On March 13, 2014, the Ontario Securities Commission (OSC) released its revised Credit for Cooperation Program via OSC Staff Notice 15–702. As pointed out in our recent client update (OSC Adopts New Initiatives to Strengthen Enforcement), the Notice provides guidance respecting OSC expectations of market participants hoping to obtain credit for cooperation, and the basis for settlements in which there is no admission of fact or liability. The Notice is a positive step forward, and the OSC ought to be commended for the clarity provided to market participants. However, it remains an open question as to whether more might be done in the future to provide market participants with clearer guidance on the OSC's position respecting waivers of privilege.

Waiver of privilege is a key issue when deciding how best to cooperate with a regulator. Companies that become aware of alleged wrongdoing often conduct an internal investigation into the allegations. Such internal investigations are almost universally conducted by external, independent counsel. The work product, findings, and advice created during the investigation are typically covered by solicitor-client and litigation privilege. Often corporations engage in an assessment of whether there is benefit to be gained through a waiver of privilege over internal investigation work product.

That decision is an important one for two reasons. First, selectively waiving privilege may unintentionally result in a wider waiver, typically referred to as a subject matter waiver. Second, the investigation usually provides a detailed road map of wrongdoing to the regulator and to potential plaintiffs and their counsel in any related civil proceedings. Accordingly, absent credit for cooperation for waiving privilege, there are generally very good reasons to maintain privilege.

In the United States, corporate cooperation in investigations and the protection of privilege has been the subject of much debate. In 1999, the Department of Justice (DOJ) issued corporation prosecution guidelines in a document known as the Holder Memorandum, which explicitly provided that in considering whether a company was cooperating in a criminal investigation, prosecutors should consider:

[t]he Corporation's timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents, including, if necessary, the waiver of the corporate attorney–client and work product privileges.

The Holder Memorandum was increasingly and broadly criticized as eroding privilege. In light of mounting criticism, it became clear that steps had to be taken to correct what was widely perceived to be prosecutorial overreach.

In 2008, seemingly in response to the backlash following the Holder Memorandum, Mark Filip, the Deputy Attorney General, issued a memorandum known as the Filip Memorandum, which clarified that cooperation would only be measured by the extent to which the corporation discloses relevant facts and evidence, not its waiver of privilege. The Filip Memorandum makes clear that the:

... key measure of cooperation will be the same for a corporation as for an individual: to what extent has the corporation timely disclosed the relevant facts about the misconduct? That will be the operative question – not whether the corporation waived attorney-client privilege or work product protection in making its disclosures.

The Filip Memorandum also makes clear that federal prosecutors will not demand non-factual attorney work product or attorney-client privileged communications.

The SEC, too, has provided guidance on its expectations respecting waivers of privilege and credit for cooperation. In the past, the SEC had seemed to consider voluntary waivers of privilege as part of assessing whether or not a corporation had fully cooperated. However, the most recent SEC Enforcement Manual specifically provides at section 4.3 that staff should generally not ask a party to waive attorney-client privilege or work product protection. It also notes that significant cooperation can be provided and voluntary disclosure of information completed without a waiver of privilege. Further, the SEC notes that assertion of a legitimate claim of privilege will not negatively affect a credit for cooperation. But, the corporation must produce all relevant factual information, including the information acquired during interviews.

In order to encourage waivers of privilege, the SEC will agree to enter into confidentiality agreements to assist in an argument that there has been no broader waiver of privilege by disclosing privileged materials to the SEC. There is some disagreement about the effectiveness of such confidentiality agreements in protecting information from third-party civil litigations – but, from the point of view of a corporation considering waiving privilege, surely some assistance is preferable to no assistance.

The OSC Notice, by contrast, is silent as to nearly all of these matters, leaving corporations seeking to cooperate with the OSC in a state of uncertainty with respect to how the OSC will perceive a decision to assert privilege. Further, because there is no explicit position with respect to entering into confidentiality agreements with companies seeking to participate, there remains further uncertainty about potentially unintended consequences of waiving privilege to the OSC.

With respect to privilege, the OSC Notice states only that market participants are expected to promptly and fully respond to all production orders and summonses and to provide assistance and information, and that market participants should provide all necessary books and records required to assess the matter, including any reports or analyses prepared by experts retained by the market participant or its counsel. That language appears to suggest that some privilege waiver may be required to receive credit for cooperation. The only explicit mention of privilege in the OSC Notice, however, is that, like the SEC, a market participant will not be seen as cooperative if the company invokes legal advice as a defence, but refuses to disclose the advice on the basis of privilege. On this point, it is hard to quarrel.

Informally, OSC Staff have, on occasion, agreed to enter into confidentiality agreements in the form of common interest letters, to help preserve privilege. There is no guidance or policy, however, to inform market participants when or if OSC Staff might be willing to enter such agreements. Attempts to protect privilege through these agreements do not appear to have been tested in Canada as of yet. Also informally, OSC Staff do not tend to expressly request a waiver of privilege, but our experience is that credit is indeed granted where waivers are made. This experience may leave market participants with the impression that waiver is indeed relevant in the granting of credit for cooperation. Nevertheless, at least officially, Registrants remain in the difficult position of not knowing OSC staff expectations concerning waiver – precisely the situation in the United States before the Holder Memorandum.

There can be no doubt that the OSC has made good progress in this latest Notice, and should be commended for doing so. It remains to be seen whether they will next provide additional clarity concerning their expectations of privilege waivers.