Privilege and Waiver: Disclosure Requirements for Parties in the Canadian Competition Bureau's Immunity and Leniency Programs

Transcription

1 Privilege and Waiver: Disclosure Requirements for Parties in the Canadian Competition Bureau's Immunity and Leniency Programs Randal T. Hughes, Emrys Davis and Ethan Schiff Bennett Jones LLP Presented at The Advocates Society Competition Law for Advocates, March 7, 2016 Originally published at the ABA/IBA 2016 International Cartel Workshop, Tokyo, Japan, February 3-5, 2016

2 - 1 - I. Introduction Immunity and leniency programs are important tools in international cartel enforcement. The success of these programs depends on the balance of incentives for parties in breach of antitrust laws. Broad disclosure requirements, resulting in waiver of privilege over internal investigation materials, may shift the balance for many companies away from cooperating with certain regulators. In February 2015, a Canadian court ordered the Crown 1 to disclose to the accused information proffered to the Canadian Competition Bureau ("CCB") by two cooperating parties. The same judge later signed production orders (the "Production Orders") which required the cooperating parties and their lawyers to produce to the Crown for use in ongoing criminal proceedings redacted versions of counsels' internal investigation materials, including memoranda recording witness interviews. That the court ordered the Crown to disclose information proffered to it by cooperating parties was not surprising, nor is that result likely to impact decisions about whether to participate in the CCB's Immunity and Leniency Programs (the "Programs"). Ordering production, however, of redacted copies of counsel's internal investigation memoranda is both more surprising and potentially problematic for the CCB's Programs. It is too early to know whether the Production Orders have reduced participation in the CCB's Programs. Because the targets of the Production Orders withdrew their challenge to them, significant uncertainty remains for cooperating parties about whether their internal investigation materials would be subject to similar production obligations were they to cooperate with the CCB. Given this uncertainty, this paper explores key considerations for counsel and their clients in determining whether to participate in the Programs and what steps to take once a decision to participate is made. 1 In Canada, the prosecution in a criminal case is referred to as "the Crown".

3 - 2 - II. R v Nestlé Canada Inc. ( Nestlé ) 2 In Nestlé the Crown brought criminal charges for price-fixing against various confectionary manufacturers, a distributor and certain individuals. The CCB's investigation began in 2007 after Cadbury Canada Inc. ( Cadbury ) contacted the CCB under the CCB's Immunity Program. 3 Cadbury's counsel proffered information to the CCB obtained through Cadbury's internal investigation. 4 The CCB also interviewed Cadbury employees. Based on this information, the CCB obtained search warrants against Cadbury's alleged coconspirators. Shortly afterwards, Cadbury signed an Immunity Agreement protecting it and its cooperating employees from prosecution. 5 Following execution of the search warrants, Hershey Canada Inc. ( Hershey ) applied for leniency under the CCB's Leniency Program. 6 In 2013, Hershey pleaded guilty and paid a $4 million fine. 7 In June 2013, the Crown charged Nestlé Canada Inc., Mars Canada Inc., ITWAL Limited and certain individuals with several counts of price-fixing contrary to Canada's Competition Act ONSC 810, 2015 CarswellOnt 1323 at para 5. Randy Hughes was counsel to ITWAL, one of the accused, in Nestlé. 3 Ibid at para 6. 4 Ibid at para 8. 5 Ibid at paras 10 and Ibid at para Ibid at para Ibid at para 5. The charges were laid under a prior version of section 45 of the Competition Act, which required the Crown to prove beyond a reasonable doubt that the agreement had had an undue effect on competition.

