Date:
20121113
Docket:
T-848-11
Citation:
2012 FC 1313
Ottawa, Ontario,
November 13, 2012
PRESENT: THE
CHIEF JUSTICE
BETWEEN:
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THE MINISTER OF NATIONAL
REVENUE
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Applicant
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and
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GRANT THORNTON
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Respondent
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and
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FOREMOST INDUSTRIES
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Intervener(s)
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REASONS FOR
JUDGMENT AND JUDGMENT
[1]
The
central dispute in this case concerns whether three short documents are
protected by solicitor client privilege [SCP].
[2]
The
Intervener has also challenged the constitutionality of the statutory
provisions pursuant to which the Applicant seeks to compel the production of
those documents, on the basis that that they potentially permit the Minister to
access documents that are protected by SCP, without the privilege-holder’s
knowledge or consent. The Intervener submits that such potential access to
documents protected by SCP constitutes an unreasonable search and seizure, and
thereby contravenes s. 8 of the Canadian Charter of Rights and Freedoms.
[3]
The
documents in question were either knowingly or inadvertently disclosed by the
Intervener to its auditor, the Respondent, which did not participate in these
proceedings.
[4]
For
the reasons that follow, I find that:
a.
each
of the three documents is protected by SCP; and
b.
on
the particular facts in this case, it is not necessary or appropriate to decide
the constitutional question that has been raised.
I. Background
[5]
The
Canada Revenue Agency [CRA] is engaged in a review of the 2005 reorganization
[Reorganization] of the Foremost Industries Income Fund [FIIF].
[6]
Foremost
Industries Inc., at all relevant times, acted as the administrator of FIIF.
[7]
Following
the Reorganization, FIIF ceased to exist, and Foremost Income Fund [Fund] was
created. Foremost Industries Inc., at all relevant times in 2005 and 2006, was
also the administrator of Fund. In 2006, the Intervener, Foremost Industries
Ltd., became the new administrator of Fund, as successor to Foremost Industries
Inc. Except where otherwise indicated below, the various entities referred to
above will be collectively referred to as Foremost.
[8]
Among
other things, it appears that CRA is reviewing losses that were claimed by one
of Fund’s unit holders, which resulted from a complicated series of
transactions that followed the Reorganization, and which apparently were
unavailable to other unit holders.
[9]
In
a letter dated January 30, 2010, Mr. Craig Bell advised that he was the
Secretary and General Counsel of FIIF, and director of the administrator of
FIIF, before and at the time of the Reorganization. He further advised that he
was the initial trustee of FIIF, and that he no longer serves Fund in any of
the aforementioned capacities. In addition to being a member of the Law Society
of Alberta, Mr. Bell has been a chartered accountant since 1988.
[10]
The
Respondent was retained as the auditor for FIIF and also performed some
ancillary tax filing work for FIIF.
[11]
Pursuant
to subsections 231.1(1)(a) and (b) of the Income Tax Act, RSC 1985, C. 1
(5th Supp.) [ITA], CRA sent a letter dated December 2, 2010 to the
Respondent notifying it that it was required to produce certain information and
documents in relation to the Reorganization within 30 days of the date of the
letter [the “Requirement Letter”]. That letter did not indicate the procedure
to be followed if any of the documents or other information falling within its
scope [Documents and Information] were entitled to the protection of SCP.
Indeed, that letter did not mention SCP whatsoever and was not copied to the
Intervener.
[12]
By
letter dated December 22, 2010, CRA received a reply from the Respondent which
provided some of the Documents and Information in response to the Requirement
Letter. The Respondent also stated that it had been advised by FIIF that FIIF
was asserting SCP over three documents [Retained Documents], which it
identified as follows:
a.
Memo
to Trustees, October 31, 2005, Re: Transaction Backgrounder, 4 pages, by Craig
Bell, CA LLP;
b.
Memo
to File, March 22, 2006, Re: T3 and Other Tax Considerations, 3 pages by Craig
Bell, CA LLP;
c.
Memo,
untitled, undated, 3 pages, by Craig Bell, CA LLP.
[13]
On
March 28, 2011, Wendy Bridges, counsel to the Applicant, sent the Respondent a
letter proposing the following two options to resolve the issue of whether or
not the Retained Documents were protected by SCP:
a.
proceedings
pursuant to subsection to 237.7(1)(b) of the ITA, or
b.
referral
of the matter to a Department of Justice lawyer located outside Edmonton, for a non-binding opinion as to whether the Retained Documents are protected by
SCP.
[14]
The
Respondent subsequently advised a representative of the Applicant by telephone
that it elected to proceed with the first of those two options. In addition,
Ronald J. Robinson, litigation counsel to Fund, became aware of Ms. Bridges’
proposal and objected to it on the basis that it did not provide any role for
the privilege holder in the process and was contrary to CRA's stated policy of
obtaining information directly from taxpayers rather than from third parties.
[15]
In
May 2011, CRA filed a Notice of Application for a compliance order under
subsection 231.7(1) solely against the Respondent, although it did serve a
“courtesy copy” of that document on the Intervener. A few weeks later, the
Intervener sought leave to intervene in these proceedings, which was granted on
consent on June 15, 2011. One month later, the Intervener filed a Notice of
Constitutional Question in respect of sections 231.2(1) and 231.7 of the ITA.
[16]
At
an initial hearing before me on August 16, 2011, a dispute as to whether the
Intervener was entitled to raise its constitutional question without Leave of
the Court was settled on consent. That consent was reflected in an Order dated
September 7, 2011, which also revised the timetable for the hearing of this
matter and the steps to be taken by the parties prior to that hearing.
II.
Relevant Legislation
[17]
The
legislation relevant to this application is set forth in the ITA and is attached
to these reasons as Appendix “A”.
