darl_gd.txt ROYAL BANK OF CANADA, Applicant v. WILLIAM D. DARLINGTON, WILLIAM T. GAUKRODGER, G. GORDON SYMONS and IAN C. MUNRO, Respondents; ROYAL BANK OF CANADA, Applicant v. PETER J. CLARKE and MURRAY O'NEILL, Respondents; HONGKONG BANK OF CANADA, Applicant v. ANNE HENDRIE, IAN TAYLOR, THOMAS NEVITT PARROT and HONGKONG and SHANGHAI BANKING CORPORATION LIMITED, Respondents B312/93, RE3060/93, RE3045/93 ONTARIO COURT OF JUSTICE (GENERAL DIVISION) COMMERCIAL LIST 1994 DLR LEXIS 1190; (1994) 112 D.L.R. 4th 210; 1994 Ont. C. J. LEXIS 4634; 1994 ACWSJ 16828; 45 A.C.W.S. 3d 890 December 14th, 1993, Heard February 16, 1994, Released COUNSEL: [*1] George S. Glezos, Counsel, for the Applicant. Glenn A. Smith, Counsel, for the Respondents. R. Bruce Smith, Counsel, for the Intervener Banks. JUDGES: Spence, J. OPINIONBY: SPENCE, J. OPINION: REASONS FOR JUDGMENT This is a motion by the respondents to compel the applicant's witness, Mr. Carr, to answer certain questions which on his cross-examination were the subject of objections by the intervener banks referred to below. The applicants take no position with respect to the objections and refusals. Certain Canadian banks (Canadian Imperial Bank of Commerce, the Toronto- Dominion Bank, Bank of Nova Scotia, and Bank of Montreal) were permitted to intervene in this matter. The intervener banks oppose the motion on the grounds that the questions in dispute are irrelevant and that they would invade solicitor-client privilege. Christopher Carr, Q.C. is an English lawyer with recognized expertise in the law of letters of credit. The applicant banks and the intervener banks have been involved in claims related to various persons including the respondents. The dispute deals with underwriting commitments made by those persons to the Society and Council of Lloyds in London, [*2] England. The applicant banks issued letters of credit in favour of Lloyds at the request of the respondents as security for their underwriting commitments. The intervener banks also issued letters of credit in favour of Lloyds at the request of certain of their customers, none of whom is a respondent in these proceedings. Several respondents were plaintiffs in prior litigation commenced in Ontario in 1991 (the "Ash action") against Lloyds, the applicant banks and the intervener banks, alleging fraud on the part of Lloyds. The action was permanently stayed on the ground that England is the forum conveniens. Lloyds called for payment on the letters of credit issued by the banks in support of the plaintiffs. The applicant banks paid. The intervener banks did not; they dishonoured payment at the request of their customers, who continue to allege fraud against Lloyds. Lloyds sued the intervener banks for payment on their letters of credit (the "Lloyds action"). Lloyds successfully struck out the pleadings of the intervener banks and then obtained summary judgment against them in July of 1993. Mr. Carr was lead counsel to the intervener banks in those proceedings. The [*3] intervener banks paid Lloyds and demanded reimbursement against their customers. By August of 1993 the applicant banks had made demands on their customers and started the proceedings in which the present motion is brought. The applicant banks obtained and served an affidavit from Mr. Carr. An agreement was reached to permit the intervener banks to attend the cross-examination of Mr. Carr, to object to questions, and to intervene on this motion. The questions which occasioned the objections and refusals still in contention between the parties are to the following effect. 1. When was Mr. Carr retained by the intervener Banks? 2. Did Mr. Carr express the opinion to Saville J. in the Lloyds action that if a bank had clear notice of fraud but proceeded to pay, the bank would be most unlikely to obtain reimbursement from its customer on the letter of credit and, if so, was that his opinion at that time? 3. Did Mr. Carr review the pleading of the intervener banks in the Lloyds action and, if so, what was his opinion as to the validity of that pleading? 4. If a bank has knowledge of fraud and fails to plead fraud and pays on the letter of credit, does [*4] that mean that the bank is not entitled to reimbursement from its customer? 5. Does Mr. Carr agree with the assertions made in five consecutive sentences in a specific paragraph on page 4 of the decision of Saville J. in the Lloyds action? The sentences are as follows: If a Bank has notice of matters which might amount to evidence of fraud, then it must make up its mind whether or not the material is sufficient to justify a plea of fraud. If it is, then the Bank can resist payment on this basis and if it can establish relevant fraud it will be under no obligation to honour the Letter of Credit. If the Bank considers the material to be insufficient to plead fraud, then its assessment will be either right or wrong. If right, then ex hypothesi there will be no notice of relevant fraud and thus the customer can hardly resist reimbursing the Bank who pays in those circumstances. If the Bank incorrectly concludes that there is insufficient material to plead fraud, then it can hardly complain if it is not reimbursed, any more than it could if it mistakenly paid on non-conforming documents. Relevance The intervener banks say that all of these [*5] questions are irrelevant in respect of the present proceedings by the applicant