Submitting an Incident Response Report to a Regulator? Consider Privilege Waived

May 21, 2024

Written By Michael D. Mysak, Keely Cameron and Lisa Rodriguez

A recent decision out of the Alberta Court of Appeal¹ found that as soon as a company handed over their investigative reports to regulators in connection with a pipeline incident, privilege over the reports was lost.

Litigation Privilege in a Nutshell

Litigation privilege is a type of class privilege that applies to a document or group of documents that were prepared for the dominant purpose of litigation. It can arise when litigation is underway or reasonably anticipated. The privilege only lasts as long as the litigation does, but while the litigation is ongoing, it allows parties to investigate, strategize, and know their case without fear that important and sensitive information will be exposed to the other side.

Parties do not have to hand over privileged documents in the course of a regulatory investigation unless the regulator has explicit statutory authority to require their disclosure.

CNOOC Petroleum North America ULC v ITP SA

In response to a major oil pipeline failure in 2015, CNOOC conducted an internal investigation, hired external consultants and generated at least two reports about why the pipeline failed. One was internally created (the Nexen Report) and the other was a report of various measurements and data relating to the failure prepared by a third party engineering company (the Skystone Report).

As part of this investigation, counsel for CNOOC relayed internally that civil litigation was a distinct possibility, and because of that, allegedly requested that the investigation be conducted on a privileged and confidential basis. As such, CNOOC claimed litigation privilege over the Nexen Report and the Skystone Report as arising from that "privileged investigation". 

The Alberta Energy Regulator (AER) regulates pipeline operations. Section 76 of the Pipeline Rules² obligated CNOOC to prepare and submit a "root cause analysis" report into the pipeline failure. CNOOC cooperated with the AER and, to meet its section 76 obligations, provided copies of the Nexen and Skystone Reports to it. In doing so, CNOOC did not explicitly state that the reports were confidential and privileged;³ however, at CNOOC’s request, the two Reports were not posted on the AER’s website.

CNOOC is also regulated by the Association of Professional Engineers and Geoscientists of Alberta (APEGA), which was conducting its own investigation into the failure. Again, at APEGA's request (but without a clear statutory obligation like section 76 of the Pipeline Rules and the AER) CNOOC gave copies of the Nexen Report and the Skystone Report to APEGA. While CNOOC asked APEGA to keep the Reports confidential, it agreed that APEGA could use them for any purpose for which it required them under the Engineering and Geoscience Professions Act.

Approximately a year after providing the Reports to the AER and APEGA, CNOOC sued the engineering and consulting firms involved in the pipeline design, alleging negligence and breach of contract. It claimed privilege over the Reports in that lawsuit.

When the engineering firms being sued by CNOOC asked for copies of the Reports during the course of litigation, CNOOC resisted, claiming the reports were protected by litigation privilege. The defendants then applied to the Court to have the Reports produced.

The case management justice at the Alberta Court of King's Bench decided that the Reports were not privileged, but even if they were, CNOOC had waived that privilege when it voluntarily handed them over to the AER and APEGA.

Court of Appeal Decision

The three-judge panel agreed with the lower court that even if the reports were privileged, that privilege was lost when the reports were disclosed to the regulators.

Litigation privilege is not a blanket privilege that lawyers can assert over all documents in an investigation—the dominant purpose for creating each record must be examined individually. A document cannot be made privileged simply by labelling it that way or by addressing it to legal counsel.⁴

The case management justice noted that the Reports failed the dominant purpose test due to their intended use in addressing environmental concerns, health and safety issues, questions of repairing or replacing the pipeline as well as general business concerns.⁵ The Court of Appeal did not rule on whether the case management justice was correct on that finding, as it agreed that any privilege, if it existed, was ultimately waived.⁶

Privilege can be waived both intentionally and unintentionally, such as when someone uses a document in a manner inconsistent with the privilege, or otherwise treats it as no longer confidential.⁷  In the context of litigation privilege, merely giving a record to a third party will not waive the privilege, but consideration of who it was given to, why it was disclosed, whether there is unfairness resulting to the party seeking access to the record and the use that third party intends to make of the record are all relevant factors.⁸

Here, the Court of Appeal held that CNOOC waived privilege by giving copies to the AER (which the Court said was a party adverse in interest in the context of potential enforcement proceedings)⁹ and to the APEGA.¹⁰ While CNOOC had an obligation to provide a root cause analysis to the AER, it had no obligation to provide a privileged report to it. Accordingly, if a privilege existed over the Reports at issue, CNOOC's conduct had to be seen as waiver.¹¹ Respecting APEGA, the Court noted that APEGA was likely to use the Reports to investigate other parties involved in the design of the pipeline (including the very defendants that were applying in this case), and it would have to share the Reports with them should any charges be brought against them.¹²  These actions were inconsistent with the asserted litigation privilege.¹³

Key Takeaways

This case has implications for other companies undergoing regulatory investigations arising from operational incidents. Companies may consider preparing separate reports for different purposes (e.g. reports required to be provided to the regulator to satisfy statutory requirements as distinct from reports intended to address legal considerations and strategy in contemplation of litigation arising from an incident).

The circumstances in which a regulator can demand a privileged document are very narrow—the statue must specifically provide for such a demand.¹⁴ Companies should carefully consider a regulator's disclosure request and ensure they have the proper statutory authority to make such a request.

Bennett Jones has extensive experience in incident response and regulatory matters. If you have any questions about this case or you need assistance in response to an incident, please contact the authors or our regulatory group.

Authors