This recent decision of the Alberta Court of Appeal provides important clarifications about the test for litigation privilege and the waiver of same that may result from voluntarily disclosure to unrelated third parties.
Background
In 2015, a northern Alberta pipeline operated by Nexen Energy ULC, now CNOOC Petroleum North America ULC (“CNOOC”), failed, resulting in one of the largest spills in Alberta’s history.[1] CNOOC immediately launched an investigation into controlling the spill, mitigating environmental impacts, and preparing for resultant legal and regulatory issues. CNOOC’s Assistant General Counsel concluded that civil litigation and regulatory enforcement proceedings were real possibilities, and as such, directed that all investigations be conducted on a privileged and confidential basis. The investigation yielded several reports, two of which (the “Reports”) were at issue in the Alberta Court of Appeal’s recent decision in CNOOC Petroleum North America ULC v ITP SA.[2]
CNOOC commenced an action against ITP SA, Sunstone Projects Ltd and Wood Group Canada Inc (collectively, the “Respondents”), the engineers responsible for the pipeline design, alleging negligence and breach of contract for the pipeline failure. In the course of that action, CNOOC claimed litigation privilege over the Reports. The Respondents applied to the case management judge to compel their production.
The case management judge — without reviewing the content of the Reports — ordered the disclosure of the Reports, finding that they “would have encapsulated too many other concerns to have properly been prepared with the dominant purpose of litigation.”[3] If he was wrong in concluding the Reports were not litigation privileged, he nonetheless would order their production on the basis that the privilege had been waived by CNOOC’s subsequent disclosure of same. CNOOC appealed the case management judge’s ruling to the Court of Appeal.
The principles of litigation privilege
The Court of Appeal began its analysis with a helpful summary of the law of litigation privilege, the key principles are summarized as follows:
- Litigation privilege creates a “zone of privacy” around pending or apprehended litigation, and allows litigants to “prepare its case without concern that its strategies will be disclosed to its opponents.”[4]
- Both civil litigation and regulatory enforcement proceedings can give rise to litigation privilege.[5]
- The test for litigation privilege is well-established. The party asserting the privilege over a record must prove, on a balance of probabilities, that the dominant purpose for the creation of that record, at the time of its creation, is in contemplation of, or for use in, litigation that is pending or reasonably apprehended.[6]
- The dominant purpose test does not require a document to be prepared for the sole or exclusive purpose of litigation to be protected. Litigation privileged documents can have multiple purposes, so long as their dominant purpose is for litigation. Practically, this means that parties need not “quarantine” all information that is in a document/report in order to maintain litigation privilege over the document.[7]
- There can be no “blanket” claim of privilege over all documents and information generated during, or resulting from, an investigation. Even if an entire investigation is conducted in contemplation of litigation, “the dominant purpose for creating each record ha[s] to be examined individually.”[8] In other words, litigation privilege must be examined on a document-by-document basis, distinct from the objectives or purpose of the larger investigation or context in which they were created.[9]
- The subsequent use of the document has no bearing on its dominant purpose.[10] The subsequent use of a document is relevant to whether privilege was waived.
The Court of Appeal took issue with the case management judge’s evaluation of the litigation privilege for the Reports in two key respects. First, the case management judge focused more on the multi-purpose nature of the investigation from which the Reports were generated, rather than the dominant purpose for the Reports at the time they were made.[11] Second, the case management judge relied on the subsequent use of the Reports in determining they were not litigation privileged. CNOOC’s subsequent use of the Reports (or the information therein) was more relevant to whether there was a loss of privilege by waiver, and did not necessarily say anything meaningful or relevant about the dominant purpose for their creation.[12]
Ultimately, the Court of Appeal did not remit the matter back to the case management judge on the question of privilege because it found privilege had been waived.[13]
Waiver
The Court of Appeal then turned to the topic of waiver and provided clarifying comments on unintentional waiver in particular.
