Ability to claim, and Limits of, Solicitor Client Privilege When a Tax Lawyer is Getting Audited by the CRA

Thomson v The Queen, 2013 FCA 197

At issue was the extent of information that the CRA could, though a court order, require that a lawyer provide with respect to billings, work in progress, and accounting records.

The Court held that accounting records and the like, whether including clients’ names, are not subject to privilege unless the client’s name is the foundation of the retainer or the focus of seeking legal advice.  A lawyer, to properly claim solicitor-client privilege on client’s names and records they are found in must: (1) claim privilege on behalf of clients on blanket basis when contacted by the CRA; (2) contact all clients to inform them of the circumstances and ask whether they wish to asset the privilege and whether privilege attached to the name (assess circumstances); and (3) provide specifics in an Affidavit (to court) as to why certain names may attract privilege.

The court’s distinction between accounting records and a lawyer’s Statements of Account (which may attract privilege) make it prudent for lawyers to not include client names as part of their accounting records and perhaps even statements of account, but use client numbers as far as possible to protect clients’ privacy and confidentiality.

A practice point, to save time and expense in the case of an audit, is to ensure that each client file, in the retainer, contains a statement instructing the lawyer when and when not to assert privilege on behalf of the client, and appropriate notations as to whether the client’s name attracts privilege or not.

ANALYSIS

The court began by recognizing the importance of solicitor-client privilege in the Canadian legal system; R. v. National Post, 2010 SCC 16;  R. v. McClure, 2001 SCC 14;  R. v. Cunningham, 2010 SCC 10.  However, the privilege is not absolute.

The privilege is that of the client (not the lawyer), and can only be asserted or waived by the client or with the client’s informed consent; Smith v. Jones, [1999] 1 S.C.R. 455.

The privilege doesn’t apply to all communications or matters, but only communications that meet certain criteria. (1) the communication must be confidential in nature; (2) the communication must be for the purpose of receiving legal advice; Solosky v. The Queen, [1980] 1 S.C.R. 821

Solicitor-client privilege will protect clients’ names, but only in certain circumstances – where the identity of the client constitutes the foundation of the retainer or the essence of the consultation; R. v. Budd, 2002, [2002] O.T.C. 893; Lavallee, Rackel & Heintz v. Canada (Attorney General); White, Ottenheimer & Baker v. Canada (Attorney General); R. v. Fink, 2002 SCC 61.

Subsection 232(1) of the ITA defines “solicitor-client privilege” for purposes of the Act as:

“solicitor-client privilege” means the right, if any, that a person has in a superior court in the province where the matter arises to refuse to disclose an oral or documentary communication on the ground that the communication is one passing between the person and the person’s lawyer in professional confidence, except that for the purposes of this section an accounting record of a lawyer, including any supporting voucher or cheque, shall be deemed not to be such a communication.

The Federal Court of Appeal stated that the definition is in line with that provided by the SCC.  The FCA stated that accounting records, vouchers, and cheques are evidence of an act and not communication; Canada (Minister of National Revenue – M.N.R.) v. Jakabfy, 2013 FC 706 ; Canada (Minister of National Revenue – M.N.R.) v. Singh Lyn Ragonetti Bindal LLP, 2005 FC 1538 ; Canada (Minister of National Revenue – M.N.R.) v. Reddy, 2006 FC 277; Canada (Minister of National Revenue – M.N.R.) v. Cornfield, 2007 FC 436; Canada (Minister of National Revenue – M.N.R.) v. Currie, 2008 FC 237.

With respect to privilege and taxation, the court stated (para 51):

 One of the difficulties with the appellant’s position that names of clients are always privileged is that it runs contrary to the foundation of the taxation system in Canada, which is a self-assessing and self-reporting system. On his theory, the CRA could never seek and obtain information from a solicitor or barrister about the revenue generated by his practice or otherwise that would enable the CRA to ensure compliance or determine non-compliance by a lawyer. Indeed, the appellant goes as far as arguing that privilege covers the financial institutions who hold
registered mortgages on his own personal interests because he provides legal services to these financial institutions where he also has bank accounts

In my view, the appellant could not succeed on his argument by simply raising the shield of privilege on behalf of his clients whose names the Minister was seeking and by hiding behind it. The appellant is a taxpayer whose compliance with the Act the Minister is fully entitled to verify. Had Mr. Thompson raised solicitor-client privilege until he had further opportunity to consult with his clients and assess their rights, and then provided specifics in his affidavit explaining why some of the names might attract privilege, he would have been in a better position to persuade the Judge that his position might be justified.

It is also noteworthy that the Court observed that there was no indication, on record, that the appellant had even informed his clients that he was asserting privilege on their behalf. Rather, it appears that he is attempting to protect his clients from knowledge of the whole matter. Once again, the Judge found that the appellant “has provided no evidence to show that any particular client name should be protected in this case” (Judge’s Speaking Order, appeal book, volume 1, page 25 at paragraph 14). I have not been persuaded that the Judge committed reviewable errors when he made these findings.

The FCA notes that even if a client claims privilege, items such as trust account ledger, cheque journal, statement of adjustments or disbursements, copies of invoices or receipts for payments have in the past been held not to attract privilege. However, a distinction was drawn between accounting records and Statements of Account.  Statements of Account may contain the history of a client’s file and may be covered by privilege.  Client names form part of the accounting records of a lawyer.

In issuing a production order, the Judge ought to fashion an order that allows for the protection of solicitor-client privileged matters, including clients’ names where appropriate.

Sas Ansari, BSc BEd PC JD LLM PhD (exp) CPA In-Depth Tax 1, 2 &3

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