Canada: What Lies Beneath: The Unexpected Reach Of Litigation Privilege

In an interesting decision clarifying the reach of litigation privilege, the British Columbia Court of Appeal in No Limits Sportswear Inc. v. 0912139 B.C. Ltd., 2015 BCCA 193, has recently held that litigation privilege extends to communications between formerly adverse parties who have settled their dispute and are cooperating against a remaining co-defendant, even where the pleadings have not yet been amended to reflect this new reality.

Background

No Limits Sportswear Inc. ("No Limits") manufactures and distributes men's underwear products under the name "Saxx", designed and produced by Saxx Apparel Ltd., now a subsidiary of No Limits. Respondents 0912139 B.C. Ltd, Package Holdings Inc., Keyhole Technologies inc. Dustin Bigney, Desmond Price, Scott Hanna, Pakage Apparell Inc. and Greg Alfonso (together, the "Package Parties") manufacture and distribute a competing line of men's underwear under the name "MyPackage".

Prior to becoming a subsidiary of No Limits, Saxx Apparel Ltd engaged in investment discussions with Shawn Ellis and Glen Kirk (together with KE Imports Ltd., the "KE Parties") together with then associate Dustin Bigney, now of the Pakage Parties. The Pakage Parties and KE Parties did not invest with Saxx Apparel Ltd.; instead Saxx Apparel Ltd. became a subsidiary of No Limits and the Pakage Parties and KE Parties together developed a competing product, MyPackage.

No Limits thereafter commenced a claim for breach of contract and confidentiality against the owners of MyPackage alleging their product was copied from the design and business plan of the Saxx product (the "No Limits Action"). Before the commencement of the No Limits Action, the Pakage Parties and the KE Parties had a falling out resulted in litigation regarding the separation of their interests in MyPackage. While a settlement was reached, litigation ensued over allegations of non-compliance with the settlement agreement (the "Pakage Action").

Following the commencement of the No Limits Action, Ellis, one of the KE Parties, contacted counsel for No Limits to advise that the KE Parties were adverse to the Pakage Parties in the Pakage Action and suggested cooperation between the KE Parties and No Limits in the No Limits Action. Subsequently, the KE Parties and No Limits entered into a Standstill Agreement.

In the No Limits Action, the Pakage parties sought an order for additional document disclosure from No Limits.

Decision Below

The substance of the Chambers decision below, 2014 BCSC 999, in large part dealt with issues not under appeal. Relevant to this appeal, Madam Justice Loo ordered the production of the documents requested including redactions of certain documents, all correspondence between No Limits and the KE Parties, and the Standstill Agreement. She held that litigation privilege is a limited exception to the principle of full disclosure, and that correspondence between the KE Parties and No Limits should be produced because the KE Parties are named defendants, the documents requested do not fall within the narrow exception of litigation privilege, or, in the alternative, the conduct of the KE parties in producing certain documents to No Limits obtained from the Pakage Parties without their knowledge, was such that they should not benefit from the protection of privilege.

Decision

Following the Chambers decision, No Limits complied with the production of redacted documents and the Standstill Agreement such that only the production of correspondence was in dispute on appeal. In addition, No Limits amended its pleadings prior to the appeal and discontinued its claim against the KE Parties in the No Limits Action. Before dealing with the substance of the appeal, the Court of Appeal also dealt with an application to adduce various affidavits and exhibits as new evidence on the appeal.

Regarding the substance of the appeal, the Court of Appeal disagreed with chambers judge's finding that litigation privilege cannot apply to communications between nominally adverse parties. The Court of Appeal held that while the pleadings suggested the KE Parties and No Limits were adverse in interest, from the time the Standstill Agreement was signed, the parties were negotiating toward a cooperative agreement such that they should benefit from litigation privilege as formerly adverse parties cooperating against a remaining defendant. The Court held that the fact that the formal pleadings had not yet been amended was of no consequence.

In addition, the Court reiterated that determinations of whether documents are privileged should be performed on a document-by-document basis and that determinations of privilege on a class-basis should only be available where the description of documents contained in a class is exhaustive. Similarly, the Court held that some of the documents over which No Limits claimed protection may be sheltered by settlement privilege, rather than litigation privilege, and that documents over which a party is claiming settlement privilege must also be listed in accordance with Rule 7-1 for a determination of privilege to be made.

Potential Significance

Parties to litigation should be cognizant that where multiple players exist on the same side of an action, their interests are not always aligned and that litigation privilege may protect the communications between parties, who on the face of the pleadings, appear to be adverse.

Case Information

No Limits Sportswear Inc. v. 0912139 B.C. Ltd., 2015 BCCA 193

Docket: 041954

Date of Decision: May 4, 2015

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