Pitney Bowes of Canada Ltd. v. Canada, 2003 FCT 214

                                                                                                                                            Date: 20030224

                                                                                                                                         Docket: T-895-02

                                                                                                                Neutral citation: 2003 FCT 214

OTTAWA, ONTARIO, FEBRUARY 24, 2003

PRESENT:      THE HONOURABLE MR. JUSTICE O'REILLY

BETWEEN:

                                                 PITNEY BOWES OF CANADA LTD.

                                           PITNEY BOWES CREDIT CORPORATION

                                                         ROYAL BANK OF CANADA

                                                   MAPLE ASSETS PIPIN LIMITED

                                                                                                                                                      Applicants

                                                                              - and -

                                                        HER MAJESTY THE QUEEN

                                                                                                                                                   Respondent

                                      REASONS FOR JUDGMENT AND JUDGMENT

[1]                 This is a motion pursuant to s. 232(4) of the Income Tax Act, R.S.C. 1985, c. 1, as amended (hereinafter "the Act") to determine whether the applicants have a solicitor-client privilege in respect of certain documents that would protect them from disclosure to the Canada Customs and Revenue Agency (hereinafter "the CCRA"), which is otherwise required under s. 231.2 of the Act.

I. Factual Background

[2]                 The documents in question relate to a multilateral commercial transaction that took place in 1997 ("the leasing transaction"). As part of that transaction, Pitney Bowes of Canada Ltd. ("Pitney Bowes") purchased railway cars from NS Group N.V. ("N.S. Group"), and then leased them to Maple Assets Pipin Limited ("MAPL"), who then sub-leased these cars to NS Group. Royal Bank of Canada ("Royal Bank") loaned Pitney Bowes a portion of the purchase price of the railway cars.

[3]                 Various parties were represented by different legal counsel in the leasing transaction. In particular, McMillan Binch represented all of the applicants in one way or another. To avoid conflicts, different lawyers were involved in different aspects of the transaction, and Clifford Chance of the UK provided independent advice on certain matters to Royal Bank and MAPL.

[4]                 The parties to the leasing transaction agreed that, where multiple parties needed legal advice in areas where their interests were not adverse, they would all obtain advice from one legal counsel, regardless of the general legal representation in the transaction. In particular, Clifford Chance of the UK provided two opinions on United Kingdom law, both dated December 12, 1997: one addressed solely to Pitney Bowes, and the other addressed jointly to N.S. Group and Royal Bank. It is these two opinions that are the subject of this application.

[5]                 On April 18, 2002, the CCRA served McMillan Binch with a requirement pursuant to s. 231.2 of the Act to provide documents related to the leasing transaction. McMillan Binch refused to provide certain documents to the CCRA, claiming that they were exempt from disclosure on the basis of solicitor-client privilege. Those documents were sealed in two boxes and have been retained by McMillan Binch in accordance with s. 232(3.1) of the Act. McMillan Binch then brought an application to determine the question of solicitor-client privilege which has resulted in this motion.

[6]                 The parties have reached a settlement with regard to many documents. The only documents that remain in dispute are the two legal opinions by Clifford Chance described above. The sole issue is whether these two documents are protected by solicitor-client privilege and are thereby excluded from disclosure to the CCRA.

[7]                 The relevant sections of the Act are set out below as an Annex.

II. Issue

[8]                 Are the two legal opinions dated December 12, 1997, authored by the United Kingdom law firm of Clifford Chance and in the possession of the applicants, protected by solicitor-client privilege?

III. Analysis

[9]                 I have reviewed the numerous cases cited to me by the parties on the subject of solicitor- client privilege. Those that were decided in circumstances similar to the matter before me appear to support the position of the applicants. Counsel for the respondent, in all candour, urged me to conclude that those cases were wrongly decided.

[10]            On one level, this matter is simple. Indeed, the applicants see it that way. The respondent is seeking disclosure of legal opinions in the custody of the applicants' solicitors. Those opinions, say the applicants, are privileged under the ordinary rules protecting solicitor-client communications.

[11]            The respondent sees things differently, arguing that attaching privilege to the documents in issue would amount to an unjustified extension of the concept of privilege, even beyond what is contemplated by the so-called "common interest" privilege.

