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Focus: Concern over sharing documents due to ruling

Focus on: Corporate and Commercial Law
A Federal Court of Canada decision issued late last year is continuing to cause concern within the corporate legal world over the impact of sharing privileged documents when there is a common interest between the parties in a commercial transaction.

The decision in Iggillis Holdings Inc. v. Canada (National Revenue) rejected the application of a doctrine that is known as advisory or transactional “common interest privilege,” which started to be accepted by courts in common law countries in the early 1980s.

The doctrine meant that solicitor-client privilege would not necessarily be waived if a protected document was shared by parties with a common interest in a transaction or litigation.

In a lengthy ruling released in December, the doctrine was rejected by Federal Court Justice Peter Annis, who warned that attempts to expand it could spread like “crabgrass” and improperly keep relevant documents from courts.

“Advisory CIP (common interest privilege) is only now starting to come of age,” the judge wrote.  

If it was accepted by the courts, then lawyers would seek to invoke the privilege on any communications where there might be a common interest, Annis suggested.

“The courts should not delude themselves into thinking that allied lawyer privilege is a minor change in the world of solicitor-client privilege. It has already been demonstrated that it represents a veritable sea of change with an exponential expansion in the number and type of situations seen in the past two or three decades. This comes at a significant cost through the loss of highly probative evidence with no discernable benefit to the administration of justice,” wrote Annis.

The Federal Court ruling sparked considerable legal commentary after its release.

The decision has been appealed, but that hearing is not expected to take place before the fall. In the meantime, lawyers acting for clients in commercial transactions are likely to be more cautious before sharing documents, says Alexander Cobb, a partner and commercial litigator at Osler Hoskin & Harcourt LLP in Toronto.

“It will make transactions more expensive and create more uncertainty,” he says.

“The course of prudence will be to take the most conservative approach.

“I think the decision is problematic,” Cobb adds. “There are perfectly anodyne, perfectly sound reasons for sharing privileged information.”

One example is a friendly acquisition, where the target is facing significant litigation that could impact its operations. The potential sharing of information would be documents that any plaintiff would not normally be entitled to in any event, because of solicitor-client privilege, explains Cobb.

While the ruling is perhaps the “deepest dive” into this area of the law by a Canadian court, the conclusions were still a surprise, says Maureen Littlejohn, a litigation partner at Davies Ward Phillips & Vineberg LLP in Toronto.

She notes that the ruling is contrary to how some Superior Court level judges have interpreted the issue as well as that of the Federal Court, in a decision issued a number of years ago.

The findings in Iggillis potentially confuse the actual meaning and use of common interest privilege, suggests Littlejohn.

“It does not operate on a standalone basis to prevent disclosure. It is an anti-waiver doctrine. If properly understood, it is about continuing to protect documents that are already privileged. If anything, it is a derivative privilege,” says Littlejohn.

The document at issue in the Iggillis case was a tax-related memo prepared by a lawyer for Abacus Capital Corporation. The memo was shared by the two companies before entering into commercial transactions that the Canada Revenue Agency later alleged was for tax-avoiding purposes.

It sought a copy of the legal memo. The companies maintained that the memo was still subject to privilege under the doctrine of common interest privilege.

Past case law, including a 2003 decision of the Federal Court in Pitney Bowes v. Canada, found that in some situations, such as transactions, privilege is not necessarily waived.

“The sharing of legal opinions will ensure that each party has an appreciation of the legal position of the others and negotiations can proceed in an informed and open way,” wrote Justice James O’Reilly in that case. Annis concluded that his colleague’s decision on this issue could be distinguished because it involved a joint client representation and not allied lawyers with common interests.

The Federal Court judge stated that he was relying heavily on a decision last year by the New York State Court of Appeals in Ambac v. Countrywide Homes, which rejected common interest privilege except in litigation-related cases.

The Federal Court ruling is not binding on Superior Courts, but it will be binding in cases involving any federal agency unless is it is overturned on appeal, says Cobb.

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