Identity of tax clients solicitor-client privileged: SCC

Identity of tax clients solicitor-client privileged: SCC

Lawyers and notaries scored a big victory for solicitor-client privilege today, as the Supreme Court of Canada ruled that legal professionals cannot be compelled by a provision in tax law to divulge their clients’ identities or any other privileged information.

The court’s twin rulings, both unanimous, in Canada v. Thompson and Canada v. Chambre des notaires, finds that facts about clients, including their identities, fall under solicitor-client privilege; that the clients of notaries are also afforded this privilege; and that the privilege can only be abrogated if no other way can be found to carry out the broader legislative purpose.

Both cases centred on s. 232 of the Income Tax Act, which specifically excludes a lawyer’s accounting records from solicitor-client privilege.

In the case of lawyer Duncan Thompson, the Canada Revenue Agency had sent an order for various documents, including his accounts receivable. Thompson complied with parts of the order but refused to divulge the identity of his clients, arguing that to do so would be to violate their privilege.

The issue at stake in Thompson, then, was whether the identity of a lawyer’s clients fell under solicitor-client privilege. Here the Supreme Court is clear: there is no difference between information about a communication with the client and information about the status or identity of a client.

As the decision states: “This Court has rejected a category-based approach to solicitor-client privilege that distinguishes between a fact and a communication. In this case, absent proof to the contrary, all of the information sought is prima facie privileged.”

In Chambre des notaires, where notaries were similarly ordered to provide privileged tax documents, the court addressed the constitutional validity of the exclusion in the Income Tax Act, finding that it fails to meet the test of “absolute necessity” required to abrogate the fundamental principle of justice that is solicitor-client privilege.

“Section 231.2(1) . . . and s. 231.7 . . . are unconstitutional, and inapplicable to notaries and lawyers in their capacity as legal advisers. The exception for a lawyer’s accounting records set out in the definition of ‘solicitor-client privilege’ in s. 232(1) of the ITA is unconstitutional and invalid.”

Mahmud Jamal, the lawyer at Osler, Hoskin & Harcourt LLP who represented the Canadian Bar Association as an intervener, calls it a “very good day” for solicitor-client privilege and the law.

“These are very strong rulings for the protection of solicitor-client privilege and for the legal profession,” he says. “They affirm that solicitor-client privilege is constitutionally protected in Canada, regardless of the context.”

There had been some concern, he says, that the court might weaken privilege where taxation matters are concerned.

This would have led lawyers and notaries to become “informants or archives of information against the interests of their clients. . . . The court has all but shut the door on this possibility, though it will be left to Parliament to attempt to devise a new, constitutional scheme if it chooses to do so.”

Indeed, the court suggests that the constitutional defects around the CRA’s orders “could easily be mitigated and remedied by way of measures that are compatible with the state’s obligations relating to the protection of professional secrecy.”

A process of judicial review, for instance, could allow the court to determine the validity of a claim of privilege around taxation documents, although it’s not immediately clear how to avoid the Catch-22 scenario that would have a lawyer disclose privileged information (such as identity) in order to assert the privilege.

“I think what the court contemplates is a lawyer advancing the client’s privilege claim without identifying the name of the client,” says Jamal.

“This can be done by the lawyers providing sufficient information to allow for the claim of privilege to be evaluated by the court, or perhaps by allowing the court to review the documents in camera. There are a number of options.”

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