Solicitor-client privilege prevails over CRA information gathering powers

By Doug Carroll | September 20 2016 07:00AM

Photo: Freepik

At issue

The earliest incarnation of solicitor-client privilege was as a rule of evidence. It served as a shield against confidential professional communications between a lawyer and client being tendered as evidence in a court proceeding.

Over time, privilege has progressed beyond being mere procedure. Indeed, it is now considered to be a substantive legal right (whether in or out of court), and indeed a principle of fundamental justice. But there have always been and continue to be limits. For example, the client must be seeking legal advice and must intend the communications to be kept in confidence. Furthermore, communications in furtherance of a criminal purpose are not protected at all.

Earlier this year, the Supreme Court of Canada (SCC) released rulings in two cases involving privilege claims invoked to resist disclosure demands from the Canada Revenue Agency (CRA).

Solosky v. The Queen, [1980] 1 SCR 821

This judgment marked an explicit acknowledgement from the SCC that case law had progressed such that privilege could be claimed outside court evidence matters, bringing it to a “new plane”. Solosky was an inmate in a federal penitentiary whose correspondence – including that with his lawyer – was being opened by corrections officers. While accepting the evolution of privilege, the Court expressed that limits remain, denying the instant claim in the face of overriding security concerns of the institution.

Section ss. 231.2(1), 231.7 and 232(1) of the Income Tax Act (ITA)

ITA s.232(1) defines solicitor-client privilege as “the right … 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 … shall be deemed not to be such a communication.” [Emphasis added]

This is known as the ‘accounting records exception’, and is brought within CRA’s power to require documentary disclosure under ITA s. 231.2(1). And if there is a refusal to produce the document/communication, the CRA may seek court assistance pursuant to ITA s.231.7.

Canada (Attorney General) v. Chambre des notaires du Québec, 2016 SCC 20

Over recent years, many Quebec notaries in the course of law practice had been served with a “requirement to provide documents or information” relating to one or more of their respective clients who were the subject of tax audits. The Chambre des notaires du Québec was unable to negotiate a compromise with CRA, so it launched a court action which eventually made its way to the SCC.

The top court noted that information in accounting records could be subject to solicitor-client privilege, with the client name alone sufficing in some situations. Accepting that the requirement scheme is a legitimate tax collection tool for CRA generally, the intrusion on privilege nonetheless went too far. The SCC ruled the ITA sections were unconstitutional with respect to accounting records of lawyers and notaries (as had the lower courts), as an unreasonable search and seizure of information under s.8 of the Charter.

Canada (National Revenue) v. Thompson, 2016 SCC 21

Both Chambre and this case dealt with the accounting records exception, and the two judgments were released on the same day. But whereas in the former it was the clients whom CRA pursued, in this case Mr. Thompson himself was the subject of an income tax audit, the CRA having served him a requirement to produce the accounts receivable of his law practice in addition to personal finance documents.

Though constitutionality was not argued here, the finding followed from the Chambre ruling, ironically allowing Mr. Thompson to prevail due to his clients’ rights, not his own. This was emphasized by the Court in noting that privilege is that of the client, not the lawyer, and could only be waived by the client. It went on to remark that if Parliament decided to rectify the disclosure scheme, it would have to build in a process for clients to participate and protect their rights in a situation such as Thompson.

Practice points
  1. Solicitor-client privilege is the right of a client in the course of obtaining confidential professional legal advice, and for clarity it is not a right of the lawyer consulted.
  2. Pursuant to Chambre, it is unconstitutional for CRA to require production of accounting records from lawyers and notaries, as that would presumptively compromise clients’ privilege rights. As regards the accounting records of other professionals, the relevant ITA sections remain in effect.
  3. Parliament may act to amend the ITA to enable access to accounting records of lawyers and notaries, but will have to do so in a manner that continues to protect solicitor-client privilege.