Dealmakers breathe sigh of relief

“In turn, that misalignment created uncertainty for transaction parties, particularly because the Federal Court is where the CRA would go if it was trying to compel a party to produce documents,” Cobb says.

That’s precisely what happened in the case underlying the FCA judgment, which involved a company called Abacus that was acquiring the shares of IGGillis Holdings Inc. The lawyers on both sides produced a joint memo, distributed to their clients and marked “PRIVILEGED & CONFIDENTIAL”, outlining their opinion “on how to buy the shares in the most tax-efficient manner.”

After the deal closed, the CRA sought production of the memo. The companies refused. CRA asked the Federal Court to order production.

“Annis was very skeptical about why parties sought privilege for this information and made some fairly broad comments that people do this to hide something,” Cobb says.

Both the Federation of Law Societies of Canada and the Canadian Bar Association, which intervened in the case, supported the privilege.

“The Bar took great pains to point out that there are a host of reasons why transactional common interest privilege exists, including making transaction execution more efficient,” Cobb explains.

But Annis rejected that rationale. Instead, he concluded that common interest privilege was irreconcilable with the rationale underlying solicitor-client privilege, which had confidentiality as its guiding principle. Sharing the information almost always offended that principle.

Although the FCA overturned Annis’ ruling, dealmakers aren’t out of the woods yet, as the CRA may seek leave to appeal from the Supreme Court of Canada (SCC).

“I think the odds of this case going to the SCC are very high,” says William Innes of Toronto, counsel at Reuters LLP.

But Littlejohn believes that the unanimity in Canadian provincial courts could dissuade the high court from granting leave.

“There are no outlying provinces that say common interest privilege doesn’t exist, and that could provide an incentive for the SCC to turn down the appeal,” she says.

For his part, Innes points to the contrast between Annis’ approach and the one taken by the FCA.

“The Federal Court’s decision entailed a detailed, purposive analysis running to 300 paragraphs whereas the Court of Appeal took a more traditional analysis based largely on provincial precedents,” the lawyer says.

During former Chief Justice Beverley McLachlin’s tenure, the court was often attracted to purposive analysis.

“It will be interesting to see whether the Wagner court (Richard Wagner is the recently appointed current chief justice) follows the same course,” Innes says. “In my view, the decision could easily go either way.”