



COURT OF APPEAL
        FOR BRITISH COLUMBIA




Citation:



Dos
                Santos v. Sun Life Assurance Co. of Canada,









2005 BCCA
            4




Date: 20050107




Docket: CA31237

Between:

Jose Vasco
      Dos Santos, committee of the person and estate of Rita Maria Baptista Valoma
      Dos Santos and the said

Jose Vasco
      Dos Santos

Plaintiff

(
Appellant
)

And

Sun Life
      Assurance Company of Canada

Defendant

(
Respondent
)











Before:



The Honourable
            Chief Justice Finch





The Honourable
            Madam Justice Huddart





The Honourable
            Mr. Justice Low









W.B. McAllister,
            Q.C.

J.A. Adelaar





Counsel for the Appellant





O. Samuel



Counsel for the Respondent





Place and
            Date of Hearing:



Vancouver, British Columbia





November 26, 2004





Place and
            Date of Judgment:



Vancouver, British Columbia





January 7, 2005









Written
              Reasons by
:





The Honourable
            Chief Justice Finch





Concurred
              in by:





The Honourable
            Madam Justice Huddart

The Honourable
            Mr. Justice Low





Reasons for Judgment of the Honourable Chief Justice
        Finch:

I. INTRODUCTION



[1]

The
      plaintiff appeals from the order of Mr. Justice Powers pronounced 9 September
      2003 requiring the plaintiff to produce documents providing details of
      a mediated settlement the plaintiff agreed to on his wifes behalf in litigation
      arising from a motor vehicle accident in which the wife was seriously injured.

[2]

The
      plaintiffs claim against Sun Life arises under a policy of long-term disability
      coverage under which the wife had benefits for loss of income.  The policy
      was a group policy obtained by the wifes employer, the Government of Canada.

[3]

The
      long-term disability policy has a subrogation clause as follows:

Subrogation

In order to determine
      whether the cause or circumstances giving rise or contributing to any claim
      under this policy would also give rise to a cause of action against a person,
      partnership, corporation or other entity (the Third Party), Sun Life
      may require any Employee to provide a written statement as to the cause
      or circumstances giving rise or contributing to any such claim. Sun Life
      may suspend payment of benefits or further benefits to an Employee who
      refuses to provide such a statement.

Where benefits under
      this policy have been paid or may be payable to an Employee and the Employee
      has a right of action against a Third Party for recovery of loss of income
      which otherwise would have been earned by the Employee during the whole
      or any part of the period that benefits are paid, or may be payable, to
      the Employee under this policy,

1.    any amount recovered
      by the Employee from the Third Party (including general damages, damages
      for loss of income, interest and legal costs, whether recovered through
      settlement or trial), less the Employees legal costs expended for such
      recovery, shall be deemed to be the Employees Net Recovery from the Third
      Party;

2.    the Employee
      shall pay to Sun Life an amount equal to 75% of his/her Net Recovery from
      the Third Party (to a maximum of the amounts paid to the Employee under
      this policy), such percentage of his/her Net Recovery to be held in trust
      by the Employee for Sun Life until payment is made to Sun Life;

3.    in the event
      that any benefits not paid to the Employee under this policy are subsequently
      determined to have been payable, Sun Life shall be entitled to set off
      against its liability for such benefits the amount the Employee would have
      been obliged to pay pursuant to subparagraph 2. hereof if such benefits
      had been paid to the Employee before the Employee obtained his/her recovery
      from the Third Party; and

4.    the Employee
      shall provide Sun Life, free of charge:

A.    prompt
      notice of the commencement of any legal proceedings against a Third Party;

B.    such reports
      as Sun Life may reasonably require from time to time concerning the status
      of legal proceedings and/or settlement negotiations with the Third Party;

C.    copies
      of such documents in the Employees possession or control that relate to
      his/her right of action against the Third Party as Sun Life may reasonably
      require from time to time; and

D.    prompt
      notice of the conclusion of any settlement or judicial disposition of his/her
      right of action against the Third Party.

