Corporate clients typically assemble “deal teams” comprised of individuals with specialised expertise to assist them in negotiating a transaction. When a party to a transaction does not have sufficient in-house expertise, they may include external advisors on their deal team. External financial advisors are often key members of such a team.
It is also common for external deal team members to be involved in group communications in which their client's legal counsel provide legal advice on the transaction. The Ontario Superior Court of Justice in the recent case of Barrick Gold Corporation v. Goldcorp Inc., 2011 ONSC 1325, has recently affirmed that solicitor-client privilege extends in appropriate circumstances to “deal team” communications in which external financial advisors are privy to the legal advice their clients receive from counsel.
The Barrick Decision
Solicitor-client privilege protects communications between a lawyer and client made in furtherance of the giving or receiving of legal advice. For solicitor-client privilege to attach to communications, they must be confidential as between the lawyer and the client. The law has recognised an exception to this rule, however, in cases in which a third party involved in communications between a lawyer and client performs a function that is central to the existence or operation of the lawyer-client relationship. For example, a third party accountant who translates complex accounting information for a lawyer on behalf of a client can be involved in solicitor-client communications without the loss of privilege over such communications.
The defendants in Barrick, all global mining companies, engaged outside financial advisors to assist them in negotiating a complex transaction involving the purchase of a share of a mining operation in Chile. For each defendant, the financial advisors were part of a small and identifiable deal team that also consisted of the defendant’s business people, as well as in-house and external legal and tax advisors. The external financial advisors were involved in deal team communications in which legal advice was given to, or sought by, their client. The plaintiff sought production of all of these communications from the defendants. The defendants’ position was that such communications were privileged because the involvement of their financial advisors in deal team communications was necessary to ensure that deal team members, including legal counsel, fully understood the financial implications of any decisions on the transaction. The plaintiff objected to this characterisation on the grounds that the defendants, as commercially sophisticated enterprises, did not require the expertise of external financial advisors in order for their counsel to provide meaningful legal advice.
The court in Barrick agreed with the defendants. The court held that parties could not necessarily expect a “deal team privilege” extension of solicitor-client privilege in every complex commercial transaction, but that the existence of such a privilege to deal team discussions depended on the facts of each case. The court found that the involvement of financial advisors in the circumstances of the Barrick case was “necessary and appropriate to the consideration, structuring, planning and implementation of very complex transactions in a very short timeframe.” Further it was evident that the specialised advice of the advisors was required for the “overall legal considerations” of the transaction. The court noted that the interrelationship between consultant, client and lawyer is often a practical reality in complex commercial matters where teams of specialised individuals are required to complete a task. The court further held that the financial advisors involved understood the importance of confidentiality in the deal team discussions, a key requirement of solicitor-client privilege.
Lessons from Barrick
The Barrick case provides useful guidance regarding what can be done to maximize the likelihood of deal team communications maintaining, and not inadvertently losing, the protection of solicitor-client privilege. Because the court found that the assessment of the extension of privilege to deal team communications is not absolute but rather a fact-driven exercise, transactional parties who retain external advisors whom they expect will be involved in legal communications in a deal team context should consider the content of their engagement agreements with such advisors. It would be wise to ensure that all such engagements are reduced to writing, before the substantive work begins. Engagement agreements should also require strict confidentiality in deal team discussions. It would also be prudent to include a provision that the presence of a financial advisor in discussions with legal counsel is not intended to be a waiver of privilege. Finally, presuming the accuracy of such a stipulation, it is important to include a reference to the necessity of the input of the financial advisor for the receipt of legal advice. For example, a recital in the retainer agreement could provide that the involvement of the financial advisor in discussions with counsel is a requirement for counsel to perform their role as legal advisor on the transaction. Although such features are not a prerequisite for maintaining the privilege, as they were not present in the Barrick case, they would no doubt be of assistance.
The Barrick decision is an important recognition of the potential existence, in the right circumstances, of deal team privilege. The case provides a helpful roadmap for the steps needed, where those circumstances are present, to maximize the likelihood of the maintenance of the privilege in subsequent litigation.