Canada: Common Interest Privilege: A New Tool In The Litigation Basket

Case Comment: Iggillis Holdings Inc. v Canada (National Revenue)

In a recent decision, the Federal Court of Appeal confirmed that common interest privilege ("CIP") is a principle of Canadian law.¹ This principle is unlike solicitor-client privilege, in that communication between counsel and a third party may be considered privileged if the shared information is to benefit both parties, especially with respect to the furtherance of a commercial transaction. The court overturned a Federal Court decision which held that that CIP is not a principle of Canadian law.²

Iggillis Holdings Inc. v Canada (National Revenue) ("Iggillis") buttresses case law in Alberta and British Columbia that supported the existence of CIP in Canadian common law. The ruling will also likely provide consequences beyond complex commercial transactions, including, for example, civil litigation. The reasoning of Iggillis could likely be used to expand interpretations to include other documents that are negotiated between counsel, such as joint defence agreements, which are not purview to solicitor-client privilege simpliciter.

Facts and Holding of the Federal Court Decision

Iggillis concerned two law firms that provided advice with respect to the tax implications of a series of commercial transactions between two parties. These parties, represented by different law firms, had negotiated several proposed transactions. After much discussion between counsel for both sides, the proposed transactions were outlined in a written memorandum (written by one of the law firms) that included a series of explanatory charts. These documents were then shared with the other party, thereby negating solicitor-client privilege.

A hearing was held, after which documents containing the step-by-step outline of the proposed transactions were delivered to the Federal Court. While these documents contained minimal legal advice, the counsel for Iggilis argued that they were privileged due to CIP.

The Federal Court rejected an argument by the Minister of National Revenue that there was no CIP between both parties due to the fact that they were on the opposite sides of a commercial transaction. The court did, however, hold that - using American case law and legal commentary - the CIP had no application to the facts of the case and that it was not a valid principle of Canadian law. Because of this, the shared documents were not privileged.³

Issue and Analysis

The Federal Court of Appeal dealt with the issue of whether the Federal Court was correct in holding that CIP is not a principle of Canadian law that could be applied to the above-noted memorandum. The standard of review was correctness in this case.

The Federal Court of Appeal initially discussed the basic principles of privilege.⁴ That case stated that privilege could only be claimed if the communication (a) was between a solicitor and a client, (b) entailed the seeking of legal advice, and (c) was intended to be confidential. The documents were initially covered by solicitor-client privilege but waived through their disclosure to a third party.⁵

The appeal court determined that recognizing CIP is consistent with evolving case law in Canada. CIP has already been recognized in Alberta and British Columbia courts and, since the documents, in this case, would be considered privileged in those jurisdictions, the MNR had no right to insist that they be produced. The court also noted leading relevant commentaries with respect to the law of evidence in Canada that indicated that CIP is likely a principle of Canadian law that could be useful in promoting "efficiencies" in commercial transactions.

In summary, while the memorandum was subject to solicitor-client privilege, this privilege was waived by its distribution to a third party. CIP did apply in this case, however. The series of transactions were determined to be in the common interest of both parties. In other words, the documents were provided to determine the most beneficial tax regime for the transaction, a fact that makes the documents under the purview of CIP.

Consequences

It can be speculated that this ruling is likely to have significant implications for civil litigation. With CIP prima facie a part of Canadian law, it may provide incentive for counsel to cooperate if there is a "common interest" to do so. Negotiations between counsel in a civil case, for example, could be more fruitful if CIP existed, particularly for joint defence agreements and other such documents that may be used by both sides against an adverse party. It remains to be seen if this court ruling will survive a higher court challenge, however, the above-noted case provides an indication of how Canadian case law is continuing to evolve.

Footnotes

1. Iggillis Holdings Inc. v Canada (National Revenue),2018 FCA 51.

2. Iggillis Holdings Inc. v Canada (National Revenue), 2016 FC 1352.

3. Ibid.

4. Solosky v The Queen, [1980] 1 SCR 821, 105 DLR (3d) 745 at 837 (SCC).

5. Ibid; It is settled law in Canada that disclosure of privileged documents to a third party, no matter how they are produced, would waive the right to solicitor client privilege.

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