[18]
In
brief, subsection 231.2(1) permits the Minister, for any purpose related to the
administration or enforcement of the ITA, to require any person to provide any
information or any document within such reasonable period of time as stipulated
in a written notice served in accordance with that provision. Pursuant to
subsection 238(1), it is an offence to fail to comply with a requirement issued
under section 231.2. That offence is punishable on summary conviction by (a) a
fine of between $1,000 and $25,000, or (b) a fine in that range and
imprisonment for a term not exceeding 12 months.
[19]
Pursuant
to subsection 231.7(1), on summary application by the Minister, a judge may,
among other things, order a person to provide any information or documents
sought by the Minister under section 231.2, if the judge is satisfied that:
1.
the
person was required under section 231.1 or 231.2 to provide the information or
document and did not do so; and
2.
the
information or document is not protected from disclosure by SCP, as that term
is defined in subsection 232(1).
III. Analysis
A. Are the Documents protected by
SCP?
i.
Relevant
legal principles
[20]
SCP
has evolved from a rule of evidence into a substantive principle and a
principle of fundamental justice (Lavallee, Rackel & Heintz v Canada (Attorney General) [2002] 3 S.C.R. 209, at paras18 and 49 [Lavallee]). This
principle protects not only the privacy interests of a person who seeks legal
advice, but also supports the integrity and fairness of our judicial system (Lavallee,
above, at paras 36 and 49).
[21]
At
its core, and subject to very limited exceptions that either do not apply in
this case or are discussed in Part III. A. (iii) below, this principle protects
from disclosure (i) communications between a solicitor and his or her client,
(ii) which entail the seeking or giving of legal advice, and (iii) which are
intended to remain confidential (Canada v Solosky [1980] 1 S.C.R. 821, at
837 [Solosky]).
[22]
This
protection is not confined to communications in which legal advice is provided.
Rather, it extends to all communications “engaged
in for the purpose of enabling the client to communicate and obtain the
necessary information or advice in relation to his or her conduct, decisions or
representation in the courts” (Miranda v Richer, [2003] SCR 193, at para
30 [Miranda]). In brief, SCP protects all
communications made within the framework of the solicitor-client relationship (Descôteaux
v Mierzwinski [1982] 1 S.C.R. 860, at para 71; Canada (Privacy
Commissioner) v Blood Tribe Department of Health [2008] 2 S.C.R. 574, at para
10 [Blood Tribe] ; Samson Indian Band v Canada,
[1995] FCJ No 734, at para 8). However, communications made outside
of that framework are not protected by SCP (Solosky, above, at 835). For
example, SCP does not extend to purely business or policy advice that may be
provided by a solicitor (R v Campbell [1999] 1 S.C.R. 565, at para 50), or
to documents that are not otherwise privileged and somehow come into the
possession of a solicitor (Belgravia Investments Ltd v Canada, [2002
F.C.R. No. 870, at para 46 [Belgravia]).
[23]
As
acknowledged by the Applicant at the hearing of this Application on March 12,
2012, the foregoing applies with equal force to a solicitor’s work product.
That is to say, a solicitor’s work product produced for the purpose of giving
legal advice and intended to remain confidential is protected by SCP, (Keefer
Laundry Ltd v Pellerin Milnor Corp [2006] BCJ No 1761, at paras 103- 104 [Keefer];
Susan Hoisery v
Minister of National Revenue,
69 DTC 5278, at 5282 [Susan Hoisery]). This is based on the theory that
no one should be permitted to “look into the mind” of the lawyer as he or she
is preparing a case (Keefer, above, at para 104). It is also entirely in
keeping with the “broad and all-encompassing” approach to SCP (Pritchard v. Ontario (Human Rights Commission), 2004 SCC 31, at para 16 [Pritchard]). However, while such work
product itself is protected by SCP, facts that have an independent existence and
do not arise “out of
the solicitor-client relationship and of what transpires within it” are not so
protected if they are otherwise discoverable (Miranda, above, at paras
30-32; Belgravia, above, at paras 44-45, quoting with approval Susan
Hoisery, above).
[24]
When an
investigating authority comes into possession or otherwise becomes aware of a
document or other information that may be protected by SCP, every effort should
be made to contact the privilege holder, who should then be given a reasonable
opportunity to (i) determine whether a claim of privilege should be asserted,
(ii) make such assertion, if he or she decides to do so, and (iii) have the
issue judicially decided, if the claim is contested. An investigating authority
can only inspect the documents if and when it has been judicially determined
that the documents are not protected by privilege (Lavallee, above, at
para 49).
[25]
Privilege
does not come into being by an assertion of a privilege claim. It exists
independently. In addition, the privilege belongs to the client and can only be
asserted or waived by the client or through his or her informed consent (Lavallee,
above, at para 39).
[26]
The
burden of proof rests on the person asserting SCP to establish that the
information in question meets the necessary requirements (Belgravia,
above, at para 47). However, once established, the onus is on the party seeking
to overcome the privilege to establish that the information should be disclosed
(Smith v Jones, [1999] 1 S.C.R. 455, at para 46; Camp Development Corp
v South Coast Greater Vancouver Transportation Authority, [2011] BCJ No9
104, at para 10 ; Archean Energy, above, at para 30; Western Canada
Place Ltd v Con-Force Products Ltd [1997] AJ No 354, at para 18).
ii. The
Documents and SCP
[27]
From
the outset of these proceedings, the Applicant has specifically maintained that
the Minister is not seeking production of documents that are protected by SCP.
However, the Applicant has emphasized that any of the Retained Documents that
involve communications by Craig Bell in his capacity as trustee or accountant
are not protected by SCP. Therefore, the Applicant took the position that if
the Court was if the view that any of the Retained Documents may be entitled to
the protection of SCP, the Respondent should produce those documents to the
Court to enable the Court to determine the validity of the Intervener’s
assertion of SCP.
[28]
Foremost
took the position that it was not necessary for the Court to review the
Retained Documents to determine whether they are protected by SCP, which it is
asserting as administrator of Fund and on behalf of Fund and other Foremost
entities. In support of this position, it asserted that the uncontroverted
evidence is that the Retained Documents are related to legal advice and not
accounting advice or services.