Sun Life may require
      the Employee to sign an acknowledgement that he/she is bound by this provision.
      Sun life may withhold or discontinue benefits upon any refusal by the Employee
      to honour any terms of this provision.



[4]

This
      clause appears to provide that if disability is caused by the negligence
      of a third party, 75% of the employees net recovery for loss of income
      in any action commenced as a result of the third partys negligence must
      be repaid to Sun Life to the extent of the benefits paid or payable in
      the future under the insurance policy.  If the employee does not repay
      benefits as required by the subrogation clause, Sun Life is entitled to
      withhold future benefits.

[5]

Mr.
      Dos Santos signed a two page Subrogation Acknowledgement quoting the
      subrogation clause and stating:

I understand that
      the above-quoted provision is a term of the Sun Life group insurance policy
      12500 (the Policy) under which I have claimed long term disability benefits.
      I understand that I am bound by the above quoted provision if I accept
      or have already accepted benefits under the policy. I also understand that
      any payments to me by Sun Life under the Policy in the past and/or the
      future have been or will be made in reliance upon the provision itself
      and/or this acknowledgement. I confirm that I was provided with a copy
      of this Subrogation Acknowledgement and that I had sufficient opportunity
      to review it and to seek legal advice prior to signing it.



[6]

In
      the third party litigation, following a four day trial, the third party
      driver was held 100% at fault.  Damages were then mediated between the
      plaintiff and I.C.B.C., the third partys insurer.  A global settlement
      was reached in the sum of $900,000 plus disbursements.  The court order
      approving this settlement specified terms allocating $39,559.29 to Sun
      Life for disability payments received by the plaintiff on his wifes behalf,
      and $308,750 to the plaintiffs lawyer in payment of legal fees inclusive
      of disbursements and applicable taxes.

[7]

Sun
      Life says it is entitled to see the documents underlying the mediated settlement
      so that it can tell what sum was paid in respect of lost income, past and
      future.

[8]

The
      plaintiff says the documents relating to the mediation and the settlement
      are privileged under the blanket privilege recognized by the B.C. Court
      of Appeal in
Middlekamp et al v. Fraser Valley Real Estate Board
      et al
(1992), 71 B.C.L.R. (2d) 276 (C.A.), or through solicitors
      brief (litigation) privilege.  The defendant says the documents are excepted
      from the privilege as necessary to the proper disposition of the dispute
      between the plaintiff and Sun Life.  The defendant also argues that the
      plaintiff waived any privilege that may have existed over the settlement
      documents.

[9]

Master
      Groves in chambers held on 26 June 2003 that Sun Life was
only
entitled
      to know what the settlement was, and how the settlement was broken down
      amongst the various heads of damage.  He held Sun Life was not entitled
      to production of all the supporting documents it claimed a right to see.

[10]

Mr.
      Justice Powers reversed the Masters order.  His order directs the plaintiff
      to produce all the documents Sun Life sought including:

Economic and actuarial
      evidence relied on to quantify the wifes pecuniary losses;

Experts reports;

Settlement offers
      made by either party; and

Mediation summaries
      and notes made by both the plaintiff and his counsel.



[11]

The
      plaintiff now asks this Court to overturn that order on the ground that
      the documents sought are privileged.





II. ISSUES

[12]

At
      the hearing, counsel for the plaintiff abandoned a claim of privilege under
      the
Notice to Mediate Regulations
.  The remaining issues
      on appeal are therefore whether the documents relating to the mediation
      process are privileged either:

1.    Under the blanket privilege protecting settlement
      negotiations; or

2.    By solicitors brief (litigation) privilege.

[13]

If
      either privilege applies, then the further issue is whether the documents
      fall within an exception to privilege.

