The Ontario Superior Court of Justice recently released a decision that will be welcomed by companies seeking to maintain privilege over the results of internal investigations.

The decision in Vecchio Longo Consulting Services Inc. v. Aphria Inc., 2023 ONSC 6336 distills and clarifies the law in Ontario on privilege over internal corporate investigations in general, and provides much called for certainty, given the prior lack of law in respect of Special Committee reports in particular.

Background

Aphria was targeted in late 2018 by a New York short-seller report which made allegations against the company, triggering a significant decline in the company’s share price and immediate threats of litigation.

Aphria quickly set up a Special Committee to investigate those allegations. The Special Committee retained external litigation counsel to lead the investigation. The lawyers, in turn, retained forensic accounting and business advisory consultants.

Several months later, Aphria issued a press release as to the conclusions of the Special Committee.

In the meantime, a securities class action was issued in Ontario, founded on the allegations in the short-seller report. That action has been certified. During the examinations for discovery, Class Counsel asked for a copy of the Special Committee report or for disclosure of the factual findings of the Special Committee.

Those questions were refused on the basis of solicitor-client and litigation privilege. Class Counsel moved for production, arguing that no privilege exists or, if it did, it had been waived by the company’s press release.

McCarthy Tétrault represented the Defendants on this motion.

The decision

Justice Perell dismissed the plaintiff’s motion. The Court rejected Class Counsel’s core arguments: (1) that the Special Committee report was really just the result of a factual investigation; (2) that the report had not been prepared for the dominant purpose of litigation, and so did not attract any privilege; and (3) that even if it was privileged, that privilege had been waived.

First, the Court found that the Special Committee Report was litigation privileged, noting that when counsel was retained, and the report was prepared, litigation was already underway. The Court also cited the fact that the company had retained a law firm that had considerable experience investigating and litigating securities disputes.

Second, the Court found that the Special Committee Report was also solicitor-client privileged. The Court rejected Class Counsel’s submission that external counsel engaged by the Special Committee were hired simply to determine the facts regarding the allegations, and found instead that counsel was providing legal advice, which required a factual investigation – as it is impossible to give meaningful legal advice without ascertaining the facts and applying the law to those facts.

Third, the Court rejected the plaintiff’s theory that Aphria had waived privilege over the Special Committee report because it had issued a press release as to the conclusions reached.

Conclusion

This Decision closes a long overdue gap in the law on privilege. There was a surprising prior lack of jurisprudence on how the law of privilege applied to Special Committee reports. The Decision supports the ability of companies, faced with serious allegations, to appoint a Special Committee to conduct a proper investigation while maintaining privilege over its work.

By Dana Peebles, Bryn Gray, Richard Lizius, and Amanda Iarusso