Sable Offshore Energy Inc. et al. v. Ameron International Corp. et al., 2015 NSCA 8

• Judge: Fichaud, Beveridge and Bourgeois, JJ.A.
• Court: Court of Appeal of Nova Scotia (Canada)
• Case Date: January 23, 2015
• Jurisdiction: Nova Scotia
• Citations: 2015 NSCA 8;(2015), 354 N.S.R.(2d) 333 (CA)

Sable Offshore v. Ameron Intl. (2015), 354 N.S.R.(2d) 333 (CA);

    1120 A.P.R. 333

MLB headnote and full text

Temp. Cite: [2015] N.S.R.(2d) TBEd. JA.048

Sable Offshore Energy Inc., as agent for and on behalf of the Working Interest Owners of the Sable Offshore Energy Project, Exxonmobil Canada Properties, Shell Canada Limited, Imperial Oil Resources, Mosbacher Operating Ltd., and Pengrowth Corporation; Exxonmobil Canada Properties as operator of the Sable Offshore Energy Project (appellants) v. Ameron International Corporation and Ameron B.V. (respondents)

(CA 423135; 2015 NSCA 8)

Indexed As: Sable Offshore Energy Inc. et al. v. Ameron International Corp. et al.

Nova Scotia Court of Appeal

Fichaud, Beveridge and Bourgeois, JJ.A.

January 23, 2015.

Summary:

The plaintiffs' oil rig was painted using paint manufactured by the Ameron defendants. The paint failed, leading to corrosion of the steel the paint was intended to protect. As there was no privity of contract between the plaintiffs and the Ameron defendants, the plaintiffs' claim against the Ameron defendants was based in negligence, alleging, inter alia, that the paint was unsuitable for the project. The plaintiffs also claimed against the defendants who prepared surfaces for painting, applied paint or contracted with others to do the foregoing. The Ameron defendants applied under rule 14.25(1)(a) to strike the claim against them as failing to disclose a reasonable cause of action. The Ameron defendants submitted that the law did not recognize tort liability for pure economic loss resulting from "non-dangerous" defects in products.

The Nova Scotia Supreme Court, in a judgment reported (2006), 249 N.S.R.(2d) 122; 792 A.P.R. 122, dismissed the application. Assuming that the defect was "non-dangerous", it was not plain and obvious that tort liability for pure economic loss recognized by the Supreme Court of Canada for "dangerous defects" (Winnipeg Condominium case) would not be extended to "non- dangerous" defects. Alternatively, it was not plain and obvious that the defective paint failed to meet the level of dangerousness required by the Winnipeg Condominium case. Finally, it was not plain and obvious that the plaintiffs' claim was not for pure economic loss, as opposed to a property damage claim. The Ameron defendants appealed.

The Nova Scotia Court of Appeal, in a judgment reported (2007), 255 N.S.R.(2d) 164; 814 A.P.R. 164, dismissed the appeal. The plaintiffs and a number of defendants negotiated Pierringer agreements and applied to the court for an order approving the settlement agreements. The non-settling defendants, although not opposing court approval, tendered a number of conditions that they wished included in the court order to protect their rights.

The Nova Scotia Supreme Court, in a judgment reported (2009), 287 N.S.R.(2d) 113; 912 A.P.R. 113, approved the Pierringer agreements subject to conditions. The court considered which conditions and amendments to the pleadings proposed by the non-settling defendants were appropriate and which ones were unnecessary.

The Nova Scotia Supreme Court, in a judgment reported (2010), 291 N.S.R.(2d) 1; 922 A.P.R. 1, subsequently issued supplementary reasons reflecting three changes respecting (1) the amendment of the style of cause (deleting names of settling defendants), (2) amendments to the statement of claim (re plaintiffs no longer pursuing claims against the settling defendants), and (3) admissions in the pleadings (now concluding that full argument on this issue should be left to a later time). The non-settling defendants sought disclosure of the settlement amount.

The Nova Scotia Supreme Court, in a judgment reported (2010), 299 N.S.R.(2d) 216; 947 A.P.R. 216, held that the settlement amount was not to be disclosed. The non-settling defendants appealed.