4 - 3 - III. The Crown's Disclosure Obligations In the immunity and plea agreements signed with Cadbury and Hershey, the Crown and the CCB committed not to disclose any information obtained from either cooperating party except where disclosure was required by law. 9 In Canada, the Crown is required by law to disclose to a criminal accused all information in its possession, whether exculpatory or inculpatory, unless the information is clearly irrelevant or is protected from disclosure by privilege. 10 The Crown made disclosure to the accused, which included information received from Cadbury and Hershey (or their employees) after Cadbury had signed an immunity agreement and Hershey had signed a plea agreement. 11 But the Crown withheld some information as privileged 12 and inadvertently disclosed certain information that it later claimed was settlement privileged and requested be returned. 13 Included in both categories over which the Crown asserted privilege, was information in the Crown's possession which Cadbury and Hershey had proffered to the CCB before signing their respective agreements Ibid at para Ibid at para 30 citing R. v. Stinchcombe, [1991] 3 S.C.R The CCB's Immunity Program Bulletin notes that an immunity applicant must advise the CCB of the progress of its internal investigation "in a manner that does not waive any legal privilege." The Bulletin further provides that records provided to the CCB after the proffer stage "are treated as confidential or privileged." Ultimately, the CCB requires "full, complete, frank and truthful disclosure of all non-privileged information, evidence or records in the Applicant's possession, under its control or available to it." Competition Bureau, Immunity Program: Frequently Asked Questions, < at Q 20, 21, and Nestlé, supra note 2 at para Ibid at para Ibid at para 20.

5 - 4 - The accused requested full disclosure of relevant materials in the Crown s possession, including materials received at the proffer stage, and refused to return the inadvertently disclosed information. The information the accused sought included notes taken by the CCB officers during Cadbury's and Hershey's proffers. The Crown opposed any obligation to produce the information proffered to it. Cadbury and Hershey intervened in support of the Crown. IV. Justice Nordheimer's Decision The Crown, Cadbury, Hershey and the accused all agreed that information provided to the CCB after Cadbury and Hershey had signed their respective immunity and plea agreements had to be disclosed to the accused. Cadbury and Hershey, however, opposed the accuseds' request that the Crown produce information proffered to the CCB before each had signed their respective agreements and received immunity and leniency. Cadbury and Hershey argued that information proffered before having received immunity or leniency was privileged. Hershey argued both solicitor-client privilege 15 and both parties argued settlement privilege shielded the information from disclosure. Justice Nordheimer disagreed. He held that the proffered information was not privileged and that all relevant factual information must be disclosed by the Crown, as per the accused parties constitutionally protected right to make full answer and defence. 16 In brief reasons, Justice Nordheimer held that Hershey had waived solicitor-client privilege. 17 Justice Nordheimer relied on R v Bernardo 18 for the proposition that solicitor-client privilege 15 Ibid at para R v Stinchcombe, [1991] 3 SCR 326, [1993] SCJ No Ibid. 18 [1994] OJ No 1718.

6 - 5 - does not protect materials divulged to a party adverse in interest. 19 Dealing next with settlement privilege, Justice Nordheimer held that settlement privilege is not broad enough to preclude production of proffered materials to an accused where the party seeking immunity (or leniency) knows the Crown will rely upon the materials in prosecuting others. 20 Settlement privilege acts to protect the settling party from use of the disclosed information in future criminal or civil proceedings, 21 but cannot trump an accused's constitutionally protected right to meet the case against it. 22 Justice Nordheimer considered alternative arguments. He held that even if the material was protected by settlement privilege, the privilege was subject to an exception to protect an accused's right to full disclosure. 23 He further held that, in the absence of an exception for disclosure to accused parties, Cadbury and Hershey had waived privilege under the terms of their respective agreements. 24 V. Production Orders Once the decision in Nestlé was released, the Crown took steps to obtain additional information from Cadbury and Hershey. The Crown brought ex parte applications under s of the Canadian Criminal Code 25 requesting orders to require Cadbury and Hershey and their Canadian lawyers to produce "factual information" in their power, possession and control related to the 19 Nestlé, supra note 2 at para Ibid at paras Ibid at para Ibid at para Ibid at para Ibid at para RSC, 1985, c C-46.

