ADMINISTRATIVE
Decision-maker's academic writings not enough to create reasonable apprehension of bias
Carleen Francis, a citizen of St Vincent and the Grenadines, applied for refugee status in Canada on the grounds that, as a lesbian, she faced discrimination in her home country. Homosexuality is still a criminal offence in St Vincent, and Francis had been the subject of physical abuse on account of her sexual orientation. The Refugee Protection Division rejected her claim, not finding the discrimination she faced in St Vincent sufficiently serious; the board concluded that St Vincent does not actually enforce its Criminal Code provisions, the physical abuse seemed to be an isolated incident and Francis didn't face persecution if she was sent back. Francis challenged that determination, arguing that the decision-maker, a Mr Gallagher, had published a number of academic articles on Canadian immigration and refugee policy, in which he had criticised some aspects of the system for processing refugee claims and suggested that mass immigration had a negative effect on Canada's social cohesion. He also singled out St Vincent as an example of a country which produced questionable refugee claims.
In the Federal Court, Justice Noel didn't buy the argument that having expressed views on immigration in previous academic work automatically meant that Gallagher should be disqualified; indeed, his previous experience probably made him a better decision-maker: Francis v Canada (Citizenship and Immigration), 2012 FC 1141. Gallagher did fail, however, to consider all of the evidence on St Vincent's treatment of gays and lesbians, which attested to the fact that its anti-homosexuality provisions have been enforced as recently as 2009 (the year before Francis made her refugee claim), and didn't come to a reasonable conclusion on the level of discrimination Francis would face if she returned to St Vincent. A new panel was ordered to hear Francis's claim.
[Link available here].
Oral hearing not required to terminate membership of Order of Canada
If Lord Black did not exist, he would need to be invented, if only to provide fodder for comment. Freshly sprung from time spent at the pleasure of the US government, his Lordship challenged a decision of the body that advises on appointments to (and ejections from) the Order of Canada: Black v Advisory Council for the Order of Canada, 2012 FC 1234.
Justice de Montigny concluded that while the Advisory Council was subject to judicial review, procedural fairness and natural justice did not require it to hold an oral hearing including submissions from the noble lord, although things appeared to go well for him at the start. The Council's decision was interlocutory only (the final decision rests with the Governor General), and the usual rule is that such decisions should not be subject to judicial review except in unusual circumstances. Because the ultimate decision on his membership would probably not, as an exercise of Crown prerogative, be subject to judicial review, Lord Black's application was not premature. Was the Council's decision also immune from judicial review? No, and Black had a reasonable expectation that the Council would follow its stated policy on terminations. Two points for his Lordship. Where his case fell down was on procedural fairness, which under the circumstances did not require an oral hearing. The judge rejected the argument that there should be a high degree of procedural fairness because of the potential effect on Black's reputation; in the judge's view, there is no right to or legitimate expectation of an honour from the Crown, and no right to maintain an honour once granted. If there was anything that was going to tarnish Black's reputation it was his convictions for fraud in the United States. His credibility was not in issue; the Council was not considering the merits of those convictions but merely assessing them as facts to be considered in making a recommendation to the GG. Black had made - and could make further - written submissions and that was really enough. The necessary level of procedural fairness was, in the end, 'minimal'.
[Link available here].
CIVIL PROCEDURE
Are you being served?
A little gem from the BC Supreme Court: Wang v Wang, 2012 BCSC 1077. The Wangs wanted to set aside the transfer of a piece of real estate that their son Danny had made to his common-law spouse, Ellen Chiang, and to kick the couple out of the premises. The issue before Humphries J was whether default judgments against Danny and Ellen should be set aside because they were improperly served. The evidence disclosed that a process server had approached Ellen's car as she waited for the light to change, shoved the court document under one of the windshield wipers and walked away. Ellen testified that she had no recollection of the incident and did not find any papers on her windshield when she arrived home. Danny was served in a restaurant but claimed to have been served in other ways too - to the point where, he said, he was so drunk that he could not remember having been served with anything other than alcohol.
