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Common Interest Privilege Applied Again in Context of Commercial Transactions: B.C. Court of Appeal Endorses Growing Recognition of Privilege for Commercial Counterparties

Date

February 28, 2008

AUTHOR(s)

William D. Black
Mendy M. Chernos
Mason Poplaw
Andrew Wilkinson


There are two basic established categories of privilege. The first category is ‘solicitor-client privilege.’ It applies to all communications between a lawyer and client relating to legal advice. It is designed to permit free and frank communication between a solicitor and client. It applies to both oral and documentary communications between a solicitor and client, made in confidence, in the course of seeking or providing legal advice and must be based on the solicitor’s expertise. Solicitor-client privilege survives the termination of a client’s relationship with counsel. It belongs to the client and may only be waived by the client.

The second category is ‘litigation privilege.’ It applies to all communications and solicitor’s work product prepared for the dominant purpose of actual or contemplated litigation or alternative dispute resolution. Litigation privilege supports the efficacy of the litigation process by permitting parties to prepare their adversarial positions without fear of premature disclosure. It applies only in the context of litigation or some form of alternative dispute resolution (e.g., arbitration). Litigation privilege terminates when the litigation ends. The only qualification extending the privilege would be the continuation of a related piece of litigation.

‘Common interest privilege’ is an evolving category of privilege that permits parties to disclose their privileged evidence between themselves without losing privilege, providing they share a ‘common interest’ in the underlying subject matter. The determination of common interest is a factual determination, which may consider whether the parties share a common goal, seek a common outcome or have a self-same interest on either or both the general claims (e.g., both sued for exactly the same alleged misconduct) or certain specific allegations (e.g., an expert report on one specific matter in issue).

Common interest privilege historically originated and generally applies to parties involved in civil, administrative or criminal litigation to enable them to communicate between themselves without waiving privilege on issues of true commonality. The question of whether common interest privilege extends beyond litigation to documents shared in connection with a corporate transaction (e.g., with lenders, prospective or conditional purchasers or assignees) remains to be conclusively decided by the courts. While some courts have supported the extension, others have not.

There has been some uncertainty over the ability of commercial parties to rely upon the doctrine of common interest privilege in deciding whether to risk sharing otherwise privileged documents with commercial counterparties.

In October 2007, the British Columbia Court of Appeal, with its decision in Maximum Ventures Inc. v. DeGraaf, became the highest court in Canada to accept that common interest privilege can be claimed where a legal opinion prepared by a solicitor for one party to a transaction is shared with other parties to the transaction as part of related due diligence. In doing so, the B.C. Court of Appeal generally supported the extension of common interest privilege to commercial, non-litigation contexts, including with this clear statement:

Where legal opinions are shared by parties with mutual interests in commercial transactions, there is a sufficient interest in common to extend the common interest privilege to disclosure of opinions obtained by one of them to the others within the group, even in circumstances where no litigation is in existence or contemplated.

This is good news for commercial parties, as it recognizes the business realities that effectively compel parties in consummating commercial negotiations and transactions to share certain of their privileged information with their counterparties, as well as other commercial parties such as lenders. It is hoped that the time is upon us when courts in all Canadian jurisdictions will accept this logical extension of common interest privilege.

McCarthy Tétrault Notes:

In light of this decision, in-house counsel and commercial parties might want to:

  • pay careful attention to whether there is a need to disclose otherwise privileged documentation and information in the context of commercial negotiations and transactions; and
  • if there is such a need, attempt to bring the disclosure within the rubric of the common interest privilege exception by attempting to demonstrate, as much as is possible, a common interest with respect to the particular subject matter of the disclosure; and
  • consider specifically the advisability of entering into a common interest privilege agreement to confirm the intention of the parties to rely on common interest privilege to protect the disclosure from being construed as a waiver of privilege.

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