In the recent decision of CNOOC Petroleum North America ULC v ITP SA, 2024 ABCA 139, the Alberta Court of Appeal has found that litigation privilege was waived by a pipeline operator when it provided investigation reports to two regulators following a major oil pipeline failure.
Litigation Privilege
Litigation privilege is designed to create a “zone of privacy” around pending or apprehended litigation. It allows each litigant to prepare its case without concern that its strategies will be disclosed to its opponents. Litigation privilege is a class privilege and it can arise when litigation is underway or reasonably anticipated. The test for litigation privilege is the “dominant purpose” test where the party asserting litigation privilege over a record bears the burden of providing that the “dominant purpose ”for the creation of that record was in anticipation in litigation.
Litigation privilege over a record can intentionally be waived by the party entitled to that privilege. Privileged records might intentionally be disclosed or exchanged to promote settlement, or for other reasons.
Waiver can also occur even though the party entitled to the privilege has no intention of waiving it. This occurs when the party entitled to assert the privilege uses the record in a manner inconsistent with the privilege, or otherwise treats it as no longer being confidential. The voluntary disclosure of a privileged record to an unrelated third party could result in an unintentional loss of privilege, unless at a minimum, it was clear that the recipient of the privileged record would maintain its confidentiality. In some situations, therefore, the disclosure of a privileged record is inconsistent with the maintenance of privilege.
Background to Decision
CNOOC Petroleum North America (“CNOOC”) operated an oil pipeline in Northern Alberta that suffered a major failure 10 months into its intended 40-year life span.
In the immediate aftermath, CNOOC arranged internal investigations regarding the pipeline failure to determine the causal factors that led to the failure of the pipeline and manage CNOOC’s response. The investigation included hiring external consultants and eventually generated several reports, including an internal “Nexen Report” in July 2016 and the “Skystone Report” (collectively the “Reports”) produced by a third-party engineering firm in February 2016.
The Reports were intended to be confidential and privileged as CNOOC’s counsel contemplated and discussed the possibility of litigation and requested that the investigation be conducted on a confidential and privileged basis under the supervision of CNOOC’s legal team, including external counsel.
The operation of the pipeline was regulated by the Alberta Energy Regulator (the “AER”) under the Pipeline Act, RSA2000, c P-15. The failure of the pipeline was reported to the AER in accordance with CNOOC’s statutory obligations. In the following months, information was shared with the AER on an ongoing basis. CNOOC believed that it was required to disclose the Reports to the AER following the AER’s request for a written report pursuant to section 76 of the Pipeline Rules, Alta Reg. 91/2005.In providing the Reports, CNOOC did not explicitly state that the Reports were confidential and privileged.
CNOOC also provided both Reports to the Association of Professional Engineers and Geoscientists of Alberta (“APEGA”) upon APEGA’s request in the context of its own investigations. In doing so, CNOOC requested that the Reports be kept confidential, although it was agreed that APEGA could use the Reports for any required purposes under the Engineering and Geoscience Professions Act.
Thereafter, CNOOC commenced an action against the engineering and consulting firms which were involved in the design of the pipeline, advancing claims of negligence and breach of contract.
In the course of the civil litigation over the failure of the pipeline the defendants demanded copies of the Reports. CNOCC resisted production of the Reports on the basis that the Reports were protected by litigation privilege. As a result, the defendants brought an application for production and challenged CNOOC’s claim of privilege.
In the decision by the Court of King’s Bench, the case management judge determined that the Reports were not covered by litigation privilege. The decision turned on the dominant purpose test where the Court found that CNOOC had failed to meet this test given that the Reports were to be used for several purposes, including addressing environmental issues, business concerns, and the determination of whether to repair or replace the pipeline. In the alternative, the Court found that even if the Reports were initially privileged, that privilege had been waived when CNOOC provided the Reports to the AER and APEGA.
The Alberta Court of Appeal’s Decision
The Alberta Court of Appeal primarily dealt with the issue of whether a waiver of privilege had occurred when the Reports were disclosed to the regulators. Ultimately, the Court of Appeal determined that CNOOC had in fact waived privileged when it provided copies of the Reports to the AER and APEGA.
With respect to the AER, while the AER had a statutory power to request a written report when an incident occurs, the power of the AER to demand the production of records did not override privilege as the Pipeline Rules did not purport to override privilege. Accordingly, the Court determined that CNOOC had no obligation to provide privileged reports to the AER in response, yet voluntarily did so (under a mistaken view of its obligations). Further, the Court held that CNOOC should have known that the AER could rely on any such Reports to pursue charges, not only against CNOOC, but the other parties involved in the action. Therefore, the parties adverse to CNOOC could be provided with those Reports in the event that the AER pursued charges against them. As a result, CNOOC’s conduct was said to be inconsistent with maintaining the “zone of privacy” over the Reports.
Similarly, the Court found that the disclosure of the Reports to APEGA also resulted in the loss of privilege. While CNOOC believed it had an obligation to disclose the Reports to APEGA, the Engineering and Geoscience Professions Act did not purport to override privilege and therefore the disclosure of privileged reports to APEGA was said to have occurred voluntarily. The Court also found that CNOOC knew or should have known that APEGA wanted the Reports because it was investigating the conduct of some of its members, which included members who were employees or agents of the defendants, and that the members subject to the investigation would receive disclosure of the Reports at the adjudicative stage. The Court therefore found that CNOOC had placed the Reports outside the “zone of privacy” provided by litigation privilege.
As the Court determined that there had been a waiver of any privilege which may exist, the Court of Appeal did not expressly rule on whether anticipated litigation was the dominant purpose for the production of the Reports and dismissed the appeal.
Takeaways
The key takeaway from this decision is that companies should be cautious when considering whether to provide privileged information to regulatory bodies in the course of regulatory investigations.
There is no requirement to provide a document protected by litigation privilege to a regulator unless compelled by law. The power of a regulator to demand the production of records does not override privilege unless the statute specifically so provides. Where a statute does not purport to override privilege, the production of investigatory reports will be treated as a voluntary disclosure and may amount to waiver by operation of law even absent an intention to waive privilege.
While the Court of Appeal has recognized that it is unlikely that privilege would be lost where a party is compelled by law to produce privileged records, this decision indicates that this will not apply to parties who provide privileged information under a mistaken view of the scope of its regulatory obligations.
As a result, companies should carefully consider a regulator’s demand for any privileged documents and ensure there is a statutory basis to override privilege.
Authored by
Chase Salembier, J.D., Associate
Jimmy Powell, Student
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