Supreme Court of Canada Decisions
On Friday, June 3, 2016, the Supreme Court of Canada (the “SCC”) released two important decisions (Canada (Attorney General) v. Chambre des Notaires du Qúebec et Barreau de Qúebec, 2016 SCC 20 (“Chambre des Notaires”) and Canada (National Revenue) v. Thompson, 2016 SCC 21 (“Thompson”) confirming the importance of solicitor-client privilege. These decisions affirm the constitutional limits placed upon the Canada Revenue Agency (the “CRA”) under the Income Tax Act R.S.C. 1985, c1. (5th Supp.) as amended (the “Act”). Given the outcome of the two cases, it is possible that the Department of Finance (at the urging of officials at the CRA) may consider the introduction of new legislation in an effort to obtain certain types of information that now appear out of the reach of the CRA. A careful reading of the SCC’s reasons in Chambre des Notaires and Thompson would suggest that such a legislative undertaking may not be necessary.
The facts in both cases are very straightforward. In each case, as the CRA often does, it issued a notice of requirement to produce documents or information (a “Requirement“) in accordance with subsection 231.2 of the Act. However, in the case of Chambre des Notaires, the CRA issued the Requirement not directly to the taxpayers but to notaries representing them in Quebec. The CRA maintained that the information sought fell within the “accounting records” exception as set out in the definition of solicitor-client privilege in subsection 232(1) of the Act. The Chambre des Notaires and the Barreau de Qúebec maintained that the exception for the accounting records of notaries and lawyers, as set out in the definition of “solicitor-client privilege” in subsection 232(1) of the Act, was unconstitutional and of no force or effect with respect to notaries. The basis for their argument was their shared concern to protect the clients’ right to professional secrecy (a term of art used in Quebec and referring to solicitor-client privilege). The lower courts in Quebec agreed with the Chambre des Notaires and the Barreau de Qúebec. Both the Superior Court and the Court of Appeal ruled in their favor.
Following a further appeal, the SCC upheld the lower court rulings. It found subsection 231.2(1) and section 231.7 of the Act to be unconstitutional and of no force and effect with respect to notaries and legal advisors. Further, the Court found the exception for a lawyer’s accounting records, as set out in the definition of solicitor-client privilege in subsection 232(1) of the Act, to be unconstitutional. Lastly, the Supreme Court held that “it is not appropriate to establish a list of documents that are prima facie protected by professional secrecy. Whether a document is protected by professional secrecy depends not on the type of document it is but, rather, on its content and on what it might reveal about the relationship of and communications between a client and his or her legal advisor”. [Chambre des Notaires, para. 95.]
In Thompson, the CRA issued a Requirement pursuant to subsection 231.2(1) of the Act, requesting various documents relating to Mr. Thompson’s personal finances as well as his current accounts receivable listing. Mr. Thompson did provide the CRA with certain information but he claimed solicitor-client privilege in relation to the details of his accounts receivables, as they included the names of his clients. The Minister of National Revenue applied to the Federal Court for a Compliance Order in accordance with section 231.7 of the Act. Mr. Thompson countered that the Requirement issued by the CRA constituted an unreasonable search or seizure contrary to section 8 of the Canadian Charter of Rights and Freedoms (the “Charter”).
The Federal Court concluded that client names could be disclosed and this would not breach section 8 of the Charter. On appeal, the Federal Court of Appeal held that the information sought by the CRA could contain privileged information. Specifically, the clients whose names were, in fact, privileged, should be afforded the chance to assert and defend this privilege, and that Mr. Thompson should be given the chance to raise the issue of privilege on their behalf. The Federal Court of Appeal dismissed the Charter challenge. Given its findings, the Court of Appeal sent the matter back to the Federal Court.
The government appealed the Federal Court of Appeal’s decision to the Supreme Court. The only issue before the Supreme Court was the statutory interpretation of the purported exclusion of lawyers’ accounting records from the protection of solicitor-client privilege as defined in subsection 232(1) of the Act.
Thompson was plainly the companion case to Chambre des Notaires. Thus, the Supreme Court held that given its conclusions in Chambre des Notaires, the exception contained in the definition of “solicitor-client privilege” in subsection 232(1) of the Act was constitutionally invalid and as a consequence, the Minister’s request that Mr. Thompson be directed to disclose the documents he had been withholding must be denied. The Court expressed its view that: “The information contained in those documents is presumptively privileged, and its disclosure cannot be required unless a court first determines whether solicitor-client privilege actually applies”. [Thompson, para. 41.]
Returning to the subject of possible Parliamentary action, the Supreme Court noted that Parliament could attempt to remedy the constitutional defects of the Requirement procedure as presently constituted under sections 231.2 and 231.7 of the Act. However, if Parliament does not amend the present legal framework, courts may in the future be faced with determining whether certain information is protected by solicitor-client privilege and if they find that privilege does not apply, these same courts may order that the information be disclosed. The Supreme Court therefore commented upon the appropriateness of the actions taken by the Federal Court of Appeal. Overall the Supreme Court was of the opinion that the Federal Court of Appeal acted properly in sending Mr. Thompson’s case back to the Federal Court to have it determine whether any information in the accounting records sought by the CRA was privileged and therefore exempt from disclosure. [Thomson, para. 38.]
The Supreme Court however went on to state that solicitor-client privilege is a right that belongs to, and can only be waived by, a client of a legal professional. Therefore, the Federal Court of Appeal’s Order would have been insufficient to safeguard the rights of Mr. Thompson’s clients. The Supreme Court proposes that in order to give clients the opportunity to raise their right to solicitor-client privilege, they must be notified when a court is going to consider and make any order requiring disclosure of what might be considered privileged information. Taxpayers must also have the opportunity to decide whether they want to contest the disclosure of information and if they do wish to challenge the state, taxpayers must be permitted to make submissions in this regard on their own behalf. [Thompson, para.40.] In short, even if the legislature does move to make amendments, those changes should ensure that clients whose information is being sought can participate in the process of asserting the protections that apply to them. [Thompson, para. 40.]
These decisions raise a number of questions and possibilities. Will the government move to introduce new legislation? Will there be increased efforts on the part of taxpayers and more specifically, their respective legal counsel, to resist the disclosure of what may be considered sensitive or protected information and/or documents? How will the lower courts react and deal with future Requirement challenges in light of these Supreme Court decisions?
David W. Chodikoff is the National Tax Litigation Lead and Tax Partner at Miller Thomson LLP.