Litigation Privilege For Property Managers Under The CMSA

Under the new Condominium Management Services Act, 2015 (the “CMSA”), property managers and property management companies will be required to submit themselves to investigations by inspectors who are appointed by the Condominium Management Regulatory Authority of Ontario (the “CMRAO”), the administrative authority created in July of 2016 to enforce the CMSA.

Under Section 60(1) of the CMSA, these inspectors do not need to obtain a search warrant or a court order first before initiating an investigation to ensure that the subject property manager is complying with the CMSA and its regulations, or to deal with a complaint about the property manager that the CMRAO has received under Section 57 of the CMSA.

Under Section 60(3)(c) and Section 60(6) of the CMSA, the property manager is required to produce a document or record when requested to do so by the inspector.

However, a recent decision of the Supreme Court of Canada may provide property managers and property management companies with a temporary reprieve from having to produce such documents or records upon an inspector’s demand.

Lizotte v. Aviva Insurance Company of Canada

On November 25^th 2016, the Supreme Court of Canada released its decision in Lizotte v. Aviva Insurance Company of Canada, 2016 SCC 52 (“Lizotte”). In Lizotte, an insurance claims adjuster with Aviva Insurance Company of Canada (“ Aviva”) was asked by the Chambre de l’assurance de dommages (the “Chamber”) to produce certain documents in the course of the Chamber’s investigation into the adjuster’s conduct in a file. The Chamber is the self-regulatory organization in Quebec that is tasked with overseeing the professional conduct of a number of representatives working in the insurance field, including claims adjusters, damage insurance agents and damage insurance brokers.

The Aviva insurance adjuster refused to turn over the requested documents, and claimed that these documents were protected by litigation privilege. The Chamber applied to the Quebec Superior Court of Justice, and argued that the Chamber’s statutory power under its enabling statute should be given the utmost weight.

Under Section 337 of the Chamber’s enabling statute, an insurer “must, at the request of [the Chamber], forward any required document or information concerning the activities of a representative.” Therefore, the Chamber argued, Aviva was required to produce “any … document” concerning the activities of the adjuster whose professional conduct is being investigated by the Chamber, notwithstanding Aviva’s claim of litigation privilege.

The Superior Court agreed with Aviva and concluded that litigation privilege protected the adjuster from having to disclose the documents to the Chamber. The Quebec Court of Appeal upheld the Superior Court’s decision, and ultimately, the Supreme Court of Canada further affirmed that the common law rule of litigation privilege takes precedence over the Chamber’s statutory powers as currently drafted in its enabling statute.

What is Litigation Privilege?

Litigation privilege is a common law rule that protects any documents and communications, which have been prepared primarily in anticipation of litigation, from disclosure. Unlike its stronger cousin, the common law rule of solicitor-client privilege, litigation privilege can be claimed by parties who have not retained legal counsel, and can extend to non-confidential documents.

In order for litigation privilege to apply, the documents must have been created for the dominant purpose of litigation that is ongoing, pending or may reasonably be apprehended.

Whereas solicitor-client privilege continues into perpetuity even after the solicitor-client relationship has formally ended, litigation privilege ends when the litigation that the document was prepared for, ends.

At paragraph 63 of Lizotte, the Supreme Court of Canada explained that:

The purpose of litigation privilege is to “ensure the efficacy of the adversarial process” by maintaining a “protected area to facilitate investigation and preparation of a case for trial by the adversarial advocate”. By maintaining a protected area for the preparation of litigation, litigation privilege in its own way promotes “access to justice” and the “quality of justice”.

In Lizotte, the Supreme Court of Canada ruled that litigation privilege can be asserted against anyone, including administrative or criminal investigators – and not just against the other party to the litigation, as was often previously believed.

The Supreme Court of Canada also rejected the Chamber’s argument that because it was bound by an oath of discretion and a duty of confidentiality, this eliminated any risk of harm that the contested documents the Chamber receives from the adjuster will be disclosed to the opposing party in Aviva’s unrelated litigation. Canada’s highest court had significant concerns that if the Chamber had initiated disciplinary proceedings or had decided to obtain a remedy from the common law courts, then the contested documents that would otherwise be protected by litigation privilege may be at risk of being disclosed to the public in the course of those proceedings.

Ultimately, the Supreme Court of Canada held that litigation privilege cannot be overridden without a clear, explicit and unequivocal statutory provision to that effect, which would demonstrate that the legislature had expressly intended to exercise its parliamentary supremacy in overruling a common law rule of the courts.

Takeaways for Condominiums and Property Managers

As condominium corporations and property managers may be aware, the Condominium Act, 1998, S.O. 1998, c. 19 (the “Act”) already provides for a certain type of litigation privilege to apply over records of the condominium corporation. Pursuant to Section 55(4)(b) of the Act, a unit owner’s right to examine the condominium’s records does not extend to “records relating to actual or pending litigation or insurance investigations”.

In addition to unit owners however, under the CMSA, property managers must also report to the CMRAO. As per the decision of Canada’s highest court in Lizotte, a property manager who is subject to a CMRAO inspector’s demand to produce documents, may refuse to do so on the grounds that litigation privilege applies to those documents; if those documents were created for the dominant purpose of litigation, and the litigation or related litigation is pending or may reasonably be apprehended.

As the Supreme Court of Canada held in Lizotte at paragraph 67:

A provision that merely refers to the production of “any . . . document” does not contain sufficiently clear, explicit and unequivocal language to abrogate litigation privilege. There are a number of statutes that provide for the disclosure or production of “any document” without further precision.

Sections 60(3)(c) and 60(6) of the CMSA stipulate:

While carrying out an inspection, an inspector, [...] may require a person to produce any document or record relevant to the inspection and to provide whatever assistance is reasonably necessary, including using any data storage, processing or retrieval device or system to produce, in any form, the document or record;

If an inspector [...] requires a person to produce a document or record and to provide assistance, the person shall produce the document or record or provide the assistance, as the case may be.

In our view, the statutory language contained in Sections 60(3)(c) and 60(6) of the CMSA, as they are currently drafted, do not meet the Supreme Court of Canada’s requirements of being a “clear, explicit and unequivocal” abrogation of the common law rule of litigation privilege.

Lizotte may also assist condominium corporations whose property manager is subject to an investigation by a CMRAO inspector, in response to a complaint lodged against him/her by an obstinate unit owner. As is occasionally the case, unit owners who are dissatisfied with a condominium corporation’s actions against them may file a frivolous complaint with whichever regulatory authority will hear them, such as the CMRAO, in an attempt to obstruct or prevent the condominium from proceeding. In response to such a complaint, and upon receiving a refusal to turn over documents from a property manager on the basis of litigation privilege, the CMRAO may advise the unit owner that the CMRAO will continue its investigation only after the condominium corporation’s enforcement proceedings against the unit owner has concluded and the property manager’s litigation privilege ends – which undermines the unit owner’s goal in the first place.

Whether the common law rule of litigation privilege applies to a certain document in the manager’s possession, must be evaluated on a case-by-case basis. Accordingly, it would be prudent for a property manager and their property management company to consult with independent legal counsel when considering whether, and to what extent, they will comply with an inspector’s demand for records under the CMSA.

All of the information contained in this article is of a general nature for informational purposes only, and is not intended to represent the definitive opinion of the firm of Elia Associates on any particular matter. Although every effort is made to ensure that the information contained in this newsletter is accurate and up-to-date, the reader should not act upon it without obtaining appropriate professional advice and assistance.

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