The judge set aside default judgment against both parties. It was clear that Ellen had not been properly served, because delivery of the document had not been effected in such a way that she would have realised she was being presented with legal documents. No reasonable person would have thought that. As for Danny, the judge didn't buy his story but, in the interests of not having potentially inconsistent results, she set aside the default judgment against him too.
[Link available here].
Good brief summary of requirements for Anton Piller and Norwich Pharmacal orders
Perell J of the Ontario SCJ provides another of his potted summaries of the law in Bergmanis v Diamond & Diamond, 2012 ONSC 5762, this time on the requirements for obtaining Anton Piller and Norwich Pharmacal orders. (Too bad the judgment sometimes refers to the former under the name Anton Pillar.)
Procedural points first. You must satisfy the technical requirements of Ontario rule 40.02 (motion for interlocutory injunction or mandatory order without notice), and also disclose all material facts, or risk having the order set aside. Because both remedies are injunctive in nature, you also need to satisfy all the requirements for that (serious issue to be tried or strong prima facie case, irreparable harm, balance of convenience favours granting rather than refusing, undertaking as to damages). As to substance, an Anton Piller order is 'very intrusive and exceptional', 'at the extremity of the court's powers'.
It prevents property from being destroyed but does not authorise access to privileged communications. In order to obtain an Anton Piller order, there must be (a) an extremely strong prima facie case, (b) very serious actual or potential damage to the plaintiff, (c) convincing evidence that the defendant possesses incriminating documents or objects and (d) a real possibility that the material may be destroyed or secreted before trial. A Norwich order is 'a form of equitable discovery against third parties before the commencement of proceedings', predicated on the principle that the third party has a duty to assist the applicant in pursuing its rights. To obtain a Norwich order, (a) the plaintiff must have a bona fide claim or potential claim against a wrongdoer, (b) the defendant to the Norwich proceeding must have a connection to the wrong beyond being a witness, (c) the defendant to the Norwich proceeding must be the only practical source of the necessary information, (d) the interests of the plaintiff must outweigh the defendant's interest in privacy and confidentiality, and any public interest in non-disclosure and (e) the interests of justice must favour disclosure.
Applying each of these requirements to the facts before him, Justice Perell concluded there just wasn't a strong enough case to justify continuing either the Anton Piller or Norwich Pharmacal orders which had previously been obtained. These are 'not a dime a dozen remedies; they are rare and precious', in the words of the judge.
[Link available here].
Ontario judge orders Attorney General to produce searchable electronic transcript
Justice DM Brown of the Ontario Superior Court, in his continuing quest to drag courtroom procedure into the 21st century, has found it 'entirely reasonable' for counsel to request a fully searchable electronic transcript in Re Summit Glen Waterloo/2000 Developments Inc, 2012 ONSC 5786. Because no specific format for transcripts is prescribed, they vary from reporter to reporter, making a specific order necessary. Ideally, an electronic transcript should not only be searchable but also indexed and hyperlinked.
[Link available here].
Personal injury claim can be assigned, says Australian court
Provided, that is, the assignee has a 'genuine commercial interest' in the benefit of the claim; otherwise, the assignment will be champertous and unenforceable: WorkCover Queensland v AMACA Pty Ltd, [2012] QCA 240. Douglas Rourke worked for AMACA, where he contracted mesothelioma from exposure to asbestos. He subsequently died and his estate assigned his negligence and contractual claims against AMACA to WorkCover Queensland, the government body which oversees workers' compensation and safety issues in the state. WorkCover was to hold any damages which exceeded the amount it had already paid to Rourke in trust for his estate.
