Can information a seller shares with counsel on corporate servers during the course of M&A transactions be used against them after closing of the deal?
A recent decision by the
What Happened in the Case
In Dente et al. v.
Following closing, the Dentes continued to serve as consultants to the Target Companies (retaining email accounts on company servers), and the eventual lawsuit concerned aspects of their service under those agreements as well as others related to the Share Purchase Agreement. The Dentes initially sued both the Buyers and the Target Companies (together, the "Defendants"), and the latter group then brought a counterclaim. At issue was whether communications between the Dentes and M&A counsel on the
Loss of Exclusive Privilege
The court ultimately found that some documents left on the
Factors in the Decisions
The court noted that the key issue was whether the M & A counsel represented both the Dentes and the Target Companies during the negotiation and execution of the transaction. If so, then there would be joint solicitor-client privilege over the documents at issue (i.e. with the benefit of joint privilege then rolling over into the control of the
The court considered numerous factors, including the fact that the solicitor told the Buyers that he was representing the Dentes and that he could not represent both the sellers and the companies given a certain conflict of interest that arose (i.e. the Target Companies were guarantors to the benefit of the sellers' trusts). As such, the Court made a key determination that M&A counsel did not represent the Target Companies in the transaction. This weighed significantly into a finding that certain pre-closing documents remained within the exclusive solicitor-client privilege of the Dentes. However, the court was more nuanced on correspondences that occurred post-closing, ascribing joint privilege over such communications, giving both sides equal access in a post-closing dispute.
Key Takeaways from Dente
While in Dente the sellers retained some privilege over pre-transaction documents, the decision could have easily gone the other way and did, in fact, do so on communications arising post-closing. Further, the need to litigate the issues caused unnecessary delays and expense that could have been avoided with proper preparation. As such, parties and counsel should start by being clear from the outset as to who counsel are acting for and to have the documentary record (e.g. retainer agreement, definitive agreements etc.) reflect that understanding. Finally - and perhaps most importantly - parties should always be aware of how, and through what channels, they are corresponding with counsel.
Footnote
1. https://www.canlii.org/en/on/onsc/doc/2023/2023onsc3376/2023onsc3376.html
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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