7 - 6 - ongoing criminal proceedings. 26 This included a request for counsels' notes of witness interviews conducted during each company's internal investigation: the orders sought required production of "information obtained or disclosed in any interviews or meetings pursuant to your investigation of alleged anticompetitive conduct." 27 They permitted Cadbury and Hershey to redact "statements of legal advice or opinion", but not to redact, for example, the questions to and answers from the interviewee. As is the case with ex parte motions, Justice Nordheimer granted the Production Orders without hearing evidence or submissions from Cadbury or Hershey. The onus then shifted to Cadbury and Hershey to challenge the Production Orders if they chose to. Both initially sought to quash the Production Orders, but withdrew their challenges. Several months later, the Crown stayed the charges against all of the accused. 28 VI. Implications The impact of Justice Nordheimer's decision in Nestlé is straightforward: the Crown must disclose to the accused information proffered to it by cooperating parties. This development alone is unlikely to concern cooperating parties who would typically expect based on the Crown's disclosure obligations that all information provided by them to the CCB may have to be disclosed to a criminal accused if charges are laid. The Production Orders, however, go one significant step further. They create the specter that participation in the Programs will 26 R v Nestlé Canada Inc (16 March 2015), Toronto, Ont Sup Ct (production order) at para 2 [Orders]. 27 Ibid at para Competition Bureau, "Final price-fixing charges stayed in chocolate case" (November 18, 2015), online: <

8 - 7 - require cooperating parties to disclose to the Crown information that was once considered firmly privileged documents created by counsel during the course of a cooperating party's internal investigation. Because Cadbury and Hershey withdrew their challenges to the Production Orders, it is uncertain what precisely the Crown may demand from cooperating parties in future cases. At the very least, the Production Orders raise the following questions which must be considered by cooperating parties and their counsel when making decisions about participating in the Programs. 1. Are materials created through counsel's internal investigations privileged? 2. When might privilege over internal investigation materials be lost? 3. If privilege over internal investigation materials is lost, is it lost versus the entire world? i. What materials are privileged? Canadian courts have recognized as either solicitor-client and/or litigation privileged materials created by counsel through internal investigations. 29 In Gower v Tolko Manitoba Inc, 30 the plaintiff brought an action for wrongful dismissal and requested disclosure of the defendant employer's materials created through internal investigation. The Court held that internal investigation materials may be subject to solicitor-client privilege. 31 Where the fact-gathering facet of the investigation is "inextricably linked" to providing legal advice, the materials will be privileged See Slansky v Canada (Attorney General), 2013 FCA 199, 2013 CarswellNat 3338; Strong v General Motors of Canada Ltd, 4 CPC (4th) 412, 1996 CarswellOnt 3759 (Ct J (Gen Div)) MBCA 11, 2001 CarswellMan Ibid at para Ibid at para 38.

9 - 8 - On this basis, internal investigation materials created by legal counsel prior to a party deciding to enter into the Programs are likely subject to privilege. Prior to entering into the Programs, counsel engages in a fact-gathering investigation for the purpose of advising the client. Counsel needs to determine, among other issues, whether the corporation committed an offence, whether the corporation should cooperate with the authorities, and whether the corporation should terminate employees. Solicitorclient privilege likely attaches in such a scenario. It is not as clear whether the internal investigation can be characterized as providing legal advice once the party has decided to enter into one of the Programs. In many instances, after making initial proffers to the CCB, the CCB may demand further investigation or clarification on certain points. It is suddenly less clear whether the purpose of that information gathering exercise remains to provide legal advice to the client. Indeed, the accused in Nestlé argued that such activities caused the corporation (and its counsel) to become agents of the Crown for the purposes of the investigation. Similarly, after entering into the Programs, it is not clear that information obtained is subject to litigation privilege. Whereas litigation privilege may attach to internal investigation materials where the dominant purpose is to prepare for litigation, 33 the intention of cooperating under the Programs is to avoid litigation. At the proffer stage, the party remains at risk of prosecution if they fail to cooperate with the Bureau, but it is not clear that this would meet the dominant purpose test. The possibility that privilege would not attach to information gathered and documents created by counsel after a corporation enters into the Programs highlights the importance of a robust internal investigation prior to making the decision to seek an immunity or leniency marker. It may also weigh in favour of making witnesses available to the CCB to answer follow up 33 Singh v Edmonton (City), 30 CPC (3d) 277, 1994 CarswellAlta 421 (CA) at para 5.

