Visser v. MNR, 89 DTC 5172, [1989] 1 CTC 192 (P.E.I.S.C.)

McQuaid, J.:—This is an application for an order pursuant to subsection 232(4) of the Income Tax Act, R.S.C. 1952, c. 148, as amended, for a determination whether Martin Visser enjoys a solicitor-client privilege with respect to certain documents seized from the offices of the law firm of Bernard McCabe and Associates of Summerside.

Mr. Visser, who resides in the Summerside area, is engaged, through the medium of his company, Visser Produce Ltd., in a large potato operation, including, and specifically for the purposes of the proceedings herein, major exports of that product to Trinidad.

For reasons not immediately relevant to this particular application, the appropriate offices of the Department of National Revenue secured a search warrant, and in due course conducted a search of the offices of Mr. McCabe's law firm, where they seized a number of documents purportedly touching the relationship which existed, or was purported to exist, between Mr. McCabe and his client, Martin Visser. The company, Visser Produce Ltd., was not, as I understand it, a direct client of Mr. McCabe or of his firm. In as much, however, as Visser Produce was the personal company and corporate arm of Martin Visser, there may exist a grey area in that respect.

What is before the Court presently is a determination as to whether certain specific documents which were seized under the warrant are privileged, and thus not to be released to the Minister, or, on the other hand, whether no privilege exists in certain individual cases, in which instances the documents themselves may be released. That issue comes before me pursuant to s. 232(4) of the Income Tax Act.

The Act defines solicitor-client privilege in paragraph 232(1)(e) thereof:

“Solicitor client privilege” means a 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 him and his lawyer in professional confidence, except 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.

That definition, concise on its face, is, like many statutory definitions, not particularly helpful. What it appears to say is, simply, that if the superior court of the province recognizes a particular communication as being privileged within the solicitor-client relationship, then it will be deemed to be privileged within the meaning of the Act.

The critical question is, then, not what are the parameters of solicitorclient privilege under the Act, but what are the common law parameters of that privilege.

Before entering into an examination of that subject, however, a preliminary issue must be disposed of.

At the hearing of this application, the client, Mr. Visser, did not himself appear to claim privilege. He was represented by Mr. McCabe, who testified, presumably on behalf of Visser. Mr. McCabe was, himself, represented by counsel, Mr. Hammond.

Although it had crossed my mind during the course of Mr. McCabe's testimony, it was not until I returned to my chambers to consider the entire issue in some depth, that the full implications of what had taken place were brought more forceably to my attention. Accordingly, I immediately contacted both Mr. Hammond, and Mr. Carr, representing the Minister, and advised each of the ensuing problem as I perceived it. I reproduce below the substantive problem as I brought it to the attention of respective counsel:

Solicitor-client privilege, where it exists, exists in the client, and not in the solicitor. It must be claimed, or waived, by the client, not the solicitor. There is no privilege, per se, in the solicitor.

The client may, of course, have a solicitor representing him at any hearing touching the admissibility, or otherwise, of documents with respect to which privilege is claimed.

Where that solicitor is, however, the same solicitor who is the author of certain documents for which privilege may be claimed, and who is himself represented by a solicitor, a question arises. When that solicitor, of the first instance, testifies, does he do so as the solicitor representing the client, and claiming privilege and restricted to claiming privilege in his, the client’s behalf, or does he testify as the solicitor representing the client in the transaction under review, in which case he would be explaining why certain documents, of which he was the author, should be deemed to be privileged; in essence, claiming privilege for his own documents as if the privilege lay with the solicitor rather than the client, and that the release of the documents would constitute, in a sense, a breach of trust on the part of the solicitor?

I suggested to counsel several alternative approaches which might be taken with a view to dealing with the perceived problem, including a rehearing at which Mr. Visser would appear and testify on his own behalf.

Counsel have communicated to me their mutual agreement as to their preferred approach, that they would both be prepared to stand or fall on the strength of the testimony already given (by Mr. McCabe), whatever its probative value may be.

