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Appellate, Commercial Litigation

FCA reaffirms importance of common interest privilege

A recent Federal Court of Appeal decision that recognizes the doctrine of common interest privilege in the context of a commercial transaction is consistent with existing jurisprudence, Toronto commercial litigator and appellate counsel Brian Radnoff tells AdvocateDaily.com.

The ruling, he says, is both interesting and important because “In my view, the initial decision was inconsistent with the established case law and had the potential to create some significant problems.”

The appeal raised the issue of whether solicitor-client privilege continues to apply to a legal memo that is disclosed to a third party, who is not a client, but is involved in a transaction with the lawyer’s client.

In this matter, one company was acquiring the shares of another and counsel produced a joint memo on legal considerations of income tax and related commercial law subjects. The court at first instance held that sharing the memo among the parties to a proposed transaction had resulted in a waiver of privilege, and that it therefore had to be disclosed to the Canada Revenue Agency.

“The hallmark of solicitor-client privilege is that it's confidential,” says Radnoff, a partner with Lerners LLP. “Confidentiality is not a sufficient but it's a necessary condition. If a document is not confidential, it's not privileged. However, there are exceptions where documents can be disclosed to certain parties in particular situations without losing privilege.”

He says the doctrine of common interest privilege is a recognized and well-established type of privilege.

“This is common in litigation when two defendants, for example, are separately represented but have a common interest in a defence,” Radnoff says. “They will exchange communications and it is generally understood that it is protected by common interest privilege."

Some defendants go even further and have joint defence agreements to specifically ensure that any communications between them are privileged and can't be produced. "They're not really conducting joint defences but it's to confirm the common interest between them,” he adds.

In the case before the Federal Court of Appeal, the parties had a joint interest in minimizing taxes, says Radnoff, who was not involved in the matter and comments generally.

“There's nothing wrong with minimizing taxes through a transaction as long as parties are complying with the Income Tax Act. In fact, the panel ruled that it fosters efficiency and the interests of the respective parties might be better served if their lawyers collaborate,” he says.

Radnoff notes that sometimes parties will try to take the doctrine too far but this was not the case in the matter before the appeal court.

“This situation fits right into where you would normally expect it to apply and is consistent with the existing law,” he says. “If the lower court decision had not been overturned, it would have had the potential to significantly undermine the whole concept of common interest privilege.”

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