III. SETTLEMENT PRIVILEGE

[14]

In
Middelkamp
,
supra,
Chief
      Justice McEachern for four of five members of the Court said:

[18]  Considering
      the enormous scope of production which is required by our almost slavish
      adherence to the Peruvian Guano principle, the questionable relevance and
      value of documents prepared for the settlement of disputes, and the public
      interest, I find myself in agreement with the House of Lords that
the
      public interest in the settlement of disputes generally requires "without
      prejudice" documents or communications created for, or communicated
      in the course of, settlement negotiations to be privileged.  I would classify
      this as a "blanket, prima facie, common law, or "class" privilege
because
      it arises from settlement negotiations and protects the class of communications
      exchanged in the course of that worthwhile endeavour.

[19]  In my judgment
      this privilege protects documents and communications created for such purposes
      both from production to other parties to the negotiations and to strangers,
      and extends as well to admissibility, and whether or not a settlement is
      reached. This is because, as I have said, a party communicating a proposal
      related to settlement, or responding to one, usually has no control over
      what the other side may do with such documents.
Without such protection,
      the public interest in encouraging settlements will not be served
.

[20]
I recognize
        that there must be exceptions to this general rule.
An obvious exception
        would be where the parties to a settlement agree that evidence will be
        furnished in connection with the litigation in which the application
        is made.
In such cases, the public interest in the proper disposition
        of
litigation assumes paramountcy and opposite parties are entitled
        to know about any arrangements which are made about evidence.  Other
        exceptions could arise out of such matters as fraud, or where production
        may be required to meet a defence of laches, want of notice, passage
        of a limitation period or other similar matters which might displace
        the privilege.  As we did not have argument on these matters I prefer
        to say nothing further about them.

[emphasis
      added]





[15]

In
B.C.
          Childrens Hospital v. Air Products Canada
(2003), 11 B.C.L.R.
          (4
th
) 28, 2003 BCCA 177, leave to appeal to S.C.C. granted,
          [2003] S.C.C.A. No. 240 (Q.L.), this Court held that a final settlement
          agreement was covered under the
Middelkamp
blanket protection
          for settlement communications (para. 32).  In contrast, the Manitoba
          and Alberta Courts of Appeal have both endorsed a distinction between
          final settlement agreements and communications leading up to settlement.  The
          latter are privileged, the former are not:
Hudson Bay Mining
          and Smelting Co. v. Fluor Daniel Wright
(1997), 120 Man. R.
          (2d) 214 (Q.B.), affd (1998), 131 Man. R. (2d) 133 (C.A.), and cited
          with approval in
Amoco Canada Petroleum Co. v. Propak Systems
          Ltd
(2001), 281 A.R. 185, 2001 ABCA 110 at para. 40.

[16]

In
      any event, the nature of the settlement agreement at bar is such that it
      cannot be disentangled from the other settlement communications.  The Memorandum
      of Settlement states the global amount agreed to and little more.  The
      real agreement between the settling parties may have been oral, or may
      have resulted from the culmination of previous written communications.  Privilege
      attaches to those communications.  The main issue then is whether an exception
      to or a waiver of privilege can be established in this case.

1. Exception to Blanket Privilege

[17]

In
Middelkamp
,
supra,
Chief
      Justice McEachern said there must be exceptions to the blanket privilege
      for settlement communications.  Notably, he referred to the proper disposition
      of litigation (para. 20).

[18]

In
      my view,
Middelkamp
did not close the door on what might
      constitute a valid exception to the blanket privilege (see reviews of types
      of exceptions to the rule in
Berry v. Cypost Corp
. (2003),
      43 C.P.C. (5
th
) 275, 2003 BCSC 1827, and
Unilever plc
      v. The Proctor & Gamble Co.
, [2000] 1 W.L.R. 2436 (C.A.)).

[19]

However,
      the test for discharging the burden to establish an exception should not
      be set too low.  The public policy behind settlement privilege is a compelling
      one.  It is so compelling that even threats arising in the context of settlement
      negotiations may not justify an exception:
Unilever
,
supra
at
      p. 2449-2450.

