Solicitor-Client Privilege In Tax Litigation

Imperial Tobacco Canada Limited v The Queen, 2013 TCC 144

This case dealt with five specific issues relating to Solicitor-Client Privilege in the Taxation setting, being:

•     Whether certain internal communications between employees of the Appellant were privileged.

•     Whether privilege was waived when privileged solicitor-client communications were shared by employees of BAT, BATA and BATI or counsel for any of these companies.

•     Whether privilege was waived (or existed) when privileged solicitor‑client communications were sent to an accounting firm.

•     Whether there was an implied waiver by the Appellant of solicitor‑client privilege with respect to legal advice received from its counsel.

•     Whether the communications between the Appellant and its counsel constituted privileged legal advice or non-privileged business advice.

Claiming Privilege

Solicitor-Client Privilege is strongly guarded in Canada as it is firmly entrenched in Canadian law so that full, free, and frank communication can occur between those seeking legal advice and those providing such advice – Blank v. Canada (Minister of Justice), 2006 SCC 39 . Solicitor-Client Privilege is both a procedural and a substantive rule whose specific criteria must be satisfied if the privilege is to attach to a specific document (or part of document), being: (1) the communication must be between solicitor and client; (2) the communication must be for the purpose of seeking or giving legal advice;  and (iii) the communication must have been intended to be confidential by the parties – Solosky v. The Queen [1980] 1 S.C.R. 821.

Solicitor-Client privilege is a permanent privilege which belongs to the client, and it is only the Client who may explicitly or implicitly waive the privilege.  The burden of poof rests on the party claiming privilege to prove that the necessary elements have been satisfied. This may be achieved  by providing viva voce evidence, Affidavit evidence, or simply by providing the documents to the Court so that the Court may determine privilege as it appears on the face of the documents.

Specific Classes of Communication

Passing along Legal Advice within a Company

The most straight-forward case where Solicitor-Client privilege attaches is that where the client is communicating with his solicitors in order to receive or be given legal advice.  Within a corporation, such communication may be passed on internally between and among employees of the corporation.  Where the communication between or among employees is the dissemination or discussion of confidential legal advice provided, this communication is also privileged: Global Cash Access (Canada) Inc. v. The Queen, 2010 TCC 493.   But communication is that is not the passing along or the seeking of legal advice is not privileged.  Neither does a document become privileged merely because it is passed on to, or shared with, a lawyer (though the copy marked by the lawyer will become privileged as a working paper).

Communications Disclosing Solicitor-Client Materials to Employees of Affiliated Companies

In order to be privileged, the communication must be confidential. Generally the intention to reveal to a third party means that confidentiality is lacking, though this may not always be the case: R.  v. Dunbar,  (1982), 68 C.C.C. (2d) 13.  Communication among employees of affiliated OR unaffiliated companies may retain the cloak of privilege, if and only if there was a common interest such that there is indication that there was a lack of intention to waive privilege:  Fraser Milner Casgrain LLP et al. v. M.N.R [17].  But, if the parties are adverse in interest, common interest privilege may not apply.  In case of subsidiaries of one company all working towards the same goal, the privilege is maintained.

Documents Disclosed to Accountants

When communication that is privileged is disclosed to third party advisors, privilege may be waived in the act.  Accountants’ communications do not attract privilege.  However, certain classes of communication with third parties will not result in the waiver of privilege.  This is the case where: (A) the documents disclosed to or prepared by the third party were disclosed or prepared on request by the solicitor so as to be used in litigation or the giving of legal advice; or (B) Where the third party is sued as a representative for the purpose of placing a fact situation before the solicitor in order to obtain legal advice or assistance: Susan Hosiery Limited v. M.N.R.,  69 DTC 5278.  This requires the court to ascertain the true nature of the function that the third party was retained to perform: General Accident Assurance Company v. Chrusz,  (1999), 45 O.R. (3d) 321.  If the third party’s function is essential to the existence or operation of the solicitor-client relationship, the communications in furtherance of that function are privileged: Mutual Life Assurance Company of Canada v. The Deputy Attorney General of Canada,  84 DTC 6177.  This will usually require evidence by the party seeking privilege as to the role and relationship between the third party, client, and solicitor – is to prove the integral nature of the third party to the solicitor-client relationship.

Implied Waiver when State of Mind Placed In Issue on Basis of Legal Advice

Where a defense involved the denial of a required state of mind, and the denial is based on solicitor-client privileged materials, the denial of the state of mind results in a waiver of the solicitor-client privileged material relied on.   This applied whenever a defense relied on legal advice received.  However, implied waiver requires two things of the client: (1) knowledge that the privilege exists, AND (2) evidence of voluntary intention to waive that privilege: S. & K. Processors Ltd. v. Campbell Ave. Herring Producers Ltd (1983), 35 C.P.C. 146 (B.C.S.C.).  However, even absent an intention to waive, privilege may be waived implicitly where required by consistency and fairness, making waiver of part of the communication the waiver of the entire communication, or where legal advice is used as a defense the privilege as to that advice is waived.  In the tax context, a client does not put its state of  mind at issue simply by denying or opposing an assessment that happens to be based on a provision of the ITA that contains an intention or purpose test – the CRA cannot put the taxpayer in the position of either accepting the assessment or waiving privilege.  Waiver as a result of defense using legal advice requires the taking of positive steps to set up the advice as a defense.

Legal vs Business Advice

Just because a communication is with a lawyer does not automatically extend privilege.  Where the communication is for purposes of PURELY obtaining business advice the communication is not privileged.  If, however, the communication is for the purpose of getting or giving of legal advice, then it is protected.