banks against the respondents because the questions all relate in one way or another to the Lloyds action, which was significantly different from the present case. In the Lloyds action the intervener banks dishonoured the letters of credit and the decision made against them in the action against them by Lloyds turned on the determination that their pleadings were inadequate in that they did not plead fraud. In the present case such issues do not arise, because the letters of credit were honoured, no action was taken by Lloyds against the applicant banks an d the question of the adequacy of pleadings never arose. Moreover, since the decision in the Lloyds action turned on the question of the adequacy of the pleadings, it was unnecessary for that decision to address, and the decision did not address, the issue Of what counts as fraud in such a case. This issue, usually referred to in terms of "relevant fraud", concerns the type of fraud that may properly provide a basis to dishonour a letter of credit. On one theory, it is essential for the integrity of the system of international commercial transactions [*6] that letters of credit should be recognized as autonomous instruments which are entered into between the issuing bank and the receiving holder and establish rights and liabilities between them which are independent of the rights and liabilities between the holder and the bank's letter of credit customer. On this theory, a bank may be relieved of its obligations under its letter of credit only where there is fraud in the documents presented to the bank by the holder for the purpose of calling for payment, regardless of whether fraud has occurred in the dealings of that holder with the bank's customer. Thus, on this theory, the only "relevant fraud" for the purposes of the liability of the bank on its letter of credit is said to be fraud in the presentation documents delivered by the holder to the bank, and not fraud in the underlying transaction between the holder and the bank's customer. Whatever may be the correct view of the law about this issue, the decision in the Saville decision never touches on this question. That decision employs the term "relevant fraud" without defining it and the reasons in the decision address instead only the question of the adequacy of the pleadings [*7] in that case. The pleading with respect to fraud was as follows: "(a) The Defendant has been provided with information which its customers allege amounts to a sufficient case of fraud as to entitle the Defendant to decline to honour the drafts that have been presented. Full particulars of the said information are set out in Schedule 2 hereto and copies of all such information have been provided to the Plaintiff. (b) The Defendant contends that the material provided was, to a reasonable banker in the position of the Defendant, sufficient to amount to notice of clear fraud by the Plaintiff. Further or alternatively, the material provided was such as would lead a reasonable banker in the position of the Defendant to infer fraud by the Plaintiff. Accordingly, the Defendant was entitled to dishonour the drafts and to decline to make any payment to the Plaintiff under the letters of credit. (c) For the avoidance of doubt, the Defendant does not allege fraud against the Plaintiff." Saville J. summarized this defence and expressed his view of it as follows: As is apparent from this pleading it is the contention of the Banks that it is not necessary for themselves [*8] to plead and establish fraud provided they can satisfy the Court that the material upon which they rely would either amount to notice to a reasonable banker of clear fraud by the beneficiary, or would lead a reasonable banker to infer fraud by the beneficiary. Despite the careful and interesting arguments advanced by Mr. Carr, Q.C. for the Defendant Banks I am of the view that this contention is quite unsustainable. In the present case, the intervener banks argue that the irrelevance of the Lloyds action to the present case has effectively been acknowledged by the respondents. Mr. Craig Orr, an English barrister said in his cross- examinations that "the issue as to what kind of fraud suffices to bring the fraud exception into play in English law was not an issue that was material" to the decision in the Lloyds action. Mr. Carr was cross-examined at length by counsel for the respondents on the question of what constitutes relevant fraud and none of the outstanding objections deals with that part of the cross-examination. The position of the respondents is that it is relevant in the present proceedings to cross-examine Mr. Carr on his opinions concerning English law, not [*9] only about relevant fraud, but also about what constitutes notice of fraud to the issuer of a letter of credit and the effect of such notice upon the rights and liabilities of the issuer. All of the questions in dispute appear tome to be related to these issues. The question as to the timing of Mr. Carr's retainer may bear upon the extent of his expertise in connection with letter of credit fraud issues as they arose in the context of the Lloyds action. Even though the Lloyds action was decided on grounds not related to the present case , the questions which relate to the pleadings in the Lloyds action and Mr. Carr's view of those pleadings and of the decision in the case might well elicit answers which shed light