In Specialty Life Inc. v. Daumier Financial Services Inc., 2026 ONSC 1869, the Court ordered the disqualification of plaintiffs’ counsel because it had requested, received, and reviewed some of the defendants’ privileged documents as counsel for the plaintiffs in a related arbitration, albeit for a legitimate purpose in that arbitration. The Court found that there were no steps, short of disqualifying plaintiffs’ counsel in both the action and the arbitration that would “avoid the mischief resulting from use of the [defendants’] privileged information”.
Background facts – In late 2023, Specialty Life Inc. (“SLI”) commenced both an Arbitration against Daumier Financial Services Inc. (“Daumier) and an Action against Daumier and several other defendants, including Michael Lu and 15019475 (both referred to here as “Lu”). SLI used the same legal counsel for both proceedings (“SLI Lawyers”). For a time, one law firm jointly represented both Daumier in the Arbitration and Action and several of the defendants in the Action, including Lu (“Former Joint Counsel”).
In May 2025, Daumier applied to the Tribunal for a stay of the Arbitration and relied on privileged communications with the Former Joint Counsel in support. In its stay application, Daumier specifically alleged that the Former Joint Counsel had acted without its authority in agreeing to arbitrate. (Daumier had new counsel on its stay application.) As a result, SLI requested the Tribunal to order production of the privileged communications on the basis of waiver. The Tribunal agreed and ordered Daumier to produce certain privileged documents. The Tribunal also ordered that a notice be provided to the Former Joint Counsel (that held the privileged documents) requiring their attendance at the application and production of the privileged documents.
Upon receipt of the notice, the Former Joint Counsel wrote to the Tribunal for directions because, pursuant to the joint retainer, the privilege attached to the documents was held by not just Daumier, but other clients as well, including Lu. A question arose over whether they had also waived the jointly held privilege, but SLI pursued production regardless.
Ultimately, the Tribunal ordered production of the privileged documents in a Procedural Direction. They were produced by the Former Joint Counsel and they were considered on the hearing of the stay application in July 2025. The Tribunal dismissed Daumier’s stay application.
In early 2026, Lu, who were defendants in the Action (but not the Arbitration) and parties to the joint retainer, brought a motion staying the Action or, in the alternative, disqualifying the SLI Lawyers. They argued that they had not waived the privilege they held over the produced documents and, because SLI had the same legal counsel in both the Arbitration and Action, the information gained from the privileged documents produced in the Arbitration could prejudice Lu in the Action.
The decision – The Court went through the three-part test established in Celanese Canada Inc. v. Murray Demolition Corp., 2006 SCC 36 to decide the appropriate remedy where privileged information is received by an opposing party or its counsel. In this case, the Court found that the privileged documents were reviewed by the SLI Lawyers, but not by SLI itself.
The first part of the test requires the moving party to prove that the opposing party obtained access to its privileged materials. SLI argued there was no privilege for three reasons: there was no evidence of a joint retainer; Lu refused to produce evidence of their knowledge or consent, as a result of which an adverse inference should be drawn; and insufficient steps were taken to preserve the privilege.
The Court found that the SLI Lawyers had obtained access to the documents that would be subject to privilege if it was not waived. Lu was not required to produce evidence of the joint retainer or their knowledge. No adverse inference could be drawn in these circumstances. A jointly held privilege cannot be waived unilaterally by one holder of the privilege for other holders without their consent.
The Court also dismissed SLI’s argument that Lu did not take sufficient steps to preserve their privilege and prevent access to the privileged documents and thereby waived objection to the Former Joint Counsel producing the documents in the Arbitration. The Court distinguished between this situation and that in Chan v. Dynasty Executive Suites Ltd., 2006 Can LII 23950 (ONSC), where privileged documents were provided in error to opposing counsel. In this case, the documents were not obtained through error. The SLI Lawyers knew they were subject to a jointly-held privilege created through a joint retainer, in which Lu was also represented by the Former Joint Counsel along with Daumier, and the SLI Lawyers obtained access as a result of the Tribunal’s Procedural Direction and promptly reviewed them. In such circumstances, there was no obligation upon Lu to actively attempt to retrieve the documents to avoid waiving privilege, as any prejudice would have already occurred.
On the second part of the test, once it was established that opposing counsel had obtained access to privileged materials, there is a rebuttable presumption of prejudice. SLI argued that there was likely no prejudice and the documents contained no legal advice or strategy. The Court held that SLI’s evidence fell short. It was nothing more than “a fortiori undertakings and conclusory statements”.
In this case, the Court had the benefit of actually reviewing the privileged documents, which were submitted in a confidential brief. It held that the documents were not insignificant or incapable of causing prejudice. This was exacerbated by the fact that the SLI Lawyers had used information in some of the privileged documents at a case conference in the Arbitration to make arguments relating to other motions, separate from the stay application. Potential prejudicial use of the privileged information had already occurred. For all these reasons, SLI did not discharge its onus of rebutting the presumption of prejudice.
On the third part of the test, the Court must consider the appropriate remedy. In this case, Lu sought both a stay of the Action and a removal of the SLI Lawyers. The Court held that, because the privileged documents were never sent to SLI (they remained exclusively with its counsel), there was no prejudice to a fair trial and a stay of the Action was not warranted. However, there were no precautionary steps, short of disqualifying the SLI Lawyers, that would avoid the mischief resulting from use of the privileged information.
Lu, who brought the Court motion on the privileged documents, were not parties to the Arbitration; however, because the issues in the two proceedings overlapped considerably, their interests would be affected by the outcome of the Arbitration. For that reason, the Court disqualified the SLI Lawyers from acting in both the Arbitration and the Action, and any other related proceeding.
Commentary:
This case illustrates some of the pitfalls in the pursuit of related arbitration and litigation that lead to the following things to keep in mind:
1. Stay in your lane: While a common strategy (and common legal counsel) in related proceedings may be helpful and efficient, the lines between each proceeding, with respect to the different evidence obtained in each, must be recognized and respected. While some of the evidence may be the same, the evidence in each proceeding must be treated and used independently. The implied undertaking rule was not raised in this case (perhaps because the privileged documents were only produced to counsel and were not “true” discovery evidence and they had not yet been used in the Action); however, that rule will be a risk in any overlapping proceedings. It may be difficult for the same counsel over multiple proceedings to maintain distinct “repositories” of information in each of the proceedings, but it would be wise to keep the matters (and their respective evidence) separate in electronic storage, work product and advocacy. And it may be that retaining common counsel will be a hindrance to legal strategy.
2. Relief can transcend litigation to arbitration: Although the defendants who brought the motion in this case were not parties to the Arbitration, the Court found they would be prejudiced across both proceedings because of the overlapping issues. In this case, the SLI Lawyers were disqualified from acting in both the Action and Arbitration, and any other related proceeding. In a situation of related litigation and arbitration, any alleged prejudicial treatment in the litigation has the potential to affect the related arbitration.
3. Be careful what you ask for: Clients or counsel sometimes pursue a strategy of aggressive document production, but care must be taken where privilege is raised in response. Where alleged privileged documents are in play, there is a risk that the ultimate remedy for a failure to take care has more impact than the request itself. The Court warned in this case: when legal counsel “chose to seek access to documents over which the moving parties held a joint privilege, it took the risk that the moving parties may seek a remedy”. (para 103) In reliance on R. v. Fox, 2026 SCC 4, the Court emphasized that solicitor-client privilege is “the strongest privilege protected by law” and must be “jealously guarded”. The guarding of solicitor-client privilege is a responsibility of all legal counsel on the case. In the case of related proceedings, this is likely to extend to all counsel across both proceedings.