10 - 9 - questions rather than having counsel (re)interview witnesses and then provide the fruits of those interviews to the CCB through subsequent proffers. Proceeding in this fashion would significantly reduce the volume of post-cooperation information gathered by and documents created by counsel to be provided to the CCB. On the other hand, it would likely increase the cost and burden of cooperation as having witnesses attend interviews is both costly, time-consuming and distracting for a cooperating party. ii. Does proffering some information to the CCB waive privilege over all internal investigation materials? Justice Nordheimer held in Nestlé that privilege over information proffered to the CCB had been waived. 34 The extent of the waiver is not clear. The Court did not address whether by proffering some information learned during the course of an internal investigation, the cooperating party waived privilege over all factual information gathered and materials created through an internal investigation, which are related to the proffered materials. The general rule in Canada under the selective waiver doctrine is that waiver of one piece of information waives privilege over the entirety of the related materials. 35 In McColl-Frontenac Inc v Aerospace Realties (1986) Ltd, 36 the plaintiff corporation sought to have the defendants produce an opinion report that had been forwarded to a third party. The defendant created other materials related to the opinion report. 37 The Court held that it would be inappropriate to allow the defendant to 34 Nestlé, supra note 2 at paras 33-38, citing R v Bernardo, [1994] OJ No S&K Processors Ltd v Campbell Avenue Herring Producers Ltd, [1983] 35 CPC 146, 1983 CarswellBC 147 (SC), McLachlin J (as she then was) ACWS (3d) 591, 1996 CarswellOnt 2169 (Ct J (Gen Div)). 37 Ibid at para 36.

11 selectively waive privilege on a particular report, the release of which could, by inference, work to its economic advantage as well as providing possible assistance to the defendants with whom it intended to engage in contractual relations. 38 In contrast, other courts have accepted partial disclosure in certain scenarios. In Stevens v Canada (Prime Minister), 39 the Federal Court of Appeal upheld the lower court's denial of judicial review of a decision to provide partial disclosure of accounts. When determining whether partial disclosure is appropriate, the Court held that all circumstances must be considered, particularly any intent to mislead the court or another litigant. 40 It is not clear how selective waiver applies in scenarios analogous to Nestlé as the question was not before the court. By proffering some information to the CCB, did Cadbury and Hershey waive privilege over their counsels' entire internal investigation files? Would a court consider it unfair to an accused to allow cooperating parties to selectively withhold some information on the basis of privilege while waiving privilege over other information? Because Cadbury and Hershey withdrew their challenges to the Production Orders, we do not know the answers to these questions. Such uncertainty may cause some parties not to participate in the CCB's Programs at all. The risk of potentially waiving privilege may outweigh any benefit in participating. This may be particularly true in global investigations where the corporation may face civil suits in multiple jurisdictions and there is some 38 Ibid at para CPC (4th) 327, 1998 CarswellNat 1051 (FCA). 40 Ibid at para 51; see also Lowry v Canadian Mountain Holidays Ltd, 59 BCLR 137, 1984 CarswellBC 432 (SC).

12 question of whether the CCB is likely to prosecute or prosecute effectively. Should a party nevertheless decide to enter into the Programs, concerns about maintaining privilege over all internal investigation materials may cause parties to reduce the amount of information proffered by counsel to the CCB. Some parties may choose to proffer only very high level information, reinforce the hypothetical basis of the information proffered, and then provide a list of witnesses that the CCB could interview to obtain the facts. Such a process would dramatically reduce counsels' role as a conduit of information between the corporation and the CCB and thus potentially reduce the possibility of proffers waiving privilege over counsels' entire internal investigation file. It is not clear, however, how this would work in practice. Reducing counsel's role as an information intermediary would be a significant departure from today's practice and may make the CCB's investigation more complicated. It would also be different than the practice in other jurisdictions, such as the US, where counsel provide detailed information about what they expect a witness to tell the DOJ before any interview so that the entire process proceeds more smoothly. iii. Does proffering privileged information to the CCB waive privilege for all purposes? Canadian and other common law courts have recognized the doctrine of limited waiver. Assuming privilege is waived with respect to some parties/purposes, limited waiver holds that waiving privilege for some parties does not necessarily waive privilege for the entire world. The most obvious example of this is common interest privilege, 41 whereby co-defendants may share materials without waiving privilege. The limited waiver doctrine, however, is much broader. 41 See YBM Magnex International Inc, Re, 2000 ABCA 284, 2000 CarswellAlta 1133.

