During the due diligence process, the client, counsel and funder will work together to understand the key facts and issues in the case. At the start of the process, the client and funder will enter into a non-disclosure agreement, in order to confirm the intention to keep these exchanges confidential.
While no Canadian court has specifically addressed whether communications with a litigation funder are protected by privilege, longstanding case law and legal principles support the conclusion that communications during the due diligence process are likely protected by:
- Litigation Privilege: Litigation privilege attaches to all types of communication exchanged between a client/its counsel and a third party when the communication is made for the dominant purpose of litigation. As the Supreme Court of Canada has explained, this is because the purpose of litigation privilege is to create a "zone of privacy" in relation to pending or apprehended litigation and to ensure the efficacy of the adversarial process (Blank v. Canada,  2 S.C.R. 319, paras. 27, 34, 60). Documents, discussions and analyses related to the litigation that are shared with a funder – which are by definition shared for the dominant purpose of litigation – should therefore be captured by this privilege.
- Solicitor-Client Privilege: Solicitor-client privilege protects communications between a lawyer/client and third parties where the communications are "essential to the maintenance and operation of the solicitor-client relationship" (General Accident Assurance Co. v. Chrusz (1999), 45 O.R. (3d) 321 (C.A.)). Documents, discussions and analysis with a funder would directly support or enable the solicitor-client relationship, and should therefore be covered by this privilege as well.
We are often asked is whether, by sharing privileged communications with a funder, a court might find that such privilege has been waived. We believe this to be unlikely, as sharing privileged communications would fall within the "common interest" defence against waiver. That is, where the client and the funder have a common interest in the litigation, or in a proposed commercial transaction (sometimes called "deal privilege"), the privilege is not waived. This position was recently affirmed by the Federal Court of Appeal, when it held that parties do not waive privilege when they share privileged communications in furtherance of a proposed commercial transaction (Iggillis Holdings Inc. v. M.N.R., 2018 FCA 51).
The nuances of privilege and communicating with a funder vary across the globe. A discussion of the U.S. position is here, and an overview of the position in Australia is here. If you would like to learn more about the funding process or discuss a case, please contact us.