May 2009

In this issue:
1. Ontario Pilot Program for Long Combination Vehicles
2. Federal Court is Not a Surrogate Divorce Court for Warring Spouses
3. Has the Horse Forever Left the Barn? The "Deemed Undertaking" Rule in Ontario

1. Ontario Pilot Program for Long Combination Vehicles

This summer the province of Ontario will begin a pilot program to allow a limited number of commercial truck operators to pull two full-sized trailers - referred to as long combination vehicles (LCVs) - on designated Ontario highways. Each LCV replaces two 23 metre tractor-trailers.

Ontario will carefully control LCV operations and the province will gradually issue permits for up to 100 LCVs over a one year period. LCVs have been on the road in Western Canada, Quebec, and more than 20 American states for decades. The province touts that LCVs have an excellent safety record, with fewer collisions reported than single-trailer trucks. A 2005 Alberta study shows that LCVs had 60 per cent fewer collisions reported than single-trailer trucks.

Rules for LCVs include:

• Can only operate on designated divided highways (primarily 400-series highways)
• Can generally travel no more than two kilometres off designated highways, and only on approved routes
• Must have special safety equipment, including enhanced braking requirements and an electronic stability control system
• May not drive in or through the Greater Toronto Area during rush hours
• May not carry more weight than existing single tractor-trailers
• May not operate at the start and end of long weekends
• May not carry dangerous goods that would require a warning on the vehicle's exterior
  
• May not carry livestock
• May not operate during winter months (December, January, and February)
• Are prohibited from driving in bad weather or slippery conditions
• May not exceed 90km/hr

The province is also promoting the economic advantages for the province's retailers and manufacturers. LCVs should reduce transportation costs. It will allow Ontario retailers and manufacturers to bring voluminous, lightweight goods to market at a lower cost.

Ontario promises to be among the most stringent of all the regions that currently allow LCVs. The rules differ from Quebec's most notably with lower GVW (63,500 kgs compared to 67,500 kgs. in Quebec) and with such requirements as stability control, which didn't exist back when Quebec wrote its rules.

Ontario car drivers should be watching this new development closely. Try passing these behemoths with a small car with a small motor!

Rui Fernandes

2. Federal Court is Not a Surrogate Divorce Court for Warring Spouses

The Federal Court of Canada does not have jurisdiction in divorce cases yet sometimes, to its chagrin, it too gets dragged into proceedings involving warring spouses. In Ricci v. Tully (2009) FC 493 the court had to consider an application for the sale of a vessel which was at the centre of a divorce.

The vessel "FOREVER LOST" was, as the court described, "the apocryphal name of the 48 foot sailboat which is at the centre of this proceeding." Claudia Ricci and John Tully were married and involved in concurrent divorce proceedings in the Ontario Superior Court of Justice. There was a dispute as to the ownership of the vessel between Claudia and John. Claudia claimed that she was the equitable owner of the vessel because she provided all of the purchase funds. She raised those funds by taking out a mortgage on her home which she had owned free and clear and which she had purchased and lived in prior to her marriage to John. For his part, John claimed ownership by of gift from Claudia and also alleged that he spent endless hours repairing and restoring the vessel. The court, tongue in cheek, stated at the beginning of the decision that the "FOREVER LOST" was indeed forever lost to Claudia and John and required the vessel to be sold.

The court heard evidence of how Claudia and John cohabited together, John became bankrupt and had negligible assets, Claudia had a job, purchased the home, and provided the funds to purchase the vessel, which was intended as a retirement investment. John and Claudia viewed it as being the basis of a charter company and that they would eventually retire and live aboard the vessel in the Caribbean. A common dream which ended in a common nightmare. John found the boat and was to register the vessel in both their names. He registered the vessel in his name only. Claudia refinanced her home to consolidate the debts incurred with respect to the vessel. She paid the mortgage payments.

The marriage did not last long and Claudia and John separated. John moved out of the home and kept possession of the sailboat. Claudia did not have any keys, pass codes or any access or use of the sailboat. In a separation agreement John agreed to pay for the monthly mortgage payments on the debt. The debt was secured by the home. In March 2008 a cheque provided by John for such a payment did not clear. In April 2008 Claudia had the vessel arrested and brought a claim in the federal court to determine ownership of the vessel and to have the boat sold. A vessel query search from Transport Canada's website completed after the action was commenced indicated the ownership of the vessel was registered to Marguerite Dunning after the arrest of the sailboat. Ms. Dunning was apparently the woman with whom John had a relationship subsequent to his separation from Claudia. In July 2008 the vessel ownership was switched back to John. At the time of the proceeding the vessel was under court arrest.

