Privilege at Risk: How Pleading Lack of Legal Understanding Can Backfire

What happens when a party claims it misunderstood the legal consequences of a contract, but had in fact obtained legal advice at the time it was executed?  The short answer is that it can result in a complete loss of solicitor-client privilege.

The Ontario Court of Appeal addressed this issue in One York Street Inc. v. 2360083 Ontario Limited, 2026 ONCA 176, clarifying that a deemed waiver of solicitor-client privilege may arise when a party puts its understanding (or lack thereof) of its legal position in issue. In such circumstances, principles of trial fairness preclude the party from withholding the legal advice that informed that understanding, especially where those communications are necessary to test that assertion.

The Underlying Dispute

A landlord, One York Street (the “Landlord”), leased retail space in a shopping center to a supermarket operator (the “Tenant”). The lease, signed in 2017, alongside four lease extension agreements, established a total term of 20 years (collectively, the “Lease”). By 2019, the Tenant began to fall behind on rent payments, leading the Landlord to commence an action against them in 2021.

In response, the Tenant advanced a defence and counterclaim alleging that the Landlord had misrepresented the expected amount of foot traffic in the shopping center. Such misrepresentations, the Tenant alleged, had amounted to guarantees which had induced them to enter into the Lease.

In their original pleadings, the Tenant claimed that it did not understand the implications of the Lease, which had been executed “without discussion and without legal advice”.  However, this assertion turned out to be untrue - the Tenant had in fact received legal advice at the time of entering into the Lease; and not only that, the same law firm represented the Tenant in both the Lease negotiations and the lawsuit.  The Tenant later filed an Amended Statement of Defence and Counterclaim, removing claims indicating otherwise from their pleadings. 

The Production Order

The Landlord took the position that, by pleading its state of mind at the time of the Lease’s execution, the Tenant had waived solicitor-client privilege with respect to the legal advice it obtained. Accordingly, the Landlord brought a motion seeking production of the Tenant’s lawyer’s file concerning the negotiation and execution of the Lease.

The Tenant refused to produce the file on the basis of solicitor-client privilege. In June 2023, shortly before the motion was heard, the Tenant further amended their defence to remove the explicit allegation that it had signed the lease without legal advice (the “June 2023 Amendments”). The Tenant argued that this amendment eliminated any basis for a finding of waiver of privilege.

The motion judge agreed with the Landlord and ordered production of the Tenant’s law firm’s file relating to the lease negotiations. The Tenant appealed to the Divisional Court, which overturned the motion judge’s order.

The Court of Appeal Decision

The Ontario Court of Appeal ultimately restored the motion judge’s order by clarifying the principles applicable to a deemed waiver of solicitor-client privilege.

A deemed waiver of solicitor-client privilege may be found where a party relies in its claim or defence on its understanding of its legal position. Such reliance triggers a deemed waiver because it would create an unfair litigation advantage to allow a party to advance a claim based on its understanding of its legal position while shielding from disclosure the very legal advice that may challenge the credibility of that assertion.

The Court acknowledged that, typically, deemed waiver arises where a party expressly relies on the fact that it received legal advice as part of its claim or defence. That was not the case here, as the Tenant instead advanced a purported lack of understanding of their legal position, despite having, in fact, obtained legal advice. In other words, rather than expressly relying on such advice, the Tenant initially took the position that they had not received any legal advice at all.

The Court found that the absence of an express reliance on legal advice was immaterial. Where a party advances its state of mind as part of its claim or defence, and it obtained legal advice on that issue at a time relevant to that asserted state of mind, considerations of trial fairness arise. Although the June 2023 Amendments eliminated any explicit pleading that no legal advice was received, the core substance of the Tenant’s defence, counterclaim, and the relief sought remained unchanged. In these circumstances, it was held to be inconsistent and unfair to maintain privilege over that advice while it could be used to test or challenge the asserted understanding of a legal position.

The Court emphasized, however, that a deemed waiver of privilege arises only where a party relies on its understanding of its legal position on an issue in the litigation at the relevant time. A party putting in issue their general state of mind is not sufficient for a finding of deemed waiver. Since the Tenant had received legal advice at the time the Lease was executed, maintaining privilege over that advice while asserting a misunderstanding of their legal rights under the Lease would create an unfair litigation advantage. The Court therefore concluded that the Tenant’s litigation conduct gave rise to a deemed waiver of solicitor-client privilege and ordered production of their lawyer’s file relating to the negotiation and execution of the Lease.

The Takeaway

Parties should exercise caution before advancing pleadings that put their understanding (or lack thereof) of their legal position in issue, particularly where legal advice was obtained at the relevant time. Doing so may trigger a deemed waiver of solicitor-client privilege, even in the absence of pleadings expressly relying on that advice. More broadly, this case reinforces that solicitor-client privilege, while a substantive right, is not absolute.

That said, the finding of deemed waiver in this case appears to have been influenced by several factors, including:

• The Tenant’s initial false pleading;
• The nature of the relief sought;
• The manner in which the claim was advanced.

In particular,

• The Tenant sought the broad and exceptional remedy of voiding the Lease on the basis of an asserted lack of understanding of their legal rights,
• That position was premised on the inaccurate claim that they had not received legal advice, and
• The tenant characterized the Landlord’s representations as guarantees.

At the same time, the Tenant resisted disclosure of evidence that would have tested the credibility of its asserted lack of understanding. The combination of seeking such a far-reaching remedy while attempting to withhold material relevant to its foundation likely weighed in the Court’s assessment of fairness and contributed to the finding of deemed waiver.

This decision, therefore, serves as an important cautionary tale about making assertions about a party’s understanding of its legal rights. Litigants should therefore be careful of what they plead, because loss of privilege is not something that is to be taken lightly.