Court Precedent Confirms Indemnity Agreements are Privileged

On April 11, 2016, the New Brunswick Court of Queen’s Bench set a precedent when it held that a third party financing and indemnity agreement was protected by litigation privilege. This decision was part of a motion to approve the FIA in the putative class action, Hayes v. The City of Saint John (“Hayes”). Koskie Minsky LLP and McKiggan Hebert act as counsel for the plaintiff in Hayes.

Until now, it has been widely argued that indemnity agreements were subject to solicitor client privilege as the agreement was an extension of counsel’s retainer wherein the plaintiff and counsel share the risk of litigation. The Court in Hayes, however, made the following findings:

The agreement in this case is a communication between the plaintiff and the third party with the input and advice of the plaintiff’s solicitor. It is an integral part of the plaintiff’s case and, in my view, is protected by litigation privilege, the object of which is to protect the adversarial process, not the solicitor-client relationship.

I find that disclosure of it in this case would impair the process by giving an unfair advantage to the defendants. I base that conclusion, not only on a reading of the agreement itself but also on the finding that the third party funding agreement is necessary to provide access to justice in this case.

The defendants argued that a copy of the FIA be produced with any solicitor client communications redacted. The Court rejected this argument:

The defendants submit that the agreement can be redacted but in my view where there is a finding of privilege redaction can be risky. The defendants could be advantaged by disclosure of seemingly innocuous portions of the agreement that take on significance as the case evolves, significance that was not apparent at the time of the redactions.

Accordingly, the agreement was to be sealed.

This decision serves to reinforce the position in earlier LISC® blogs that indemnity agreements are privileged:

We encourage counsel facing motions for production to consider this important decision, especially when their clients could be put to a disadvantage, both strategically and financially, if forced to disclose the indemnity agreement.

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