[29]
The
“uncontroverted evidence” in question consisted of:
1. the
“privilege” markings on the Retained Documents;
2. its
assertion that the Retained Documents were created outside the limited time
period in which Mr. Bell was a trustee of fund;
3. its
assertion that Mr. Bell did not create the Retained Documents in his capacity
as an accountant, and has never acted for Foremost in an accounting capacity;
4. its
assertion that there is no evidence to suggest that Mr. Bell provided any
accounting services whatsoever to Foremost, which has its own chief financial
officer and a complement of accounting staff; and
5. its
assertion that the Retained Documents relate to the provision of legal advice
on the Reorganization, and not to the provision of advice on accounting
matters.
[30]
With
respect to the markings on the Retained Documents, the word “PRIVILEGED” was
typed at the top of the initial page of the first of the three documents. As
to the second of those documents, the words “Privileged
and Confidential” were stamped at the bottom of each page. In addition,
the following was stamped on each page: “The writer has been retained by
Counsel to act on its behalf for the purposes of supporting legal advice in
this matter.” As to the third of the documents, the following words were typed
at the top of the first page: “PRIVILEGED & CONFIDENTIAL – PREPARED UNDER
EXPECTATION OF SOLICITOR & CLIENT PRIVILEGE”.
[31]
There
may well be circumstances in which it is not necessary for the Court to review
documents in respect of which a claim of privilege has been made, in order to
determine whether they are protected by privilege. However, the evidentiary
record in this case, as it existed at the time of the hearing on March 12,
2012, was not such as to enable me make that determination in respect of the
Retained Documents. Accordingly, in a Direction issued on May 18, 2012, I
stated that it was necessary for the Court to examine the documents to assess
whether they are entitled to such protection (Solosky, above, at 837;
Risi Stone Ltd v Groupe Permacon Inc, [1990] 3 FC 10, at para 4). I
therefore directed the Respondent to file the Retained Documents under seal
with the Court within 10 days, to permit a determination on the privilege issue
to be made.
[32]
In
determining whether a document authored by a solicitor contains a communication
that is protected by SCP, and in the absence of other evidence, it would ordinarily
be appropriate to give substantial weight to the fact that the document is
identified as being privileged. However, in this case, there was such other
evidence, which included the following:
1. In
addition to being a solicitor, Mr. Bell has been a chartered accountant since
1988;
2. One
of the Retained Documents was undated, and may, notwithstanding Mr. Bell’s
representations to the contrary, have been prepared during the time that Mr.
Bell was a trustee of FIIF;
3. Mr.
Bell, who did not provide any evidence with respect to the Retained Documents,
has advised numerous parties, including Mr. Pat Breen, “as to their respective
governance roles, duties, responsibilities and liabilities” (Breen Affidavit,
sworn on July 27, 2011, at para 11 [Breen Affidavit #2]). Mr. Breen has been
the President and a Director of the Intervener since before the reorganization
of FIIF into Fund.
4. Most
importantly, Foremost had prior opportunities to identify and assert a claim of
privilege in respect of the Retained Documents, yet failed to do so. This is
reflected in Exhibit “D” to the Affidavit sworn by Mr. Breen on June 8, 2011 [Breen
Affidavit #1], which includes a copy of a Service-Related Complaint that
evidences a long and acrimonious series of exchanges, dating back to 2006, between
Foremost and CRA regarding the reorganization. This was also confirmed during
Foremost’s cross-examination of Ms. Helen Little, a Team Leader in the
Aggressive Tax Planning Section of the CRA (Cross-Examination on Affidavit of
Helen Mary Little, December 8, 2011, at pages 15, 28, 38 and 42). Moreover, in
oral submissions to the Court on March 12, 2012, counsel to the Applicant
stated that Messrs. Breen and Bell were specifically requested to provide the
information that was subsequently sought from the Respondent. In Response,
counsel to Foremost simply observed that Mr. Bell received a “request letter”
from CRA, rather than a “requirement letter,” and that Mr. Bell was under no
obligation to “self-identify privileged documents which are exempt from disclosure”
under the ITA (Transcript, at 10 – 17).
[33]
I
have some difficulty with the suggestion that documents or other information
that is within the scope of a request or requirement issued by CRA pursuant to
the ITA may simply be withheld, without ever being identified on a privilege
log, or otherwise, based on a view that the information is protected by SCP.
Such a manner of proceeding would prevent the CRA or another regulatory
authority in similar circumstances from ever being able to contest the assertion
that the information in question is protected by SCP. Given that the party
asserting SCP may well be wrong in that regard, it is essential that any
information which falls within the scope of a request made pursuant to validly
enacted legislation, and in respect of which a claim of SCP is asserted, be
identified on a privilege log or in some other manner, so that the regulatory
authority is aware of its existence and has an opportunity to challenge the
assertion.
[34]
Turning
to three Retained Documents, the document dated October 31, 2005 is addressed
to “Trustees” and is identified as a “Transaction Backgrounder”. In Breen
Affidavit #2, at para 14, Mr. Breen stated that this “document was created for
the trustees of the Fund (as client representatives and proposed trustees as of
that date) on the legal aspects and considerations surrounding the
Reorganization.” This document is largely devoted to describing the structure,
objectives and broad steps of the Reorganization. Towards the end, under the heading
“Considerations,” there is a reference to “counsel” having been sought in
respect of certain issues that appear to be legal in nature, although there is
no discussion of the specifics of any legal advice that may have been received.
Taken alone, this suggests that the document may not have been prepared by Mr.