In a preliminary motion the court ordered John to obtain insurance on the vessel and to make monthly payments for the debt. It allowed Claudia to obtain an independent survey of the vessel. It prohibited John from dealing with the vessel. It allowed John to continue living on the vessel.

John failed to comply with the court order, by defaulting in making the monthly payments and failing to maintain insurance on the sailboat. He continued to reside and have full use of the vessel.

Claudia obtained insurance on the vessel which required the removal of propane tanks from the vessel. John informed the insurer that he had removed the propane tanks. Claudia advised the court that Marguerite had advised that the tanks had not been removed. This was confirmed by the survey. To add to the financial woes and the precarious position of the sailboat, the dockage fees were in arrears.

In a bizarre twist at the hearing before the court, John's lawyers brought an application to remove themselves from the case (presumably because they had not been paid.) John objected to this. The court granted the application removing John's lawyer from the case. Then a most bizarre twist occurred. This was described by the court as follows:

"John's counsel was then advised that he was excused. There then occurred a somewhat Monty Pythonesque exchange between the Court and John's former counsel. He advised that he did not wish to leave and notwithstanding the Order that he no longer represented John, wished to remain and make submissions on Claudia's motion. He based this position on the fact the Order made removing him as solicitor of record did not take effect until proof of service on John was filed which he argued had not yet happened. Orders of the Court take effect from the time they are made by the judicial officer. In this case, there could be no doubt that John was fully aware of the Order of the Court. The protection of Rule 125(4) was not required and I ruled that counsel could not have it both ways - be removed as counsel and then remain and make submissions when his client was clearly present and representing himself. Counsel advised that what he was "hoping to do is obtain a just hearing of the issues at issue on this motion [Claudia's motion]". This comment provoked an extensive colloquy between the Court and John's former counsel regarding his participation, John's right to be heard and my overarching responsibility as a judicial officer to comply with my oath of office to ensure a fair hearing.
As a result of this exchange, John and his former counsel entered into a form of retainer agreement whereby John authorized his former counsel to make submissions on his behalf on the merits of Claudia's motion."

The court allowed John's counsel to make submission to the court. He raised the spectre of the Court becoming a backdoor divorce court over family owned boats and for one embittered spouse to "seek an illegitimate juridical advantage" over the other by proceeding in the Court to obtain possession or sale of a family asset. This argument was based largely on the fact that John used the vessel as his home and so he argued that he should not be dispossessed until the matrimonial proceedings, commenced after this proceeding, was concluded.

The Court held it had jurisdiction to deal with the vessel. The Court held that there was clear evidence that the vessel while in the sole possession of John was in jeopardy from fire (the propane tanks), seizure by creditors (fees owed for dockage) or other danger (not mentioned). The Court held it had the jurisdiction and power to prevent further deterioration of the vessel or to ensure that it was not put in jeopardy to third party creditors.

It ordered the vessel to be listed, sold and the proceeds paid into the Federal Court pending the decision of the Ontario Superior Court's decision on the division of assets in the divorce. John was ordered to deliver up possession of the vessel to Claudia for sale. And who says there is no justice in the world!

Rui Fernandes

3. Has the Horse Forever Left the Barn? The "Deemed Undertaking" Rule in Ontario

As a party to a lawsuit your lawyer tells you that you must provide copies of relevant documents for production to the other side as a part of the examination for discovery process. You want to comply but you've concerns that the documents contain sensitive, perhaps even propriety material. What protection is there that the other side will not use that information outside of dealing with the lawsuit? The answer - being a culmination of an evolving clash between the interest of the court system in full and frank discovery disclosure and the interest of the party disclosing information being able to maintain privacy - is the imposition of the "deemed undertaking rule" on the party in a lawsuit receiving the documents [and information contained therein] as a part of the examination for discovery process.

The Court of Appeal for Ontario recently issued its decision in Kitchenham v. AXA Insurance Canada (2009) 94 O.R. (3d) 276 in which it revisits the "deemed undertaking rule" (hereafter the "rule") as it applies in Ontario based litigation. Prior to reviewing the facts of this interesting case a review of the rule would be helpful.