There are two types of waivers: intentional and unintentional. Intentional waivers occur when the party asserting the privilege intends to disclose a privileged record (for e.g. production of expert reports for use at trial, or to promote settlement).[14]
Unintentional waiver occurs where a party entitled to assert privilege over a record does not subjectively intend to waive privilege, but nonetheless loses privilege over that record because it uses the record in a manner inconsistent with maintaining the privilege, or otherwise treats the record as no longer confidential.[15] The Court of Appeal remarked that such a waiver is more aptly considered a “waiver by operation of law”.[16]
Although there is no “fixed test” for determining “when disclosure is inconsistent with maintaining the privilege,” the Court of Appeal endorses a highly contextual and fact-specific analysis when approaching this question.[17] When considering whether there has been an unintentional waiver of privilege by virtue of disclosure, a court may be guided by the following factors: (i) the existence of a legitimate interest protected by the privilege despite the disclosure; (ii) whether maintaining the privilege will result in unfairness or prejudice to the other side; and (iii) whether maintaining the privilege will undermine the integrity of the administration of justice.[18] In short, the analysis involves a balancing of the competing interests of the privilege-holder and the adversary. The Court of Appeal further clarified that disclosure of a record under legal compulsion would be another relevant consideration that likely weighs in favor of maintaining the privilege notwithstanding the disclosure.[19] It bears noting that the Court of Appeal appears to confirm that privilege is not lost and no unintentional waiver occurs by: (i) inadvertent disclosure, (ii) unauthorized disclosure, (iii) disclosure arising from misconduct, or (iv) disclosure to a common interest party.[20]
Voluntary disclosure of a privileged record to an unrelated third party may give rise to an unintentional waiver of privilege “unless, at a minimum, it was clear that the recipient of the privileged record would maintain its confidentiality.”[21] Ultimately, whether voluntary disclosure of a privileged record to a third party is “inconsistent with the maintenance of privilege” depends on context, and considers: (i) the identity of the third party, (ii) the reason for the disclosure, and (iii) the likely or intended use of that document by the third party.[22]
CNOOC found to have unintentionally waived privilege over the Reports
The Court of Appeal found that CNOOC unintentionally waived privilege over the Reports when it voluntarily disclosed same to the Alberta Energy Regulator (“AER”) and the Association of Professional Engineers and Geoscientists of Alberta (“APEGA”).
CNOOC reported the incident to the AER within hours of its occurrence, per its statutory responsibility to do so. The AER subsequently exercised its statutory power to request records from CNOOC, and requested disclosure of all reports relating to the root cause of the pipeline failure.[23] CNOOC’s counsel disclosed the Reports to the AER, specifically requesting that they be kept confidential. The AER abided by this request by not posting them to their website or providing them to third parties. Nonetheless, the Court of Appeal found that CNOOC’s disclosure of the Reports to the AER was inconsistent with maintenance of privilege over the Reports for the following reasons:
- The AER’s statutory power to compel record production did not expressly override privilege. In other words, the AER did not have the power to compel production of privileged records. Accordingly, CNOOC was not legally compelled to disclose its privileged reports to the AER in response to the regulator’s statutory request. In doing so, CNOOC voluntarily disclosed its privileged records to the AER, albeit on a perhaps mistaken view of its legal obligation to do so.[24]
- Although CNOOC requested the AER maintain confidentiality of the Reports, that was insufficient in the circumstances to maintain privilege. CNOOC failed to place any conditions on the AER’s use of the Reports once disclosed. It was reasonably contemplated that the AER would use/rely upon the Reports in a subsequent prosecution or regulatory proceeding against the Respondents, in which case the Reports would have to be disclosed to the Respondents by the AER. Given this contemplated use by the AER, CNOOC’s voluntary disclosure of the Reports to the regulator without any conditions on their use was inconsistent with maintaining the zone of privacy around those Reports in the litigation with the Respondents.[25]
A similar analysis was applied to CNOOC’s disclosure of the Reports to APEGA. Notably, APEGA’s statutory powers to compel record production also did not explicitly override privilege. Therefore, CNOOC’s disclosure to APEGA was also taken to be voluntary (not statutorily compelled) and was also done without any conditions placed on APEGA’s subsequent use of the Reports (because APEGA refused to restrict its use of the requested documents). Since APEGA explicitly stated its intention to utilize the Reports to the full extent allowed by its enabling statute (including investigating its regulated members), CNOOC’s unconditional disclosure to APEGA was inconsistent with maintaining privilege over those Reports.[26]
In summary, a contextual analysis of CNOOC’s disclosures of the Reports to the AER and APEGA led to the conclusion that privilege over the Reports was waived. It would be inconsistent to maintain privilege over the Reports in the civil proceedings between CNOOC and the Respondents, but have the Reports be disclosed to the Respondents in regulatory proceedings by AER or APEGA.[27]
The Court of Appeal rejected the Respondents’ arguments that privilege over the Reports was waived by: (i) CNOOC’s reference to the conclusions of the Reports, generally, at a press conference; and (ii) CNOOC’s reference to the Reports in other “repair reports” that were prepared as part of its decision on whether to repair or replace the pipeline.
