Canada: Transactional Common Interest Privilege: Can You Safely Share Privileged Documents With A Transacting Party?

Last Updated: April 25 2017
Article by Julia Lisztwan

Introduction

Companies share privileged records with transaction counterparties for many different reasons — to optimize tax consequences of a restructuring or to conduct due diligence, for example. But once a company shares a document with a transaction counterparty, can it later assert privilege? Probably, but proceed with caution: while the heavy weight of authority favours transactional common interest privilege, the recent Federal Court case Iggillis Holdings Inc. v. Canada (National Revenue) (Iggillis) held that parties waive privilege if they share records without anticipated or pending litigation.1

What is Common Interest Privilege?

Normally, when a privileged record is disclosed to a third party, privilege is waived. Common interest privilege is an exception to that waiver.

To be protected by common interest privilege, the record must have been:

  1. privileged in the first place (for example, subject to solicitor-client privilege);
  2. only shared with a counterparty with a "common interest"; and
  3. shared with an expectation of confidentiality.2

Does Common Interest Privilege Apply in the Transaction Context?

While common interest privilege originated in the litigation setting, Canadian courts have clearly recognized the privilege in the context of commercial transactions. In Maximum Ventures Inc. v. de Graf, the British Columbia Court of Appeal stated that deal counterparties have "a sufficient interest in common to extend the common interest privilege to disclosure of opinions obtained by one of them to the others within the group, even in circumstances where no litigation is in existence or contemplated."3

Canadian companies with a presence in the United States will also need to consider the U.S. implications of sharing privileged materials. Unfortunately, the situation is more complex as transactional common interest privilege has not been uniformly recognized across the United States.

The rationale behind this recognition is facilitation of commercial transactions.4 If legal opinions can be shared without waiving privilege, parties can negotiate with a shared understanding of each other's legal position.5 They can also meet disclosure obligations with fewer risks: as one court noted, the disclosure required by securities legislation would be hard to achieve if companies were forced to waive privilege over sensitive material.6

How Much "Common Interest" Is Enough?

A common interest can be as simple as the shared goal of closing a deal.7 In Archean Energy Ltd. v. Minister of National Revenue,8 the Canadian Revenue Agency (CRA) sought production of legal opinions prepared by tax counsel to 19 corporations involved in a butterfly transaction. The Alberta Court of Queen's Bench determined the legal opinions were privileged given the parties' common interest "in seeing the deal done,"9 particularly because they shared common shareholders and management.10

In Anderson Exploration Ltd. v. Pan-Alberta Gas Ltd.,11 NOVA Corporation and TransCanada PipeLines Limited were in the process of merging when NOVA was sued by a number of gas producers. The producers tried to rely on a memo from NOVA's general counsel to NOVA's Board that NOVA had shared with TransCanada. The court held the memo was protected by transactional common interest privilege.12

Likewise, in Fraser Milner Casgrain LLP v. Minister of National Revenue,13 the privilege of tax advice was upheld where two groups of companies were negotiating a deal to form two partnerships, one Canadian and one American. A law firm acting for one group shared advice with the other on a number of legal matters of common interest to optimize the commercial and tax consequences of the transaction.

In these and other examples,14 the parties' common commercial end goal was sufficient for parties to maintain privilege. Their interests did not have to be identical,15 and could in fact be adverse in some respects.16

A Cautionary Note

The golden years of transactional common interest privilege may have come to an end. In December 2016, the Federal Court in Iggilis refused to apply common interest privilege in the transaction context.17

In Iggillis, the respondent companies asserted common interest privilege over a tax advice memo prepared by the purchaser's counsel and shared with them in a deal to buy shares in the respondents' corporations. The Federal Court acknowledged that common interest privilege in the commercial transaction context has broad acceptance across Canada, the United States and other common law countries.18 It nonetheless held that transactional common interest privilege was inconsistent with the doctrine and rationale underlying solicitor-client privilege. The Federal Court further expressed concern that extending common interest privilege to the transaction context would deprive courts of substantial amounts of evidence in commercial disputes.19 The Court ultimately concluded that privilege had been waived and ordered the memo's production to the CRA.

Whether the Iggillis decision represents a shift in Canadian jurisprudence on transactional common interest privilege remains to be seen: the decision is now on appeal, and has yet to be followed by another court.

But even if Iggillis's complete rejection of transactional common interest privilege is not followed, the decision may signal a reversal in the doctrine's broad application. As is, there is no guarantee that the mere existence of a commercial transaction will establish common interest: whether the privilege applies is assessed on a case by case basis.20 Going forward, courts may be less willing to recognize privilege in cases where parties are substantially adverse in interest.21

Is Common Interest Privilege Also Recognized in the United States?

Canadian companies with a presence in the United States will also need to consider the U.S. implications of sharing privileged materials. Unfortunately, the situation is more complex as transactional common interest privilege has not been uniformly recognized across the United States.

Even with an agreement in place, there is always a risk of waiver, so consider carefully whether it is worth disclosing particular records. And, for good measure, always mark disclosed documents privileged and confidential.