The Nova Scotia Court of Appeal, in a judgment reported (2011), 310 N.S.R.(2d) 382; 983 A.P.R. 382, allowed the appeal and ordered disclosure of the settlement amounts in the Pierringer Agreement. The defendants applied for further production of documents by the plaintiffs. The plaintiffs claimed that the documents were not relevant or were privileged. At the hearing, production of five categories of documents remained to be resolved: (1) Identify all documents relevant to the provisions of paragraphs (a) and (b) of the Order dated April 30, 2009 for which production had not been made by providing a short description of each document, by identifying the receiver and sender, their status and relationship to the parties and providing a statement of the grounds of privilege or other reason for non production sufficient to identify the justification for non production; (2) Produce all documents relevant to the placement of insurance coverage on the project, the scope of such coverage and the entities which came, or were intended to come, within the scope of such insurance coverage, including documents relating to coverage for any of the settled defendants; (3) Produce all relevant factual evidence including surveys, interviews, reports, observations, photographs, videos, test measurements or results including all factual evidence from experts, provided to or received from any of the insurers involved in the Project and their adjuster; (4) Produce all documents relating to any claims by the plaintiffs for coverage or indemnity under any insurance coverage relating to the project but excluding evidence of the amount of any recovery, payout or benefits received by the plaintiffs from any insurance coverage relating to the project; and (5) Identify all relevant documents for which production was not made by providing a short description of each document by identifying the receiver and sender, their status and relationship to the parties and provide a statement of the grounds of privilege or other reason for non production sufficient to identify the justification for non production.

The Nova Scotia Supreme Court, in a judgment reported (2013), 329 N.S.R.(2d) 205; 1042 A.P.R. 205, determined what documents had to be produced. Any documents for which solicitor-client privilege was claimed were privileged, as conceded by the defendants. There was no litigation or settlement privilege between Sable and the Alliance Contractors and no litigation privilege for documents exchanged with the Offshore Insurers. The court determined the date when litigation privilege commenced for documents exchanged between Sable and the Onshore Insurers and held that litigation privilege continued for any documents where the dominant purpose of their creation was litigation or contemplated litigation. Common interest privilege did not apply to documents exchanged where Sable and the other parties were adverse in interest, but did apply to documents exchanged in furtherance of their joint interest in pursuing third parties. Some documents exchanged between Sable and the Onshore Insurers would be protected by settlement privilege if the three pre-conditions were strictly met. No such privilege applied to Sable and the Alliance Contractors. No further documentation need be disclosed respecting insurance coverage for suppliers. However, respecting the settling defendants, additional disclosure was to be made. Finally, documents containing evidence in support of Sable's claims were not to be disclosed, if privileged. Sable appealed.

The Nova Scotia Court of Appeal allowed the appeal in part, ordering that: "With respect to documents exchanged between Sable and the Offshore Insurers over which settlement privilege were claimed, the issue of when the privilege arose shall be returned to the chambers judge for determination; With respect to common interest privilege, the directions provided by the chambers judge as to when such privilege may arise, are to be modified to reflect that it is not the contents of the documents which must be examined to determine whether a joint interest in pursuing a third party is established, but rather the purpose and intent of the documentation being exchanged; With respect to the claim of statutory privilege, that matter shall be returned to the chambers judge for re-consideration".

Practice - Topic 4578

Discovery - What documents must be produced - Privileged documents - Documents prepared in contemplation of litigation (litigation privilege or work product privilege) - The trial judge discussed the nature and scope of litigation privilege, also called work product privilege - Unlike solicitor-client privilege, litigation privilege was not limited to communications between solicitor and client - It also applied to communications between a solicitor and third parties - The documents must have been created for the dominant purpose of litigation or anticipated litigation - Litigation privilege ended, absent closely related proceedings, when the litigation ended - The trial judge stated that evidence was protected by litigation privilege, but "facts" were not - The trial judge distinguished between "facts" and "evidence" and agreed that "what is important to note about both of these rules is that they do not afford a privilege against the discovery of facts that are or may be relevant to the determination of the facts in issue. What is privileged is the communications or working papers that came into existence by reason of the desire to obtain a legal opinion or legal assistance in the one case and the materials created for the lawyer's brief in the other case. The facts or documents that happen to be reflected in such communications or materials are not privileged from discovery if, otherwise, the party would be bound to give discovery of them." - The trial judge stated that the approach of distinguishing between facts and evidence "is consistent with protecting the 'zone of privacy' in which the lawyer prepares for trial. If the material facts are known to the other party, that party is as capable of gathering the evidence as the party who has done so. The pleadings are to set out the facts but not the evidence to prove those facts." - The Nova Scotia Court of Appeal stated that "I take no issue with the principles of law as articulated by the chambers judge in relation to either litigation or settlement privilege" - See paragraph 45.