The Queensland Court of Appeal, faced with the question whether the assignment was enforceable, concluded that it was. The old rule at common law was that a cause of action that turns on personal rights cannot be assigned, in order to discourage trafficking in litigation. The modern tendency has been to create exceptions to that rule, and to allow assignments that are made to a party with a genuine or legitimate commercial interest in the claim. As an insurer which fully indemnified its insured, WorkCover certainly had a genuine commercial interest in the Rourke litigation, akin to an insurer's subrogated claim. There was no suggestion that WorkCover had some improper collateral purpose that amounted to officious (and champertous) intermeddling in another's litigation. Round-up of Australian, English and Canadian authorities on point.
[Link available here].
CIVIL PROCEDURE/DEFAMATION
Don't let your client intimidate or victimise a witness!
Don Staniford, an environmental activist, published mock cigarette packs on his blog, which bore warning labels like 'Salmon Farming Kills' as well as references to Norwegian ownership. Mainstream, a Norwegian-owned fish-farming operation, sued him for defamation. Adair J found that the material was defamatory and that it referred to Mainstream, but also accepted Staniford's defence of fair comment: even though she found him 'severely prejudiced' and 'exaggerated and obstinate' in his views about salmon farming, he honestly believed what he said. Noting that evidence of express malice will defeat a defence of fair comment, she nevertheless found that Staniford (while clearly malicious) did not have the dominant purpose of injuring Mainstream - his main objective was to campaign against industrial aquaculture, however 'clumsy, crude, irrational or foolish' his tactics: Mainstream Canada v Staniford, 2012 BCSC 1433. Mainstream's action was dismissed, but an appeal has been filed.
Where Staniford skated close to the line on the malice point was in his treatment of two of Mainstream's witnesses, a point dealt with separately in Mainstream Canada v Staniford, 2102 BCSC 1609. Staniford suggested in a blog posting during the trial that appropriate theme music for the witnesses would be Queen's 1978 hit 'Fat-bottomed Girls'. Mainstream's counsel asked Adair J to direct Staniford to refrain from making such references, and while she declined to do so given that the degree of Staniford's malice was a live issue in the ongoing trial, she quoted some stern words of Lord Denning that 'there can be no greater contempt to intimidate a witness before he gives his evidence or to victimize him afterwards for having given it': Attorney-General v Butterworth, [1962] 3 All ER 326 (CA).
[Link available here and here].
CIVIL PROCEDURE/SECURITIES
Special circumstances can extend limitation period for secondary market claim
Ontario's Limitations Act 2002 was intended to bring clarity and certainty to this area of the law. Ha! Anything but. The common law provided that a judge had the discretion to extend an expired limitation period, where 'special circumstances' warranted doing this in the interests of justice. It is clear from the case law that the doctrine is no longer available for claims that are subject to the Limitations Act 2002 (except to the extent that the statute preserves some aspects of it), but Perell J has held that it may still offer relief to a plaintiff making a claim which is not subject to that legislation - including a claim for secondary market liability under Part XXIII.1 of the Ontario Securities Act.
The issue arose in Trustees of the Millwright Regional Council of Ontario Pension Trust Fund v Celestica Inc, 2012 ONSC 6083, where the defendants moved to strike a class claim against them for having misrepresented the progress of Celestica's restructuring. The plaintiffs appear to have believed (incorrectly) that the filing of their class proceedings suspended the limitation period and wanted to see how parallel US proceedings would unfold. After providing his usual review of the case law, Justice Perell concluded that by virtue of excluding the Part XXIII.1 limitation period from the application of the Limitations Act 2002, the legislature had intended the common law rule to continue to apply to secondary market claims, in order to allow a court to 'ameliorate the rigours of an absolute limitation period' like that found in s 138.14 of the Securities Act. Application of the 'special circumstances' doctrine will (where available) always be 'principled, limited and narrow', but on the facts of the case it was appropriate to use it to give the plaintiffs a break. The defendants had long been aware of the claim against them, the law had changed in the mean time to the plaintiffs' detriment and the defendants had not previously raised a limitations defence. The defendants couldn't say that the plaintiffs' failure to proceed expeditiously with the Ontario claim was prejudicial; if anything, it gave the defendants some breathing room while they defended the parallel action in New York.
