Protecting Solicitor-Client Privilege in Commercial Transactions
Clients are generally aware that it is in their best interest to maintain solicitor-client privilege over certain information. 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.
This blog quickly summarizes the general principles of solicitor-client privilege (including when it applies and how it is lost), some exceptions to general principles that allow privileged information to be shared with third parties and suggestions for establishing and protecting solicitor-client privilege in those circumstances.
Solicitor‐client privilege is a client’s right to refuse to disclose any communication, whether it be to a regulator or to an opposing party in litigation or otherwise, 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.
Common Interest Privilege
Notwithstanding the foregoing, 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).
Deal Team Privilege
Further 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.
Limitation on Common Interest Privilege and Deal Team Privilege
However, note that the foregoing common interest privilege and deal team privileges will only cover communications that meet the three aforementioned conditions for the solicitor-client privilege to apply:
- They must be communications between the client and the client’s lawyer;
- They must involve the seeking or giving of legal advice; and
- They must be intended to be confidential by the parties.
Deal team privilege will not cover purely business advice.
Suggestions for Protecting Common Interest and Deal Team Privilege
Therefore, in order to protect solicitor-client privilege for information shared with another party under either the common interest privilege or the deal team 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”
Client should also take the following additional precautionary steps:
- Ensure all recipients of the information understand the importance of maintaining confidentiality.
- Consider having all recipients sign non-disclosure agreements.
- Limit communication of privileged information to a “need to know” basis.
- On e-mails, don’t just hit “reply all” but consider whether each recipient actually “needs to know” the information being shared. Also, for the same reason, be careful when forwarding e-mail chains containing legal advice.
Invitation for Discussion:
If you would like to discuss this 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.