The Deemed Undertaking Rule

The Rules of Civil Procedure requires each litigant to disclose the existence of "every document relating to any matter in issue in an action that is or has been in the possession, power or control of a party to the action… whether or not privilege is claimed in respect of the document. " (Rule 30.02). The disclosure of such a list of documents invariably leads to their production to the opponent with the exception of those in which a claim for 'privilege' may be asserted. Those familiar with the litigation process will be familiar with the prescribed 'Affidavit of Documents' which is be served by each litigant on other parties in the litigation. The Affidavit must list and describe all documents relating to any matter in issue in the action, in certain schedules, grouped as either:

i) Schedule "A": being in that party's possession, control or power and that the party does not object to producing for inspection,

ii) Schedule "B": that are (or were) in that party's possession in which it objects to producing on the grounds of privilege [i.e. 'solicitor - client privilege', pertaining to documents generated in the context of a client soliciting, or obtaining legal advice, as the case may be, or 'litigation privilege', concerning documents said to have come into existence as a result of contemplated or pending litigation], and

iii) Schedule "C": that were formerly in that party's possession, control or power, but are no longer in that party's possession, control or power.

This disclosure obligation is significant: The affidavit of documents contains a confirmation that the party has never had in its possession, control or power any document relating to any matter in issue in the action other than those listed therein.

The policy of the drafters of the "Rules of Court" is clear. Litigation can only be fairly and efficiently conducted if basic rules of fairness are followed in terms of the timely and thorough disclosure of relevant information. To be efficient, the system is devised to facilitate, if not encourage, early and timely 'out of court' settlements, which goal is largely achieved through liberal rights of discovery into the other litigant's case. Forget the 'television legal tactic' of the last minute eve of trial 'documentary ambush' on an opponent. There are repercussions that could seriously hamper one's case at trial if timely and full disclosure has not been made to the other side. For example, where a party fails to disclose a document, or fails to produce a document as required, if favorable to that party's case it may not use the document at the trial except with leave of the trial judge. If not favorable to the offending party's case, the trial judge may make such order as is just as concerns the use of that 'last minute document' by the other (innocent) party.

With this 'compelled disclosure' regime there is then the concern that the disclosing party is making itself vulnerable by the dissemination of what might otherwise be private or sensitive information. The law endeavors to balance this concern, recognizing the compliance with the 'rules of the game' by restricting what can be done by the other party with the documents being disclosed, and the information contained in those documents.

Has the 'horse forever left the barn' once documents are disclosed and produced to the other side in a lawsuit? What element of control remains with the 'producing party' as to what can be done with the information?

The deemed undertaking rule [Rule 30.1.01(3)] seeks to put a qualified "rein on the horse":

"All parties and their counsel are deemed to undertake not to use evidence or information to which this Rule applies for any purposes other than those of the proceeding in which the evidence was obtained".

The Rule applies to evidence [and information contained in such documentary embodiment] obtained from:

i) the discovery of another litigant's documents produced in a law suit;
ii) examinations for discovery
iii) inspection of property by court order, or by consent of parties in a law suit;
iv) medical examinations, and
v) examinations for discovery by written questions

The Rule However is Not Absolute: it has Exceptions and a 'Shelf Life'

The rule does not apply to evidence obtained through sources other than those listed above. While information given by a discovery witness on an examination for discovery, or by way of a document listed in an affidavit of documents, would at first blush trigger the rule, if it happens to be available through other means, the rule does not apply and the recipient is not precluded in the use of such information beyond the lawsuit. The "horse has left the barn" by the information having entered into the public sphere other than by the compelled disclosure in the lawsuit. Thus, in this sense, the rule is a qualified 'leash'. It is also qualified in other respects.

The Rule does not prohibit any use outside of the lawsuit to which the person who disclosed the evidence consents.

Additionally, the rule is limited in terms of its "shelf life". It affords a certain degree of protection, or an element of control in the producing party only until a certain point; that is, the rule effectively loosens, if not loses, its grip upon certain steps being taken or events occurring in a lawsuit. In this respect the rule does not prohibit the use, for any purpose, of:

i) evidence that is filed with the court;
ii) evidence that is given or referred to during a hearing; or
iii) information obtained from evidence filed with the court or that is given or referred to during a hearing.

Accordingly once information is filed in connection with a court application, or is led in evidence at a trial, the same is for all intents and purposes, considered 'public'. (There is one limited exception: in rare circumstances, where "for example" a publication ban is imposed on court proceedings, or documents or information are ordered 'sealed' for review only by the court [an approach adopted, in cases involving very sensitive material] information is considered to remain guarded and under the control of the court). Hence, subject to these somewhat rare exceptions, the limited protective element of 'control': a party might be compelled to disclose information. It can attempt to limit dissemination by perhaps settling a case before one of the above litigation steps occurs, or edit what it chooses to lead as evidence in a proceeding. It might seek a 'sealing order' or some specific judicial relief limiting the access to information by the other party. Alternatively, it might proactively choose to dampen the undesired effect of information becoming public by publishing information to control the 'spin' or use to which information might be put, should it be high profile or of a very sensitive nature. The idea is that the information not be 'spilled', or 'used' by the opponent, before the litigation process enters into the 'open courtroom' phase.