[20]

To
      establish an exception in this case, the defendant must show that a competing
      public interest outweighs the public interest in encouraging settlement.  An
      exception should only be found where the documents sought are both
relevant
,
      and
necessary in the circumstances of the case
to achieve either
      the agreement of the parties to the settlement, or another compelling or
      overriding interest of justice.

a. Relevance

[21]

Some
      authorities appear to find exceptions to settlement privilege on the basis
      of relevance alone (see
Hudson Bay Mining and Smelting Co
.,
supra
).  However,
      mere relevance does not provide a sufficiently high threshold to displace
      the compelling public policy underlying settlement privilege.  As indicated
      by Chief Justice McEachern in
Middlelkamp
,
supra,
through
      his reference to our almost slavish adherence to the Peruvian Guano principle,
      the threshold for relevance on discovery is a low one indeed.

[22]

The
      plaintiff bears the onus of proving his case at trial:
Sun Life Assurance
      Co. of Canada v. Solypa
(2001), 96 B.C.L.R. (3d) 179, 2001 BCSC
      1346.  Thus, he says if he can prove his case without relying on the disputed
      documents, they are irrelevant and cannot be excepted from privilege.

[23]

The
      defendant contends that the onus on the plaintiff at trial is to provide
      a breakdown of the global settlement amount in order to show the Court
      what amount was paid in the settlement for future income loss, and relies
      on its common law subrogation rights to defend against the claim.  In short,
      the defendant says the documents are relevant to both what the plaintiff
      must prove, and the defendants possible defences.

[24]

I
      am inclined to agree with the chambers judge who said:

[40] I should also
      say that the Plaintiffs suggestion that the settlement may not have included
      anything for future income loss is also unsupportable. Mrs. Dos Santos
      was employed full-time at the time of her injury in the motor vehicle accident.
      She was not responsible for her injuries in any way. There is nothing before
      me to indicate that there was any difficulty in proving what her wage loss
      might have been. There is no reason to believe that any settlement would
      have been reached without some allotment for future wage loss.

[41] The plaintiff
      suggested that it is not possible to determine what portion of a global
      settlement might have related a [sic] future loss of income. The global
      settlement figure was not simply pulled from the air. It is reasonable
      to assume that it was arrived at after careful consideration and negotiation
      between the parties. It is also reasonable to assume that the negotiations
      would have included explanations of each partys position and how the settlement
      figure was arrived at including what it consisted of. The
Solypa
case
      referred to in para. 22 makes it clear that the onus will be on the Plaintiff
      in this case to demonstrate how the lump sum was established.



[25]

The
      plaintiff has clearly put into issue the subrogation rights of the defendant
      under the disability policy (see Statement of Claim, A.B. p. 22).  Any
      documents that quantify or estimate Mrs. Dos Santos future income loss
      are relevant to the resolution of the claim.

[26]

I
      therefore conclude that the documents sought are relevant.

b. Necessary in the Circumstances of the
        Case

[27]

The
      defendant says an exception to settlement privilege is necessary to prevent
      injustice through excessive compensation to the plaintiff.  The defendant
      says the blanket privilege is displaced because the public interest in
      the proper disposition of the case outweighs the public interest in encouraging
      settlement, and relies in particular on the following cases.

[28]

In
Ruloff
          v. Rockshore

(1981) Ltd.,
2004 BCSC 751, Chamberlist
          J. found an exception to settlement privilege where the plaintiff would
          otherwise be muzzled in her attempts to justify her position taken
          in the petition or to adequately defend by evidence available to her
          (para. 32).

[29]

In
Pete
          v. Lanouette
, 2002 BCSC 75, the defendant sought details of
          a settlement concerning another accident involving the same plaintiff.  Bishop
          J. found an exception to settlement privilege because there was a

real possibility
      that without the disclosure of the settlement documents and the information
      requested, the plaintiff could be compensated again for injuries for which
      she has already received compensation (para. 30).



