Commercial Litigation and Dispute Resolution Blog

Privilege in Canada has, over the last 20 years, been raised by the Canadian courts to quasi-constitutional status. As recently as 2016, the Supreme Court of Canada reaffirmed both the paramountcy of solicitor client privilege and litigation privilege. Given this context, it was surprising that, in 2016, the Federal Court questioned the existence of common interest privilege in a transactional context. Happily, the Federal Court of Appeal has overturned the Federal Court decision and, in doing so, has sent a very strong message recognizing common interest privilege in a transactional context.

In Canada, a client is entitled to claim privilege and not to produce to anyone legal advice received from his or her lawyer. This principle is called solicitor client privilege, and it can be lost, or waived, if the client discloses the advice to a third party. The doctrine of common interest privilege had been traditionally held to be an exception to this form of waiver. In essence, where the client holds a "common interest" with a third party, the client can disclose the legal advice to that third party confidentially and not lose or waive privilege. The trial decision in IGGILLIS v. MNR threw this whole concept into doubt.

On appeal, the Federal Court of Appeal in IGGILLIS [1] , reviewed a decision of a Federal Court Judge who had found that common interest privilege was not an acceptable form of privilege and refused to recognize it. Given the facts of the case, the lower court's decision sent reverberations across the practice of business law in Canada.

The case involved the sharing of a legal opinion between two parties who were adverse in a commercial transaction. The opinion was drafted by a lawyer and it explained the tax consequences of each step of a corporate transaction. While the parties were adverse in a commercial sense, they had a common interest in ensuring that the transaction was effected in a tax advantageous manner and, as a result, shared one of the party's legal opinion between themselves.

At the trial level, the Federal Court Judge, after acknowledging that common interest privilege was embedded in the law of Canada and the common law world, went on to find that this view was wrong and that common interest privilege was not a valid application of the doctrine of privilege. He ordered production to the Minister of National Revenue of the legal advice contained in a memorandum from counsel on the basis that, by sharing the opinion with another person, solicitor client privilege over the legal advice had been waived and that the document was therefore required to be disclosed. He did so on the basis of two primary points - (1) the court ought to have all relevant evidence and (2) common interest privilege in a transaction was not recognized by the courts in New York.

The Federal Court of Appeal overturned this decision and, in doing so, issued a strong decision asserting the recognition and importance of transactional common interest privilege in Canada. The Court began its analysis by finding that the memorandum at issue was clearly protected by solicitor client privilege. This meant that the only question was whether the client by sharing the information had waived privilege or whether the sharing of the document was protected by common interest privilege. 

The Court then reviewed the two factors relied upon by the Federal Court Judge who had refused to recognize common interest privilege. With respect to the first concern, being that all evidence ought to be disclosed, the Court held that a legal opinion is not admissible evidence. Accordingly, this was not a valid policy basis upon which to reject common interest privilege.  With respect to the second concern, being that this privilege is not recognized in New York, the court found under the Income Tax Act, the relevant question is only whether the privilege is recognized in the governing Canadian provincial jurisdiction, not the law in New York state. In this case, the privilege question was to be decided by either the law of British Columbia or Alberta, and both jurisdictions recognized common interest privilege in a transactional context. Accordingly, the Court found that the Judge below was wrong to rely on the law of New York to effectively overturn the laws of British Columbia and Alberta with respect to this privilege.

The trial decision in this case caused great concern in Canada. The importance is highlighted by the fact that both the Federation of Law Societies of Canada and the Canadian Bar Association intervened in the appeal. The decision of the Federal Court of Appeal has returned the law of privilege to the position it was commonly understood to occupy before, and, in doing so, has continued our Canadian tradition of being staunch defenders of solicitor client privilege as part of our adherence to the Rule of Law.

[1] 2018 FCA 51