Caution urged when sharing privileged documents

A recent decision of the Federal Court of Appeal appears to have sparked a collective sigh of relief from lawyers involved in structuring commercial transactions.

Caution urged when sharing privileged documents
Maureen Littlejohn says a recent Federal Court of Appeal ruling restores the ‘status quo’ for lawyers involved in structuring commercial transactions.

A recent decision of the Federal Court of Appeal appears to have sparked a collective sigh of relief from lawyers involved in structuring commercial transactions.

The ruling issued March 6 in IGGillis Holdings Inc. v. Minister of National Revenue confirms the legitimacy of the judge-made doctrine of transactional “common interest privilege” and overturns a decision released 15 months earlier by a Federal Court judge.

“Solicitor-client privilege is not waived when an opinion provided by a lawyer to one party is disclosed, on a confidential basis, to other parties with sufficient common interest in the same transactions. This principle applies whether the opinion is first disclosed to the client of the particular lawyer and then to the other parties or simultaneously to the client and the other parties,” wrote Justice Wyman Webb for the unanimous panel, with Justices Richard Boivin and Donald Rennie concurring.

The original decision by the applications judge sparked considerable legal commentary and concern by lawyers over the right to share confidential documents without waiving privilege when there is a common interest, such as in a commercial transaction.

David Outerbridge, a litigation partner at Torys LLP in Toronto, notes there were “fairly significant working groups in the transactional bar,” after the decision by Federal Court Justice Peter Annis was released in December 2016.

Outerbridge says there were concerns about what would happen if the decision was upheld.

The Federal Court of Appeal ruling restores the “status quo” in this area of the law and brings certainty, suggests Maureen Littlejohn, a litigation partner at Davies Ward Phillips & Vineberg LLP in Toronto.

“The doctrine of common interest privilege is entirely consistent with our courts’ evolving approach to privilege and to waiver over the last several decades,” she explains.

The legal issues before the Federal Court stemmed from a request by the Canada Revenue Agency for a legal memo with tax advice in a proposed transaction involving Abacus Capital Corporations acquiring shares of companies held by IGGillis Holdings.

The memo — which was marked “privileged and confidential” — was on how to make the acquisition in the most tax-efficient manner.

In the original application before Annis, the federal government argued there was no “common interest” in the memo because the companies were on different sides in the proposed transaction.

This argument was rejected by Annis.

But he concluded that even if there was a common interest in the memo, it did not fall within solicitor-client privilege and the companies had to produce the document.

“If advisory CIP [common interest privilege] mostly enables commercial transactions that anticipate litigation, then it undermines the administration of justice,” wrote Annis in his December 2016 decision, which focused on whether there was a public policy benefit to such a doctrine.

The judge, in his ruling, cited a New York Court of Appeals decision and an academic paper by a U.S. law professor as support for his conclusions.

The Federal Court of Appeal stated that the focus instead should be on the federal Income Tax Act and Superior Court-level case law in B.C. and Alberta, which were the jurisdictions related to the proposed transaction.

“The issue in this case is whether under the law applicable in British Columbia and Alberta, the Abacus memo would be subject to solicitor-client privilege. The issue is not what, in the opinion of the Federal Court judge the law should be based on certain policy concerns as identified by him,” wrote Webb.

“There is already Canadian law. It was not necessary to look at U.S. law,” says Outerbridge.

“The Federal Court of Appeal is saying it is not up to trial-level judges to change the law based on policy concerns,” he explains.

At the same time, he says, the appellate-level decision is relatively narrow in its analysis of common interest privilege.

“It is not clear how far it goes beyond the scope of M&A transactions,” says Outerbridge.

While the appellate court focused on the interplay between a federal statute and past jurisprudence in B.C. and Alberta, it also stated that the doctrine is “strongly implanted” in the Canadian law.

According to Littlejohn, the test in whether common interest privilege applies is not fundamentally different than when litigation privilege is asserted.

“Whether the already­privileged document is being shared due to a common interest in pending litigation or due to a common interest in a commercial transaction, the court is undertaking the same analysis: Has the document been shared in a manner that is inconsistent with the confidentiality that gave rise to the privilege in the first place?” she says.

Mark Tonkovich, a partner in the tax practice group at Baker & McKenzie LLP in Toronto, agrees that the Federal Court of Appeal ruling restores a level of certainty in this area.

“In the Canadian tax practice, it is certainly not unusual when you are dealing with complex transactions and there is a common ground that there is sharing outside of the litigation context. There is a need to make sure everyone is on the same page,” says Tonkovich, who acted for the Canadian Bar Association, which was an intervener in the appeal (although he is not speaking for the legal organization).

The decision, he notes, also comes at a time when the Canada Revenue Agency is making more requests of companies involved in transactions. 

“In the last five or 10 years, the type of information the CRA is seeking has expanded. This ruling is a nice addition to the jurisprudence,” says Tonkovich.

Despite the findings of the appellate court, Littlejohn stresses that lawyers should still be cautious when sharing privileged documents, even if there is a common interest.

“Parties should think about finding ways to share such documents on a basis that preserves confidentiality to the greatest extent possible; for example, by limiting disclosure to those people who need access to the privileged documents in order for the transaction to proceed or by restricting the basis on which such documents are made available,” she says.

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