Upon further reflection, however, I think that the matter may be resolved without having to attempt to unravel the tangled web which that somewhat anomalous situation gives rise to.

Not every communication passing between solicitor and client will necessarily be held to be privileged. It is the nature of the communication itself which determines its status in that regard, and accordingly it matters little that there may exist a mutual understanding between solicitor and client that everything which passed between them would be held as privileged. One cannot contract oneself out of the general common law of privilege, for there may be third parties vitally involved.

I have endeavoured to extract from the authorities the broad general principles touching the question of privilege, relying principally upon the texts, Phipson on Evidence, 13th Edition and Sopinka and Lederman Evidence in Civil Cases (1974). The case law I find to be largely, (but usefully), application of the general principles to specific circumstances. These principles do not, of course, purport to encompass the entire scope of privilege, but are rather restricted to the relevant issue.

The foundation of the rule is the impossibility of conducting legal business without professional assistance, and on the necessity, in order to render that assistance effectual, of securing full and unreserved intercommunication between the two. It is not a privilege arising out of contract; the existence of the relationship itself is sufficient. It attaches only during the life of that relationship, but once privilege attaches to a particular communication, it remains attached forever, notwithstanding that the relationship may have been severed.

The privilege is that of the client, not of the solicitor. Just as only the holder of the privilege may claim it, so only the holder of the privilege may waive it, but waiver need not be express, it may be by implication only. If the holder of the privilege makes a voluntary disclosure, or consents to disclosure of any material part of any communication, that will be deemed to be a waiver of the privilege.

For privilege to attach, the communication must have been made for the purpose of giving or receiving professional advice, made in confidence, with the intent that it be kept secret, within the scope of ordinary professional employment. Actual or prospective litigation need not be involved.

The communication must have been confidentially made, or the knowledge confidentially obtained solely in the course of professional employment.

Within these narrow parameters, all that passes between lawyer and client is privileged, provided that it does so within the course of professional engagement and relationship. However, where either communicates to a third party respecting any matter relevant to litigation in hand, that communication will be privileged only if made in contemplation of that litigation.

Materials obtained and prepared for counsel's use are privileged; this extends to communications or working papers only, but not to facts acquired by the solicitor from sources other than the client.

Finally, communications in furtherance of fraud or crime are not privileged, regardless of any lack of knowledge on the part of the solicitor of any illegal intent.

Assuming these basic principles to be reasonably well founded in law, the problem now is to apply them to a series of individual exhibits before the Court.

There is another complicating factor which has intruded itself, but which, I think, may actually provide the answer. Mr. Visser retained the professional services of Mr. McCabe, by written document dated 8 October, 1986. By this retainer Mr. Visser did "request and authorize you to represent me concerning my personal business matters and income tax affairs, including a voluntary disclosure to Revenue Canada".

Touching the circumstances of the retainer, Mr. McCabe testified:

I think I can put the record pretty plain to you, Mr. Carr, at least on October 8th I was able to determine and as a result of consultations with my client that there was income illegally earned in Trinidad, and what took place in Trinidad was illegal.

The transcript of remarks by Mr. McCabe, immediately following leave no doubt that Mr. McCabe thereupon conducted himself ethically and in keeping with the high standards of his profession. There followed shortly thereafter, and no doubt on the initiative of Mr. McCabe, what is referred to as a "Voluntary Disclosure”. There is nothing in the Act itself which provides for such a step, but there is a well established and well known, and indeed, used, policy of the department which permits it.

There was introduced as an exhibit, by consent, what was referred to as a computer print-out describing the policy. It follows:

1. Voluntary compliance with Canada's tax laws by corporations and individuals is a major contributing factor to the efficient administration of the statutory and fiscal responsibilities of Revenue Canada, Taxation. The Department acknowledges the importance of voluntary disclosures by formally adopting a policy of encouraging taxpayers to come forward of their own volition to correct deficiencies in their past reportings or dealings with the Department.

