It is not uncommon for receivers and other parties participating in receiverships to seek court orders prohibiting the public disclosure of commercial and other sensitive information. However, courts do not generally grant such orders automatically or as of right. Instead, the party seeking such an order must meet certain evidentiary thresholds, and a court must follow certain legal principles in determining whether to grant it.
What Principles Do Sealing Orders Involve?
It goes without saying that court proceedings should generally be open to the public. This is a longstanding legal principle, based on the notions that justice should not only be done but be seen to be done and that public access maintains the independence and impartiality of the court system. Further, courts have viewed the principle as being enshrined by section 2(b) of the Charter of Rights and Freedoms, which provides that everyone has “freedom of thought, belief, opinion and expression, including freedom of the press and other media of communication.” By their nature, sealing orders are an exception to this general principle.
Supreme Court of Canada Test for Granting a Sealing Order
The general power to issue a sealing order in a civil proceeding in the province is found in section 137(2) of the Courts of Justice Act.
In Sierra Club v. Canada (Minister of Finance), the Supreme Court of Canada considered the test applicable to a request for a publication ban made before the Federal Court of Canada. It said that generally, the main question to be asked on such a motion is “whether, in the circumstances, the right to freedom of expression should be compromised.”
In Sierra Club, the Court applied general existing principles regarding publication bans to the specific context of commercial interests. It concluded that, to grant a confidentiality order in such a context, a court must first find (i) such an order “is necessary 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 order outweigh its deleterious effects. For this second element, salutary effects include “the effects on the right of civil litigants to a fair trial,” and deleterious effects include “the effects on the right to free expression.”
The Court observed that, to meet the first part of the test, the interest in issue could not be one that was “specific to the party requesting the order.” Instead, it had to be one “which can be expressed in terms of a public interest in confidentiality.” By way of example, the Court noted that it was insufficient for a private company to argue that making public the existence of one of its contracts would cause it to lose business; but, if disclosure of that information would result in a breach of a confidentiality agreement, “then the commercial interest affected can be characterized more broadly as the general commercial interest of preserving confidential information.” In other words, there must be some “general principle” at stake.
Court Refines the Test for Granting a Sealing Order in Sherman Estate v. Donovan
The Supreme Court of Canada considered sealing orders again in Sherman Estate v. Donovan. The case concerned the much-publicized deaths of philanthropists Bernard and Honey Sherman. Trustees seeking to administer their estates sought a sealing order for probate files, raising concerns about the privacy and physical safety of those involved.
The Court reiterated the presumption that court proceedings should be open to the public and revised its earlier test for sealing orders, noting that the test was actually a 3-part test. It required the party seeking the order to establish that (i) “court openness poses a serious risk to an important public interest,” (ii) the order sought was “necessary to prevent this serious risk because reasonably alternative measures” will not prevent the risk, and (iii) the benefits of the order “outweigh its negative effects.” The Court emphasized that the test as set out in the Sierra Club decision continues to guide judicial discretion on the issue.
What Constitutes an “Important Public Interest” in the Receivership Context?
Sealing orders are frequently sought in receiverships where information must be submitted to the court regarding the bidding and sales process, settlement agreements, and other sensitive matters. In each case, the Sherman Estate test will apply, and the first question to be asked is whether subjecting the information in question to “court openness” will pose a serious risk to “an important public interest.”
It seems fairly clear from case law that information relating to a receivership or insolvency sale process will often meet this first element of the test, where its public disclosure might affect the fairness and integrity of the process (ie. by giving competitors or other potential future bidders an unfair advantage) or where it might affect the ability to maximize recovery in an insolvency, particularly before the close of a transaction (see, for example, Kingsett Mortgage Corporation v. Churchill Lands United Inc.). Confidential summaries of bids received in the course of a sale process, for example, have often been the subject of sealing orders (see Re Hudson’s Bay Company).
Similarly, protecting details regarding settlements entered into in the course of a company’s insolvency are often regarded as satisfying the first element of the Sherman Estate test, since there is often a public interest in “promoting settlements” (see Royal Bank of Canada v. Distinct Infrastructure Group Inc.). Information that, if disclosed, would threaten the viability of a settlement may also meet this aspect of the test (see Equitable Bank v. Ashcroft Homes – Capital Hall Inc.).
Confidentiality Provisions Alone Are Not Enough to Grant a Sealing Order
Having said this, practitioners would be well advised to approach motions for sealing orders with caution and ensure they put sufficient affidavit and supporting evidence before the court to satisfy the test from Sherman Estate. As the Superior Court of Justice recently noted in Equitable Bank, confidentiality provisions in documents such as settlement agreements are not, in and of themselves, a sufficient basis for a sealing order, and not all settlements are sufficiently “commercially sensitive” to meet the legal threshold. Each case “must be justified on its own merits.”
It is also important that, aside from the first element of the test, the second and third elements be sufficiently addressed through evidence – that is, evidence must also be put forward speaking to whether reasonable alternative means exist and attention must be given to limiting the scope of the sealing order sufficiently to justify tipping the balance in favour of the order over the principle of court openness.
Campbell Litigation: Providing Strategic Advice in Receivership and Insolvency Proceedings in Kitchener-Waterloo
If you are involved in a receivership, insolvency, or other commercial litigation matter where sensitive financial, transactional, or settlement information may need protection, experienced legal guidance is essential. Properly preparing the evidentiary record and tailoring the scope of a requested sealing order can be decisive in whether the court grants the relief sought.
Richard Campbell of Campbell Litigation advises receivers, creditors, lenders, businesses, and other stakeholders in complex insolvency and receivership proceedings. Our firm provides strategic advice on confidentiality issues, court motions, and protecting commercially sensitive information while ensuring compliance with the governing legal principles. To book a confidential consultation, please reach out online or call 519-886-1204.