Practice - Topic 4578

Discovery - What documents must be produced - Privileged documents - Documents prepared in contemplation of litigation (litigation privilege or work product privilege) - The trial judge rejected litigation privilege for documents exchanged between the plaintiff Sable and third parties under a contractually mandated obligation to utilize mediation efforts to close-out their agreement - The Nova Scotia Court of Appeal held that "The chambers judge was, after this evidentiary review, not satisfied that there was a reasonable prospect of litigation between [the plaintiff] and the [third parties] at any time, rather the above efforts were part of the contractually mandated conclusion of their obligations to each other. As such, no litigation privilege arose over documentation exchanged between them. The factual determinations made by the chambers judge are to be afforded deference. She considered the evidence, assessed it in light of the entirety of the context, and reached a conclusion. The appellant has not satisfied me that her finding amounts to a palpable and overriding error." - See paragraphs 55 to 56.

Practice - Topic 4580

Discovery - What documents must be produced - Privileged documents - Documents prepared for purpose of settlement - [See both Practice - Topic 4590 ].

Practice - Topic 4583.1

Discovery - What documents must be produced - Privileged documents - Common interest - Plaintiffs claimed privilege over documents exchanged between them and other parties under common interest privilege agreements - The trial judge held that "common interest privilege" was the means by which privileged documents provided to other parties retained their privilege - It was not a separate type of privilege - Preconditions included: "1. The document must be subject to privilege in the hands of the person who provides it. That can be either solicitor/client privilege or litigation privilege. 2. If it is alleged to be protected by litigation privilege, the test is that for a claim of litigation privilege. 3. There must be a common interest in the litigation or anticipated litigation." - The trial judge stated that "a common interest privilege agreement cannot create a privilege which did not exist before. What common interest privilege protects against is waiver of privilege when a privileged document is disclosed to someone who otherwise would have no right to have it and with whom the party has a common interest." - The trial judge discussed what was required for parties to have a "common interest" - The Nova Scotia Court of Appeal stated that "I find no fault with the chambers judge's articulation of the law" - However, the court varied the directions provided by the trial judge as to when such privilege could arise to reflect that it was not the contents of the documents which must be examined to determine whether a joint interest in pursuing a third party was established, but rather the purpose and intent of the documentation being exchanged - The court stated that "the correct approach would be to direct that only where it is clearly established that the documents were exchanged in furtherance of a joint interest against a third party, and the documents were otherwise privileged, does a common interest privilege arise." - See paragraphs 60 to 69, 90.

Practice - Topic 4584.1

Discovery - What documents must be produced - Privileged documents - Statutory privilege - The trial judge rejected a claim of statutory privilege under the provincial and federal Canada-Nova Scotia Offshore Petroleum Resources Accord Implementation Acts based on her finding that the wording of a statute purporting to create a statutory privilege had to be construed narrowly - The Nova Scotia Court of Appeal held that the trial judge erred - Although statutory privilege had to be clear and unambiguous, that did not mean that the statute had to be narrowly construed - Since the failure to interpret the statute correctly might have affected the result, the court remitted the matter of statutory privilege for reconsideration - See paragraphs 91 to 101.

Practice - Topic 4590

Discovery - What documents must be produced - Settlement documents and other agreements - The trial judge rejected settlement privilege for documents exchanged between the plaintiff Sable and third parties under a contractually mandated obligation to utilize mediation efforts to close-out their agreement - The Nova Scotia Court of Appeal held that the trial judge "found that although there was a dispute being negotiated, it was being done within the context of their contractual obligations. She was not satisfied that the dispute had risen to a 'litigious dispute', a necessary pre-requisite for settlement privilege to arise. The chambers judge made a finding that the negotiations between Sable and the [third parties] was not 'litigious' in nature based upon the evidence before her. Given the entirety of the materials before me, I am not satisfied that such constitutes palpable and overriding error" - See paragraphs 58 to 59.

