal (using his work email address) and a representative of this third-party developer. The Principal himself did not retain a lawyer, and where a lawyer was copied on the email correspondence, it was either a lawyer for the Go-To Group or the third-party developer.
The Court held that the Receiver was entitled to access the emails in order to fully exercise its powers under the receivership order. The Court reviewed prior decisions which indicated that in certain circumstances, a receiver has the power to waive the solicitor-client privilege of a company for which it acts stating that, “[t]he jurisprudence is clear that a receiver’s ability to waive privilege derives from the powers granted to the receiver by the order under which they were appointed”.
The Court noted that their findings did not contradict the Supreme Court of Canada’s leading decision in Canada (National Revenue) v Thompson, 2016 SCC 21, which recognized that solicitor-client privilege constitutes a principle of fundamental justice under the Canadian Charter of Rights and Freedoms. In this case, the Court was not piercing or setting-aside solicitor-client privilege, but rather affirming a receiver’s power to control that privilege as part of its mandate.
The receivership order granted the Receiver broad fact-finding and examination powers that allowed them to review the email correspondences. The Court also noted that the receivership was not part of an insolvency proceeding, but rather brought under the Securities Act in Ontario due to the OSC’s concerns surrounding the Go-To Group’s business dealings and to protect investors. The handling of the claim involving the third-party developer and emails would have a significant impact on the distributions to other stakeholders as part of the receivership proceedings.
Finally, the Court stated that a provision in the receivership order which expressly did not require the delivery or granting of access to records which were protected by solicitor-client privilege was not applicable. This provision recognized the right to solicitor-client privilege of the Go-To Group. The Principal could not then rely upon the receivership order to protect himself from having to disclose emails that were sent to and from the Go-To Group. The Court concluded that the Principal would need to show that the emails were subject to his own personal solicitor-client privilege to prevent release, which they were not.
Implications and Conclusions
While the issue of solicitor-client privilege is largely settled within the civil context, the issue has remained somewhat controversial in the insolvency field. Previous lines of authority have found that a trustee in bankruptcy cannot waive privilege. In the leading decision of Bre-X Minerals Ltd (Trustee of) v Bennett Jones Verchere, 2001 ABCA 255 (“Bre-X”), a majority of the Alberta Court of Appeal held that, “[s]olicitor-client privilege is the privilege of the bankrupt… The privilege does not vest in a trustee upon bankruptcy, nor does the trustee have the authority to waive this privilege.” The Appellate Court drew on the earlier Ontario Court of Appeal decision in Re Chilcott and Clarkson Co Ltd, 48 OR (2d) 545, where communications between the bankrupt and their solicitor could not be disclosed to the bankruptcy trustee for reasons of privilege.
For the past several years the general trend in Canadian law has been to find that trustees in bankruptcy do not have the authority to waive the solicitor-client privilege of the corporations they represent. Post-Bre-X decisions have followed the Alberta Court of Appeal’s lead; however, the application has not been uniform with some courts finding exceptions to the Bre-X rule to allow limited disclosure to trustees. This issue does not appear to have been discussed in-depth outside of the bankruptcy context.
The Bre-X approach by the courts produces uncertainty for trustees and receivers, who may be impaired from fulfilling their court mandates as a result. Go-To Developments may then come as a welcome change for many trustees and receivers by moving away from the authority of Bre-X, and allowing the court-appointed officer the ability to control the privilege belonging to the debtor, over which they have been appointed to control and manage usually everything else.