Canada: BC Court Considers Striking Out Claims And Defences Of Cooperating Parties Who Delayed In Disclosing Existence Of Cooperation Agreement

Last Updated: September 22 2014

Article by Melanie J. Harmer, Jamieson D. Virgin, Sasa Pudar, Student-at-Law

In complex commercial disputes, it is not uncommon for co-defendants to enter into cooperation agreements in order to help facilitate a unified defence. In the recent companion cases of Bilfinger Berger (Canada) Inc. et al. v. Greater Vancouver Water District et al.; The Greater Vancouver Water District v. Bilfinger Berger AG et al.1, the British Columbia Supreme Court clarified when disclosure of such agreements between cooperating parties is required.

The Court explained that determining whether an agreement must be disclosed, and when, requires balancing the public interest promoted by confidentiality of such agreements – namely, the adequate preparation of a party's case – and the public interest promoted by the disclosure of any matter that could affect the fairness of the court process.

Facts

A joint venture, Bilfinger Berger/Fru-Con ("Bilfinger"), was contracted by Metro Vancouver to construct two underground tunnels, each over seven kilometres in length, as part of a new water filtration project to provide municipal drinking water to Vancouver and surrounding communities. The project was known as the Seymour-Capilano Twin Tunnels Project.

Once tunneling began, a dispute arose amongst the parties regarding the safety of the design because of unexpected rock conditions. The work stopped, Metro Vancouver cancelled Bilfinger's contract, and sued Bilfinger for breach of contract. Bilfinger, in turn, started its own action against Metro Vancouver and Hatch Mott MacDonald Ltd. ("HMM"), the engineering consultant used by Metro Vancouver for the Project.

In the course of the litigation, Metro Vancouver and HMM entered into an agreement to cooperate, which contemplated the exchange of information, the development of a joint defence strategy, common claims of privilege, an agreement not to be bound by findings of the court in subsequent actions, and the tolling of limitation periods between the two parties.

Several years after entering into the agreement, its existence and general terms were disclosed to the court and other parties at a case management conference. Prior to this, the agreement had only been obliquely identified as privileged on a list of documents.

Upon learning of the cooperation agreement, Bilfinger applied to strike the pleadings of Metro Vancouver and HMM, as a result of the untimely disclosure of the agreement and an earlier refusal by the cooperating parties to answer any questions about the existence of such an agreement.

Decision

In determining whether to strike out the claims and defences of the cooperating parties, the Court considered whether the cooperation agreement was subject to common interest privilege such that the parties were excused from producing it in the litigation. Parties on the same side in multi-party litigation are free to cooperate to further their common interest in the litigation and may claim common interest privilege to resist disclosure of their communications. However, that privilege should give way to some extent when necessary to ensure a fair trial.

The Court extensively reviewed existing case law regarding obligations to disclose cooperation agreements and concluded the following:

(a)    agreements regarding the conduct of litigation between two parties on the same side in multi-party litigation are ordinarily subject to common interest privilege;

(b)    common interest privilege should give way to some extent when necessary for the just disposition of pending litigation, or when necessary to ensure a fair trial. This will include circumstances where:

(i)    the agreement's existence could cast light on the quality of the evidence or motivation of a witness or could affect the weight a court might give to the evidence;

(ii)    the agreement's existence could be relevant to decisions regarding the conduct of the trial; and, or

(iii)    the court or opposing party could otherwise be misled about the position of the parties in the adversarial process;

(c)    accordingly, an agreement concerning the following may not be protected by common interest privilege:

(i)    evidentiary matters to be brought up during the course of the litigation;

(ii)    a release, covenant not to sue, or reservation of rights; and, or

(iii)    altering the positions of the parties to something other than what is contained in the pleadings.

Where disclosure is required, it may be that simply disclosing the fact of the agreement rather than its actual terms will be sufficient. In other cases, production of the actual agreement may be required.

The timing of the disclosure is governed by the point at which unfairness is possible. Where a cooperation agreement affects a party's position in a way that is different than that revealed by the pleadings, it must be disclosed immediately. Where a cooperation agreement contains evidentiary arrangements, those arrangements should be disclosed at least by the start of the trial, and possibly even by the time of examinations for discovery if it could allow the opposite party an opportunity to challenge the quality of the evidence and motives of the witness on discovery.

In Bilfinger, the Court concluded that while Metro Vancouver and HMM should have disclosed the existence of the agreement after being asked, the agreement itself was disclosed well ahead of the trial and therefore no prejudice was suffered by Bilfinger. The draconian remedy of striking out claims and defences sought by Bilfinger was determined to be neither fair nor proportionate given that the disclosure had occurred, even though it had occurred later than required.

By adopting this approach, the British Columbia Supreme Court took a different path than the Ontario Court of Appeal in Aecon Buildings v. Brampton (City)2, a case relied upon by Bilfinger in seeking to strike the claims and defences of the cooperating parties. The Court declined to apply the reasoning in Aecon on the basis that Aecon concerned a settlement agreement (rather than merely a cooperation agreement) that rendered the process a sham because the pleadings suggested the parties were adverse while the undisclosed agreement belied any adversity between them.

Takeaways

Cooperation agreements between parties to multi-party litigation may conceal the degree of alliance from both the opposing parties and the court. While there is generally nothing untoward about such an agreement, an obligation to disclose those arrangements will arise if necessary to the fair conduct of the litigation process. The knowledge that such agreements may need to be immediately or eventually disclosed should guide parties in concluding such agreements. Parties should also contemplate from the outset when in the litigation the existence of such an agreement must be disclosed so as to avoid any allegations of impropriety.

Footnotes

1 2014 BCSC 1560.

2 2010 ONCA 898.

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2014

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