on the issues in the present proceedings. Counsel for the respondents noted that in one statement in the decision of Saville J. on which it is sought to examine Mr. Carr, a comment is made as to the position a bank would be in, where "it mistakenly paid on non-conforming documents" and counsel said it would be desirable to be able to examine on this comment. Although it is difficult to surmise how that inquiry would be fruitful, it would be unduly narrow to rule out [*10] investigation of such a statement-of foreign law in what appears to be a closely related area. It is possible to imagine arguments relating to the present action which might well be affected by matters on which the contentious questions seek to elicit Mr. Carr's view. For example, if it is the law that a bank which has notice of fraud but proceeds to pay is thereby disabled from obtaining reimbursement from its customer, that would seem to be central to the issues in dispute in the present action, if not indeed determinative. Moreover if the pleading in the Lloyds action was, contrary to the decision of Saville J., a valid pleading, there might be an argument that a bank which could have raised that defence but instead proceeded to pay is similarly disabled from obtaining reimbursement from its customer. Whether arguments would be formulated in precisely these terms is not significant. What is important is that the matters on which Mr. Carr's opinion was requested bear upon matters that could reasonably be expected to affect the outcome of the present proceedings, and accordingly (subject to what is said below) they are relevant. Privilege No issue was taken [*11] with the general proposition that Mr. Carr, as an expert witness, is properly subject to cross-examination in respect of any text he recognizes to be authoritative, and this clearly includes the decision in the Lloyds action. The dispute concerns the scope of the privilege which applies by reason of Mr. Carr having acted as lead counsel to the intervener banks in the Lloyds action. It is not disputed that the privilege has not been waived. The intervener banks claim that there is a broad privilege consisting of the solicitor-client privilege and the trial brief privilege of a barrister. They say this privilege extends to every aspect of Mr. Carr's preparation for the Lloyds action and his opinion about the correctness of the decision in that action. The respondents argue for a narrower definition of privilege, one that would limit it to communications between the lawyer and the client. If the narrower definition of privilege is correct, then each of the questions is, at least at first glance, admissible, since none of them seems to ask about what was said in any communication between Mr. Carr and his clients. The respondents refer to the decision of Callaghan J., (as he [*12] then was), in Ostrower v. Genereux (1985) 5 C.P.C. (2d) 35. In that case, the plaintiff alleged a conspiracy to defraud on the part of the appellant, her husband and the defendant company. The appellant and her husband were lawyers. There was an issue as to the extent of the appellant's involvement in the work of her husband's law firm, and the appellant raised an objection to questions on this subject on the grounds of the solicitor- client privilege. Callaghan J. stated as follows with respect to that claim of privilege: . . . none of the questions posed in my view require the appellant to reveal information which a client has given to her in confidence for the purposes of receiving advice or the advice given. That privilege extends only to clients of a solicitor and only covers communications, not acts, transactions or other questions of objective fact. The questions asked of the appellant relate not to the communications between the appellant and clients but to transactions that may or may not show the pattern and extent of the appellant's involvement in the practice of Genereux and Associates which is clearly one of the issues upon which all information should [*13] be available to the Judge hearing the application for the relief sought. These statements must be taken in the context of the facts of the case. Read contextually, and without the benefit of the terms of specific questions sought to be asked, these statements leave open the possibility that the questions were not principally directed to client matters but to other business activities of the firm with clients or other persons. The decision does not seem to me to provide strong support for the narrow view which the respondents seek to derive from it. There is authority to support a broader view of the privilege than that taken by the respondents. Dickson J. as he then was, provided the following review of the solicitor-client privilege in Solosky v. The Queen [1980] 1 S.C.R. 821 at 834-835: The history of the privilege can be traced to the reign of Elizabeth I (see Berd v. Lovelace and Dennis v. Codrington). It stemmed from respect for the 'oath and honour' of the lawyer, duty bound to guard closely the Secrets of his client, and was restricted in operation to an exemption from testimonial compulsion. Thereafter, in stages, privilege was extended [*14] to include communications exchanged during other litigation, those made in contemplation of litigation, and finally, any consultation for legal advice, whether litigious or not. The classic statement of the