[30]

In
Confederation
          Life Insurance Co. v. Juginovic
(1996), 48 C.P.C. (3d) 60 (B.C.S.C.-Ch.),
          the insurer said the insured may have received more than 100% compensation
          for his loss of income due to settlement with I.C.B.C. and receipt
          of insurance benefits.  Master Barber ordered I.C.B.C. to disclose
          parts of its settlement file on the basis that there was no prejudice
          to either party to the settlement negotiations since all matters between
          them were settled, and I.C.B.C. knew of the subrogation agreement between
          the insured and the insurer.  In light of these circumstances, there
          is no public policy argument that can be sustained to prevent production
          of some documents in ICBCs file that are relevant in this case (para.
          27).

[31]

In
Gnitrow
          Ltd. v. Cape plc
, [2000] 3 All E.R. 763 (C.A.), Pill L.J. ordered
          disclosure of parts of a settlement agreement, between the plaintiffs
          insurer and a potential defendant, to the non-settling defendant.  The
          damages sought by the plaintiff were reimbursement for monies it had
          paid in compensation to its employees who suffered from asbestosis.  Pill
          L.J. said:

The relevance
in the present action of the agreement between
      the claimant and Newalls [the potential defendant]
is in the fact that
      the claimant is not permitted to recover more than it has paid to its employees.
      To ensure that there is no excess recovery, it is necessary to know what
      contribution Newalls has made to the relevant sums.
Disclosure is appropriate
      for that reason. It is also information relevant to Cape [the non-settling
      defendant] making a realistic Pt 36 payment and responding realistically
      to a Pt 36 offer from the claimant. That accords with the overriding objective
      of enabling the court to deal with the case justly.  (p. 767)

[emphasis
      added]

[32]

This
      Court distinguished
Gnitrow
, supra,
in
B.C.
      Childrens Hospital
, supra
, in which the remaining defendants
      in a multi-party action for conspiracy to fix gas prices, brought an action
      seeking disclosure of the settlement agreements between the plaintiff hospitals
      and the settling defendants.  Mr. Justice Hall said:

[30]  I consider
      that the Gnitrow case is distinguishable on its facts from the case at
      bar because a relevant and distinguishing circumstance there was a relationship
      between what the claimant had paid its employees and the amount it would
      be permitted to recover from the defendant.



[33]

I
      agree with the defendant and the chambers judge (para. 34) that this distinction
      cannot be drawn in the case at bar.  There was no potential for double
      recovery in
B.C. Childrens Hospital
since the plaintiffs
      in that case were suing the remaining defendants only for damages arising
      from their dealings with those defendants.  In the case at bar, there
      is a clear relationship between the sums the plaintiff seeks from the defendant
      and the sums the plaintiff may have already received in settlement with
      I.C.B.C.
Gnitrow
remains a persuasive judgment.

[34]

These
      cases demonstrate that significant weight should be given to the just disposition
      of pending litigation in determining whether the documents sought come
      within an exception to settlement privilege.  However, none of those cases
      are binding on this Court, and none are factually on all fours.  In particular,
      none discuss the effect of court approval of a settlement agreement.

[35]

The
      plaintiff says that excessive compensation could not happen here because
      the settlement in question was court-approved and the court would not unjustly
      enrich the plaintiff.  An exception, he says, is unnecessary in the circumstances.

[36]

To
      accept that argument one would have to be satisfied that the court approving
      the settlement had full knowledge of the subrogation agreement and the
      rights claimed by Sun Life.  The order approving the settlement allocates
      $39,559.29 to Sun Life for disability payments received by the Committee
      on behalf of the plaintiff.  However, it would not be proper to speculate
      as to what the court must have known in making that allocation.  There
      are no reasons accompanying that order; the defendant was not a party to
      nor represented in that settlement; and the affidavits on which the settlement
      approval was based were not provided to this Court.

[37]

In
      these circumstances, I agree with the defendant that the only way to establish
      objectively what the plaintiff has actually received in compensation for
      lost earnings is to recognize an exception for these documents that would
      otherwise have been protected by settlement privilege.  Both the
relevance
and
necessity
of
      the documents therefore militate in favour of recognizing an exception.