POLICY

2. It is the policy of Revenue Canada, Taxation, that any person who has failed to file a return required under any sections of Acts administered by the Department, or who has filed incorrect returns and subsequently makes a voluntary to those returns that is substantially complete, will be permitted to settle any liability of tax with statutory interest and late filing penalties. The Department will not prosecute such persons or seek to impose any civil penalties for gross negligence or wilful evasion. The identity of any person making a voluntary disclosure will be held in confidence, as are all matters between the Department and those filing with it.

POLICY APPLICATION

3. This policy applies to corporations and individuals making the following requirements are met:

(a) Voluntary. A voluntary disclosure must be initiated by the taxpayer since it represents a demonstration of a sincere desire to correct previous reporting deficiencies. It must not result from an audit or investigation being carried out by the Department.

(b) Verification. Each voluntary disclosure should include sufficient detail to enable the verification of the facts.

(c) Incomplete Disclosure. If it is established that the voluntary disclosure was not substantially complete because the taxpayer disclosed only those amounts or areas of fraud which the taxpayer thought the Department would become aware of, or would accept as being complete, the disclosure will not be considered as voluntary but rather as a further attempt to deceive the Department. The disclosure will then be subject to the imposition of a penalty or prosecution or both as the circumstances warrant.

(d) Payment. The taxpayer will be expected to pay the total amount of the tax liability upon disclosure or alternatively to make mutually agreeable arrangements for payment of all amounts due.

(e) Procedure. A voluntary disclosure may be made by contacting a senior official of the nearest district taxation office. A detailed submission will not be required at the first contact, however, that initial contact will be considered the date of the voluntary disclosure.

4. This is a policy of Revenue Canada, Taxation, and will apply only to those statutes for which the Minister of National Revenue, Taxation is responsible.

Critical to this inquiry, I think, are clauses 3(a) and (b):

(a) A voluntary disclosure must be initiated by the taxpayer since it represents a demonstration of a sincere desire to correct previous reporting deficiencies . . .

(b) Each voluntary disclosure should include sufficient detail to enable the verification of the facts.

It is one of the tenets of privilege, to which reference has earlier been made, that a voluntary disclosure, or consent to disclosure, will be deemed to be a waiver of privilege.

By the very fact of this having made a voluntary disclosure touching his several commercial transactions, and the income purportedly arising therefrom, would appear to me to constitute a waiver of any confidentiality arising out of solicitor and client privilege. Again, by the very fact of his having made a voluntary disclosure, he must be deemed to have accepted the terms and conditions thereof, one of which was that it be verifiably factual. It would then follow that whatever supplementary information, be it otherwise privileged, available and necessary to verify the facts brought forward through the disclosure, would also be included in the waiver.

Consequently, it would be my opinion that all material in the possession of Mr. McCabe, in his capacity as solicitor for Mr. Visser, touching, or with reference to, the matters contained in the disclosure, whether communicated to him directly by Mr. Visser, or acquired by him from other sources, be these sources professional or not, to advance the cause of his client, Mr. Visser, have lost their privileged character, by virtue of Mr. Visser’s disclosure.

One can readily understand, and admire, Mr. McCabe's concern respecting his own professional integrity. By his necessary disclosure of materials which he, with some reason, considered to be inviolate, as may well have Mr. Visser himself, that integrity is in no way blemished. That there did exist, Originally, a solicitor-client privilege, there is no doubt. But it was Mr. Visser himself, through his Voluntary Disclosure, who, in effect, absolved Mr. McCabe, and released him from his commitment.

There are some 38 exhibits filed, being documents seized under the search warrant, for which privilege has been claimed. Although several appear to me to be inconsequential, and of little importance or use to anyone, all, it seems to me, have a direct bearing on matters touching the Voluntary Disclosure, and for the reasons above, I would be of the view that to the extent that privilege may well have attached earlier, it no longer does, and all should be made available.

Order accordingly.