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Everything In-House Counsel Needs to Know About Privilege and Confidentiality Shelley Babin Senior Counsel 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 • 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 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 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 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 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 – 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 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 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 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 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 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 Origins of Legal Privilege • Originated as exemption from testimonial compulsion of lawyer 13

Privilege over all Solicitor. Client Communications • Expanded to include: – communications exchanged during Privilege over all Solicitor. Client 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 Solicitor. Client Privilege • Solicitor-client privilege must be as close to absolute Importance of Solicitor. Client 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 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 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 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 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 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 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 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 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 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 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 Settlement Privilege • Applies regardless of whether expressly invoked • Based on benefit to public of promoting out-of -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 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 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 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 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. ” Ø 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. 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. 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 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 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, 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 whethere 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? Ø In re Teleglobe Communications Corp. 493 F. 3 d 345 (3 d Cir. 2007) 35

Who is the Client? • Caution: in-house communications between Canadian and European counterparts within 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 Ø 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 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 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 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 Ø 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 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 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 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 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 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 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 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 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 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 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 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 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, 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 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 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 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 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 • Mc. Dermott v. Mc. Dermott (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 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 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 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 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 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 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 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 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 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 Consequences • Lawyers’ files and communications are never immune from public disclosure • Impact of disclosure of confidential documents can be enormous 66

Lessons from the Enron. Arthur Andersen saga 67 Lessons from the Enron. Arthur Andersen saga 67

The “Nancy Temple” Memos • Arthur Andersen indicted for obstruction of justice as a 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 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 16 th earnings release 69

The Memo • Dave - Here a few suggested comments for consideration. • I The Memo • Dave - Here 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 10 A issues. 70

The Fall-Out • Arthur Andersen broke apart • In 2005, the conviction was overturned 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 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 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 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 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 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 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 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 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 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