Broker need not disclose memo to disgruntled client

Investor threatened to call in securities commission

Solicitor-client privilege. You’ve heard about it, especially on TV lawyer shows, and you probably understand it to mean that communications between lawyers and those who consult them are always confidential.

Well, yes and no. Anything you say directly to your lawyer is protected by such confidentiality, but notes or memoranda you write for the lawyer’s use often are protected only if they are made in contemplation of litigation.

And “contemplation” doesn’t mean that you simply considered the vague possibility that there might be a lawsuit in your future.

The recent case of Duchene v. Merrill Lynch & Co. Canada provides a good example. Unhappy with advice given him by investment advisor William Morrison, David Duchene wrote Morrison’s branch manager at Merrill Lynch in Sydney, N.S., to complain. He told the manager that he had not yet contacted a lawyer or the Nova Scotia Securities Commission, and preferred to handle the matter quietly within 30 days.

Later that same October of 1998, in accordance with Merrill Lynch policy, Morrison sent a memorandum to his superior and Merrill Lynch’s in-house counsel, who was also the firm’s compliance officer, detailing his side of the story. Seeking compensation, Duchene met with the branch manager, but, dissatisfied with Merrill Lynch’s response, he hired a lawyer in February 1999 and started a lawsuit in July.

In the early stages of any litigation, the opposing sides exchange relevant documents and participate in examinations for discovery — pre-trial testimony under oath of key players in the matters involved. (They call this “depositions” on U.S. television shows.)

As part of these preliminaries, Duchene claimed that Merrill Lynch was obliged to disclose Morrison’s memo, but the brokerage contended that the memo was privileged, as written in contemplation of litigation.

It was a close call, but in the end Merrill Lynch prevailed. The court held that the fact that Duchene raised the possibility in his complaint letter of contacting a lawyer did not by itself give rise to litigation privilege in Morrison’s memorandum.

However, the fact that Duchene also mentioned the possibility of complaining to the securities commission made the memorandum privileged.

The commission, the court noted, had broad powers which could enhance civil actions, and Morrison and Merrill Lynch intended the memorandum to rebut allegations that Duchene could make to the commission.

For more information:

Duchene v. Merrill Lynch & Co. Canada, Nova Scotia Supreme Court docket S.H. 155284C, Dec. 16/99.

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