[Link available here].
CONFLICT OF LAWS
National bank not Argentina's alter ego
Creditors of the Republic of Argentina (and there are a lot of them) wanted to go after Banco de la Nación Argentina (BNA), wholly-owned by the republic, in order to satisfy their claims against the latter: Seijas v Republic of Argentina, 2012 US App LEXIS 22167 (2d Cir, 25 October 2012). The plaintiffs argued that the government of Argentina appointed and removed the bank's directors, that BNA had made loans to individuals and corporations that were favourable to Argentina's sovereign interests and loans to Argentina itself (in breach of BNA's charter) and that BNA's financial records were sufficiently murky as to give rise to a need to pierce the corporate veil.
Sorry, said the 2d Circuit in affirming summary judgment for the republic. The Argentine government exercised its rights as sole shareholder to appoint BNA's directors, but this didn't make the bank the alter ego or instrumentality of the state. There was not 'extensive' control by the government over the bank's day-to-day operations. The bank's loans were consistent with its charter to act in a manner consistent with government policy. The 'purported obscurity' of BNA's records was too speculative a basis on which to ignore its separate legal personality. Compare Kensington Int'l Ltd v Republic of Congo (SDNY, 30 March 2007), where the instrumentality had a corporate structure that was used for complicated schemes to confound the state's creditors, had a state employee for a president, passed up revenue which was simply transferred to the state's coffers, engaged in no significant commercial activity, commingled its own assets with those of the state and refused to disclose records in the course of an IMF and World Bank audit. The alleged facts in Seijas fell 'far short' of those in the Kensington case, and the district court was correct to find in favour of the defendant.
CONFLICT OF LAWS/INSOLVENCY
UK Supreme Court complicates international insolvencies
The central question in Rubin v Eurofinance SA, [2012] UKSC 46, was whether the English courts ought to recognise the order or judgment of a foreign court to set aside transactions determined to be preferential or to have been at an undervalue, in circumstances where the defendant in the foreign proceedings was not present in the foreign jurisdiction or had not voluntarily submitted to its courts. By a majority of 4 to 1, the United Kingdom Supreme Court has concluded that the traditional requirements at common law and under UK legislation on the recognition of foreign judgments - which would allow enforcement of a foreign judgment only where the defendant is present in or has attorned to the foreign jurisdiction - should not be relaxed in order to facilitate international insolvencies.
The majority of the court expressly declined to follow the broader rule which has been adopted in Canada, which permits enforcement where there is a 'real and substantial connection' between the defendant and the foreign jurisdiction, whether or not the defendant was present there when proceedings were instituted or voluntarily submitted to its jurisdiction. Lord Collins was blunt: except in matrimonial proceedings, 'reciprocity has not played a part in the recognition and enforcement of foreign judgments at common law', and to go the Canadian route would be 'a radical departure from substantially settled law'. Where this leaves us is that a Canadian court could enforce the insolvency order of an English court (which is what happened in Re Cavell Insurance Co (2006) OR (3d) 500 (CA), cited in the UKSC judgment), but an English court would not be able to enforce a Canadian one. So much for comity?
[Link available here and here].
