Court Of Appeal Finds Pleading Of Extra-Contractual Guarantee Waives Privilege

Communications between lawyer and client are generally privileged. However, in One York Street Inc v 2360083 Ontario Limited, 2026 ONCA 176, the Ontario Court of Appeal considered whether a client waived that privilege by pleading reliance on extra-contractual representations when entering into a commercial lease. The Court held it would be unfair to allow the client to put its understanding of the lease in issue while shielding the legal advice that relates to it.

Background

The lease concerned premises in a downtown Toronto shopping centre and had an initial three-year term. The day after the parties signed the lease, they entered into an extension agreement that brought the total term to 20 years.

Three years later, the landlord commenced a claim alleging the tenant had failed to pay rent and had abandoned the premises. In its statement of defence and counterclaim, the tenant pleaded that it had signed the extension without understanding its ramifications and without legal advice. That allegation was untrue—the tenant had received legal advice during the negotiations. When the landlord moved for production of the lawyer’s file on the basis of waiver, the tenant amended its pleading to remove any express reference to a lack of legal advice or misunderstanding of the extension. However, the pleading continued to assert that the landlord had made extra-contractual guarantees about the volume of foot traffic in the shopping centre.

The courts below divided on whether reliance on the alleged extra-contractual guarantees was sufficient to constitute a waiver. The motion judge held that it was. The Divisional Court, however, held that the motion judge erred by failing to give effect to the amended pleading, which had “effectively removed [the tenant’s] reliance on lack of legal advice”.

Court of Appeal Decision

The Court of Appeal allowed the appeal and restored the motion judge’s order. It held the tenant had waived solicitor-client privilege despite the removal of the most obviously problematic statements from the statement of defence and counterclaim because it continued to plead reliance on alleged legal promises made by the landlord.

Deemed waiver is established where a party’s conduct in litigation is “inconsistent with an intention to maintain confidentiality”. Intention to waive is not required. Rather, deemed waiver arises where a party voluntarily relies in its claim or defence on the receipt of legal advice (or the lack of such advice), or on its understanding of its legal position. It is unfair to permit a party to put its legal “state of mind” in issue while shielding the communications relevant to testing that position.

Further, the reliance need not be expressly stated. Although the amended pleading removed explicit references to a lack of legal advice and misunderstanding of the lease, a significant component of the amended defence centered on alleged extra-contractual statements by the landlord. The Court of Appeal accepted that reliance on factual misrepresentations is not typically enough to constitute a waiver. Here, however, the allegations crossed the line because they implicated the tenant’s understanding of its legal position:

The misrepresentations pleaded by the respondents are not merely factual. Rather, a significant component of the defence and counterclaim is the assertion that the appellant landlord made guarantees or promises about the amount of foot traffic in the shopping centre. These are allegations of legal representations – that the landlord would guarantee a certain amount of foot traffic. […] These allegations place reliance on the respondents' understanding of their legal position under the lease and the lease extension.

Commentary

This case illustrates the complex, fact-specific principles governing deemed waiver of solicitor-client privilege. It is also a cautionary tale because allegations like those considered by the Court of Appeal are encountered frequently in commercial litigation. Not every misrepresentation pleading will result in deemed waiver; it occurs only where the pleading places a party’s understanding of its legal position in issue. However, the dividing line can be difficult to judge. The decision therefore underscores that litigants must carefully consider the potential ramifications of their pleadings to preserve privilege.

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