policy grounding the privilege was given by Brougham L.C. in Greenough v. Gaskell, at p. 620: The foundation of this rule is not difficult to discover. It is not (as has sometimes been said) on account of any particular importance which the law attributes to the business of legal-professors, or any particular disposition to afford them protection (though certainly it may not be very easy to discover whya like privilege has been refused to others, and especially to medical advisers). But it is out of regard to the interests of justice, which cannot be upholden, and to the administration of justice, which cannot go on without the aid of men skilled in jurisprudence, in the practice of the courts, and in those matters affecting rights and obligations which form the subject of all judicial proceedings. If the privilege did not exist at all, every one would be thrown upon his own legal resources. Deprived of all professional assistance, a man would not venture to [*15] consult any skilful person, or would only dare to tell his counsellor half his case. The rationale was put this way by Jessel M.R. in Anderson v. Bank of British Columbia, at p. 649: The object and meaning of the rule is this: that as, by reason of the complexity and difficulty of our law, litigation can only be properly conducted by professional men, it is absolutely necessary that a man, in order to prosecute his rights or to defend himself from an improper claim, should have resource to the assistance of professional lawyers, and it being so absolutely necessary, it is equally necessary, to use a vulgar phrase, that he should be able to make a clean breast of it to the gentleman whom he consults with a view to the prosecution of his claim, or the substantiating of his defence against the claimof others, that he should be able to place unrestricted and unbounded confidencein the professional agent, and that the communications he so makes-to him shouldbe kept secret, unless with his consent (for it is his privilege, and not the privilege of the confidential agent), that he should be enabled properly to conduct his litigation. Wigmore [8 Wigmore, Evidence [*16] (McNaughton rev. 1961) para. 2292] framed the modern principle of privilege for solicitor-client communications, as follows: Where legal advice of any kind is sought from a professional legal adviser in his capacity as such, the communications relating to the purpose made in confidence by the client are at his instance permanently protected from disclosures by himself or by the legal adviser, except the protection be waived. In Ottawa-Carleton v. Consumers' Gas Co. (1990),. 74 D.L.R. (4th) 742 (Ont.Div.Ct.), the court denied a motion by the defendant for production of documents prepared by the plaintiff's solicitors for use in litigation. The documents consisted of copies of corporate searches and copies of articles and papers yielded by a literature search prepared with the assistance of environmental consultants. O'Leary J. for the court, said at p. 748: The adversarial system is based on the assumption that if each side presents its case in the strongest light the court will be best able to determine the truth. Counsel must be free to make the fullest investigation and research without risking disclosure of his opinions, strategies and conclusions [*17] to opposing counsel. The invasion of the privacy of counsel's trial preparation might well lead to counsel postponing research and other preparation until the eve of or during the trial, so as to avoid early disclosure of harmful information. This result would be counter- productive to the present goal that early and thorough investigation by counsel will encourage an early settlement of the case. Indeed, if counsel knows he must turn over to the other side the fruits of his work, he may be tempted to forgo conscientiously investigating his own case in the hope he will obtain disclosure of the research, investigations and thought processes compiled in the trial brief of opposing counsel. See Kevin M. Claremont., "Surveying Work Product" (1983), 68 Cornell L.R. 760, pp. 784- 8. I agree in particular with the author's words at p.788: Serving justice by ordering discovery in one case may ultimately hinder it by discouraging attorney preparation in later cases. In my view, the reasons for maintaining the privilege of a solicitor's trial brief are compelling and the documents here in question ought to be exempt from production. In Bell et al. [*18] v. Smith et al. (1968), 68 D.L.R. (2d) 751, (S.C.C.) a solicitor had been called to give evidence as to settlement discussions in which he had taken part on behalf of a former client. In the judgment of the court Spence J. said: "Counsel should not give a proof of evidence of what occurred at a hearing in which he was professionally engaged." This quotation is from 3 Hals., 3rd ed., p. 68, referring to the Annual Statement of the General Council of the Bar, 1937, p. 7. This regrettable occurrence was occasioned by insufficient concern for a fundamental rule, namely, the duty of a solicitor to refrain from disclosing confidential information unless his client waives the privilege. It is rather astounding that Mr. Schreiber should be subpoenaed to give evidence on behalf of the defendants as against his former clients and that he should produce his complete file including many memoranda and other material all of which