CONTRACTS
Illegality defence fails because illegal acts incidental to main contract
'Illegality and the law of contract is notoriously knotty territory', says Sir Robin Jacob in ParkingEye Ltd v Somerfield Stores Ltd, [2012] EWCA Civ 1338. The case arose from a contract to enforce parking charges at British supermarkets, where customers get a certain amount of free parking time but after that have to pay. Somerfield engaged ParkingEye to install - and then enforce - an automatic system to determine which customers owed money for extra time. The basic charge was £75 for overstaying, reduced by half if payment was made within 14 days of ParkingEye's first notice. The charge went up to £135 after a certain length of time. ParkingEye sent a series of scary (and 'illiterate') letters, made to look as though they came from the police, to the owners of overstaying vehicles. The trial judge found that while the basic charge was not a penalty, the £135 was (and thus unenforceable). He also found that while the first two scary letters did not contain falsehoods, the third and fourth in the series clearly did, in representing that the debt was owed to ParkingEye (not Somerfield), that it was sent on Somerfield's behalf (which it was not) and that ParkingEye had Somerfield's authority to issue proceedings against defaulters (which it did not, and didn't really intend to do anyway). When ParkingEye sued Somerfield for repudiation of the contract, the latter pleaded illegality as a complete defence, on the grounds that ParkingEye should not be able to rely on its own deceitful conduct. The trial judge agreed that ParkingEye had engaged in deceitful practices, but not that it had had 'a firm and settled intention to act in an unlawful manner' at the time it entered into the agreement with Somerfield. There was also evidence that Somerfield executives had agreed with ParkingEye about the content of letter 3, but the judge concluded that that agreement was collateral to the parties' underlying agreement - which itself being free of illegality could not be vitiated as Somerfield contended.
The Court of Appeal upheld the trial judge's decision. The main agreement was not, at inception, predicated on an illegal intention or an intent to perform illegally (although Sir Robin characterised the 'intention from the outset' rule as 'distinctly odd'). The main contract was never intended to be carried out in a wholly illegal manner, so it could not be said that ParkingEye's illegal means of performance had the effect of tainting the contract in its entirety. 'Considered with a sense of proportionality', it wasn't fair to allow Somerfield to leave ParkingEye with no remedy for Somerfield's own wrongful repudiation. Toulson LJ agreed, noting that the illegality was merely tortious and not central to performance of the main contract.
[Link available here].
No mitigation, no specific performance
An important point from the Supremes in Southcott Estates Inc v Toronto Catholic District School Board, 2012 SCC 51. Southcott Estates, a single-purpose entity created (and funded by its parent company) for the purpose of a specific land purchase, agreed to buy a piece of property from the school board that was suitable for development. The board failed to satisfy a condition and refused to extend the closing date of the transaction. Southcott sued for specific performance. The trial judge found that the board was in breach and had failed to prove that Southcott could have mitigated its damages, awarding the latter just under $2 million for loss of a chance. The Ontario Court of Appeal agreed about breach, but thought that Southcott could have found another suitable piece of land; its damages were reduced to a nominal dollar.
Karakatsanis J, writing for the majority of the SCC, reviewed the general principles underlying the doctrine of mitigation. She rejected the contention that, as a single-purpose corporation with finite resources, Southcott was unable to mitigate loss - and, more significantly, that it was not required to do so given its claim for specific performance of the contract with the school board. While there may be situations where a plaintiff will be justified in not mitigating, a claim for specific performance should not insulate it from having to make a reasonable attempt to do so. If the plaintiff's refusal to buy a substitute property has a 'substantial justification', then fine: not mitigating will have been the reasonable course of action. Here, however, Southcott's inaction could not be justified. It was engaged in a commercial transaction for investment purposes, so it could not be said that the particular parcel had any peculiar and special value, and the trial judge erred (both in law and on the facts) in concluding that there were no comparable, profitable properties available. McLachlin CJC, dissenting, disagreed that the trial judge got it wrong about comparable properties and found it difficult to conclude that Southcott had acted unreasonably in promptly seeking specific performance. In her view, a plaintiff, 'acting reasonably, cannot pursue specific performance and mitigate its loss at the same time'; to do so might result in the (clearly unintended) acquisition of two properties. Specific performance is often motivated by the unavailability of substitutes in the marketplace, which seemed to be the case here. Even though the old common-law presumption of the uniqueness of real property no longer obtains, specific performance may be the way to go when a property has unique characteristics and there are no substitutes readily available. The Chief Justice would have restored the judgment of the trial judge.
[Link available here].