A. Common Interest Privilege in Litigation

[12]            In Buttes Gas and Oil Co. v. Hammer, et al. (No. 3), [1980] 3 All E.R. 475, Lord Denning described common interest privilege as "a privilege in aid of anticipated litigation in which several persons have a common interest" (at 483). In that case, privilege was found to attach to documents prepared after the point in time when litigation between the parties was anticipated. The privilege extended to documents prepared by the litigants and shared with other persons who, while not parties to the litigation, had interests in common with the respective litigants. Lord Denning provided a simple example to illustrate the kind of situation where this kind of privilege should be recognized:

                 Owners of adjoining houses complain of a nuisance which affects them both equally. Both take legal advice. Both exchange relevant documents. But only one is a plaintiff. . . In all such cases I think the courts should, for the purposes of discovery, treat all the persons interested as if they were partners in a single firm or departments in a single company. Each can avail himself of the privilege in aid of litigation (at 484).

[13]            One can readily see the logic of such a rule. However, its relevance to these proceedings is not immediately apparent. Clearly, the common interest privilege Lord Denning had in mind was a specific kind of privilege that applied in circumstances when litigation was contemplated. In those circumstances, it is clear which parties have interests in common and which are adversaries. That is not the case here. In the case at bar, the parties were trying to achieve a fairly large commercial transaction. There is no suggestion that litigation was on their minds. The parties had overlapping, but not identical, interests. They were neither adversaries nor brothers-in-arms. It would be difficult to view them "as if they were partners in a single firm or departments in a single company", to use Lord Denning's words.

[14]            Strictly speaking, then, the rule in Buttes is not applicable here. However, Lord Denning's reasoning may be. The point of recognizing common interests is not as a means of determining whether privilege exists. The real issue is whether privilege has been lost. In Lord Denning's example, a legal opinion secured by the plaintiff homeowner is clearly privileged. The question is whether that privilege would be lost if the opinion was shared with the plaintiff's neighbour. His answer was that the privilege would remain intact if the opinion was shared with persons who had common interests. It would be otherwise if the opinion was shared with the nuisance-causing defendant.

[15]            In the matter before me, it seems obvious that the legal opinions the disclosure of which is sought by the respondent are prima facie privileged. The question is whether privilege was lost when those opinions were shared with other parties to the transaction. To answer that question, one must decide whether the logic of Buttes has any application to commercial transactions.

B. Common Interest Privilege in Commercial Transactions

[16]            Other courts have addressed this issue and have concluded that Buttes applies when parties to a commercial transaction share legal opinions with one another. Of the cases cited to me, Fraser Milner Casgrain LLP v. Canada (Minister of National Revenue), [2002] B.C.J No. 2146, is closest to the circumstances before me. There, the respondent sought production of a number of documents relating to the creation of certain business partnerships. The documents in issue included legal advice that was prepared for one group of companies and then shared with other corporate parties to the proposed transaction. In the course of his reasons, Lowry J. summarized in the following terms the other recent cases in the area, all of which were cited to me (Archean Energy Ltd. v. Canada (Minister of National Revenue) (1997), 98 D.T.C. 6456 (Alta. Q.B.), [1997] A.J. No. 347 (QL); Anderson Exploration Ltd. v. Pan Alberta Gas Ltd., [1988] 10 W.W.R. 633 (Alta. Q.B.) and St. Joseph Corp. v. Canada (Public Works and Government Services), 2002 FCT 274, [2002] F.C.J. No. 361 (QL) (T.D.):

In Archean Energy, legal opinions concerning the tax consequences of a number of share purchases were developed for one company which subsequently provided them to a second company, the purchaser in the transactions. The opinions were held, on application by the purchaser under the Income Tax Act, to be privileged because they had been provided to further the common interest of having the transaction concluded and not with the intent of waiving the privilege attached. In Anderson Exploration, two corporations exchanged confidential documents of a proprietary nature in negotiating a merger. A legal opinion obtained by one was also given to the other. Later, in unrelated litigation involving a subsidiary of one of the corporations, the plaintiff sought access to the documents arising from the merger negotiations. The court held that the disclosure of the documents to third parties did not waive the privilege that attached to all of the documentation because of the common interest associated with their disclosure. And in St. Joseph, legal opinions exchanged in the course of a commercial transaction were held to be privileged given that the parties had a joint interest in ensuring its completion (at para.8).

