Everything In-House Counsel
Needs to Know
About Privilege and
Confidentiality
Shelley Babin
Senior Counsel at Ontario
Power Generation
Catherine Francis
Minden Gross LLP
October 6, 2015
Introduction
• Importance of privilege and
confidentiality issues
• Differentiating privilege and
confidentiality
• Origins of privilege
• Different types of privilege
2
Introduction, con’d
• Position of in-house legal counsel
• Losing privilege
• Potential consequences of losing
privilege or confidentiality
• Best practices
3
Privilege v. Confidentiality
• Privilege
– Legal right belonging to client
– Protects communications and
documents from disclosure to third
parties
• Confidentiality
– Broader than privilege
– Rules of Professional Conduct
4
Confidentiality - Rules of
Professional Conduct
3.3-1
A lawyer at all times shall hold in strict confidence all
information concerning the business and affairs of the client
acquired in the course of the professional relationship and
shall not divulge any such information unless
(a) expressly or impliedly authorized by the client;
(b) required by law or by order of a tribunal of competent
jurisdiction to do so;
(c) required to provide the information to the Law Society;
or
(d) otherwise permitted by rules 3.3-2 to 3.3-6.
5
Confidentiality - Rules of
Professional Conduct
This rule must be distinguished from the
evidentiary rule of lawyer and client privilege,
which is also a constitutionally protected right,
concerning oral or documentary
communications passing between the client
and the lawyer. The ethical rule is wider and
applies without regard to the nature or source
of the information or the fact that others may
share the knowledge
6
Exceptions re Disclosure
• Lawyer may disclose information where:
– Required by law
– Imminent risk of death or serious bodily harm
• Can include psychological harm
– Lawyer is defending allegations of malpractice
or misconduct
– Lawyer is seeking to collect fees
7
Requirements on
Disclosure
If confidential information disclosed, lawyer
should prepare a written note as soon as
possible, which should include:
(a) the date and time of the communication in
which the disclosure is made;
(b) the grounds for disclosure
(c) details of the communication (who, when,
how)
8
Duty of Confidentiality
• Applies to formal and informal relationships
• Duty survives professional relationship
• Must avoid indiscreet conversations
9
Duty of Loyalty
• Aspects of the duty of loyalty owed to a
current client are the duty to commit to the
client’s cause, the duty of confidentiality, the
duty of candour and the duty to avoid
conflicting interests.
10
Informal Retainers
• A solicitor and client relationship is often
established without formality. A lawyer should
be cautious in accepting confidential
information on an informal or preliminary
basis, since possession of the information
may prevent the lawyer from subsequently
acting for another party in the same or a
related matter.
11
Privilege
• Solicitor-client
privilege is considered
of fundamental
importance to
administration of
justice
12
Origins of Legal
Privilege
• Originated as
exemption from
testimonial
compulsion of
lawyer
13
Privilege over all SolicitorClient Communications
• Expanded to include:
– communications
exchanged during
litigation
– communications in
contemplation of
litigation
– any consultation for
legal advice, whether
litigious or not
14
Importance of SolicitorClient Privilege
• Solicitor-client privilege must be as close
to absolute as possible
• Lavalee v. Canada (AG) – Sept. 2002 Supreme Court of Canada struck down
section 488.1 of Criminal Code re search
and seizure of solicitor-client files
15
Distinguishing Different
Types of Legal Privilege
• Solicitor-client privilege
• Litigation privilege
• Common Interest
Privilege
• Settlement Privilege
• Other types of privilege
16
General Accident
Assurance Co. v. Chrusz
• Ontario Court of Appeal (1999)
• Detailed discussion on the difference
between solicitor client privilege and
litigation privilege
17
Three Distinctions:
First Distinction
• Solicitor-client privilege applies to
confidential communications
• Litigation privilege can apply to nonconfidential communications with third
parties
18
Second Distinction
• Solicitor-client privilege exists any time
there is a solicitor client relationship
• Litigation privilege only applies where
there is litigation
19
Third Distinction
• Solicitor-client privilege protects the
relationship – full and ready access to
legal advice
• Litigation privilege facilitates the
adversarial trial process
20
Solicitor-Client Privilege
(general)
• Applies to all
communications between
solicitor and client
• Does not apply to
transactions
• Includes communications
with agents or
representatives of client
21
Litigation Privilege
• Applies to any documents or
communications prepared in
contemplation of litigation or
during litigation (lawyer’s brief)
• Must be prepared for “dominant
purpose” of litigation
• Not restricted to documents
prepared by lawyer – extends to
expert reports, client notes
prepared for litigation, etc.