CONTRACTS/AGENCY/FIDUCIARIES
Satiric web posting not grounds for treating contract as terminated
Spectrum Agencies was the commercial agent for the sale of Crocs Europe BV's (unaccountably) popular line of footwear. Employees of Spectrum found that Crocs was slow to respond to orders - to the point where one of them posted a satiric video sequence about the relationship with Crocs, based on the opening credits of Star Wars. It began: 'That's a Croc!! Of Shite!! SPECTRUMS WAR OF LIGHT VS DARK'. The posting was forwarded to customers of Crocs but later taken down. Crocs took offence at this and had their solicitors send a stern letter to Spectrum: this was a breach of Spectrum's duty of good faith which harmed Crocs and amounted to a repudiatory breach of Spectrum's core duty as an agent. In return, Spectrum claimed compensation for termination of the agency relationship of between £13 and £18 million. The trial judge characterised the posting as a lighthearted joke about what was common knowledge in the industry, and that it didn't amount a repudiation by Spectrum of its agency contract with Crocs.
Crocs appealed: Crocs Europe BV v Anderson, [2012] EWCA Civ 1400. Mummery LJ largely agreed with the trial judge. Under the regulations applicable to commercial agents and the general law of either agency or contract, what the Spectrum employee had done was not sufficient to amount to a repudiatory breach of contract which gave rise to a right to treat the contract as having been terminated. While agents do owe fiduciary duties to their principals, not every aspect of the relationship involves that level of duty, and not even a breach of that duty would necessarily give rise to a right to terminate on the part of the aggrieved principal. Spectrum's breach was 'more in the nature of a one-off incident that did not involve bad faith on the part of the claimant, was not shown to involve a real risk of harm to the defendant ... and did not, when viewed objectively, evince an intention to abandon or to refuse to perform the commercial agency contract.' Bean J thought the breach was 'quite close to the borderline' but that it was open to the trial judge to conclude that it was not repudiatory. Hughes LJ concurred with both of his colleagues.
[Link available here].
CORPORATE/DIRECTORS
Director thought he was doing the right thing but still breached duty of loyalty
Just because you disagree with your fellow directors about corporate policy doesn't mean you can pursue your own strategy for the company. A point Simon Michael, a director of Shocking Technologies, failed to appreciate when he had talks with a potential investor in the company. Michael disclosed confidential information about Shocking to the investor, in an attempt to dissuade it from injecting funds into Shocking. By leaving the company 'desperate for funding', Michael believed the investor would be able to negotiate a better deal which would include undercutting the authority of the rest of the Shocking board.
Not shockingly, Vice-Chancellor Noble of the Delaware Court of Chancery took a dim view of this in the resulting litigation: Shocking Technologies Inc v Michael, 2012 Del Ch LEXIS 224 (28 September 2012). While Michael had a right to seek to change the direction or composition of the company's board, this was not without limits. It clearly did not give this director free rein to interfere with crucial financing efforts (thereby risking the demise of the company) or to disclose confidential information in the pursuit of an individual agenda. The fact that Michael's self-interest as an investor in Shocking was aligned with his ostensible altruism about corporate governance also didn't help his case. Even if he had reasonable goals, he chose improper means to pursue them, and putting the company on the brink of financial disaster was clearly a breach of his 'unremitting' duty of loyalty to it. But because Michael had 'failed abjectly' in achieving his objectives, the vice-chancellor concluded that Shocking did not suffer material damages, nor would he exercise his discretion to make a significant costs award in Shocking's favour. It was simply too speculative to say that Michael's actionable conduct would have continued or intensified if Shocking had not sued its rogue director.
CORPORATE GOVERNANCE
TSX adopts new requirements for director elections
The TSX has announced that listed issuers will be required to (a) elect directors individually, (b) hold annual elections for all directors, (c) disclose whether they have adopted a majority voting policy for uncontested meetings (or explain why not), (d) advise the TSX if a director receives a majority of 'withhold' votes (if majority voting has not been adopted) and (e) promptly issue a news release providing details of voting results for directors. These amendments to the TSX Company Manual are intended to remedy what the exchange regards as Canada's 'lagging' performance in comparison with corporate governance practices in other jurisdictions.
