In Iggillis Holdings v Canada the trial judge issued a sweeping legal decision, ruling that common interest privilege does not extend to commercial transactions. Based on that ruling, he ordered Iggillis Holdings to turn over privileged legal documents to the Minister of National Revenue.
The Federal Court of Appeal overturned the trial decision and confirmed that common interest privilege applies in both litigation and transactional contexts. This bulletin reviews those two decisions and explains their importance to Canadian businesses and residents.
A Primer on Common Interest Privilege
Despite its name, common interest privilege (“CIP”) is not actually a type of privilege. Instead, it is a rule that allows the sharing of privileged information without loss of privilege. It is best to think of CIP as a defence to an allegation that privilege was waived via disclosure. CIP will exist where two parties exchange privileged information in pursuit of a shared goal or common interest.
CIP originated in cases involving litigation, but has been widely applied by Canadian courts. In particular, several provincial courts have applied CIP to documents prepared as part of a commercial transaction involving mergers and acquisitions. These courts have ruled that since the parties to a commercial transaction have a “common interest” in completing the deal, they can share privileged documents like tax memos and other legal opinions without losing privilege over those documents.
But CIP could potentially apply even more widely. Imagine a freelancer journalist sharing information protected by confidential source privilege with a media organization in pursuit of a story. Or imagine two corporations exchanging privileged information in pursuit of a patent over technology that they jointly developed. Finally, consider the case of a videogame publisher who shares privileged regulatory opinions with the game’s developer in order to develop a compliant monetization strategy.
The Federal Court’s Decision
The Federal Court’s ruling in Iggillis Holdings ignored the existing Canadian case law on CIP. The trial judge instead relied on a decision by the New York Court of Appeal and an academic article, both of which rejected the application of CIP to non-litigation context. Specifically, the trial judge distinguished between CIP in the context of litigation and CIP in the context of commercial transactions. He held that while CIP applied to the former, it should not be applied to the latter.
The scope of this ruling was sweeping, since it had the potential to compel the disclosure of privileged information whenever that information was shared in a non-litigation context. In the Ingillis Holdings case itself, this meant the compelled disclosure of tax memos that had been exchanged as part of the commercial transaction.
The Federal Court of Appeal’s Decision
The Federal Court of Appeal began by rebuking the trial judge for ignoring Canadian jurisprudence in favour of foreign authorities. The Court pointed out that privilege disputes under the Income Tax Act must be settled using provincial law. (This rule is not unique to tax litigation, and the rule applies to other litigation before the Federal Court due to section 2 of the Canada Evidence Act.)
Here, the applicable law was either that of Alberta or British Columbia. Since both of these jurisdictions had recognized that CIP applied to commercial transactions, it was improper to apply foreign law instead.
Thus, the Federal Court of Appeal ruled that under the current state of the law:
[S]olicitor-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. In each case, the solicitor-client privilege that applies to the communication by the lawyer to his or her client of a legal opinion is not waived when that opinion is disclosed, on a confidential basis, to other parties with sufficient common interest in the same transactions.
The Court concluded that the parties here shared a sufficient common interest in their commercial transaction to allow them to claim CIP over the tax memos, especially since “when dealing with complex statutes such as the Income Tax Act, sharing of opinions may well lead to efficiencies in completing the transactions and the clients may well be better served […].”
Further Developments and Practical Takeaways
At time of writing, no leave application has been filed with the Supreme Court, so the Federal Court of Appeal’s decision may become the last word on the applicability of CIP to commercial transactions. But if leave is sought, Canadian businesses and residents will need to monitor the situation closely for further developments. For the moment at least, CIP has been restored to its traditional place in the rules of evidence applied by all Canadian courts.
As a practical takeaway, parties should consider signing Common Interest Privilege Agreements whenever they exchange important and privileged documents with others. CIP can exist without a formal written agreement, but these agreements help document the existence and scope of the shared interest necessary for CIP to apply.