In an important decision, the Court of Appeal for Ontario has ruled that the source of funding for a party’s legal representation is presumptively subject to solicitor-client privilege.
In the case, Kaiser (Re), 2012 ONCA 838, Mr. Morris Kaiser was a bankrupt who was resisting efforts by his Trustee in Bankruptcy to discover the identity of the person who was paying his legal fees, and the source of the funds for his legal costs.
As a person declaring bankruptcy, Mr. Kaiser necessarily took the position that he had insufficient assets to satisfy his debts. As a bankrupt, Mr. Kaiser was also legally required to disclose the full extent of his remaining assets to the Trustee, so that the Trustee could use those assets to satisfy Mr. Kaiser’s outstanding debts to the extent possible. The Trustee alleged that in spite of this, Mr. Kaiser continued to live a lavish lifestyle, frequenting casinos and travelling widely. Mr. Kaiser also continued to extensively use the services of a lawyer, even though it appeared that Mr. Kaiser did not have the funds to pay for the legal work that was being done.
The Trustee suspected that Mr. Kaiser had placed some of his assets with a third party prior to declaring bankruptcy, and that this third party continued to hold assets that should properly be accounted for and distributed to Mr. Kaiser’s creditors. The Trustee moved for disclosure of the identity of the individual paying Mr. Kaiser’s ongoing legal costs as a way to reveal where Mr. Kaiser had potentially placed some assets.
The Motions Judge ordered the disclosure that had been requested by the Trustee. The Motions Judge held that information about who was paying a party’s legal fees was only presumptively privileged, not permanently privileged, and that in the circumstances of this case, there was sufficient basis on which to rebut the presumption of privilege.
A unanimous Court of Appeal disagreed and ruled that that Mr. Kaiser’s source of funding for legal costs should not be disclosed. This decision has made it substantially more difficult to rebut the presumption that legal funding is subject to solicitor-client privilege.
The Court of Appeal disagreed with the Motions Judge’s finding that the identity of the person paying legal fees was not prejudicial to Mr. Kaiser, because although that information was not strictly relevant on the specific motion that was before the Court, it was relevant in the broader context to the reason why Mr. Kaiser had retained counsel: to resist the Trustee’s efforts to probe into the extent of his assets that may be held by third parties. In other words, the Court of Appeal found that the very reason why the Trustee wanted so much to know the identity of the funder was precisely why the information was privileged:
Should it turn out that Mr. Bergman is the person paying Mr. Solmon’s fees on the removal motion, the Trustee will have a significant piece of circumstantial evidence for use in the receivership and related proceedings that there is a “straw man,” and, indeed, that Mr. Bergman is he.
Although this case was decided in the context of a bankruptcy proceeding, it has relevance for many other areas of law where the source of funding for legal fees is a contentious issue. For example, in labour relations matters, unions frequently seek disclosure of the source of funding for certain proceedings that are brought against them. Specifically, disgruntled union members are often at a significant disadvantage in bringing proceedings against their own unions because they lack the financial resources to mount a legal case. As a result, when faced with a legal challenge brought by one of their own members, unions often assume that the employer is secretly behind the proceeding and providing funding to the disgruntled member so as to undermine the union.
The Court of Appeal decision in Kaiser arguably creates a strong presumption that unions are not entitled to information regarding the source of funding for legal fees in cases brought by their own members, unless the union can produce some evidence of criminal or fraudulent intent (Kaiser at para. 38).