Whether a court will find privilege waived will depend on which jurisdiction privilege is challenged in. For example, New York's highest court held last year that common interest privilege did not extend to the transaction context unless litigation is anticipated or pending.22 By contrast, Delaware recognizes common-interest privilege in the context where parties' interest in a transaction is "so parallel and non-adverse" that they "may be regarded as acting as joint venturers."23 Accordingly, counterparties to a deal involving any U.S. jurisdiction should seek advice on the potential consequences of disclosing sensitive privileged materials.

Good Practice Going Forward: Set Out Your Agreement in Writing

Entering a written agreement will not establish privilege where none existed, nor will it guarantee that a court will recognize the common interest defence to waiver. But it may help prove your intention that privilege not be waived by disclosure: courts consistently look to the parties' expectations to determine whether they intended to keep communications confidential and to determine whether they disclosed the communications to further their common interest.24

With that in mind, it would be prudent to set out an agreement in writing, identifying:

  1. the scope, start date and termination of the agreement;
  2. the common interest served by sharing privileged records;
  3. confidentiality requirements; and
  4. limitations on who can receive privileged records.25

Even with an agreement in place, there is always a risk of waiver, so consider carefully whether it is worth disclosing particular records. And, for good measure, always mark disclosed documents privileged and confidential.

Conclusion

Iggillis is likely a one-off exception to the strong body of case law recognizing transactional common interest privilege, but it may signal a reversal of courts' willingness to recognize the privilege in most commercial transactions. Companies should insist on setting out any common interest privilege agreement in writing, and, until the Federal Court of Appeal issues its decision on Iggillis's appeal, should exercise an extra measure of caution in deciding which privileged records to disclose in a transaction.

Footnotes

1 2016 FC 1352. [Iggillis]

2 Trillium Motor World Ltd. v. General Motors of Canada Ltd., 2014 ONSC 1338 at para. 130.

3 2007 BCCA 510 at para. 14 [Maximum Ventures].

4 Fraser Milner Casgrain LLP v. Minister of National Revenue, 2002 BCSC 1344 at para. 14.

5 Pitney Bowes of Canada Ltd. v. R., 2003 FCT 214 at para. 20 [Pitney Bowes].

6 Anderson Exploration Ltd. v. Pan-Alberta Gas Ltd., 1998 ABQB 455 at para. 25 [Anderson].

7 See, e.g., St. Joseph Corp. v. Canada (Public Works & Government Services), [2002] FCJ No. 361 at para. 129; see also Canmore Mountain Villas Inc. v. Alberta (Minister of Seniors & Community Supports), 2009 ABQB 348 at para. 7; Imperial Tobacco Canada Ltd. v. R., 2013 TCC 144 at para. 66 [Imperial Tobacco].

8 [1997] A.J. No. 347.

9 Ibid. at para. 30.

10 Ibid.; see also Imperial Tobacco at para. 65 (noting that three companies were not adverse in interest as they were subsidiaries of the same parent, working towards the same economic and commercial goals).

11 Supra note 6.

12 Ibid. at para. 27. The court added that because NOVA and TransCanada's merger was an arrangement that required court approval, they also had a common interest in anticipated litigation. Ibid. at para. 26.

13 2002 BCSC 1344.

14 See, e.g., Maximum Ventures (upholding privilege of documents shared between the vendor, purchaser and underwriters for mining properties given their common interest in securing financing for exploration of those properties); supra note 7 and cases therein.

15 Barclays Bank PLC v. Devonshire Trust (Trustee of), 2010 ONSC 5519 at para. 12.

16 Pitney Bowes at paras. 18-22; see also CC&L Dedicated Enterprises, [2001] O.J. No. 637 at para. 30 [CC&L] (noting that privilege could apply even if the parties' interests became adverse down the road).

17 Supra note 1.

18 Ibid. at paras. 10-11.

19 Ibid. at para. 28.

20 See Pitney Bowes at para. 19.

21 Pinder v. Sproule, [2003] A.J. No. 32 at para. 62 (Alta. Q.B.).

22 Ambac Assur. Corp. v. Countrywide Home Loans, Inc., 27 N.Y.3d 616 (2016).

23 See, e.g., 3Com Corp. v. Diamond II Holdings, Inc., 2010 WL 2280734, at *7 (Del. Ch. May 31, 2010) (internal quotations omitted).

24 See, e.g., St. Joseph Corp. v. Canada (Public Works & Government Services), 2002 FCT 274 at para. 129; Pitney Bowes at paras.18-22; CC&L at para. 31.

25 See, e.g., Anderson at para. 24 ("There is no evidence of an expectation that privilege would be waived in the exchange of information between NOVA and [TransCanada]. The evidence of officers of NOVA and [TransCanada] is quite the contrary in that the exchange took place subject to a confidentiality agreement.");

26 See, e.g., Minister of National Revenue v. Thornton, 2012 FC 1313 at para. 55 (commenting that the insertion of the words "Privileged and Confidential — Prepared Under the Expectation of Solicitor & Client Privilege" made it further apparent that two solicitors co-authoring a legal opinion for their respective clients intended that the document not be disclosed to anyone without a common interest in the transaction).

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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