It should be noted that the rule does not prevent a party in a lawsuit from using information taken during the discovery process to 'impeach' testimony being given by a witness in the context of a subsequent lawsuit.
The above all said, the Rules of Court permit a party to apply to a judge to 'lift' the application of the rule if there is a legitimate 'use' to which information obtained during the discovery process might be put outside of the context of the lawsuit in which the information was obtained. Where the "interest of justice" outweighs any prejudice that would result to a party who disclosed the evidence in question, a judge may permit the use of evidence or information obtained, subject to such terms as may be ordered: Rule 30.1.01(8).

The Kitchenham Case

This case presents an example of the while clarifying certain aspects of its application.

Janet Kitchenham was in a car accident in January 1993. She sued the driver of the other vehicle in an action commenced in 1995 (the "tort action"). The defendant in that action obtained an order requiring Ms. Kitchenham to submit to an independent medical examination. This culminated in a defence medical report (the "defence medical"). A copy was provided to Ms. Kitchenham in compliance phase with the discovery obligations in the tort action. The defendant in the tort action conducted surveillance of the Ms. Kitchenham. During discoveries, a copy of this videotape (the "surveillance tape") was also provided to Ms Kitchenham, likewise in compliance with the documentary disclosure rules.

The tort action settled in 2000. However, in 1996, Ms. Kitchenham had commenced a separate law suit against her own insurer, AXA Insurance, claiming that she was disabled and unable to work and that certain benefits were owing to her by AXA in respect of the accident giving rise to the tort action. Discoveries took place in the AXA lawsuit. On this discovery, the plaintiff was asked for, but refused to produce a copy of the surveillance videotape and the defence medical from the tort action.

The plaintiff refused to produce these, claiming that she was bound by the deemed undertaking rule, also citing privacy concerns in the very nature of those documents. AXA brought a motion challenging the refusals. The court proceedings that followed, involving various lawyers of appeal, provide an elucidation of the rule and how it applies.

Round #1: The Motion by AXA to the Superior Court of Ontario to compel Production of the Surveillance Videotape and the Defence Medical

The judge held that both the surveillance videotape and the defence medical triggered the deemed undertaking rule, notwithstanding that the plaintiff was the recipient of those documents as opposed to being the disclosing party in the tort action. This was on the basis of the judge's emphasis and reliance on the opening language to the rule which states that "All parties and their counsel are deemed to undertake …." as governing both the party disclosing the evidence as well as the party receiving it, as well as their respective counsel. The judge however concluded that while the rule precluded the use of the documents, if used for a proper purpose, specifically, to impeach a witness's testimony in a subsequent lawsuit, it did not preclude their disclosure. Somehow distinguishing between the "use" of information from its "disclosure", the judge ordered production of the surveillance videotape and the defence medical, for the limited use of impeachment of the plaintiff at trial (i.e. should AXA wish to contradict the plaintiff on evidence given by her at trial compared to what was in those documents).

Round #2: Both AXA and the plaintiff appeal to the Divisional Court

Neither party was happy with the outcome from round #1. On appeal to the Divisional Court [where appeals on judge's orders other than final orders disposing of actions are taken] that court agreed with the initial judge's ruling that the surveillance videotape and the defence medical were caught by the deemed undertaking rule, but disagreed with the original order that those documents should be produced to AXA. The Divisional Court ruled that these documents could not be produced by the plaintiff in the discovery process of the AXA action, as they were caught by the rule. In other words, while they might be useful for impeachment of a witness in a subsequent lawsuit, this did not make them producible to displace the application of the rule. The Court ruled that this would be the approach to be taken, subject to an order being issued by a judge "lifting" the application of the rule.

The Divisional Court agreed with the initial judge that the deemed undertaking rule applied not just to the recipient of documents, but also to the party producing the documents. It however disagreed with the original order that documents coming within the rule should still be disclosed as they might be used for impeachment purposes. The court ruled that the simple disclosure in a subsequent proceeding (such as in the AXA action) was itself a form of 'use'. As such, the mere disclosure of documents caught by the rule in the subsequent AXA action would be prohibited. Accordingly the Divisional Court concluded that the videotape and the defence medical report were protected from disclosure by the deemed undertaking rule, irrespective of which party was the discloser or recipient of the information. The Court accordingly directed that an application for 'relief' from the rule should be brought by way of a motion to a judge of the Superior Court under subrule (8), cited above.

