Canada: Federal Court On Common Interest Privilege: Information Shared In A Transaction No Longer Protected

During commercial transactions, it is common for parties to a transaction to share documents and information that each party's respective counsel had prepared in relation to the transaction. These documents or information typically concern matters that, upon sharing with the other parties, would assist in the completion of the transaction, such as the steps, procedure or structure of the transaction.

Until recently, such documents and information would have been considered privileged communications and protected from disclosure to third parties under the doctrine of "advisory" common interest privilege (Advisory CIP) which applies, as succinctly put by the Federal Court, where:

Accordingly, if a person, such as a regulatory body, that was not a party to the transaction requested disclosure of such communication and would otherwise be entitled to this disclosure under applicable law, each party could assert Advisory CIP in order to refuse such disclosure.

However, a recent decision from the Federal Court of Canada has recently called into question the availability of the otherwise seemingly established doctrine, ruling that Advisory CIP in commercial transactions does not exist (at least) in Canada.

In that case, counsel for the purchaser had prepared a memorandum which was disclosed to the seller (whose counsel albeit also participated in creating the memorandum) in the course of the sale and purchase of certain assets and shares. In the memorandum, purchaser's counsel advised as to how to structure the transaction in the most tax-efficient manner. The purpose of circulating the memorandum was to ensure the seller agreed on the steps in the transaction, understood any risks involved and had the opportunity to discuss these risks and negotiate changes to the transaction.

During Canada Revenue's Agency (CRA) review of the transaction, the CRA requested production of the memorandum pursuant to its powers under the Income Tax Act, RSC 1985, c 1 (5th Supp). In refusing production, the seller (and purchaser as intervener) asserted Advisory CIP over the memorandum. Accordingly, the CRA brought an application to the Federal Court in order to enforce production of the memorandum.

After reviewing the origins, jurisprudence and suitability of the doctrine in Canada, the court held that the establishment of the doctrine was based on erroneous and faulty grounds and ruled that the doctrine was no longer available to protect privileged communications shared in commercial transactions, ordering production of the memorandum to the CRA. Notably, however, the court did confirm that communications shared between clients represented by the same lawyer (or law firm) are privileged and therefore protected from disclosure to third parties under joint-client privilege:

This decision, as rightfully acknowledged by the Federal Court, contradicts a long line of jurisprudence accepting and applying Advisory CIP to circumstances similar to that in this case (that is, different parties represented by different counsel) and, not surprisingly, is now on appeal. Further, it is important to note that the decision is not binding on provincial superior courts, where most commercial cases are litigated and where the status quo continues to recognize Advisory CIP (at least, until further notice). Nonetheless, it will be interesting to see how the Federal Court of Appeal decides on the future of Advisory CIP in Canada.

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