Bell in his capacity as legal counsel. However, there is a subsequent general
statement of belief that appears to convey a legal conclusion. This is followed
by a second statement of belief regarding another legal issue. With the
foregoing in mind, and given that a “broad and all-encompassing” approach
should be taken to SCP (Pritchard, above, at para 16), I am inclined to
err on the side of caution and conclude that this document is a protected communication
that was (i) generated within the framework of a solicitor-client
relationship, (ii) related to the giving of legal advice, and (iii) intended to
be kept confidential, as evidenced by the word “PRIVILEGED” at the top of the
first page. I note also that this document pre-dates the short period of time
during which Mr. Bell was a trustee of Fund.
[35]
The
second of the Retained Documents, dated March 22, 2006, is a memorandum to
“file,” entitled “T3 and Other Tax Considerations.” In Breen Affidavit #2, at
para 15, Mr. Breen stated that he was advised by Mr. Bell “that the document
was created by him to memorialize his legal analysis of certain aspects of the
Reorganization and was the basis of legal advice provided to the Fund and its
predecessor and related and affiliated entities.” As with the document
described immediately above, this document is largely descriptive. Generally
speaking, it describes certain transactions that appear to relate to the
reorganization and then describes and their tax consequences for certain
Foremost entities and other taxpayers. In several places, it is difficult to
ascertain whether the statements made are based on accounting or legal
considerations. However, once again, I decided to err on the side of caution
and conclude that the document is protected by SCP, on the basis that it is
work product which could well have been prepared by Mr. Bell in his capacity as
a solicitor, and for the purpose of either providing legal advice to
Foremost or assisting another solicitor to provide such advice. In reaching
this conclusion, I also gave some weight to (i) Mr. Breen’s evidence that, to
the best of his knowledge, Mr. Bell “has never acted for the Fund or any of the
Foremost entities in an accounting capacity”, and (ii) the lengths to which Mr.
Bell went to convey his view that the document is protected by SCP. As
previously noted, that document is stamped “PRIVILEGED” in very large font at
the top of each page, “PRIVILEGED AND CONFIDENTIAL” at the bottom of each page,
and is stamped with the following statement on each page: “The writer has been
retained by Counsel to act on its behalf for the purposes of supporting legal
advice in this matter.” With respect to this last statement, given that SCP
also extends to documents created by a lawyer who has been consulted by another
lawyer in the course of the latter’s provision of legal advice to his or her
client (Belgravia, above at para 50), the fact that Mr. Bell may not
have been retained directly by Foremost, but rather by other counsel to
Foremost, had no bearing on my determination. I should add that the lengths to
which Mr. Bell went to convey his view that this document is protected by SCP
satisfy me that the document was intended to remain confidential. In addition,
I note that the document post-dates the short period during which Mr. Bell was
a trustee of Fund.
[36]
I
also hasten to add that it is not necessary on the specific facts of this case
to consider the potential relevance of the definition of SCP set forth in
subsection 232(1) of the ITA, which, on its face, is confined to
“communications … passing between the person and the person’s lawyer in
professional confidence.” This is because the Applicant has acknowledged that
SCP extends to work product created in connection with the giving of legal
advice, and it has also confirmed that it is not seeking access to any
documents that are protected by SCP. In addition, Foremost has not questioned
the scope of the definition of SCP in subsection 232(1), which is referred to in
paragraph 231.7(1)(b). That said, I would observe in passing that “legislative
language that may (if broadly construed) allow incursions on solicitor-client
privilege must be interpreted restrictively” (Blood Tribe, above, at
para 11).
[37]
The
third of the Retained Documents (the “Undated Memo”) is undated and
unaddressed. In Breen Affidavit #2, Mr. Breen stated that he was advised by Mr.
Bell that he created the memo “in conjunction with the parties [sic]
outside legal advisers at both Bennett Jones LLP and Blakes LLP in early
2006.” Mr. Breen also stated that Mr. Bell advised him that “the document
delineates legal analysis on the structure of the Reorganization” and “formed
the basis of legal advice provided to the Fund and its predecessor and related and
affiliated companies.”
[38]
As
with the second of the Retained Documents, the Undated Memo contains no
solicitor-client communication. Contrary to Mr. Breen’s statement, it also
does not appear to contain any legal analysis on the structure of the reorganization.
This undermines Mr. Breen’s assertion, which is hearsay, regarding the legal
purpose of the memo, which is not otherwise immediately ascertainable. On its
face, the document simply begins by stating certain historical facts and then
briefly describes certain transactions that will occur prior to the Closing
Date, as well as the various steps involved in the previously mentioned
reorganization. The document ends by stating certain “Final Balances” and
referring to an unspecified “taxable capital gain/income.” Given the foregoing,
I initially concluded that this document is not protected by SCP.
[39]
After
conveying the above conclusions regarding the Retained Documents to counsel
during a telephone conference on June 12, 2012, and inviting counsel to advise
as to how they wished to proceed, counsel to the Intervener offered to provide
further background information with respect to the creation and intent of the
Undated Memo. I accepted that offer and issued a Direction, dated June 26,
2012, that set forth the dates by which such further information, and any
response and reply that the Applicant and the Intervener, respectively, might
wish to make, would have to be submitted.
[40]
On
July 5, 2012, the Intervener filed an Affidavit by Mr. Wallace Shaw, a member of
the Law Society of Alberta and counsel with Blake Cassels & Graydon LLP.
Based on the additional evidence set forth in that Affidavit, I am now
satisfied that, as with the first two Retained Documents, the Undated Memo is
also protected by SCP.
[41]
In
his affidavit, Mr. Shaw stated that he created the Undated Memo with Mr. Bell
“while working with him to analyze the legal tax implications of various steps
in the Reorganization.” Among other things, he also stated that the document:
i.
“was
definitely not an accounting exercise”;
ii. “was
created to track the legal tax implications of steps in the Reorganization,
which analysis I later communicated to my clients involved in the
Reorganization”; and
iii. “was
directly related to the provision of legal tax advice to my clients as well as
Mr. Bell’s”.