Round #3: AXA appeals to the Ontario Court of Appeal

The Court of Appeal varied the outcome from both of that of the initial judge and the Divisional Court. The Court ruled that both court levels below had misinterpreted a key element of the deemed undertaking rule: the rule works to protect only the party who disclosed the document or information in the earlier discovery process, not the party who received it. Thus, notwithstanding the earlier court's reliance on the reference in the rule to "All parties and their counsel are deemed to undertake not to use evidence or information …" this wording was read down, or limited, to the party who obtained disclosure or information from another party by the latter complying with the discovery rules of court.

The Court provides a useful summary of the purpose of the rule:

The rule exists to protect the privacy interest of the party compelled by the rules of disclosure to provide that information to another party to the litigation. The rule provides that protection by prohibiting the party who obtained the information through compelled disclosure from using that information outside of the litigation, except where certain exceptions apply or the court makes an order permitting its use".

The Court of Appeal went on to state that:

"The promotion of full and frank disclosure, and the protection of the privacy interests of those who are compelled to make disclosure during discovery are both served by restricting the use that the party obtaining the information can make of that information. Neither rationale for the implied undertaking justifies any restriction on the subsequent use of the information by the party who produced that information. To the contrary, wrapping all information produced in the discovery process in one action in a cloak of non-disclosure for any subsequent purpose and requiring a court order to remove that cloak of secrecy would inevitably interfere with the effective operation of the discovery process".

The court focused on the word "obtained" in statement of the rule [Rule 30.1.01(3)] in buttressing the finding that it applies to evidence received through the discovery process and not to information provided in that process.

The Court of Appeal disagreed that rule 30.1.01(6) (the above cited 'impeachment exception') requires the disclosure of protected evidence for impeachment purposes. As explained by the court:

"…if party "A" sues party "B" and obtains certain documents on discovery, the deemed undertaking rule will prohibit "A" from using those documents for any purpose outside that of the litigation. However, should party "A" become involved in a second lawsuit, subrule (6) would permit party "A" to utilize the evidence lawfully obtained in the prior action to impeach the testimony of a witness in the second proceeding. There is no need to exempt production on discovery from the scope of the deemed undertaking rule to give meaning to the impeachment exemption to the rule."

The Court of Appeal agreed with the Divisional Court that there is no basis to distinguish between the 'production' of a document and the 'use' of that document. Where the undertaking applies, it reaches production of evidence captured by the rule, just as it captures any use of that evidence outside of the pending litigation.

Accordingly, as the surveillance videotape and the defence medical were obtained by the Ms. Kitchenham in the course of discovery in the tort action, and their disclosure by her in the subsequent benefits action would constitute a use of that evidence, it follows that that material was subject to the deemed undertaking rule. It could not be disclosed or produced by Ms. Kitchenham. As none of the exceptions applied to remove the application of the rule, the court noted that AXA was then limited to either seeking to obtain the material either by getting the consent of the defendant in the tort action (who initially disclosed the same) for Ms. Kitchenham to give these materials to AXA, or to obtain an order under subrule (8) lifting the deemed undertaking as it applies to the two documents.

The Court of Appeal confirmed that the relevant test on an application for the deemed undertaking to be lifted would be for the applicant (seeking to obtain the information) to show that the interest of justice outweighs any prejudice to be caused to the party who disclosed the evidence. Are there factors would favour permitting the subsequent use of information? Where the motion arises in the context of a party who seeks to use the information in subsequent litigation, the more valuable the information to the just and accurate resolution of the subsequent litigation, the more the interest of justice will be served by permitting the use of that information. The interests of the party who was compelled to disclose the information are the only interests that can justify maintaining the undertaking and deciding not to "lift" the rule. The discretion in subrule (8) must be exercised on a case by case basis. Where the beneficiary of the undertaking resists relief from that undertaking, the undertaking should only be set aside in exceptional circumstances. Where the interests of the party protected by the deemed undertaking would not be adversely affected by the use of the material, and assuming the material has relevance in the subsequent proceeding, the interest of justice would inevitably outweigh any resulting prejudice to the party who had disclosed the evidence.

Conclusion - Outcome of the Case.

The Court of Appeal did not rule whether the deemed undertaking rule would be lifted in the interest of justice in this case. Despite noting the above principles, the Court reserved on the point because it was only during the appeal process (on the arguments cited above, as to whether the deemed undertaking rule applied) that AXA filed a separate application to a judge of the Superior Court under subrule (8) to lift the application of the rule. In that proceeding, the judge ordered the plaintiff to produce the videotape but refused to order production of the defence medical report on the particular facts presented on that hearing. Both sides have obtained leave to appeal that order to the Divisional Court.

Gordon Hearn

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