Executive Summary: Key Legal and Evidentiary Issues

• The appeal concerns whether a law firm, holding proceeds of a court-ordered sale in trust, must produce documents and answer discovery questions relating to its interpretation of the court order.

• Plaintiffs argue that solicitor-client privilege should not override the right of alleged trust beneficiaries to access legal advice obtained in the administration of the trust.

• The interpretation of the Fisher Order, specifically regarding whether BLG was required to pay a $695,000 withholding tax under the Income Tax Act, is central to the dispute.

• The court considers if the plaintiffs established a prima facie trustee-beneficiary relationship sufficient to compel production of privileged documents.

• The scope of exceptions to solicitor-client privilege in trust and estate contexts is analyzed, referencing relevant case law and Supreme Court of Canada authority.

• The court awards costs to the respondent, with no damages determined at this interlocutory stage.

Facts and outcome of the case

Background and parties

Jiukang Liu and Tony Liu Notary Corporation are the plaintiffs. The defendants are Borden Ladner Gervais LLP (BLG), CE International Resources Holdings LLC (CEIR), Steven Ping Li, Royal Pacific Realty Corp., and Soon Sit Yeap (also known as Sit Siripatcharapol). The plaintiffs, both notaries, acted for purchasers of residential real property in Vancouver. The purchase was conducted pursuant to a November 5, 2014 order of the Supreme Court of British Columbia (the Fisher Order), which granted CEIR conduct of the sale. BLG acted for CEIR, which was a creditor, and was directed by the Fisher Order to hold the proceeds of sale in trust and distribute them according to specified priorities.

A non-resident vendor was involved in the transaction, and no certificate of compliance under section 116 of the Income Tax Act was obtained. As a result, Canada Revenue levied a $695,000 withholding tax on the purchasers. The purchasers sued the notaries for not obtaining the certificate of compliance. The notaries settled with the purchasers and then sought contribution and indemnity from BLG, alleging that BLG breached the Fisher Order and its alleged duties by failing to pay all required taxes before distributing funds to CEIR.

Legal issues and procedural history

The plaintiffs applied for production of documents and answers to questions on discovery, seeking access to legal advice obtained or given by BLG in the administration of the trust. The associate judge dismissed the application, finding that solicitor-client privilege applied and was not displaced by the alleged trust relationship. The plaintiffs appealed, arguing that beneficiaries of a trust are entitled to legal advice obtained by trustees in the administration of the trust, and that the associate judge erred in law by not applying this principle.

The court reviewed whether the plaintiffs had established a prima facie trustee-beneficiary relationship and whether the documents sought related to the administration of the trust or to an adversarial relationship. The court also considered whether recent Supreme Court of Canada authority had altered the scope of exceptions to solicitor-client privilege in trust and estate contexts.

Outcome and reasoning

The court dismissed the appeal, finding that the plaintiffs had not established a prima facie case that they or the purchasers were beneficiaries of a trust, nor that the documents or communications between BLG and CEIR related to BLG carrying out duties as trustee for the plaintiffs as beneficiaries. The court concluded that the circumstances did not fit within the context of cases where exceptions to solicitor-client privilege apply in trust or estate matters. The Fisher Order was an order for sale, and the funds were paid out in accordance with that order, with no party having applied to the court for further directions.

Costs and final disposition

The court awarded costs to the respondent, Borden Ladner Gervais LLP, in any event of the cause, absent any application to the contrary within 30 days. No damages were awarded, as the decision was limited to the issue of document production and privilege. The appeal was dismissed, and the defendants succeeded on all points.