13 In his brief reasons considering waiver of solicitor-client privilege in Nestlé, Justice Nordheimer held that waiving privilege by providing materials to the CCB resulted in waiver of privilege with respect to the accused parties. 42 Justice Nordheimer disposed of the limited waiver argument, holding that it does not apply where a party produces materials to a person with an adverse interest. 43 Other courts, however, have recognized limited waiver, even in the context of supplying materials to an adverse party. In Ed Miller Sales & Rentals Ltd v Caterpillar Tractor Co ("Caterpillar"), 44 a company seeking a civil remedy against the defendant Caterpillar dealers sought disclosure of a report that the defendants had previously provided to the Director of Investigation under the Combines Investigation Act. 45 The defendants had retained a law firm to represent them and the firm retained Price Waterhouse to prepare the report. 46 The defendants never provided the working materials to the Director. 47 The Court of Appeal held that the report and underlying information remained subject to litigation privilege. 48 Justice Laycraft, writing for the Court, noted that providing privileged documents to a party, for the purpose of settling or otherwise, "does not show any intention that the privilege is thereby to terminate as to other parties or in related litigation." Nestlé, supra note 2 at para Ibid at para ABCA 282, 1988 CarswellAlta 148 [Caterpillar]. 45 RSC 1970, c C-23 [predecessor to the Competition Act, RSC 1985, c C-34]. 46 Caterpillar, supra note 44 at para Ibid at para Ibid at paras 23 and Ibid at para 24.

14 In spite of the support for limited waiver expressed in Caterpillar and other cases, 50 a court may not extend limited waiver to a scenario analogous to that presented in Nestlé. A court may consider Nestlé distinct from Caterpillar in that the latter involved a demand for disclosure by a civil litigant, whereas the former involved criminal accused who were entitled to full disclosure. Finally, it is important to note that, while some Canadian courts have recognized limited waiver, others have rejected the doctrine. 51 International courts are divided on limited waiver. The United Kingdom has a robust limited waiver doctrine. In the leading case, British Coal v Dennis Rye Ltd, 52 the plaintiff sued the defendant for fraud. The Plaintiff had previously provided the police with documents to assist in the criminal investigation. 53 The police produced the documents to the defendant in the criminal proceedings. 54 The defendant sought to rely on the documents in the civil proceedings. 55 The Court of Appeal held that the defendant could not rely on the documents, as the plaintiff provided them to the police for a limited purpose. 56 Lord Neill, writing for the Court, noted that it would in my view be contrary to public policy if the plaintiff's action in making 50 See also Rekken Estates v Health Region No 1, 2012 SKQB 248, 2012 CarswellSask 912; Pinder v Sproule, 2003 ABQB 33, 2003 CarswellAlta 35; Philip Services Corp (Receiver of) v Ontario (Securities Commission), 77 OR (3d) 209, 2005 CarswellOnt 3934 (Div Ct); Interprovincial Pipe Line Inc v Minister of National Revenue, 22 BLR (2d) 147, 1995 CarswellNat Air Canada v McDonnell Douglas Corp, 19 OR (3d) 537, 1994 CarswellOnt 529 (Ct J (Gen Div)) at para [1988] 3 All ER 816 (CA) [British Coal]; see also B v Aukland District Law Society, [2004] 4 All ER 269 (PC). 53 British Coal, supra note 52 at Ibid. 55 Ibid. 56 Ibid at 822.

