A new case from the Supreme Court of British Columbia shows that privilege may stop a director who is also a spouse in a family law dispute from inspecting company documents.
Generally speaking, it is not necessary for privilege to be waived where a director seeks to inspect company documents on the basis that the director is the company. Where the director is also a spouse engaged in a family law dispute, however, privilege may bar him or her from accessing such documents.
In the recent case of Warde v. Slatter, 2018 BCSC 1877, Justice Grauer considered how solicitor-client and litigation privilege may operate in the context of a closely held company in a family law proceeding.
Company Law Meets Family Law
After a trial that found the husband beneficially owned a company in dispute, the wife discontinued all claims against it, except for costs, but pursued her claim for unequal division of family property against the husband. She argued that the husband’s conduct had contributed to a significant drop of the company’s value. She now wanted access to the files of two law firms that represented the company during the family law case. She argued that:
- As a director of the company, no privilege could exist between the company and her; and
- She needed access to the documents for two primary purposes:
- to ensure that the company’s affairs were properly managed; and
- to assess her spouse’s conduct.
In response, the husband argued that the wife should not be able to use her position as a director to gain access to his litigation strategy. He accepted that directors must take steps to protect a company’s interests, but maintained that the wife was in a conflict of interest.
You can’t use company law to find evidence for a personal dispute
The judge agreed with the husband. To permit the wife to use privileged documents to establish a claim against the husband, the beneficial owner of the company, would not maintain the confidentiality of information she acquired through her position as director. Also, her use of the information in this way would amount to an abuse of her position for personal benefit. The company had no interest in an unequal division of family property because this was the wife’s personal issue.
The judge found that the wife was in a conflict of interest even if she were no longer claiming directly against the company for anything other than costs.The documents were generated at a time when the wife was suing the company. Further, she was not acting for the company when she was looking for evidence for her family law claim. Relying on Delaware law regarding exceptions to a director’s otherwise unfettered right to information, even if privileged, the judge held that this amounted to sufficient adversity of interest to deprive her of access in the context of a closely held corporation at issue in a family law action.
Warde v. Slatter provides an interesting illustration of how the law of privilege applies where company law collides with the family property regime. For advice regarding your family property dispute, please contact a representative of Clark Wilson LLP’s Family Law Practice Group.