22
Common Interest Privilege
• Not a separate class of privilege
• Operates to protect privilege from waiver
where there is a sharing of privileged
information
• One party cannot waive other party’s
privilege
• Privilege may be lost when parties become
adverse in interest
23
Settlement Privilege
The purpose of settlement privilege is to
promote settlement. The privilege wraps a
protective veil around the efforts parties make
to settle their disputes by ensuring that
communications made in the course of these
negotiations are inadmissible.
Sable Offshore Energy Inc. v. Ameron
International Corp. SCC 2013
24
Settlement Privilege
Sometimes called the "without prejudice" rule, it
enables parties to participate in settlement
negotiations without fear that information they
disclose will be used against them in litigation
Bombardier Inc. v. Union Carbide Canada Inc.
SCC 2014
25
Settlement Privilege
• Applies regardless of whether expressly
invoked
• Based on benefit to public of promoting outof-court settlements
• Promotes honest and frank discussions
• Privilege applies even after a settlement is
reached
26
Sable v. Ameron
• ... the privilege applies not only to failed
negotiations, but also to the content of
successful negotiations, so long as the
existence or interpretation of the agreement
itself is not in issue in the subsequent
proceedings and none of the exceptions are
applicable.
• negotiated amount of settlement protected by
privilege
27
Sable v. Ameron
• Someone has to go first, and encouraging
that first settlement in multiparty litigation is
palpably worthy of more protection than the
speculative assumption that others will only
follow if they know the amount.
28
Settlement Privilege
• Exceptions:
– Communications to prove the existence or
terms of the settlement
– Fraudulent or unlawful communications
– A competing public interest outweighs the
public interest in encouraging settlement
29
Solicitor-Client Privilege In-house counsel
• SCC recognized that law of privilege applies
equally to in-house and external counsel
• “If an in-house lawyer is conveying advice
that would be characterized as privileged, the
fact that she or he is “in-house” does not
remove the privilege or change its nature.”
 Pritchard v. Ontario (Human Rights Commission),
[2004] 1 S.C.R. 809
30
Solicitor Client Privilege –
In-house counsel
• Solicitor client privilege protects from
disclosure
1. Communications between a lawyer and a
client
2. For the purposes of giving legal advice
3. Made in confidence and with the intention
that they be kept confidential
31
Solicitor Client Privilege –
In-house counsel
• Solicitor client privilege protects from
disclosure
1. Communications between a lawyer and a
client
2. For the purposes of giving legal advice
3. Made in confidence and with the intention
that they be kept confidential
32
Who is the Client?
• Client is the organization.
R. 3.2-3: Notwithstanding that the instructions
may be received from an officer, employee,
agent or representative, when a lawyer is
employed or retained by an organization,
including a corporation, in exercising the
lawyer’s duties and in providing professional
services, the lawyer shall act for the
organization.
• Client is not the organization’s management,
officers or shareholders.
33
Who is the Client?
• In-house counsel may be giving advice
to Board and management
• Caution: Board and management could
have divergent interests and privilege
could be lost even before divergence
arises
• May be prudent for Board to retain
independent counsel
34
Who is the Client?
• In centralized legal departments, in-house counsel
could advise parent, subsidiaries, related or affiliated
entities
• Courts take a practical approach to determining who
is the client
• Issue is whether there is sufficient nexus between inhouse counsel and the affiliated company such that
the affiliate can be regarded as a client rather than a
third party
• What happens if there are divergent interest?