15 the documents available in the criminal proceedings had the effect of automatically removing the cloak of privilege which would otherwise be available to them in the civil litigation for which the cloak was designed. 57 Recently, the England and Wales High Court considered disclosure to civil plaintiffs of documents provided to government regulators in negotiating a settlement. In Property Alliance Group Ltd v Royal Bank of Scotland plc, 58 the applicant requested documents disclosed by RBS to US and UK regulators, with whom it had reached settlements related to charges for misconduct relating to LIBOR manipulation. The agreements gave the regulators "carte blanche to share documents with other third parties (such as other governmental or regulatory agencies) and/or to make that material public or to disclose further." 59 The Court held that, in spite of the "carve outs" permitting the regulators to use, share and even publish the materials, RBS maintained privilege, as the waiver was limited. 60 While many jurisdictions recognize limited waiver, 61 others do not. 62 In the United States, all of the federal circuit courts, except the 8th circuit, 63 have rejected the doctrine of limited waiver. 64 One court held that it "is inherently unfair to permit an 57 Ibid. 58 [2015] EWHC 1557 (Ch). 59 Ibid at para Ibid at para Ireland: Fyffes plc v DCC plc, [2005] 1 IR 59 (SC); Hong Kong: Citic Pacific Ltd v Secretary of State for Justice, [2012] HKCA Australia: Goldberg v Ng (1995), 137 ALR 57 (HC). 63 See Diversified Industries Inc v Meredith, 572 F.2d 596 (1977 8th circ). 64 Jonathan Sack, "Selective Waiver in the Second Circuit -- Is It Dead, Or Just Dying?", Forbes (11 December 2013), online: <

16 entity to choose to disclose materials to one outsider while withholding them from another on grounds of privilege." 65 Some American courts have left the door open to limited waiver under the terms of a confidentiality agreement, but others have rejected that scenario as well. 66 Companies considering entering into the Programs may not do so if it would result in waiving privilege over materials with respect to civil litigants. This was not a concern for Cadbury and Hershey in Nestlé, as civil proceedings had already been settled. 67 It is not clear whether a Canadian court would consider materials produced through the Programs as being subject to a limited waiver. A party faced with orders similar to the Production Orders could try to obtain an order asserting the limited nature of the waiver. A similar order was made in R v Basi. 68 The case involved searches and seizures of documents from the British Columbia Legislature. The British Columbia Railway Company and the Executive Council asserted solicitor-client privilege over the documents. 69 The parties reached an agreement to produce the documents to defence counsel subject to a draft order, which included a paragraph noting that the release does not constitute a waiver of solicitor-client privilege. 70 In approving the order, Justice Bennett noted that "the privilege is not waived, if I in fact make that order." 71 While Justice Bennett acknowledged privilege could not be maintained if the documents were revealed in open court, 72 he continued, 65 United States of America v Bergonzi, 216 FRD 487 (2003 ND Cali). 66 In Re Pacific Pictures Corp, 679 F 3d 1121 (2012 9th circ) at para Nestlé, supra note 2 at para BCSC 1242, 2008 CarswellBC Ibid at para Ibid at para Ibid at para Ibid at para 22.

17 VII. Conclusion if documents over which solicitor-client privilege may be claimed are voluntarily produced in the context of a criminal investigation or trial the privilege is not lost or waived, particularly as here where it is explicitly maintained. 73 Answering all of the questions raised by Nestlé and the Production Orders goes beyond the scope of this paper. For example, would waiving privilege over materials in Canada waive privilege in other jurisdictions, leaving parties vulnerable to litigation from civil plaintiffs outside of Canada? Parties considering entering into the Programs should be cautious and aware that participating in the Programs may result in production of internal investigation materials to the Crown and, potentially, losing privilege over them entirely. If the decision is made to participate in the Programs, parties and their counsel will want to consider some of the risk mitigation steps discussed in this paper, as well as others. 73 Ibid at para 39.