[38]

I
      have also considered whether recognizing an exception in this case would
      place a chill on settlement negotiations.  I do not believe it would.  As
      in other cases where settlement agreements may have a direct effect on
      the rights and responsibilities of third parties, the parties to that agreement
      must be mindful that the confidential nature of their agreement will not
      be upheld so far as it affects those other parties.  For example, in
B.C.
      Childrens Hospital
,
supra
, where non-settling defendants
      may have been affected by the settlement agreement between the other defendants
      and the plaintiffs (due to rules around the release of joint tortfeasors),
      Mr. Justice Hall upheld an order that anything in the settlement communications
      construed as a release, covenant not to sue, or reservation of rights be
      produced.  (See also discussion of secret settlements by the Ontario
      Court of Appeal in
Martin v. Listowell Memorial Hospital
(2000),
      51 O.R. (3d) 384 at 402-03.)

[39]

The
      chambers judge did not err in holding there was no settlement privilege
      over the sought documents.  An exception to privilege exists in this case.

[40]

I
      would not give effect to this ground of appeal.

2. Waiver

[41]

It
      is unnecessary to determine whether the plaintiff waived settlement privilege.

III. SOLICITORS BRIEF (LITIGATION) PRIVILEGE

[42]

The
      plaintiff submits in the alternative that the chambers judge erred in failing
      to find that litigation privilege protects the settlement documents.  Neither
      the written nor oral arguments on this point were extensive.

[43]

Two
      factual determinations must be made to assess whether litigation privilege
      attaches to a document:

(a) Was litigation in reasonable prospect
      at the time the document was produced, and



(b) If so, what was the dominant purpose
      for its production? (
Hamalainen v. Sippola
(1991), 62 B.C.L.R.
      (2d) 254 (C.A.) at para. 18.)







[44]

Since
      litigation privilege is not a blanket privilege, privilege is determined
      on a document by document basis.  In the case at bar, different types of
      documents were ordered produced: evidence to quantify pecuniary loss, expert
      reports, settlement offers, and mediation summaries and notes.

[45]

This
      ground of appeal cannot succeed in relation to the settlement offers and
      mediation summaries/notes.  Holding these documents to be protected by
      litigation privilege would be inconsistent with settlement privilege.  Protecting
      settlement offers and mediation notes/summaries under litigation privilege
      would emasculate and subsume settlement privilege.  Settlement privilege
      is premised on the special policy consideration of encouraging parties
      to settle.  The same cannot be said of litigation privilege.  It is important
      to keep the two privileges distinct.

[46]

Furthermore,
      the test for litigation privilege is difficult to apply to settlement offers
      and mediation notes/summaries.  At different times during settlement negotiations
      the prospects of resolving the dispute without litigation may seem more
      or less likely.  As well, it is difficult to see how the dominant purpose
      of these documents could be other than furtherance of a settlement, and
      specifically the avoidance of further litigation.

[47]

As
      a result, I do not consider the settlement offers or mediation notes/summaries
      to be protected by litigation privilege.

[48]

However,
      the same analysis may not apply to expert reports and economic and actuarial
      evidence relied on to quantify Mrs. Dos Santos pecuniary loss.  Some of
      these documents could attract litigation privilege if shown they were made
      for the dominant purpose of litigation.

[49]

However,
      that dominant purpose has not been established in this case.  The evidence
      shows only that these documents were used in the course of settlement negotiations.  We
      do not know at what point in the information gathering process this material
      was created.  It appears the issue of litigation privilege was not argued
      before the chambers judge, and this Court has no evidence before it on
      this issue.  There is an insufficient evidentiary basis to establish litigation
      privilege in this case: see
Hanaleinen
,
supra,
at
      paras. 25-27.

[50]

As
      a result, I am unable to conclude that litigation privilege protects the
      documents in this case.

[51]

I
      would not give effect to this ground of appeal.



V. DISPOSITION

[52]

Accordingly,
      I would dismiss the appeal.







The Honourable
Chief
      Justice Finch







I Agree:







The Honourable
Madam Justice Huddart







I Agree:







The Honourable
Mr. Justice Low






