When drafting buy and sale agreements within the merger and acquisition (M&A) context, distributors and purchasers alike ought to think about together with provisions that handle the possession of the seller’s privileged data after a sale has been accomplished. Often called Nice Hill clauses named after the American case Nice Hill Fairness Companions IV, LP v. SIG Development Fairness Fund I, LLP during which the Delaware Court docket of Chancery handled this situation.
Nice Hill Clauses
Nice Hill clauses are generally related to privileged communication conveyed by electronic mail or different digital messaging strategies which might be archived on an organization’s servers or accessible by an organization’s account. As soon as a brand new purchaser assumes management of an organization and its server infrastructure post-sale, a crucial query arises: Can the client legitimately use the privileged communications exchanged between the earlier proprietor(s) and their authorized counsel, notably these regarding the sale transaction itself?
Prudent distributors and purchasers ought to think about together with Nice 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 Nice Hill Clauses
This American idea was not too long ago addressed by the Ontario Court docket of Superior Court docket of Justice within the case of Dente et al. v. Delta Plus Group et al., 2023 ONSC 3376. The Dente case concerned a industrial dispute involving a share buy settlement, consulting agreements and different occasions whereby the defendants recognized 387 paperwork which might have contained solicitor-client communication between the plaintiff and their counsel. The events agreed on a protocol and retained impartial counsel to overview the paperwork. Regardless of this, the plaintiffs introduced a movement looking for a declaration that these communications had been privileged in nature.
Though there was no Nice Hills clause within the Dente case, Justice Braid famous “Usually, after the sale of a company, all paperwork and supplies the company owns stays with the company. When an proprietor of an organization shares the companies of counsel with their firm previous to closing, there’s a joint privilege. The proprietor can insert a clause within the share buy settlement that would depart the previous proprietor in sole possession of the privilege upon closing. After they fail to take action, the prior proprietor can’t declare privilege over paperwork as towards the brand new proprietor, who now owns the paperwork.”
Justice Braid additionally cited an earlier Alberta case, NEP Canada ULC v. MEC OP LLC, 2013 ABQB 540, which additionally talked about the absence of a clause which might exclude the purchaser of an organization from utilizing privileged communications towards a vendor.
Conclusion
Although there have been no Nice Hill clauses in both of the Ontario or Alberta instances, such clauses have gotten extra prevalent in M&A agreements and Distributors and Purchasers alike ought to be clear on who’s to personal pre-closing privileged communications that relate to the sale of a company or group. Regardless of the safety {that a} Nice Hill clause might afford to distributors, there are different methods that distributors might also want to discover to make sure that their confidential data regarding the sale of their group stays really confidential. If you want to discover these methods, our Enterprise Regulation group can be completely happy to assist.
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