 In re Teleglobe Communications Corp. 493 F. 3d
345 (3d Cir. 2007)
35
Who is the Client?
• Caution: in-house communications between
Canadian and European counterparts within
an organization may not receive the benefit
of solicitor client privilege
Akzo Nobel Chemicals Ltd. and Akcroz
Chemicals Ltd. v. European Commission, EU
Ct of Justice 2010
• Potential practical implications for intercompany communications with privileged
content
36
Giving Legal Advice
• Courts have recognized that not easy
to apply the second element of the
privilege test to in-house counsel
because of the evolving role lawyers
play in corporations
37
Giving Legal Advice
In-House Counsel Role
• In-house lawyers often have many roles,
including those that go beyond traditional lawyer
roles:
– Legal: corporate governance, transactions,
litigation, regulators, internal investigations,
etc.
– Quasi-legal: compliance, ethics officer, etc.
– Management and business: corporate
officer/director, strategic planning, crisis
management, risk management, etc.
38
Giving Legal Advice
• Whether solicitor client privilege attaches to
advice given by in-house counsel depends
on:
– The nature of the relationship
– The subject matter of the advice
– The circumstances in which the advice is
sought and rendered
 Pritchard v. Ontario (Human Rights Commission), [2004] 1 S.C.R. 809
39
Giving Legal Advice
• In most cases, no privilege attaches to:
– Business advice by in-house counsel
– Non-legal portions of documents containing
both legal and business advice
– Non-legal discussions at business meetings
attended by in-house counsel
– Communications merely copied to in-house
counsel
40
Giving Legal Advice
• Raises challenges for in-house counsel who
have been employed by their clients for many
years and who may also have been involved
in a particular matter for many years
• Courts scrutinize claims of privilege by inhouse counsel very carefully
• Will be a factual analysis to determine if
privilege attaches
41
Confidence
• The more broadly legal advice is circulated,
the more difficult it becomes to maintain
privilege because not given in confidence
• TD Bank v. Leigh Instruments:
– No privilege applied to memo issued by TD’s
General Counsel to all of its branches
– No intention to keep memo confidential
because it was circulated to all branches with
no stamp of confidentiality
42
Losing Privilege
• Inadvertent
disclosure
• Waiver
• Putting state of
mind in issue
• Bankruptcy
• Fraud
• Other
43
Inadvertent Disclosure
• Does not void privilege
• Party who receives privileged material in
error must not use the information
• Inadvertent disclosure can result in removal
of counsel who receives the disclosure
44
Celanese v. Murray (2006,
SCC)
• Privilege documents came into hands of
plaintiffs’ solicitors through failure to take
adequate precautions on Anton Piller
• Onus on solicitors to establish no prejudice ot
defendants
• Onus not met
• Litigation at an early stage; solicitors
removed
45
Waiver
• Can be express or implied
• Client always has right to
waive privilege
• Issue re corporations – who
owns the privilege?
