US courts affirm narrow privilege

Decision highlights key differences in how common-interest privilege is treated cross-border
US courts affirm narrow privilege

A RECENT RULING from the New York Court of Appeals highlights the differences in how Canadian and American courts approach common-interest privilege. “Counsel, particularly those involved in commercial transactions, should understand the very important distinctions between our laws on this issue,” says Dalton McGrath of Blake, Cassels & Graydon LLP.

Generally speaking, disclosure of communications protected by solicitor-client privilege to a third party results in a waiver of the privilege. The common-interest privilege doctrine, an exception to the waiver rule, seeks to avoid that result where parties have the same interests, share common goals or are seeking similar remedies.

“Common-interest privilege agreements are intended to enable parties to communicate frankly between themselves without waiving a privilege that any one of the parties may enjoy,” McGrath explains.

Historically, common-interest privilege has applied to the sharing of information that takes place for the purpose of or in contemplation of litigation, arbitration or dispute-resolution proceedings. But Canadian courts have taken it further. “Some Canadian cases have entrenched that protection in the commercial context in order to allow parties to pursue similar common interests in commercial transactions,” McGrath says.

The British Columbia Court of Appeal’s decision in Maximum Ventures v. De Graaf in 2000 is generally regarded as having set the tone for Canadian courts. The court ruled that, where sufficient commonality exists, the privilege applies even in the absence of actual or contemplated litigation. “Other Canadian cases have echoed that view,” McGrath says.

But the law can be different in the
US. While some federal courts of appeal have taken a position similar to the Canadian one, most US courts have applied the privilege only where the shared communications relate to pending or anticipated litigation.

Most recently, the New York Court of Appeals upheld the narrow scope of the common-interest privilege in that state. The decision, Ambrac Assurance v. Countrywide Home Loans, arose in the context of a merger between Countrywide and America in 2008. The transaction featured a common-interest agreement intended to protect communications regarding the merger, including documents relating to employee benefit plans and tax issues.

Ambac had insured some of Countrywide’s residential mortgage-backed securities. When the securities failed during the financial crisis, Ambac sued, alleging that Countrywide had misrepresented the loans’ quality. Ambac also sued Bank of America as the successor to Countrywide.

Bank of America claimed that certain communications between itself and Countryside were protected by attorney-client privilege because they related to a number of legal issues the companies needed to resolve jointly in pursuance of the merger. Ambac countered that the voluntary sharing of the confidential material waived the attorney-client privilege.

Two lower courts upheld the privilege, but the Court of Appeals reversed, noting that New York precedent had for over two decades required “pending or reasonably anticipated litigation” as a pre-condition to invoking common interest privilege. “As an exception to the general rule that communications made in the presence of or to a third party are not protected by the attorney-client privilege our current formulation of the common interest doctrine is limited to situations where the benefit and the necessity of shared communications are at their highest, and the potential for misuse is minimal,” the court stated.

As the court saw it, the commercial context, which differed markedly from the litigation context, did not meet these criteria. “When two or more parties are engaged in or reasonably anticipate litigation in which they share a common legal interest, the threat of mandatory disclosure may chill the parties’ exchange of privileged information and therefore thwart any desire to coordinate legal strategy,” the court stated. “In that situation, the common interest doctrine promotes candor that may otherwise have been inhibited. The same cannot be said of clients who share a common legal interest in a commercial transaction or other common problem but do not reasonably anticipate litigation.”

Gavin MacKenzie of MacKenzie Barristers says
US courts are less likely to imply that common-interest privilege exists. “Courts in many states are not inclined to apply the privilege unless it has been evidenced by a formal agreement that includes reference to the privileged communications and the fact that there is no intent to waive the privilege by virtue of the documents’ disclosure to the parties.”