Protecting Solicitor-Client Privilege in Commercial Transactions
This insight updates an earlier article posted on October 16, 2015 to reflect a recent decision by the Federal Court of Canada in Minister of National Revenue v. Iggillis Holdings Inc., 2016 FC 1352 (Iggillis) to restrict the application of “common interest privilege” in commercial transactions to circumstances where the parties have the same lawyer. Based on earlier court decisions such as Pitney Bowes of Canada Ltd. v. Canada (Pitney Bowes), it had become common practice in Canada for parties with a common interest in completing a commercial transaction to share legal advice they had received (i.e. tax planning memos, memos on litigation risks and strategies, etc.) with the other party to the proposed transaction on the understanding that such sharing of information would fall within the “common interest privilege” and therefore not lose the protection of solicitor-client privilege and not need to be disclosed to regulators such as the CRA or opponents in litigation. The Iggillis decision is under appeal to the Federal Court of Appeal. However, in the meantime, it effectively puts a freeze on the sharing of privileged communications between parties to proposed commercial transactions.
Clients are generally aware that it is in their best interest to maintain solicitor-client privilege over certain communications between themselves and their lawyer. However, in today’s fast moving business environment where information needs to be shared with third parties quickly – whether it be in pursuit of a business transaction, discussions with an auditor, disclosure of material information to the investing public or responding to the demands of a regulator – clients are often unsure of how to share that information in the necessary course of business without losing solicitor-client privilege over their communications with their lawyer.
This insight quickly summarizes the general principles of solicitor-client privilege (including when it applies and how it is lost), some exceptions that allow privileged information to be shared with third parties without losing the protection of solicitor-client privilege and suggestions for establishing and protecting solicitor-client privilege.
Solicitor‐client privilege is a client’s right to refuse to disclose, whether it be to a regulator or to an opposing party in litigation or otherwise, any communication which meets the following three conditions:
- it is a communication between the client and the client’s lawyer;
- it involves the seeking or giving of legal advice; and
- it is intended to be confidential by the parties.
The privilege covers oral and written communications and extends to materials directly related to the seeking, formulating or giving of legal advice or legal assistance (e.g., working papers).
However, solicitor‐client privilege does not attach to advice provided by someone who is not a lawyer or to any advice provided by a lawyer that is not legal advice (i.e. business or personal advice); the advice must be sought from a professional legal advisor in his or her capacity as such. “Legal advice” includes a legal opinion about a legal issue, and a recommended course of action, based on legal considerations, regarding a matter with legal implications (e.g. the negotiation of a contract, legal public disclosure requirements, submissions to a regulator, etc.).
Note that solicitor‐client privilege belongs to the client and can only be waived by the client (including through the client’s lawyer or another person upon receipt of the client’s informed consent which may be express or implied depending on the circumstances). But once the client voluntarily discloses the privileged communications to a third party, the client is deemed to have waived solicitor-client privilege for those communications and the privilege, insofar as it applies to those communications, is lost.
Deal Team Privilege
Notwithstanding the foregoing, the courts have held that solicitor-client privilege is not waived where privileged information is confidentially shared between and among members of a team of experts and advisors assembled by the client for the purpose of completing a corporate deal or transaction. This may apply to business people, employees, ex-employees, accountants, financial advisors, investment bankers, and other consultants and advisors necessary to the deal team. The courts have recognized that the expertise of each of these individuals may be necessary for the lawyer to properly advise the client on a particular matter and that communications among the lawyer, the client and these individuals should not be inhibited. However, this “deal team privilege” is limited to communications involving the client’s advisors; it does not extend to the other parties advisors.
Common Interest Privilege
The courts have held that solicitor-client privilege is not waived where privileged information is confidentially shared among parties “sharing a common goal or seeking a common outcome”. Examples of situations in which parties may have a common interest include the following:
- When they wish to see the successful completion of a commercial transaction;
- When they share a united front against a common foe; or
- When a fiduciary or like duty has been found to exist between the parties (e.g., in certain types of contractual or agency relations).
In these circumstances, it may be in the best interests of both parties for one or more of the parties to share certain of their privileged solicitor-client information with the other parties (i.e. legal positions or strategies on certain issues).
However, as mentioned above, the decision of the Federal Court in Iggillis now appears to restrict the application of “common interest privilege” in commercial transactions to circumstances where the parties have the same lawyer. This effectively puts a freeze on the sharing of privileged communications between parties to proposed commercial transactions.
Suggestions for Protecting Solicitor-Client Privilege
In order to protect solicitor-client privilege, clients should take the following precautions:
- Address privileged communications to and from legal counsel (don’t just copy legal counsel).
- State in the communications that they are sent to enable the provision of legal advice.
- Mark communications “privileged & confidential”.
- Limit communication of privileged information to a “need to know” basis (i.e. the recipient needs to know the information for the purpose of the client receiving legal advice).
- For the same reason, be careful when forwarding e-mail chains containing legal advice.
- On e-mails, don’t just hit “reply all” but consider whether each recipient actually “needs to know” the information being shared.
- Ensure all recipients of the information understand the importance of maintaining confidentiality.
- Consider having all recipients sign non-disclosure agreements.
Invitation for Discussion:
If you would like to discuss this blog in greater detail, or any other business law matter, please do not hesitate to contact one of the lawyers in the Business Law group at Shea Nerland LLP.
Note that the foregoing is for general discussion purposes only and should not be construed as legal advice to any one person or company. If the issues discussed herein affect you or your company, you are encouraged to seek proper legal advice.