Privilege at a Price: The Risk of Pleading Your Legal Understanding

The Ontario Court of Appeal’s decision in One York Street Inc. v. 2360083 Ontario Limited, 2026 ONCA 176 provides clarity on when a party will be found to have waived solicitor‑client privilege by pleading its state of mind.

Background

This appeal arose from a commercial lease dispute. The tenant (respondent on appeal) defended against the landlord’s (appellant on appeal) claim for unpaid rent and advanced a counterclaim alleging it had been induced to enter into the lease and a subsequent extension by misrepresentations, including alleged guarantees regarding foot traffic. In support of that defence, the tenant plead that it did not understand the legal consequences of the lease extension and initially asserted that it had not received legal advice, a position it later acknowledged was incorrect.

The landlord took the position that by relying on its asserted understanding, or lack of understanding, of its legal position at the time the lease was executed, the tenant had placed its state of mind in issue and thereby waived solicitor‑client privilege over the legal advice it had in fact received. The motion judge accepted that argument and ordered production of the tenant’s solicitor’s file. Although the Divisional Court overturned that decision, the Court of Appeal ultimately restored the production order.

The Court of Appeal’s Framework

The Court of Appeal confirmed that deemed waiver of privilege does not require an express reference to legal advice or the absence of legal advice in a pleading. Instead, the analysis turns on fairness and consistency in the litigation process.

The Court articulated a clear framework for assessing deemed waiver in cases where a party pleads its state of mind:

1. The mere fact that a party received legal advice does not, on its own, give rise to waiver.
2. Allegations of misrepresentation or general assertions of state of mind are insufficient.
3. Deemed waiver arises only where a party relies, as part of its claim or defence, on its understanding or lack of understanding of its legal position.
4. Where a party places its understanding of its legal position in issue, and it in fact received legal advice on that issue at the relevant time, it is unfair and inconsistent to permit that party to shield the advice from disclosure.
5. The burden of establishing waiver rests on the party seeking production.

Importantly, the Court emphasized that fairness is the animating principle. A party cannot advance a narrative that it misunderstood its legal rights, or relied on extra‑contractual representations affecting its legal position, while simultaneously preventing the opposing party from testing that assertion through disclosure of contemporaneous legal advice.

Amended Pleadings Do Not Necessarily Cure Waiver

A key issue on the appeal was whether the tenant could avoid waiver by amending its pleadings to remove express references to lack of legal advice. The Court held that simply deleting explicit references does not resolve the issue if the substance of the defence continues to rely on the party’s understanding of its legal position.

Here, even after amendment, the tenant continued to allege reliance on alleged guarantees that were said to have legal effect beyond the written lease. That pleading necessarily engaged the tenant’s understanding of its legal rights and obligations at the time of contracting. In those circumstances, privilege remained waived.

Practical Takeaways

This decision has immediate and practical implications:

• Pleadings matter: Parties must carefully consider whether defences or claims rely on an asserted misunderstanding of legal rights.
• Amending pleadings will not automatically undo waiver if the underlying theory of the case still depends on the party’s legal understanding.
• Parties alleging reliance on representations with legal consequences should expect that contemporaneous legal advice may become producible.
• Deemed waiver analysis is contextual and driven by considerations of fairness, not a rigid formula.

Conclusion

The Court of Appeal’s decision offers important clarification in an area of law that has long lacked certainty. It reinforces that solicitor‑client privilege remains a fundamental right, but one that cannot be used as both a sword and a shield. Where a party chooses to put its understanding of its legal position at issue, the price may be disclosure of the legal advice that informed that understanding.

Before advancing defences or claims that rely on your understanding of your legal rights, speak with counsel experienced in privilege and complex commercial litigation. Contact our litigators to assess privilege risk before you plead.

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