[42]
In
contrast to Mr. Breen’s hearsay evidence, Mr. Shaw’s evidence is that of one of
the authors of the Undated Memo, who is also an officer of the Court. In
addition, Mr. Shaw’s description of the contents of that document is more
accurate and his description of their link to legal advice rings truer and is
more persuasive than Mr. Breen’s. It also corroborates Mr. Breen’s evidence
regarding the co-authorship of the document. In my view, Mr. Shaw’s evidence
warrants sufficient weight to tip the balance in favour of a conclusion that
the Undated Memo is legal work product that is protected by SCP. In contrast to
the term sheet that
was discussed in Belgravia, above at para 78, and that was distributed
to third parties for the purposes of “relaying the proposed terms of the
transaction,” I am satisfied that the Undated Memo was directly related to the
provision of legal tax advice to Foremost and to Mr. Shaw’s clients. I am also
satisfied that this document was created for the purpose of providing
such legal advice. Therefore, the fact that it does not appear to contain any
legal thinking or analysis, and may even simply list facts that are otherwise
discoverable, is not sufficient to deprive it of the protection afforded by SCP
(Universal
Sales Ltd v Edinburgh, 2009 FC 151, at para 22 [Universal
Sales]).
[43]
In
addition, given that
the authors of the Undated Memo inserted the words “PRIVILEGED AND CONFIDENTIAL
– PREPARED UNDER THE EXPECTATION OF SOLICITOR & CLIENT PRIVILEGE” at the
top of the document, I am satisfied that they intended that the document be
kept confidential.
[44]
I
have some sympathy with the Applicant’s position that Mr. Bell, as the author
of the first two Retained Documents and as one of the authors of the Undated
Memo was best placed to provide evidence regarding those documents. However,
given that he is also Foremost’s counsel, I am not prepared to draw an adverse
inference from the fact that he did not provide such evidence. (Butterfield v. Canada (Attorney General), 2005 FC 396,
at para 12). I
agree with Foremost that there is now sufficient reliable evidence before the
Court to enable me to determine that the Retained Documents are protected by
SCP.
iii. Was there a Limited Waiver of
SCP or an inadvertent disclosure of the Retained Documents?
[45]
The
Applicant submits that even if the Retained Documents were at one time
protected by SCP, that privilege was waived when those documents were disclosed
to the Respondent, Foremost’s auditor.
[46]
The
Respondent was retained subsequent to the Reorganization of Fund, to audit
Fund’s financial statements.
[47]
Documents
that are protected by SCP and that are knowingly disclosed in confidence by the
privilege holder to an auditor for the limited purpose of enabling the auditor
to perform an audit and issue a fairness opinion retain such protection vis à vis
other third parties, under the doctrine of limited waiver (Interprovincial
Pipe Line Inc and IPL Energy Inc v The Minister of National Revenue ((1995),
95 DTC 5642, at 5646-7; Anderson Exploration Ltd v Pan-Alberta Gas Ltd,
[1998] A.J. No 575, at paras 28-30 [Anderson Exploration]; Philip
Services Corp v Ontario Securities Commission, [2005] OJ No 4418, at paras
47 and 57-58 [Philip Services]). It bears emphasizing that under this
doctrine, the intention of the privilege holder is key.
[48]
It
also bears emphasizing that cases involving disclosure of privileged
information to financial institutions are not particularly relevant to
a consideration of the issue of limited waiver in the context of such
disclosure to an auditor. In the latter context, there is a strong public
interest in companies and other types of business organizations being properly
audited, for the benefit of actual and potential shareholders or other members
of the investing public, even where the disclosure of privileged information is
not strictly mandated by statute (see, for example, Philip Services,
above, at para 57). In furtherance of that public interest, the disclosure of
privileged information that may reasonably be required by an auditor for the
purposes of providing a fairness opinion will not be considered to constitute
an unlimited waiver of SCP, when such disclosure is made in confidence and
solely for that purpose.
[49]
Unfortunately,
neither the Applicant nor Foremost has adduced any evidence to establish how
the documents came into the possession of the Respondent. However, Mr. Breen
stated that (i) he is unaware of how the Respondent came into possession of the
Retained Documents, (ii) none of the Foremost entities, to his knowledge,
voluntarily or knowingly provided those documents to the Respondent, and (iii)
there was no intention to waive any SCP in those documents (Breen Affidavit #1,
at para 18). During cross-examination on his affidavits, Mr. Breen added that
(i) he had never seen the Retained Documents, (ii) he did not contact anyone in
the Respondent’s organization to inquire as to how the Retained Documents came
into possession of those documents, and (iii) he was informed by CFO of Foremost,
who was responsible for overseeing Foremost’s dealings with its auditor (the
Respondent), that he did not know how the Respondent came into the possession
of those documents (Cross-Examination on Affidavits of Patrick Warren Breen,
October 6, 2011, at pp. 20-21).
[50]
In
these circumstances, I am not satisfied that Foremost knowingly disclosed the
Retained Documents to the Respondent for the limited purpose of enabling it to
perform its audit, and with the intention of maintaining SCP over those documents
for all other purposes. Indeed, Mr. Breen’s evidence suggests that it is
unlikely that Foremost did so. It follows that the limited waiver exception
cannot be relied upon by Foremost to maintain the SCP in the Retained
Documents. However, Foremost may still be able to maintain that SCP pursuant to
the doctrine of inadvertent disclosure, discussed below.
[51]
The
Applicant further submits that any SCP which may have attached to the Undated
Memo was waived when the contents of that document were presumably shared with
the clients of Mr. Shaw, who stated in his affidavit that (i) he communicated
his analysis to his “clients involved in the Reorganization” and (ii) the
purpose of the Undated Memo was “directly related to the provision of legal tax
advice to my clients.” The Applicant also impugned Mr. Shaw’s affidavit on the
basis that he failed to identify his client, to explain the nature of his
involvement in creating the memo, and to explain the nature of the relationship
between his clients and Foremost.