• Inadvertent waiver/waiver
by partial disclosure
46
Waiver, con’d
• Waiver by pleading or relying upon
legal advice or lack thereof
– Claim against lawyer giving advice
– Denying proper legal advice
– Client putting in issue “state of mind”
– Partial waiver is waiver of whole
47
Examples re Waiver
• Toronto-Dominion Bank v. Leigh
Instruments - Court held TD Bank
waived privilege by putting in issue
reliance on “comfort letter”
48
Creative Career Systems
Inc. v. Ontario (2012)
• State of mind must involve party
understanding legal position in a way that is
material to the lawsuit - presence or absence
of legal advice must be material to lawsuit
• Party must utilize presence or absence of
legal advice as a material element of claim or
defence
49
Roynat v. Repeatseat
(2015)
• Roynat sued Blakes for negligent
misrepresentation
• Blakes asked for Roynat’s communications
with own lawyers based on waiver
• Greer J. ordered production
• Leave to appeal granted appeal dismissed advice must be disclosed
50
Prima Facie Fraud
• Privilege does not apply where
fraud
– must be definitive allegation of fraud
– must be evidence of prima facie fraud
51
Types of Fraud
• Applies to criminal and civil fraud
• “Fraud” includes deceit, falsehood and
“other fraudulent means”
• Can apply to fraudulent conveyances
• Not necessary to show that solicitor
participated in fraud – solicitors may
willing participants or “dupes”
52
Pax Management v. CIBC
• Customer alleged that CIBC, having
been advised of legal effect of
documents, met with customer and
made fraudulent misrepresentations
• B.C. Court held that legal advice would
“shed light” on customer’s allegations
and ordered production of solicitorclient files
53
Dylex – Finding of Prima
Facie Fraud
• Ontario Superior Court held that share
acquisition involved prima facie fraud;
ordered purchaser’s solicitors to make
wholesale production of their files
• Court of Appeal agreed - adopted Pax
v. CIBC test – any documents which
would shed light on issues should be
produced
54
Scope of Fraud Exception
• Three schools of thought:
– Narrow view (only fraud or crimes)
– Middle ground (akin to fraud)
– Broad view (can include torts and breach of
contract)
• Described as one of the most dynamic and
uncertain area regarding the scope of
privilege in Canada
55
Broad View
• Goldman Sachs v. Sessions (1999, BC)
– Court held exceptions included torts of abuse
of process, breach of of contract and other
breaches of duty
• McDermott v. McDermott (2013, BC)
– Lawyer and client devised strategy to delay
trial by provoking an adverse ruling on
interrogatories and then appealing
– Court held no privilege on communication
56
Broad View, con’d
• Dublin v. Montessori Jewish Day School
(2007, Ontario)
– Perell J. followed Goldman Sachs – held
email communication showing possible
intention to inflict emotional harm not
privileged
• Leave to appeal granted by Divisional Court
on basis good reason to doubt correctness of
order - Appeal never heard
57
Narrow View
• Rocking Chair Plaza (1988, Ontario)
– Bad faith not the same as fraud
– Inappropriate to extend exception to tortious
conduct
• Brome v. Bank of Montreal (2013, Ontario)
– Brown J. rejected broad view – held that
“future crime and fraud” exception only
applies where client knowingly pursuing
criminal purpose
58
Middle Ground
• Includes allegations of bad faith akin to fraud
–
–
–
–
Abuse of criminal process
Deliberate suppression of evidence
Malicious prosecution for improper purpose
Undermining course of justice
• Best accords with purpose of privilege
59
Bankruptcy
• Trustee may be able
to waive privilege on
bankruptcy of a
corporation
60
Ontario Cases re Trustee’s
right to waive privilege
• Earlier Ontario cases – Trustee could
waive privilege regarding property, but
not legal advice
61
Bre-X Decision (Alberta)
• Bre-X case (2001, Alberta Court of
Appeal)
– all directors and officers resigned
prior to bankruptcy
– finding by Court that Trustee cannot
waive privilege
– privilege not “property”
62
Weintraub case (U.S.)
• Weintraub case (1985,
US Supreme Court)
– Trustee assumes role of
directors and officers on
bankruptcy
– Trustee can waive
privilege, standing in the
shoes of corporation’s
management
63
Dylex
• Dylex case – (2002, Ontario Superior
Court)
– Trustee moved for order determining
application of privilege re in-house legal
of Dylex
– Court applied Weintraub; declined to follow
Bre-X
– Trustee has the right to waive bankrupt
corporation’s privilege
64
Other ways to lose
privilege
• Competing rights – privilege and other
fundamental rights
• Privilege can be waived where
necessary for other person to make full
answer and defence to criminal
charges
65
Consequences
• Lawyers’ files and
communications are
never immune from
public disclosure
• Impact of disclosure of
confidential documents
can be enormous
66
Lessons from the EnronArthur Andersen saga
67
The “Nancy Temple”
Memos
• Arthur Andersen indicted for obstruction of
justice as a result of e-mail communication
by Nancy Temple, in-house legal counsel,
reminding employees of the firm’s “document
retention policy”
• Jury did not agree that Arthur Anderson
deliberately obstructed justice by destroying
documents
However …
68
The Verdict - Arthur
Andersen
• Arthur Andersen convicted of obstruction of
justice because of request by Nancy Temple
to remove one sentence and her name from
a memo regarding Andersen’s “take” on
Enron’s October 16th earnings release
69
The Memo
• Dave - Here are a few suggested comments for consideration.
