Stretching the Umbrella: 5 Tips for Preserving Privilege in a Complex Transaction

Good communication within a deal team can be the linchpin of a successful transaction. Equally important, however, is the need to preserve privilege and ensure that sensitive information is insulated from any subsequent litigation. Balancing these two demands in a complex and fast moving transaction can be cumbersome, complicated and fraught with risk. Fortunately, recent developments in the common law have shed some light on this issue and provide useful guidance on how best to manage sensitive communications within a deal team.

Solicitor-client privilege exists as a common law exception to the evidentiary rules that compel disclosure during a litigation dispute. The law recognizes the need to protect the relationship between the lawyer and client from any apprehension that candid discussions could be disclosed and used to the client’s detriment. Thus, the common law grants clients a protective right over any communication passing between them and their legal advisor, made confidentially, for the purpose of seeking or receiving legal advice.

The law of privilege also recognizes the necessity of using intermediaries to facilitate the process of giving and receiving legal advice. Accordingly, communications made to a lawyer or client’s “agent” will be equally protected so long as these individuals also satisfy the criteria for establishing solicitor-client privilege.

Once a communications falls outside this nexus, however, there is a significant risk that privilege may be waived. Where, for example, sensitive information is distributed to financial advisors in a communication that relates to business issues, it is difficult to assert legal privilege because the underlying rationale for the protection, the lawyer-client relationship, is absent. In these circumstances the client may be deemed to have waived privilege and the communication may be compellable in any subsequent litigation.

Clear enough in the abstract, the complexity of these rules multiply with each additional lawyer, banker, and consultant added to the transaction. With dozens of individuals on the deal team, each a purported “agent” of the lawyer or client, the sheer volume of communications can stretch the umbrella of privilege into a three-ring circus tent.

Earlier this year, Justice Colin Campbell of the Superior Court Commercial List gave some much-needed guidance on this issue in Barrick Gold Corporation v. Goldcorp. Inc. In summary, he held that a communication distributed to a non-legal advisor could be privileged where that non-legal advisor’s involvement was essential for rendering the legal advice sought by the client.  Importantly, the court rejected a permanent “deal team” extension of solicitor-client privilege that would automatically apply to transactional communications. Rather, it emphasized that this analysis would be context specific and would have to be established based on the particular facts of each circumstance.

There are a number of useful guidelines that flow from the principles explored by the Court in this case:

  1. Recognize privilege issues early in a transaction and establish a policy for distributing sensitive communications.
  2. Document the function that non-legal advisors play in shaping the overarching legal strategy.
  3. Limit the dissemination of sensitive information to those individuals whose role is essential for rendering the legal advise sought by the client.
  4. Review the entire chain of correspondence before forwarding an email and consider establishing a new message if sensitive information could be disseminated beyond the privilege nexus.
  5. Scan the recipient list before sending a sensitive email. Hitting “Reply All” indiscriminately can significantly weaken the strength of the privilege.

As with any area of transactional risk, forethought on these issues is imperative. While courts are loath to compel disclosure of properly privileged information, stretching this protection over ill fitting communications may have material and significant risks if the deal sours and privilege is challenged. Implementing these guidelines can help undercut these issues and ensure your sensitive information remains protected.

deal teams Justice Colin Campbell non-legal advisor Ontario Superior Court public M&A solicitor-client privilege transactional communications



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