[52]
In
his affidavit, Mr. Shaw did in fact identify one of the “several entities” by
whom he was retained, namely, TOM 2003-4 Income Fund. While his description of
his involvement in the creation of the Undated Memo was somewhat vague, I am
satisfied that he was a co-author of the document. As noted above, this was
corroborated by Mr. Breen. In addition, this is implicit in his statement that
the document “was created in conjunction with Craig Bell while working with him
to analyze the legal tax implications of various steps in the Reorganization.”
I am also satisfied that he co-authored the document in his capacity as a
solicitor to one or more entities involved in the Reorganization, and for the
purpose of providing legal tax advice to those clients. This is clear from his
statement quoted immediately above and his additional statements that “the
document was created to track the legal tax implications of steps in the
Reorganization” and that he communicated his analysis to his clients “involved
in the Reorganization.”
[53]
In
these circumstances, I am satisfied that the Undated Memo did not lose its
privileged nature merely because it was co-authored by Mr. Shaw, a solicitor
who did not represent Foremost, or because its contents were disclosed to his
clients in the context of the provision of legal advice to them by him.
[54]
It
can be inferred from the fact that Messrs. Bell and Shaw co-authored the
Undated Memo and then relied on that memo to provide legal tax advice to their
respective clients that those clients shared a common interest in completing
the Reorganization in a manner that had certain tax consequences. It can also
be inferred that Messrs. Bell and Shaw intended that their joint work product
as set forth in Undated Memo would be used by each of them in providing advice
to their respective clients, and that such work product was produced for the
common benefit of their clients.
[55]
There
is no evidence that Mr. Bell, Mr. Shaw or their respective clients intended or
anticipated that the Undated Memo would be disclosed to anyone who did not have
a common interest in the completion of the Reorganization (St. Joseph Corp v
Canada (Public Works and Government Services), 2002 FCT 274, at para 79).
Indeed, the insertion of the words “PRIVILEGED
AND CONFIDENTIAL – PREPARED UNDER THE EXPECTATION OF SOLICITOR & CLIENT
PRIVILEGE” at the top of the document make it readily apparent that Messrs.
Bell and Shaw intended that the document remain confidential.
[56]
There is also
no evidence that the Undated Memo was disclosed to anyone who did not have a
common interest in the completion of the reorganization.
[57]
Given
all of the foregoing, I am satisfied that the common interest exception to the
rule that SCP is lost when the protected information is disclosed to a third
party applies (Pitney Bowes of Canada Ltd v Canada, 2003 FCT 214, at
paras 16-23; Anderson Exploration, above, at paras 21-27; Almecon
Industries Ltd v Anchortek Ltd, [1999] 1 FC 507, at para 9; Maximum
Ventures Inc v De Graaf, [2007] BCJ No 2355, at paras 14-16; Archean
Energy Limited and Titleist Energy Inc v The Minister of National Revenue
(1997), 98 DTC 6456, at para 30 [Archean Energy]). Accordingly, the SCP
attached to the Undated Memo was not waived due to the fact that Mr. Shaw
participated in its creation or communicated all or part of the work product
set forth in that document to his clients in the course of providing legal tax
advice to them.
[58]
This
brings me to the doctrine of inadvertent disclosure.
[59]
It
appears to be settled now that the mere physical loss of custody of documents
protected by SCP does not automatically result in the loss of the protection
afforded by SCP (Royal Bank of Canada v Lee, [1992] AJ No 433, at p.
5).
[60]
Indeed,
one line of jurisprudence holds that SCP can only be waived through informed
consent. (See, for example, Metcalfe v Metcalfe, [2001] MJ No 115, at
para 14 (CA); and Lavallee, above, at para 36). To the extent
that this jurisprudence stands for the proposition that inadvertent disclosure
can never result in the loss of SCP, even, for example, where the privilege
holder was negligent, careless, or failed to act promptly to assert SCP upon
discovering the inadvertent disclosure, I do not endorse it.
[61]
I
prefer a second line of jurisprudence that holds that it is preferable to look
at all of the circumstances of the case in determining whether to maintain SCP
over documents that have been inadvertently disclosed (Chapelstone
Developments Inc v Canada, [2004] NBJ No 450, at paras 46- 55 (CA) [Chapelstone];
Stevens v Canada, [1998] FCJ No 794, at para 50 (FCA); Armstrong v
Canada (Attorney General), 2005 FC 1013, at para 23; Brass v Canada,
2011 FC 1102, at para 83 [Brass]; Dublin v Montessori Jewish Day
School of Toronto, [2007] OJ No 1062, at paras 67-70; S&K Processors
v Campbell Avenue Herring Producers Ltd [1983] BCJ No 1499, at para 6
(BCSC); Maximum Ventures Inc v de Graaf, [2007] BCJ No 1784, at para 40;
Toronto Port Authority v Toronto (City), [2008] OJ 5274, at paras 30-32;
).
[62]
This
second line of jurisprudence has identified numerous factors to be considered
by a Court in determining whether to exercise its discretion to maintain SCP
over documents that have been inadvertently disclosed.
[63]
One
such factor is whether the privilege holder took swift steps to assert SCP upon
learning of the inadvertent disclosure of privileged documents (Chapelstone,
above, at para 55; Universal Sales, above, at para 31; Pacific
Northwest Herb Corp v Thompson, [1999] BCJ No 2772, at paras 21-23). In the
case at bar, there is no evidence that Foremost was aware that the Retained
Documents had been inadvertently disclosed to the Respondent, or that it
remained silent or did not take immediate action to assert SCP once it became
aware of that disclosure. Indeed, the opposite appears to be true. Foremost
seems to have learned that the Applicant was contesting the Respondent’s
assertion of SCP over the Retained Documents when Mr. Bell was copied on the
Applicant’s letter to the Respondent dated March 28, 2011. Two weeks later, on
April 14, 2011, Foremost’s outside litigation counsel (Mr. Robinson) wrote to
the CRA to insist that the CRA’s efforts to achieve a resolution regarding the
privilege claim that had been asserted by the Respondent be henceforth directed
to him, rather than the Respondent. Foremost then promptly sought intervener
status in these proceedings for the explicit purpose of defending its SCP in
the Retained Documents. In my view, these actions by Foremost weigh in favour
of exercising the Court’s discretion to maintain SCP over the Retained
Documents.