Practical takeaways
The CNOOC decision serves as a good reminder that parties must be mindful of how privileged documents are subsequently used to ensure the privilege is maintained and not unintentionally waived. Parties must take care not to use privileged records in a manner that is inconsistent with maintaining the “zone of privacy”, as doing so will result in the waiver of privilege.
The Court of Appeal importantly clarified that where a statutory body/regulator requests production of a record pursuant to its statutory power to compel such production, if the enabling legislation does not expressly override privilege, there is no legal compulsion or obligation on the requested party to produce privileged records. Disclosing privileged records to a statutory body in that situation will amount to a voluntary disclosure, not a disclosure compelled by law, and this case demonstrates that there is a real risk that privilege over that record will be waived upon disclosure. In this situation, the disclosing party may be able to preserve privilege over the record notwithstanding the disclosure by: (i) requiring the regulator to maintain privilege over the record, and (ii) placing conditions on, or otherwise restricting, the regulator’s subsequent use of the record so that its use is not inconsistent with maintaining the privilege. However, even those precautions may not be sufficient to maintain the privilege in the face of voluntary disclosure to a regulator, as a court’s analysis of whether unintentional waiver has occurred is a highly contextual exercise.
In summary, it will be prudent for parties to obtain legal advice when determining the scope of their disclosure obligations to a statutory body exercising its legislated record-collecting powers.
Miller Thomson’s Commercial Litigation group is experienced in a variety of disputes and is always mindful of conducting litigation in a cost-effective and efficient manner. If you require assistance or advice in this area, please reach out to our legal team.
[1] “Nexen fined $750,000 over huge Long Lake pipeline spill near Fort McMurray”, CBC News (July 13, 2018), online: https://www.cbc.ca/news/canada/edmonton/nexen-pipeline-spill-long-lake-1.4746739.
[2] 2024 ABCA 139, [CNOOC].
[3] CNOOC Petroleum North America ULC v ITP SA, 2023 ABKB 689 at para 64.
[4] CNOOC, supra note 2, at para 21.
[5] Ibid at paras 22-23, citing Lizotte v Aviva Insurance Company of Canada, 2016 SCC 52.
[6] Ibid at paras 23-25.
[7] Ibid at para 33.
[8] Ibid at paras 28-29, citing Alberta v Suncor Energy Inc, 2017 ABCA 221, and Canadian Natural Resource Ltd v ShawCor Ltd, 2014 ABCA 289.
[9] Ibid at para 44.
[10] Ibid at para 34.
[11] Ibid at paras 35-37.
[12] Ibid at paras 39-43.
[13] Ibid at para 44.
[14] Ibid at para 46.
[15] Ibid at para 48.
[17] Ibid at para 50-51.
[18] Ibid at paras 50-51, citing Pinder v Sproule, 2003 ABQB 33 at para 70.
[19] Ibid at paras 50 and 62.
[20] Ibid at para 50.
[21] Ibid at para 50.
[22] Ibid at para 51.
[23] Ibid at para 59.
[24] Ibid at para 62.
[25] Ibid at paras 64-65.
[26] Ibid at paras 69-73.
[27] Ibid at para 73.