were privileged as against the plaintiffs and whether the plaintiffs' counsel objected or not that he should be permitted to so testify and so produce without the consent of the plaintiffs being requested and obtained. Lord Chancellor Eldon said, in Beer [*19] v. Ward (1821), Jacob 77 at p. 80, 37 E.R. 779: . . . it would be the duty of any Court to stop him if he was about to disclose confidential matters . . . the Court knows the privilege of the client, and it must be taken for granted that the attorney will act rightly, and claim that privilege; or that if he dos not, the Court will make him claim it. Because the solicitor owes to his former client a duty to claim the privilege when applicable, it is improper for him not to claim it without showing that it has been properly waived. Especially is this so when, as here, the circumstances are such as to make it most unlikely that a waiver would be given. Also, because it is improper to induce a breach of duty, I have serious doubts about the propriety of putting to a solicitor questions that involve the disclosure of confidential information without first bringing in evidence of a proper waiver. In any case, because the client's privilege is a duty owed to the Court, no objection ought to be necessary and the evidence in violation of the privilege should not be received." In R. v. Stockdale and Fulcher (1981) 59 C.C.C. (2d) 191 (Ont.C.A.), the court criticized [*20] the conduct of Crown counsel who, despite the efforts of the trial judge to restrain him, persisted in cross-examining the accused to imply that the accused's Counsel did not agree with his evidence or with the grounds of his defence. Brooke J.A. said at p. 192 that the trial judge was right in attempting to stop the cross-examination; because of the relationship, such questions could not be asked. In the present case, according to the transcript of Mr. Carr's cross- examination, the intervener banks have asked for an opinion from Mr. Carr as to whether they should appeal. Counsel for the intervener banks took the position that questions being put to Mr. Carr would cause him to disclose the substance of his recommendations and the opinions that he gave. Based on the authorities which I have cited, questions which seek to elicit Mr. Carr's opinion on the matters on which he was advising the intervener banks in the Lloyds action are improper because they would invade the solicitor-client privilege. That would be so even if Mr. Carr had not also been advising the same client with respect to appealing the decision, but that circumstance reinforces the point. Accordingly the questions [*21] proposed under items 4 and 5 above cannot be put to Mr. Carr. Items 2 and 3 also contain questions as to his opinions and those questions are improper for the same reasons. The factthat the question in item 2 is stated in terms of Mr. Carr's opinion at the timeof the hearing does not help it. Item 3 also includes the question whether Mr. Carr reviewed the pleadings. That does not seek to elicit an opinion but it does inquire into the work performed by Mr. Carr in order to advise his client and it is accordingly not permitted. Item 2 also includes the question whether Saville J. was correct in stating that Mr. Carr had submitted to him that "if the banks did have clear notice of fraud but nevertheless paid, then they would be most likely to obtain remunerations from their customers". This question does not seem to fall under the prohibition in Bell v. Smith because in that case the proceedings that were inquired about were confidential negotiations, not proceedings in open court, as in this case. Indeed it is difficult to see how submissions of counsel in open court could be regarded as protected by the solicitor-client privilege because the rationale for the privilege [*22] has no application to statements made in the courtroom. The difficulty with this question is of a different kind. To be a proper question it should enquire as to professional opinion of the expert. Presumably it would therefore be in order to ask about statements made by the expert on other occasions when that person had spoken in the capacity of an expert. But when counsel addresses the court in the capacityof counsel, that is not such an occasion. The submission is not expert evidence; it is an argument on a matter of law which is to be determined by the court. For this reason, the question is not appropriate because it does not bear upon the witness' expert opinion. I note that when objection was taken to this question to Mr. Carr in the cross-examination, this distinction was advanced as the reason for the objection. I would disallow the question on this ground. The question in item 1 concerns the purely factual matter of the time when Mr. Carr was retained by the intervener banks. I determined above that that question may bear upon the extent of Mr. Carr's expertise in connection with letter of credit fraud issues as they arose in the context of the Lloyds action.[*23] Since the decisions I have made above effectively preclude the disputed questions to Mr. Carr with respect to his involvement in the Lloyds action, the time at which he was retained for the purpose of those proceedings is not relevant to any other admissible question and should therefore not be allowed. For the reasons given above, the motion is dismissed. Counsel may speak to me about costs.