[64]
A
number of additional factors to be considered by a Court in determining whether
to exercise discretion to maintain privilege over inadvertently disclosed
documents were identified by Wein J. in Airst v Airst, [1998] OJ No
2615, at paras18-19 [Airst]. These are:
i.
the
way in which the documents came to be released;
ii. the
timing of the discovery of the disclosure;
iii. the
timing of the application to recover the documents;
iv. the
number and nature of the third parties who have become aware of the documents;
v. whether
the maintenance of the privilege will create an actual or perceived unfairness
to the opposing party; and
vi. the
impact on the fairness, both actual and perceived, of the processes of the
Court.
[65]
With
respect to the manner of release of the documents, Wein J. suggested that
admission of the disclosed documents into evidence may be appropriate where the
disclosure occurred through the carelessness of the party claiming privilege,
as opposed to through any wrongdoing of the opposing party. In the present
case, there is no evidence to suggest such carelessness or wrongdoing.
[66]
Wein
J. also suggested that it may be appropriate to admit inadvertently disclosed
documents where a failure to do so could leave a party with a sense that the
Court was denying itself the opportunity to assess conflicting information on a
material point, and consequently could negatively reflect on the public
perception of the administration of justice. That consideration is not a factor
in the case at bar, as I would not be depriving myself of an opportunity to
assess conflicting information on a material point, if I were to maintain the
SCP in the Retained Documents.
[67]
In
addition, Wein J. observed that in other cases, the information might have
become so widely distributed that it would be futile as a practical matter to
attempt to prevent its admission into Court. Once again, that is not a relevant
consideration in the case at bar, as there is no evidence that the Retained
Documents have been disclosed to anyone other than the Respondent and the
clients of Messrs. Bell and Shaw. On the contrary, the record suggests that the
inadvertent disclosure was limited to the Respondent, who appears to have
obtained the documents in the context of an auditor-client relationship.
[68]
Ultimately,
Wein J. exercised his discretion to maintain SCP over the documents in question
in Airst , above, after finding that the disclosure was limited in scope
and restricted to one individual who had been retained in a capacity that might
be broadly construed as confidential. In reaching this conclusion, Wein J.
added that the Court’s ability to assess facts underlying the issues in the
case would not be impaired by the lack of disclosure. In the case at bar, each
of these factors weighs in favour of the exercise of my discretion to maintain
SCP over the Retained Documents.
[69]
In
Brass, above, at paras 86-91, Prothonotary Lafrenière of
this Court exercised his discretion to maintain SCP in respect of inadvertently
disclosed documents, primarily on the basis that (i) the party asserting SCP
reacted quickly upon discovering its inadvertent production of privileged
documents to the other party in the litigation, (ii) the party asserting
privilege would have suffered significant prejudice if the SCP were not
maintained, whereas the other party would suffer little prejudice if that
occurred, and (iii) there was no evidence that the privilege holder had
intended to waive its privilege. In the course of reaching that conclusion,
Prothonotary Lafrenière
observed that prejudice is more easily made out where the privilege at issue is
SCP. I agree, and find that the considerations upon which he relied in reaching
his conclusion also weigh in favour of exercising my discretion to maintain SCP
in respect of the Retained Documents.
[70]
In
addition to the foregoing, the Applicant has not been able to establish that it
would suffer any prejudice if SCP were maintained over the Retained Documents
in the circumstances of this case.
[71]
As
to the fairness and truth seeking functions of the Court, given that the
principle issue in these proceedings is whether the Retained Documents are
protected by SCP, I am not satisfied that this consider merits significant
weight in the Applicant’s favour in this particular case.
[72]
In
its oral submissions, the Applicant essentially suggested that I should give
negative weight to the fact that (i) Mr. Breen did not contact the Respondent
to ascertain how it obtained the Retained Documents, and (ii) Foremost did not
adduce evidence with respect to the various factors that are relevant to the
Court’s determination of whether to exercise its discretion to maintain SCP in
respect of the Retained Documents. I am sympathetic to this position, and have
therefore given some negative weight to these considerations.
[73]
However,
given the other factors that I have discussed above, and, most importantly,
given the fact that the Retained Documents appear to have been inadvertently
disclosed to Foremost’s auditor, a party with whom Foremost implicitly
had a relationship of confidence, I am inclined to exercise my discretion in
favour of maintaining SCP in respect of the Retained Documents. In my view, in
the absence of any evidence whatsoever to suggest otherwise, it can be inferred
that the Respondent came into possession of the Retained Documents in
confidence, in the course of conducting its audit of Foremost.
iv. Conclusion regarding the
Retained Documents
[74]
For
the reasons set forth above, I find that the Retained Documents:
i.
are
protected by SCP;
ii. were
not knowingly disclosed to the Respondent pursuant to an express or implied
limited waiver of privilege; and
iii. were
inadvertently disclosed to the Respondent in circumstances which, considered
together with the actions taken by Foremost to swiftly assert SCP in relation
to the Retained Documents upon discovering such disclosure, warrant the
exercise of the Court’s discretion to maintain SCP in respect of those
documents.
B.
The
Constitutional issue
[75]
Foremost
has requested this Court to declare sections 231.2 and 237.1 of the ITA
unconstitutional, on the basis that they potentially permit the Minister to
access documents that are protected by SCP, without the privilege-holder’s
knowledge or consent. Foremost asserts that this constitutes an unreasonable
search and seizure, contrary to s. 8 of the Canadian Charter of Rights and
Freedoms.