[17]            In the result, Lowry J. held that besides the common interest litigation privilege recognized in Buttes, the courts should also recognize another kind of common interest privilege: one based on "the parties' common interest in the successful completion of a transaction" at (para. 12). He found that "economic and social values inherent in fostering commercial transactions" favoured the recognition of such a privilege. It is that kind of privilege that he applied to the circumstances before him.

[18]            As mentioned above, in these kinds of cases the real issue is whether the privilege that would originally apply to the documents in dispute has somehow been lost - through waiver, disclosure or otherwise. This is a question of fact that will turn on a number of factors, including the expectations of the parties and the nature of the disclosure. I read the foregoing cases as authority for the proposition that in certain commercial transactions the parties share legal opinions in an effort to put them on an equal footing during negotiations and, in that sense, the opinions are for the benefit of multiple parties, even though they may have been prepared for a single client. The parties would expect that the opinions would remain confidential as against outsiders. In such circumstances, the courts will uphold the privilege.

[19]            However, the cases do not say, as I read them, that the mere existence of a commercial transaction is sufficient on its own to insulate all shared solicitor-client communications from attempts to gain access to them. There may well be cases where the parties to a commercial transaction disclose privileged documents in circumstances that suggest that there has indeed been a loss or waiver of privilege. As mentioned, in the commercial setting it is less clear than in Lord Denning's example which parties have common interests. Therefore, it is more difficult to make a hard and fast rule. I agree with the observation of Slatter J. in Pinder v. Sproule, [2003] A.J. No. 32 (QL)(Q.B.) that "[p]otential parties to a merger or other business transaction are in many ways adverse in interest, and it strains the common interest exception to try and fit disclosures between such parties within that exception" (at para. 62).

[20]            Still, in many commercial transactions, the parties will want to negotiate on the footing of a shared understanding of each other's legal position. They will seek legal advice from reputable solicitors whose opinions will be respected by the other parties. Indeed, the solicitors may represent more than one party to the deal. The sharing of legal opinions will ensure that each party has an appreciation of the legal position of the others and negotiations can proceed in an informed and open way. The advice may be provided for one or more party on the understanding that others should be provided copies. The expectation, whether express or implied, will be that the opinions are in aid of the completion of the transaction and, in that sense, are for the benefit of all parties to it. Such circumstances, in my view, create a presumption that the privilege attaching to the solicitor-client communications remains intact notwithstanding that they have been disclosed to other parties.

C. Application to the Facts of this Case

[21]            Here, the legal opinions in issue were prepared by Clifford Chance for specific parties: Pitney Bowes of Canada Ltd. on the one hand, and N.S. Group N.V. and Royal Bank of Canada on the other. Those opinions were privileged communications between solicitors and clients. The question is whether the disclosure of those opinions to the other parties dissolved that privilege.

[22]            The applicants acknowledge that some of the parties were adverse in interest in many aspects of the transaction. However, the expectation was that these opinions, as well as others, should be sought and distributed among them so that the parties would have a common understanding of certain legal aspects of the transaction. The opinions were prepared with distribution in mind. This approach was economical, in that each party did not have to seek the same legal advice. It also facilitated completion of the transaction because parties were informed of the respective legal positions of the others. While the opinions are addressed to particular clients, they were prepared with the intention of sharing them with other parties with like interests for their collective benefit.

[23]            In these circumstances, the presumption is that the privilege should be maintained unless there is some evidence to suggest that it was somehow waived, disclosed to outsiders or otherwise terminated. There is no evidence of this in the case before me. Accordingly, these documents are privileged and should remain in the custody of McMillan Binch.

                                              JUDGMENT

IT IS HEREBY ADJUDGED THAT:

(b)                 an opinion written by Clifford Chance dated December 12, 1997 addressed jointly to NS Group N.V. and to Royal Bank of Canada, London Branch;

are not required to be produced to the Canada Customs and Revenue Agency under the requirement to provide documents dated April 18, 2002 and shall remain in the custody of McMillan Binch.

The remaining documents are to be dealt with in the manner set out in the Consent to Order dated February 10, 2003 and filed with the Court at the hearing of this motion on February 11, 2003 in Toronto.

                                                                                    "James W. O'Reilly           

                                                                                                      J.F.C.C.                    

OTTAWA, Ontario

February 24, 2003