[Link available here].
CORPORATIONS/SECURITIES
BC Court of Appeal reverses problematic decision on empty voting
Telus wanted to consolidate voting and non-voting shares into a single class. Mason Capital, a US hedge fund, objected to the proposal, arguing that it would confer a windfall on holders of the non-voting shares at the expense of holders of the voting shares (which have traditionally traded at a premium). In response to the company's proposal, Mason hedged its risk by taking long and short positions on the two classes of shares. It also requisitioned a shareholder meeting to prevent the share consolidation - or, rather, it caused CDS (the registered holder of Mason's shares) to do so. Under the BC Business Corporations Act, only a registered shareholder with a beneficial interest in the shares may requisition a meeting. Because Mason was a beneficial but not a registered shareholder, it was not, in Justice Savage's view, a true party to the requisition. Without knowing 'precisely' who had requisitioned the meeting, Telus was unable to exercise its statutory duties to respond to the requisition. The judge also clearly expressed sympathy with the view that shareholder democracy is subverted when a shareholder whose economic interests are 'not aligned' with other shareholders is allowed to requisition a shareholder vote. The judge seems to suggest that there could be circumstances where a board would be justified in refusing to hold a meeting requisitioned by an 'empty' voter - that is, one with economic interests that are at odds with those of other shareholders.
BMW v Becker, 358 NLRB No 164 (28 September 2012). The panel declined to say whether the hot dog comments were protected speech, but the majority did think that the employee handbook went too far in restricting the rights of employees to comment on their employment. An employer can expect workers to be courteous in their dealings with third parties, but can't restrict the content of their speech if that would deter them from making legitimate comment about the terms and conditions of their jobs. The dissenting panel member didn't think the employee manualwas problematic; its courtesy rule was 'nothing more than a common-sense behavioral guideline for employees'.
EVIDENCE
Delaware court takes narrow view of common-interest privilege
CrossFit, a distributor of fitness and training regimens, is owned 'by an artificial entity, the marital community enjoyed by Greg and Lauren Glassman'. That marital community hasn't been so enjoyable lately; the pair are in the course of getting divorced in Arizona, making board deliberations a bit fraught (the couple being the sole directors of the company). Mrs Glassman agreed to sell her inchoate 50% share of the business to a venture capital outfit called Anthos LLP, subject to her actually being awarded 50% of the company. Corporate governance issues ensued: the two disagreed about the purchase of a corporate jet, and Mr Glassman claimed that his spouse had breached her fiduciary duties in providing information to Anthos. Wanting to buy her out, he sought to enjoin the sale to Anthos and disclosure of communications between Mrs Glassman and Anthos. She asserted that the communications were protected by a common-interest privilege, on the grounds that they were created in furtherance of a deal that might be affected by the Arizona divorce proceedings and partly with a view to a joint defence against possible legal action by Mr Glassman.
Glasscock J rejected the claim of privilege in Glassman v CrossFit Inc, 2012 Del CH LEXIS 248 (12 October 2012). In Delaware, a common-interest privilege will not protect a business deal that might be subject to or affected by litigation. And in any event, documents in the privilege log assembled by Mrs Glassman were ambiguous in terms of their relation to litigation. In the judge's words, 'communications about a business deal, even where the parties are seeking to structure a deal so as to avoid the threat of litigation, will generally not be privileged under the common-interest doctrine.' He also declined to apply a privilege for 'business strategy' which Delaware courts have invoked under their inherent jurisdiction, generally (and only then reluctantly) in order to prevent discovery of time-sensitive information in the context of a take-over bid. Canadian courts have proved more willing to recognise a common-interest privilege in the context of a business transaction (see, for example, Barclays Bank plc v Metcalfe & Mansfield Alternative Investments VII Corp, 2010 ONSC 5519), but there isn't a lot of authority out there; as a general proposition the Delaware approach may be unhelpfully narrow.
[Link available here].
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