Preserving Privilege in M&A Transactions

Solicitor-client privilege is a well-established concept in Canadian law that broadly functions to protect communications between a lawyer and their client.

Privilege is meant to foster open and honest communications between lawyer and client, without the fear that such communications can be disclosed to third parties. Privilege is a distinct subset of confidentiality, and its protections are greater than those afforded to confidential documents or communications.

This article describes the role of privilege in corporate transactions and steps parties can take to ensure privilege is protected.

Privilege 101

Solicitor-client privilege attaches to all interactions between a client and their lawyer when the lawyer is engaged in providing legal advice, services or otherwise acting as a lawyer.

All documentation that is exchanged within the “continuum” of communications between the lawyer and client for the purpose of receiving legal advice is privileged.[1]

Privilege does not typically operate to protect communications with third parties (i.e., those outside the solicitor-client relationship) and parties may risk waiving privilege by sending their lawyer’s communications to third parties if they are not careful.

However, there are exceptions such as where parties to a transaction are acting in furtherance of a common commercial interest. The law has developed the concept of “common interest privilege” which allows otherwise privileged communications or documents to be exchanged without waiving privilege; for instance, in the context of a “deal team”.

Privilege in the Deal Team

Common interest privilege can attach to communications amongst members of a “deal team” assembled and engaged for the purpose of completing a particular commercial transaction.[2] Where parties to a transaction can demonstrate that they are acting in furtherance of a common commercial interest, common interest privilege “provides a basis under which the otherwise privileged document can be shared with certain third parties without constituting a waiver of privilege”.[3]

In a leading case on common interest privilege, the Federal Court of Appeal found common interest privilege applied to a ‘deal team’ where a party had its lawyer prepare a memo containing tax advice on a corporate transaction who then shared it with “other parties with sufficient common interest in the same transactions”.[4]

Similarly, in Barrick Gold Corporation v. Goldcorp Inc. the court upheld a privilege claim, finding that “each and every one of the individual advisors, apart from the various solicitors both inside and outside the companies, was appropriately regarded as part of the ‘team’ for the purposes of requesting, obtaining and/or receiving legal advice. The position of the solicitors is obvious”. The court also noted that the input of a “relatively small number of non-lawyer individuals outside the companies” was required for the “consideration, structuring, planning and implementation” of the transactions.

Barrick Gold was cited in another decision upholding common interest privilege, in which the court identified other scenarios that could attract privilege protections: [5]

• a sale with the parties sharing an interest in seeing the transaction completed;
• a conduit and an investors’ committee involved in negotiating an agreement with stakeholders; and
• parties exchanging information with a view to a proposed merger.

Further, another recent decision expanded on and clarified the parameters of common interest privilege:[6]

• the mere existence of a commercial transaction is not necessarily sufficient to trigger common interest privilege;
• for common interest privilege to apply, the common interests need not be identical interests; and
• privilege will apply even where parties who share the documents may become adverse in interest in the future or if they are already adverse in respect of another related action.

Practice Tips

The category of common interest privilege is not closed and is not limited to protecting the sharing of tax opinions as part of a transaction. The scope and limits of “deal team” privilege, however, have not been fully articulated, so parties should exercise caution and consider documenting an agreement to communicate on a privileged basis as part of their shared interest in a particular outcome. For example, a common interest privilege or non-disclosure agreement can be used at the onset of a transaction to set out confidentiality requirements and indicate those parties who may or may not receive certain confidential and privileged information.

The parties should also be cognizant of who and how many people comprise the “deal team”, and consider limiting the group to those individuals who are essential to the transaction. While this may include external advisors, such as accountants, it is prudent to delineate these decisions at the outset to minimize the risk of disclosure after a transaction closes.

[1] 578115 Ontario Inc. o/a McKee’s Carpet Zone v. Sears Canada Inc., 2013 ONSC 4135 at para 27 [Sears Canada].

[2] Barrick Gold Corporation v. Goldcorp Inc, 2011 ONSC 1325 [Barrick Gold] at paras 3, 19.

[3] Magnotta Winery Corporation v. Ontario (The Alcohol and Gaming Commission), 2020 ONSC 561.

[4] Iggillis Holdings Inc v Canada (Minister of National Revenue), 2018 FCA 51, leave to appeal denied.

[5] Sears Canada at para 37.

[6] Trillium Motor World v. General Motors et al, 2014 ONSC 1338 at para 130.