Overview and Key Takeaways
Deal terms in private M&A are constantly evolving. An example is the “Great Hill clause”, the subject of the recent ruling in Ellis Packaging[1] and one of the new deal points featured in the 2025 ABA Canadian Private Target M&A Deal Point Study (the ABA Study).[2] Ellis Packaging is now the third Canadian decision on Great Hill clauses, and so is notable for both M&A lawyers and commercial litigators.
The term Great Hill clause, which derives its name from a 2013 Delaware ruling,[3] addresses post-closing control over pre-closing privileged communications between the target and legal counsel. Specifically, the clause limits the ability of the buyer, in connection with a post-closing claim, to rely on pre-closing privileged communications between the target and legal counsel.
Our key practical takeaways include:
- Ellis Packaging held that, in the absence of a Great Hill clause, the sellers cannot, post-closing, assert privilege to prevent the target (or the buyer, through the target) from relying on pre-closing communications with legal counsel over which the sellers and target hold joint privilege.
- Whether or not solicitor-client privilege over communications with legal counsel is jointly held by the sellers and target or solely held by the sellers is a question of fact dependent on all the circumstances.
- In Ellis Packaging, a critical factor weighing in favour of privilege being jointly held included that the sellers' counsel had advised the target regarding two preliminary transaction documents, being (i) a confidentiality agreement, and (ii) a term sheet.
- The potential value of a Great Hill clause to a seller will depend on the circumstances and the specific relationship among the sellers, the target and their legal counsel in connection with the transaction.
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The Ellis Packaging Dispute in Brief
The Ellis Packaging dispute arose from an acquisition that closed in September 2022, and after which the buyer amalgamated with the target companies (collectively, the target). Roughly one year post-closing, the buyer commenced proceedings alleging breach of contract and fraudulent misrepresentation in connection with certain of the sellers’ representations and warranties contained in the share purchase agreement (SPA).
The buyer’s documentary production included email communications and other documents exchanged with counsel retained by the sellers prior to completion of the transaction. The sellers served a motion seeking to remove the buyer’s lawyers as counsel on the basis the buyer’s production wrongfully included this privileged material. The sellers also sought an order requiring the buyers to destroy all documents in their possession that contained the sellers’ solicitor-client privileged documents. The buyer contested the motion on the basis that privilege over the emails and other documents at issue was jointly held by the sellers and the target.
Privilege: A Question of Fact
The court began its analysis by setting forth the principles applicable to deciding whether a solicitor-client relationship exists. It began:
Whether a solicitor-client relationship exists is a question of fact. There is no need for a person to formally retain a lawyer by way of letter or other document. Nor is it necessary that an account be rendered or a bill paid. Rather, a court must look to a number of factors to ascertain whether such a relationship exists.[4]
The court summarized that the ultimate question was “whether a reasonable person in the position of a party with knowledge of all the facts would reasonably form the belief that the lawyer was acting for a particular party.”[5]
Privilege and the Facts of the Acquisition
Applying these principles to the circumstances of the acquisition, the court ruled the sellers and target jointly held privilege over the emails and other materials at issue. Three factors were key to the court’s reasoning:
- Legal counsel retained by the sellers had advised the target regarding a confidentiality agreement executed by the target that imposed confidentiality and non-solicitation restrictions on the target.
- Legal counsel retained by the sellers had advised the target regarding a term sheet executed by the target that imposed exclusivity, confidentiality and ordinary course of business obligations on the target.
- During cross-examination, an officer of the target who had executed the confidentiality agreement and term sheet on behalf of the target testified he had understood legal counsel retained by the sellers to also be advising the target regarding the acquisition throughout the transaction.
The sellers argued the confidentiality agreement and term sheet were ancillary to the sellers’ sale of their shares, highlighting the target was not a party to the SPA. However, the court disagreed that the benefits received by the target from the services of the sellers’ legal counsel only indirectly and coincidentally resulted from counsel’s work for the sellers.[6] Relying on the appellate court ruling in R. v. D.[7], the court held that when parties consult a lawyer on matters in which they each have an interest, the communications are not privileged as between them.
Ellis Packaging’s Comments on Great Hill Clauses
Joint privilege having been found, the court turned to the terms of the SPA. It highlighted that the possibility of including a Great Hill clause in a private M&A agreement had already been considered by two previous Canadian courts, being Dente[8] in 2023 and NEP Canada[9] in 2013.[10]
Neither of these privilege disputes involved a Great Hill clause, but both earlier courts had endorsed the possibility of their use. Ellis Packaging did the same, noting the SPA “does not contain such a provision.”[11] This being the case, the court ruled:
[T]he amalgamated company continues to hold the privilege in the emails in question on this motion, jointly with the [sellers]. The privilege asserted by the [sellers] does not operate to prevent… the amalgamated company from having access to the [relevant] documents…[12]
Importantly, because joint privilege had not been found in Dente, the ruling in Ellis Packaging appears to remove any doubt left by Dente. This generally puts the law in Ontario on par with the law in Alberta, as the rulings in NEP Canada and Ellis Packaging largely mirror one another in that joint privilege was found and the court’s ruling turned on the absence of a Great Hill clause.
Concluding Comments
Notwithstanding that NEP Canada, the first Canadian ruling addressing Great Hill clauses, was issued in 2013, these clauses are still relatively rare, at least in publicly disclosed Canadian private M&A deals, i.e. appearing in only 10% of deals in the most recent ABA Study sample.[13]
Overall, the potential value of a Great Hill clause to sellers will depend on the circumstances and the specific relationship among the sellers, the target and legal counsel in connection with the transaction. That said, even in the absence of a Great Hill clause, there may be practical steps that can be taken by sellers to mitigate the risk posed by the possibility of jointly held privilege. Whether any such steps might be available to sellers is worthy of consideration by the sellers and their counsel when counsel is engaged at the start of the transaction.