[76]
I
agree with the Applicant that this is not an appropriate case for the Court to
make a determination on the question of the constitutionality of sections 231.2
and 237.1 of the ITA. In short, the allegedly unconstitutional fact scenario
identified by Foremost did not arise in this case and remains somewhat
hypothetical.
[77]
In
this case, Foremost was served a copy (albeit on a “courtesy” basis) of
the Applicant’s Notice of Application for a compliance order against the
Respondent under subsection 231.7(1). Indeed, it was also copied on a letter
dated March 28, 2011 from the Applicant to the Respondent, which proposed two
alternatives for addressing the privilege issue that the Respondent raised in
respect of the Retained Documents. These communications quickly led Foremost to
seek intervener status in this proceeding, which ultimately was granted on
consent. Foremost then availed itself of its opportunity to vigorously defend
its interest in maintaining SCP in the Retained Documents. After considering
the written and oral submissions made by the Applicant and Foremost, I
ultimately determined that each of the Retained Documents were and remain
protected by SCP. As a result, the Applicant will not, in fact, obtain
access to any privileged information, and there is certainly no issue
of such access being obtained without the privilege holder’s knowledge or
consent.
[78]
In
these circumstances, it is unnecessary, and would not be appropriate, for the
Court to address the constitutional question raised by Foremost. That issue can
be revisited if and when a more appropriate factual matrix presents itself (Phillips v Nova
Scotia
(Commission of Inquiry into the Westray Mine Tragedy), [1995] 2 SCR
97, at para 6; Apotex Inc v Astrazeneca
Canada Inc, 2012 FC 559, at paras 69
and 70; Duitama Gomez v Canada (Minister of Public
Safety & Emergency Preparedness), 2010
FC 593, at paras 71-74; Suescan v Canada
(Minister of Citizenship and Immigration), 2007 FC 438, at paras 26-28; Bedada v Canada (Solicitor General), 2007 FC 121, at paras 16-20; Native Council of Nova Scotia v Canada (Attorney
General), 2007 FC 45, at paras 40 and 57-58; Canada
(Minister of National Revenue) v Welton Parent Inc, 2006 FC 67, at paras
123, 149-150, and 178-179; Canada
(Information Commissioner) v Canadian Transportation Accident Investigation
& Safety Board, 2005
FC 384, at paras 67-75; Mahjoub v Canada (Minister of Citizenship and Immigration),
2006 FC 1503, at para 111).
[79]
Chambre
des notaires du Québec c Canada (Procureur général), 2010
QCCS 4215, [2010] JQ 8868, is distinguishable, as it involved
requirements letters issued by the CRA to a number of lawyers. It also
involved certain issues that do not arise on the facts of this case,
particularly with respect to subsection 232 (1) of the ITA and the Quebec Charter of Human Rights and Freedoms, RSQ, c C-12.
IV.
Costs
[80]
Foremost
submitted that it should be granted full indemnification costs for its
intervention, on the ground that it should have been named as the Respondent in
Notice of Application filed by the Applicant in these proceedings, in which the
Applicant sought production of the Retained Documents. It further submitted
that the Applicant’s tactics in seeking access to privileged documents from a
third party, rather than the privilege holder, should be soundly discouraged.
[81]
In
my view, the situation is much more nuanced than suggested by Foremost.
[82]
As
previously discussed in these reasons, Foremost and its trustees had numerous
opportunities to identify and claim SCP in respect of the Retained Documents.
At no time did they do so. The documents only came to light on December 22,
2010, when they were identified by the Respondent, in its response to the
Applicant’s requirements letter. In these circumstances, I am sympathetic to
the Applicant’s position that the appropriate respondent in this proceeding was
Grant Thornton, the entity which was known to have possession of the Retained
Documents, as opposed to Foremost, an entity that had never disclosed the
existence of those documents and that might well not have possession of the
originals or copies of those documents. That said, the Applicant may have been
able to avoid the costs associated with these proceedings had it availed itself
of Foremost’s request to discuss the issue of whether the Retained Documents
were protected by SCP, directly with Foremost.
[83]
In
its own attempt to find an expeditious resolution to the issue of whether the
Retained Documents were in fact protected by SCP, the Applicant proposed to the
Respondent, in a letter dated March 28, 2011 that was copied to Foremost, that
this narrow issue be referred to the Court for a determination. Neither the
Respondent nor Foremost availed itself of that opportunity. In fact, even
during the hearing of this matter in March 2012, Foremost resisted the
suggestion that the Court review the Retained Documents to determine whether
they are protected by SCP. Foremost also continued to press the constitutional
issue it had raised, even after the Applicant made clear that it did not want
access to any documents that the Court might determine are protected by SCP,
and even after I reminded Foremost’s counsel of this during the hearing.
[84]
Moreover,
Foremost curiously made no effort whatsoever to contact the Respondent to find
out how the Retained Documents came into the Respondent’s position. The
Applicant also made no such effort. This left the Court in a much more
difficult position when addressing the submissions made by Foremost with
respect to the issues of limited waiver and inadvertent disclosure. In
addition, by leading its evidence with respect to the Retained Documents
through Mr. Breen, whose only information about those documents came from Mr.
Bell, Foremost made it very difficult for the Applicant to conduct a meaningful
cross-examination with respect to those documents.
[85]
In
these circumstances, and given the findings that I have made on the issue of
limited waiver and on the constitutional issue, I have determined that there
should be no cost award made in this proceeding.
V. Conclusion
[86]
The
Retained Documents are protected by SCP. Accordingly, this Application is
dismissed.
[87]
As
to the constitutional issue raised by Foremost, this is not an
appropriate case for the Court to make a determination, because the allegedly
unconstitutional fact scenario identified by Foremost did not arise on the
particular facts of this case and remains somewhat hypothetical.
JUDGMENT
THIS
COURT’S JUDGMENT is that
1. this
Application is dismissed;
2. this
is not an appropriate case in which to make a determination on the
constitutional issue raised by Foremost; and
3. there
shall be no award of costs.
"Paul S.
Crampton"
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