Catch-22: Defense of Breach of Good Faith Duty and Potential Waiver of Legal Privilege | Bennett Jones LLP
[co-author: Jason Arnason – Articling Student]
A defendant who wishes to rely on legally privileged information in response to a claim alleging a breach of a duty in good faith, or alleging bad faith, may be faced with a “no way out” scenario.
In particular, if the defendant relies on legally privileged information for his defense, he can waive the privilege over that information, thus making it productive. Conversely, if the defendant does not raise such information in defense, the privilege is protected but the defendant may jeopardize its chances of winning against the plaintiff.
The Supreme Court of the Northwest Territories recently addressed this and other questions of legal privilege in LTS Infrastructure vs. Rohl et al, 2021 NWTSC 9 [LTS]. The Court in THIS IS examined whether communications involving a client, a lawyer and a third party were protected by solicitor-client privilege in the context of the defense of an alleged breach of a duty of good faith in the obligations to perform the contract and, if so, whether the privilege had been waived.
LTS Infrastructure Services Limited Partnership (LTS) was the designer-builder of a project that involved the design, construction, maintenance and operation of a fiber optic communication system in the Northwest Territories. In December 2014, LTS entered into a written subcontract with Rohl Enterprises Ltd. (Rohl) to provide certain services related to the project. The Travelers Insurance Company of Canada was the surety under a performance bond, which was issued to Rohl as principal and named LTS as creditor.
In 2016, LTS sued Rohl, claiming Rohl had defaulted on his obligations under the subcontract, and against the surety for allegedly breaching his obligations under the surety. In the action against the surety, LTS argued that the surety breached a duty of good faith in investigating and responding to the claim against the surety. As part of his defense against the alleged breach of an obligation of good faith, the surety pleaded, invoked and produced an investigative report from his consultant which was prepared before the refusal of the surety by the surety and which was addressed to the surety. external legal advisor.
LTS disputed the legal privilege claimed over any material that the consultant received, drafted or copied. LTS argued that the surety waived any solicitor-client privilege that might attach to such documents in pleading and filing the investigation report, and that all documents related to the consultant during the investigation were subject to production. The surety argued that the records were protected by solicitor-client privilege and that the pleadings in his defense were not sufficient to waive the privilege.
LTS’s request for production of these documents raised two central issues for the Court: (a) the solicitor-client privilege attached to documents sent, received or copied to the consultant, even though an external lawyer may not have not part of these documents. correspondence; and (b) if so, whether the surety implicitly waived the privilege on the basis of the investigation report in his defense.
On the question of privilege in general, Smallwood J. of the Supreme Court of the Northwest Territories found that correspondence sent, copied or received from the consultant was subject to solicitor-client privilege. The Court found that this correspondence fell within the continuum of lawyer-client correspondence and that the consultant’s involvement in this regard was an integral part of the lawyer-client relationship.
On the issue of waiver, Smallwood J. argued that a mere reference to legal advice in a disclosed pleading or document is not sufficient to waive the privilege. In making its decision, it noted that the existence or adequacy of legal advice must constitute a sufficient part of the defense to constitute a waiver of privilege and concluded that the reference to the investigation report in the statement in defense of the surety did not meet this threshold. .
The Court concluded that the surety had not invoked recourse to a legal opinion which she had received nor questioned her state of mind as a result of that opinion. The Court also concluded that the fact that the surety relied on the report, which had been addressed to the surety’s external counsel, did not necessarily make the content of any legal advice received in preparing the report relevant or admissible. in circumstances where recourse to such advice has not been expressly invoked.
To take away
the THIS IS The decision provides a good overview of two questions of legal privilege that practitioners often grapple with: (i) whether a continuum of correspondence may be subject to solicitor-client privilege even if a lawyer is not part of that correspondence ; and (ii) whether the privilege is waived in circumstances where a party relies on potentially privileged information in its defense.
On the first point, the THIS IS The decision confirms that a wide continuum of correspondence can attract solicitor-client privilege in the appropriate circumstances. Regarding the second question, the THIS IS The ruling suggests that a party does not implicitly waive solicitor-client privilege by referring to legal advice in a pleading or producing a document, unless the legal advice provides an express basis for the defense, or that it questions the state of mind of the party at the time.
In particular, given recent Supreme Court of Canada decisions applying the duty of good faith in the performance of contracts, litigants may continue to experience the difficult scenario of whether or not to collect legally privileged information to defend alleged violations. duty of good faith. Decisions such as THIS IS provide advice on how to solve this difficult problem.
Bennett Jones LLP successfully represented travelers in the LTS decision.