On June 3, 2016, the Supreme Court of Canada (the “SCC”) rendered two decisions that affirmed the paramountcy of solicitor-client privilege: Canada (A.G.) v. Chambre des notaires du Québec (2016 SCC 20) and Canada (National Revenue) v. Thompson (2016 SCC 21).
These decisions remind us that:
- When faced with a requirement for information from the Canada Revenue Agency (the “CRA”):
- clients must be advised of their right to claim certain information and documents as being subject to solicitor-client privilege; and
- legal advisors should be aware of their obligations to their clients and their right to refuse to reveal privileged information and documents.
- The availability of solicitor-client privilege depends on the nature of the information contained within a document, and not the form of the document or the context in which legal advice is given.
- Careful record-keeping is important to support a claim of solicitor-client privilege.
These decisions relate to “requirements” issued by the CRA. The Income Tax Act (Canada) (the “Act”) enables the Minister to demand, by way of requirements, information or documents for any purpose related to the administration or enforcement of the Act. The Minister may also apply to the court for a compliance order. Failure to comply with the Minister’s demands could result in fines or imprisonment. The recipient of a requirement may raise solicitor-client privilege as a defence, but the definition of “solicitor-client privilege” in the Act excludes from protection the accounting records of a lawyer.
In Chambre des notaires, the SCC found that the application of the requirement scheme to notaries (in Québec) and lawyers and the exclusion of accounting records from the definition of “solicitor-client privilege” were unconstitutional based on s. 8 of the Charter. The constitutional challenge arose out of numerous requirements issued by the CRA to notaries and lawyers to obtain information about their clients. The notaries were concerned about protecting their clients’ right to professional secrecy (the civil law equivalent of solicitor-client privilege).
The following key points arise from the SCC’s decision:
- The SCC emphasized the importance of solicitor-client privilege as a principle of fundamental justice. As such, solicitor-client privilege must remain as close to absolute as possible and should only be interfered with if absolutely necessary.
- Solicitor-client privilege bestows upon taxpayers a reasonable expectation of privacy over information in the possession of their legal advisers. This expectation of privacy is not diminished by the context in which the legal advice is being provided (whether in a criminal, civil, or administrative context), or the form of the information or documents (whether they are facts or communications).
- Solicitor-client privilege is a right that belongs to the client; accordingly, only the client may waive privilege.
- In this case, several aspects rendered the requirement provisions unreasonable: the client was given no notice of the requirement; an inappropriate burden to claim privilege was placed on the notary or lawyer to whom the request was made, creating a conflict of interest for the legal adviser who must choose between potential prosecution for non-compliance with the Act or a breach of his or her professional obligations to the client; the CRA’s request for information from the lawyer or notary was not absolutely necessary; and, no measures were taken to mitigate the impairment of the privilege.
- The exclusion of a lawyer’s accounting records from the definition of “solicitor-client privilege” in the Act was unconstitutional. Privilege does not depend on the form of the document, but rather, the content and nature of the information contained in the document.
In Thompson, Mr. Thompson was a lawyer facing collection action by the CRA. The CRA requested that Mr. Thompson produce details of his accounts receivable. Mr. Thompson claimed solicitor-client privilege over these records. The SCC was asked to determine whether the definition of “solicitor-client privilege” in the Act negated privilege over a lawyer’s accounting records. The SCC determined that the definition of “solicitor-client privilege” in the Act clearly and unambiguously excluded accounting records from its protection; however, since the SCC had declared that portion of the definition unconstitutional in the Chambre des notaires case discussed above, Mr. Thompson was not required to produce his accounting records.
In summary, the SCC delivered a strong message that the protections offered by solicitor-client privilege can only be interfered with when absolutely necessary. Although the SCC acknowledged the value of the requirement scheme in enabling the Minister to administer and enforce the Canadian tax system, this administrative power remains secondary to solicitor-client privilege as a principle of fundamental justice.