May 31, 2012

Sealing The Deal: SCC Denies Black Leave to Appeal Hollinger’s Sealing Order

On May 3, 2012, the Supreme Court of Canada denied Conrad Black (“Black”) leave to appeal the decision of the Court of Appeal for Ontario upholding the decision of the Honourable Justice Campbell to seal certain privileged and confidential information contained in settlement agreements between Hollinger Inc. (“Hollinger”) and certain settling parties, that are subject to court approval.1

Hollinger is currently under creditor protection pursuant to the Companies’ Creditors Arrangement Act (the “CCAA”). Hollinger’s primary assets are its claims against the company’s former advisors, directors, officers and lending syndicate.

The settlement agreements in question are between Hollinger and its former advisors, Torys LLP (“Torys”) and KPMG LLP (“KPMG”), respectively. The settlements arose as a result of confidential and privileged mediations with each of the settling defendants. The settlements contain third party releases in favour of each of Torys and KPMG, and proposed bar orders which would prevent all third party releasors from advancing direct or indirect claims against Torys or KPMG in respect of Hollinger-initiated litigation which relates to the subject matter of their settled claims. By their terms, and in the context of the CCAA process, these settlements require court approval in order to be binding.

The vast majority of the terms of the Torys and KPMG settlements were posted publicly on the website of the Monitor, Ernst & Young Inc., and filed with the Court. The only terms that were redacted from the public record, and in respect of which a sealing order was sought, were the settlement amounts and certain details of the manner of payment of the settlement amount in the Torys settlement agreement, over which Hollinger and the settling parties asserted settlement privilege. Hollinger sought a time-limited sealing order in respect of the those terms, which would expire if and when the settlements are approved and all appeals are exhausted in Hollinger’s favour.

In the meantime, Hollinger also sought approval of a confidentiality agreement that would permit the non-settling defendants and any other interested party to obtain disclosure of the redacted portions of the settlement agreements, on terms, in order to enable them to formulate their positions and respond to the settlement approval motion. Black objected to the terms of the proposed confidentiality agreement on the grounds that the consequences for breach of the agreement were too onerous.

By order dated February 18, 2011 (released on February 25, 2011)2, the Honourable Justice Campbell—supervising judge under Hollinger’s CCAA proceeding—granted the sealing order and approved the confidentiality agreement in the first instance.

Justice Campbell applied the test enunciated by the Supreme Court of Canada in the case of Sierra Club of Canada v. Canada (Minister of Finance)3, the leading authority on sealing orders. The Sierra test requires that a sealing order should only be granted if (i) such an order is necessary in order to prevent a serious risk to an important interest, including a commercial interest, in the context of litigation because reasonably alternative measures will not prevent the risk; and (ii) the salutary effects of the sealing order, including the effects on the right of civil litigants to a fair trial, outweigh its deleterious effects, including the effects on the right to free expression, which includes the public interest in open and accessible court proceedings.

The Supreme Court went on in the Sierra Club case to clarify that the risk in question must be real and substantial, and it must be well grounded in the evidence. Further, the Court clarified that in order to meet the test, the “important commercial interest” must not be merely specific to the party requesting the order; the interest must be one which can be expressed in terms of a public interest in confidentiality.

The evidentiary record before the Court included Hollinger’s Chief Restructuring Officer’s sworn statement that public disclosure of the redacted portions of the settlement agreements would “undermine the Litigation Trustee’s initiatives with respect to the remaining Litigation Assets, including without limitation, any possible settlements the Litigation Trustee may reach in respect of any of the remaining Litigation Assets and any litigation with KPMG or Torys, in the event that the Settlements are not approved.”

Black and certain other affiliated respondents argued that a “bald statement” of the Chief Restructuring Officer was insufficient evidence of a real and substantial risk to an important commercial interest.  Notably, the Chief Restructuring Officer’s statement was not challenged in cross examination, and his evidence was therefore uncontested.

Justice Campbell found that the redacted portions of the settlement agreements were subject to litigation settlement privilege, which is an important interest that may be expressed in terms of a public interest in confidentiality. In applying the balancing exercise in the second branch of the Sierra test, Justice Campbell held that “the time-limited provisions and other conditions [of the order sought] meet the Sierra test in the context of this case. There is in my view a commercial important issue at stake with no reasonable measures available to alleviate the harm from lack of confidentiality at this stage. …In the context of a litigation privilege which arises from a protracted mediated settlement that is consistent with the public interest, the full terms [should] not be placed on the public record ...”4

Black sought and was granted leave to appeal Justice Campbell’s decision to the Ontario Court of Appeal.5  On appeal, Black argued that the sealing order constituted a serious and unjustified infringement on the open court principle and attacked the sufficiency of Hollinger’s supporting evidence. Goudge, Sharpe and Karakatsanis JJ.A. unanimously dismissed Black’s appeal, agreeing with Justice Campbell’s conclusion that the sealed terms were subject to litigation settlement privilege and that “Hollinger, Torys and KPMG have a legally protected interest in being afforded a zone of confidentiality to shelter the most sensitive aspect of  their proposed settlement.”6 The Court of Appeal accepted Hollinger’s argument that “litigation settlement privilege constitutes a social value of super-ordinate importance capable of justifying a sealing order that limits the open court principle.”7 The Court of Appeal further rejected Black’s argument that by disclosing the sealed terms of the settlement agreements to signatories of the Court-approved confidentiality agreement, Hollinger had waived privilege over those terms. The Panel found this argument to be “inconsistent with Black’s purported reliance on the open court principle as requiring disclosure of the settlement amounts. The terms of the order said to amount to a waiver of privilege were plainly motivated to ensure that the sealing order was minimally intrusive on the open court principle.”8

The Panel went on to note that although Hollinger’s evidence in support of the sealing order was limited to the sworn statement of the Chief Restructuring Officer, that statement was uncontested9 and was bolstered by the “strong public policy favouring settlements and the recognized privilege that protects the confidentiality of settlement discussions...”10.

The Court of Appeal further rejected Black’s argument that the subject settlements were concluded settlements for which litigation settlement privilege is spent, since the settlements will not be legally effective unless or until they are approved by the Court.  The Court left for another day the issue of “whether privilege always attaches to other settlements requiring court approval, for example, class action settlements or infant settlements, where different values and considerations may apply.”11

Black sought leave to appeal the decision of the Court of Appeal, but ultimately signed on to the court-approved confidentiality agreement and gained disclosure, on terms, of the sealed portions of the settlement agreements, while the Supreme Court’s decision was still pending. The motion to approve Hollinger’s settlements with Torys, KPMG and certain other settling parties was heard before Justice Campbell on April 19, 2012. The decision of the Court is pending.

1 Judgment of the Supreme Court of Canada per LeBel, Abella and Cromwell JJ., Decision No. 34506, May 3, 2012.

2 Order of Justice Campbell (Sealing and Confidentiality Agreement Approval Order), February 18, 2011, issued and entered on March 7, 2011.

3 Sierra Club of Canada v. Canada (Minister of Finance), [2002] 2.S.C.R. 522.

4 February 25 Endorsement, at paras. 8 and 10.

5 Endorsement of Goudge, Juriansz and Rouleau JJ.A dated May 11, 2011.

6 Reasons of Goudge, Sharpe and Karakatsanis JJ.A., Hollinger Inc. (Re), 2011 ONCA 579, released September 8, 2011, at para. 17.

7 Ibid at para. 20.

8 Ibid at para 29.

9 Ibid at para 6.

10 Ibid at para. 22.

11 Ibid at para. 24.