What Lies Beneath: The Unexpected Reach Of Litigation Privilege

In an interesting decision clarifying the reach of litigation privilege, the British Columbia Court of Appeal in No Limits Sportswear Inc. v. 0912139 B.C. Ltd., 2015 BCCA 193, has recently held that litigation privilege extends to communications between formerly adverse parties who have settled their dispute and are cooperating against a remaining co-defendant, even where the pleadings have not yet been amended to reflect this new reality.

Background

No Limits Sportswear Inc. ("No Limits") manufactures and distributes men's underwear products under the name "Saxx", designed and produced by Saxx Apparel Ltd., now a subsidiary of No Limits. Respondents 0912139 B.C. Ltd, Package Holdings Inc., Keyhole Technologies inc. Dustin Bigney, Desmond Price, Scott Hanna, Pakage Apparell Inc. and Greg Alfonso (together, the "Package Parties") manufacture and distribute a competing line of men's underwear under the name "MyPackage".

Prior to becoming a subsidiary of No Limits, Saxx Apparel Ltd engaged in investment discussions with Shawn Ellis and Glen Kirk (together with KE Imports Ltd., the "KE Parties") together with then associate Dustin Bigney, now of the Pakage Parties. The Pakage Parties and KE Parties did not invest with Saxx Apparel Ltd.; instead Saxx Apparel Ltd. became a subsidiary of No Limits and the Pakage Parties and KE Parties together developed a competing product, MyPackage.

No Limits thereafter commenced a claim for breach of contract and confidentiality against the owners of MyPackage alleging their product was copied from the design and business plan of the Saxx product (the "No Limits Action"). Before the commencement of the No Limits Action, the Pakage Parties and the KE Parties had a falling out resulted in litigation regarding the separation of their interests in MyPackage. While a settlement was reached, litigation ensued over allegations of non-compliance with the settlement agreement (the "Pakage Action").

Following the commencement of the No Limits Action, Ellis, one of the KE Parties, contacted counsel for No Limits to advise that the KE Parties were adverse to the Pakage Parties in the Pakage Action and suggested cooperation between the KE Parties and No Limits in the No Limits Action. Subsequently, the KE Parties and No Limits entered into a Standstill Agreement.

In the No Limits Action, the Pakage parties sought an order for additional document disclosure from No Limits.

Decision Below

The substance of the Chambers...