When drafting purchase and sale agreements in the merger and acquisition (M&A) context, vendors and purchasers alike should consider including provisions that address the ownership of the vendor’s privileged information after a sale has been completed. Known as Great Hill clauses named after the American case Great Hill Equity Partners IV, LP v. SIG Growth Equity Fund I, LLP in which the Delaware Court of Chancery dealt with this issue.
Great Hill Clauses
Great Hill clauses are commonly associated with privileged communication conveyed through email or other electronic messaging methods that are archived on a company’s servers or accessible through a company’s account. Once a new buyer assumes control of a company and its server infrastructure post-sale, a critical question arises: Can the buyer legitimately use the privileged communications exchanged between the previous owner(s) and their legal counsel, particularly those concerning the sale transaction itself?
Prudent vendors and purchasers should consider including Great Hill clauses in M&A transaction agreements to be clear on who owns the privileged communication of a vendor post-closing of a transaction.
The Canadian Perspective on Great Hill Clauses
This American concept was recently addressed by the Ontario Court of Superior Court of Justice in the case of Dente et al. v. Delta Plus Group et al., 2023 ONSC 3376. The Dente case involved a commercial dispute involving a share purchase agreement, consulting agreements and other events whereby the defendants identified 387 documents which could have contained solicitor-client communication between the plaintiff and their counsel. The parties agreed on a protocol and retained neutral counsel to review the documents. Despite this, the plaintiffs brought a motion seeking a declaration that these communications were privileged in nature.
Although there was no Great Hills clause in the Dente case, Justice Braid noted “Generally, after the sale of a corporation, all documents and materials the corporation owns remains with the corporation. When an owner of a company shares the services of counsel with their company prior to closing, there is a joint privilege. The owner can insert a clause in the share purchase agreement that would leave the former owner in sole possession of the privilege upon closing. When they fail to do so, the prior owner cannot claim privilege over documents as against the new owner, who now owns the documents.”
Justice Braid also cited an earlier Alberta case, NEP Canada ULC v. MEC OP LLC, 2013 ABQB 540, which also mentioned the absence of a clause which would exclude the purchaser of a company from using privileged communications against a vendor.
Conclusion
Even though there were no Great Hill clauses in either of the Ontario or Alberta cases, such clauses are becoming more prevalent in M&A agreements and Vendors and Purchasers alike should be clear on who is to own pre-closing privileged communications that relate to the sale of a corporation or organization. Despite the protection that a Great Hill clause may afford to vendors, there are other strategies that vendors may also wish to explore to ensure that their confidential information concerning the sale of their organization remains truly confidential. If you would like to explore these strategies, our Business Law group would be happy to help.
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