Common Interest Privilege in Commercial Transactions

Does it still exist after Iggillis?

Common Interest Privilege in Commercial Transactions

In a lengthy decision, the Federal Court of Canada in Minister of National Revenue v. Iggillis Holdings Inc., 2016 FC 1352 rejected the existence of advisory common interest privilege in Canada. This article reviews the advisory common interest privilege doctrine, the Iggillis decision and the consequences for lawyers. 

Advisory Common Interest Privilege
Solicitor-client privilege protects communications between a lawyer and his or her client relating to the provision of legal advice. When a client discloses a confidential solicitor-client communication to a party outside of the solicitor-client relationship, solicitor-client privilege is generally waived.

Advisory common interest privilege protects lawyer-to-lawyer communications such that solicitor-client privilege is not waived where two or more clients are represented by different lawyers and their lawyers share privileged information regarding a matter of common legal interest to the clients in the context of a commercial transaction. 

The facts of Iggillis are straightforward. Iggillis Holdings Inc. and Ian Gillis (collectively, the “Taxpayer”) and Abacus Capital (“Abacus”) entered into a transaction for the purchase and sale of the Taxpayer’s shares of a company. In the course of negotiations, tax counsel for Abacus prepared a memorandum (the “Memo”) describing the proposed steps of the transaction and circulated it to counsel for the Taxpayer, who contributed to the Memo. The Minister served a requirement on the Taxpayer to produce the Memo pursuant to subsection 231.2(1) of the Income Tax Act (Canada) (the “Act”). The Taxpayer refused to produce the Memo, citing advisory common interest privilege, and the Minister applied to the Federal Court for a compliance order pursuant to subsection 231.7(1) of the Act. 

The Federal Court acknowledged the “well-established status” and “overwhelming acceptance of advisory common interest privilege in the common law world,” but nevertheless concluded that advisory common interest privilege was “incorrectly accepted in both the United States and Canada” because “the jurisprudence supporting advisory common interest privilege was established under a cloak of confusion... with very little analysis of the factors and considerations relating to the legitimacy of advisory common interest privilege.”

The Federal Court was particularly concerned with the perceived detrimental effect on the administration of justice, as the following excerpts illustrate:

Common interest privilege is enabling high risk litigation that creates an economic profit for the clients, while helping fend off any future challenge to how the profits were earned by keeping out evidence that would expose the legal deficiencies of the deal.

[Common interest privilege] will also enable commercial transactions that are of questionable legality given the purposes they are put to. Examples abound. They may involve placing wealth off shore, or estate planning of wealthy persons, or multinational corporations shifting their costs to high-tax countries and their profits to low-tax countries... there is little or no economic reality to these transactions, nor any benefit to society.

After rejecting the Taxpayer’s advisory common interest privilege claim, the Federal Court allowed the Minister’s application and ordered the Taxpayer to produce the Memo. 

Iggillis has been appealed to the Federal Court of Appeal.

Consequences for Lawyers

Communications with other lawyers in a non-litigation context that were once believed to be privileged may not be after Iggillis. Lawyers should therefore structure their communications with other lawyers with that in mind. 

Related Articles