• I recommended deleting reference to consultation with legal
group and deleting my name on the memo. Reference to the
legal group consultation arguably is a waiver of attorney-client
privileged advice and if my name is mentioned it increases the
chances that I might be a witness, which I prefer to avoid.
• I suggested deleting some language that might suggest we
concluded the release is misleading.
• In light of the "non-recurring" characterization, the lack of any
suggestion that this characterization is not in accordance with
GAAP, and the lack of income statements in accordance with
GAAP. I will consult further within the legal group as to whether
we should do anything more to protect ourselves from potential
Section 10A issues.
70
The Fall-Out
• Arthur Andersen broke apart
• In 2005, the conviction was overturned by the
US Supreme Court
71
Lessons learned
• Always be scrupulous in
corporate dealings – avoid
participating in any
activities which may
involve appearance of
impropriety, even where
not necessarily improper
72
Lessons learned
• Be wary of the
informality of voicemail, e-mail
communications
• Avoid unprofessional,
sloppy, inflammatory or
embarrassing language
73
Lessons learned
• Assume that all
documents
– notes, memos,
correspondence - may
become publicly
disclosed, even where
intended as confidential
solicitor-client
communications
74
Best Practices for
Preserving Privilege
1. Mark privileged documents “privileged and
confidential”.
2. Limit circulation of privileged documents within the
corporation to designated individuals on a “need to
know” basis.
3. Consider internal policy governing dissemination of
privileged information.
4. Use distinct letterhead for communications in which
legal advice has been sought.
5. Separate business advice from legal advice.
75
Best Practices for
Preserving Privilege
6. Files related to giving legal advice (including
electronic files) should be segregated from
commercial files, even those pertaining to same
matter, and be kept confidential.
7. When communicating with employees for purposes
of giving legal advice, expressly confirm that
collecting information for such a purpose.
8. Anticipate the need to prove privilege.
76
Internal Investigations
• In-house counsel often involved in conducting or
advising on internal investigations relating to
workplace accidents, employee misconduct,
environmental incidents, contraventions of securities
laws, etc.
• May be extremely important to the organization that
investigation, including all notes, materials,
photographs and the investigation report itself, be
privileged to protect organization and employees
77
Internal Investigations
•
R v Dunn: “notes taken by lawyers in the course of
an internal investigation were protected from
disclosure because they were created for the
dominant purpose of existing, contemplated, or
anticipated litigation.”
–
While notes are protected from disclosure, court held that
a lawyer may be compelled to testify about what occurred
at a meeting attended on behalf of a client if third parties
were also present, even if those third parties were
lawyers
78
Best Practices for Preserving
Privilege in Internal Investigations
1. Define inquiry as a legal issue. Consider drafting an
internal retainer letter to identify purpose of
investigation is to provide legal advice.
2. Be careful about who is on investigation team.
3. Prior to investigation, meet with team to explain
privilege and its consequences.
4. Ensure all investigation materials, including drafts of
report, are stamped “privilege”.
79
Best Practices for Preserving
Privilege in Internal Investigations
5. Maintain confidentiality over the investigation by
providing team with secure room to conduct
interviews, store materials.
6. Obtain written acknowledgment from investigation
team that report belongs to the company, drafts
must be destroyed, etc.
7. Be cautious about disclosing copies of the report
internally and to unions.
80