In what appears to be the first decision of its kind in Canada,
the Alberta Court of Queen's Bench has held that a corporate
subsidiary's rights to certain privileged communications will
be transferred to a purchasing entity unless precautions are taken.
Specifically, the Court found that a subsidiary's rights in
respect of privileged communications relating to a share purchase
transaction will be transferred to the purchasing entity when: (1)
under the share purchase agreement, the purchasing entity buys the
shares of the subsidiary from the selling entity; (2) the share
purchase agreement does not reserve to the selling entity ownership
of the privileged communications; and (3) the subsidiary is
subsequently amalgamated with the purchasing entity.
In NEP Canada ULC v MEC OP LLC, 2013 ABQB 540, the
Court considered a dispute between a seller (NEP) and a purchaser
over solicitor-client privilege ownership in litigation arising
from the acquisition of the seller's subsidiary. In that case,
NEP's claim of solicitor-client/attorney-client privilege over
the legal advice received by its subsidiary relating to the
negotiation and execution of the Share Purchase Agreement
("SPA") was rejected on two principal grounds.
1. The Court found that NEP and its subsidiary had sought and
received legal advice from the same in-house and external counsel,
and had shared information between and among themselves in
connection with the negotiation and execution of the SPA. As a
result, NEP's subsidiary had rights in respect of the
privileged communications on the basis of a joint or common
interest privilege with NEP. At least in connection with
the negotiation and execution of the SPA, the subsidiary was in a
solicitor-client relationship with both counsel.
2. As a result of the amalgamation between the amalgamating
entity and NEP's subsidiary, the subsidiary's pre-closing,
pre-amalgamation rights, including its rights in respect of
privileged communications, remained fully intact and those rights
had passed to the amalgamated entity.
The Alberta Court considered a number of U.S. decisions in
reaching this conclusion, including the Delaware Chancery Court
decision in GreatHill Equity Partners IV, LP v SIG
Growth Equity Fund I, LLP (Del. Ch. Nov. 15, 2013). In
Great Hill, the Delaware Court concluded that, by
operation of the Delaware Corporation Law, the absence of a
contractual provision specifically excluding solicitor-client
communications relating to a merger/amalgamation transaction from
the assets transferred as part of the sale meant that ownership of
those privileged communications passed to the purchaser.
The lesson: Treat privileged communications like any
In NEP, the Court suggests that this unfortunate (at
least from NEP's perspective) situation could easily have been
avoided through the insertion into the SPA of a clause "under
which any rights [NEP's subsidiary] had to exercise or waive
privilege over documents relating to the SPA negotiations would
terminate on closing, leaving NEP in sole possession of the
Sellers like NEP might want to go one step further, however, in
their share purchase and amalgamation/merger agreements by making
it a matter of express agreement that privileged documents and
communications related to the transaction are not among the Books
and Records that are the property of the target, belong to the
seller, are not meant to be delivered at closing, and remain the
property of the seller even if they are inadvertently disclosed
when information systems and records are handed over on
To learn more about the decision and
for additional tips on preserving privilege in the context of
corporate transactions, read our full article.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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