When a regulator comes knocking at your door, with an order compelling the production of documents, how should you treat communications between you and your lawyers? Are you required to produce privileged documents to the regulator, and if so, are the documents then discoverable in subsequent civil actions? The number of recent high-profile regulatory investigations that have taken place around the globe, particularly in the financial services sector, have brought this question to the forefront.
IS THERE AN OBLIGATION TO PRODUCE PRIVILEGED DOCUMENTS?
First, it is important to keep in mind that certain statutes expressly allow a witness to claim privilege when providing evidence in a regulatory investigation. For example, section 13(2) of the Ontario Securities Act, and section 9(2) of the Commodity Futures Act (administered by the Ontario Securities Commission) each provide that a person or company compelled to give testimony or produce documents in an investigation may claim “any privilege to which the person or company is entitled”. As another example, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, which authorizes the Financial Transactions and Reports Analysis Centre of Canada to conduct investigations to ensure compliance with the aforementioned act, sets out the process (under section 64) by which a claim of solicitor-client privilege over a document may be made and decided. Organizations facing document production orders should therefore first segregate any responsive documents that are covered by privilege and determine whether they must be produced, or whether a claim of privilege may be made to the regulator in respect of those documents.
Where the production of privileged materials is required by statute and the materials are produced only to comply with that obligation, courts have recognized that this does not constitute a waiver of privilege, under the doctrine of limited waiver.
Canadian courts have long recognized the doctrine of limited waiver, following the case of British Coal Corp v. Dennis Rye Ltd (No. 2), which established that privileged documents made available to police to assist in the conduct of a criminal investigation did not constitute a waiver of privilege over those documents in a subsequent civil action. Generally, where a party is compelled by statute to produce documents, this does not constitute a waiver of privilege (S. & K. Processors Ltd. v. Campbell Ave. Herring Producers Ltd.). Where disclosure was found not to have been required by statute, some courts have held that the doctrine of limited waiver did not apply, and privilege was held to have been waived in those circumstances.
The application of the doctrine of limited waiver outside of the criminal context, however, has varied in Canada. There are certain circumstances where limited waiver has been held to clearly apply, such as company audits. The provision of documents to an auditor for the purposes of conducting an audit (as required under the Canada Business Corporations Act and the Ontario Business Corporations Act), has been held not to constitute a waiver of privilege over those documents for all purposes — the privilege is only waived for the purposes of enabling the auditor to carry out its audit functions. (See Interprovincial Pipe Line Inc. v. M.N.R. and Philip Services Corp. (Receiver of) v. Ontario Securities Commission.)
Outside of audits, there is some authority in Canada for the proposition that producing privileged documents to a regulator in the course of a regulatory investigation does not constitute waiver of privilege. In Caterpillar Tractor Co. v. Ed Miller Sales & Rentals Ltd. (Ed Miller Sales) the Alberta Court of Appeal held that a party’s production of a report to the Director of Investigation and Research in the course of an inquiry into that party’s practices under the Combines Investigation Act did not constitute waiver of privilege in subsequent civil litigation. However, this aspect of the Alberta Court of Appeal’s decision in Ed Miller Sales has not been clearly followed in Ontario.
Recently, the English courts have found that that the doctrine of limited waiver applies to documents produced to regulators in the course of a regulatory investigation where the parties expressly agree that privilege and confidentiality will be maintained, even where the agreement contains “carve outs” allowing further disclosure by the regulator. It will be interesting to see whether Canadian courts in civil proceedings apply the doctrine of limited waiver in a similar manner in respect of documents produced in a regulatory investigation, and particularly where an organization expressly acknowledged the possibility that its regulators may act on or share the documents pursuant to their regulatory powers. The exact terms of the “carve out” and the identity of the party subsequently seeking disclosure will be important considerations in such a situation. On this point it is important to remember that the courts have emphasized that under the doctrine of limited waiver “the intention of the privilege holder is key.” (Canada (National Revenue) v. Thornton, which also dealt with an audit.) Organizations should therefore make clear when they are knowingly disclosing privileged material for the limited purpose of complying with a statutory obligation and make clear their intention of maintaining privilege over the documents for all other purposes.
Organizations subject to regulatory investigations should first determine whether they are obligated to produce privileged materials and what, if any, statutory protections exist. Organizations should take steps to identify and segregate any materials that may be covered by privilege, and where they are compelled to produce such materials, should clearly indicate the limited purpose for which the documents are being produced and take steps to maintain their confidentiality. Where possible, organizations should try to reach an agreement with regulators as to the basis on which privileged material is being produced, and explicitly state that confidentiality and privilege over the documents are maintained.