Practice - Topic 4590

Discovery - What documents must be produced - Settlement documents and other agreements - The trial judge discussed the nature and scope of settlement privilege - The theoretical foundation for settlement privilege was: "1. That admissions in settlement negotiations are likely to be hypothetical or conditional only, as a supposition on which a settlement might rest, whether that supposition is true or false, and that such an admission has no relevance and is inadmissible on that ground, though if an admission is clearly an unqualified admission of fact, it would be admissible; 2. That all admissions in the course of negotiations towards settlement are without prejudice, whether those words are used or not, and are protected by a privilege based on public policy, and are not admissible in evidence; 3. That settlement negotiations are conducted on the normal contractual basis of offer and acceptance and with an express reservation of secrecy, and that, if a contract is reached, the negotiations are superseded by the contract itself, and become irrelevant and inadmissible, and if no contract is reached, then the negotiations are, for that reason, irrelevant; 4. That admissions made in the course of settlement negotiations may not be concessions of wrongs done, but merely an expression of a desire to purchase peace, and as such irrelevant and inadmissible." - Three conditions for settlement privilege were: "(1) A litigious dispute must be in existence or in contemplation; (2) The communication must be made with the express or implied intention that it would not be disclosed to the court in the event that negotiations failed; (3) The purpose of communication must be to attempt to effect a settlement." - The Nova Scotia Court of Appeal stated that "I take no issue with the principles of law as articulated by the chambers judge in relation to either litigation or settlement privilege" - See paragraph 45.

Practice - Topic 9867

Settlements - Disclosure - [See both Practice - Topic 4590 ].

Cases Noticed:

Housen v. Nikolaisen et al. (2002), 286 N.R. 1; 219 Sask.R. 1; 272 W.A.C. 1; 2002 SCC 33, refd to. [para. 42].

Innocente v. Canada (Attorney General) (2012), 315 N.S.R.(2d) 273; 998 A.P.R. 273; 2012 NSCA 36, refd to. [para. 42].

R. v. Carvery (L.A.) (2012), 321 N.S.R.(2d) 321; 1018 A.P.R. 321; 2012 NSCA 107, refd to. [para. 43].

Mitsui & Co. (Point Aconi) Ltd. v. Jones Power Co. et al. (2000), 188 N.S.R.(2d) 173; 587 A.P.R. 173; 2000 NSCA 96, refd to. [para. 48].

Di-Anna Aqua Inc. v. Ocean Spar Technologies L.L.C. et al. (2002), 205 N.S.R.(2d) 97; 643 A.P.R. 97; 2002 NSSC 138, refd to. [para. 49].

Blank v. Canada (Minister of Justice) (2006), 352 N.R. 201; 2006 SCC 39, refd to. [para. 50].

Brown v. Cape Breton (Regional Municipality) (2011), 302 N.S.R.(2d) 84; 955 A.P.R. 84; 2011 NSCA 32, refd to. [para. 51].

Yellowbird v. Lytviak et al. (1998), 218 A.R. 393; 1998 ABQB 272, refd to. [para. 93].

Potter v. Nova Scotia Securities Commission (2006), 246 N.S.R.(2d) 1; 780 A.P.R. 1; 2006 NSCA 45, refd to. [para. 94].

Bell ExpressVu Limited Partnership v. Rex et al. (2002), 287 N.R. 248; 166 B.C.A.C. 1; 271 W.A.C. 1; 2002 SCC 42, refd to. [para. 101].

Authors and Works Noticed:

Bryant, Alan W., Lederman, Sidney N., and Fuerst, Michelle K., Sopinka, Lederman & Bryant: The Law of Evidence in Canada (4th Ed. 2014), § 14.37 [para. 103].

Hubbard, Robert W., Magotiaux, Susan, and Duncan, Suzanne M., The Law of Privilege in Canada (2012 Looseleaf), p. 12.10 [para. 47].

Counsel:

Robert G. Belliveau, Q.C., and Kevin Gibson, for the appellants;

John P. Merrick, Q.C., and Darlene Jamieson, Q.C., for the respondents.

This appeal was heard on October 17, 2014, at Halifax, N.S., before Fichaud, Beveridge and Bourgeois, JJ.A., of the Nova Scotia Court of Appeal.

On January 23, 2015, Bourgeois, J.A., delivered the following judgment for the Court of Appeal.