Dep. Min. of Rev. of Quebec v. Fava., [1984] CTC 584 (Que. C.A.)

Rothman, JA:—This is an appeal by the Deputy Minister of Revenue of Quebec from a judgment rendered by Judge Louis-Philippe Bouchard, a judge of the Provincial Court, District of Quebec, on March 8, 1984, dismissing the Deputy Minister’s objection to the production of a document during an examination on discovery after defence.

Respondent, Maria Fava, a taxpayer under the Quebec Taxation Act (1977 LRQ Ch 1-3), was reassessed by the Minister of Revenue of Quebec for the years 1976, 1977 and 1978 on grounds that certain amounts paid to her during those years did not constitute capital gains, as she claimed, but business income. She appealed to the Provincial Court and, after the filing of the defence, she summoned the departmental auditor who had prepared the audit report on which the reassessment was based, to be examined on discovery under Article 398 CCP, and to allow communication of all documents relevant to the issues in the appeal.

During the examination on discovery, counsel for respondent asked that the auditor produce a copy of the audit report which he had prepared. Counsel for the Deputy Minister objected to the production of the report on grounds that it was an internal document that the Department did not have to produce.

The sole issue to be decided in this appeal is whether the audit report is protected from disclosure by professional privilege. In his factum, appellant defines the question in this manner:

Il s’agit de déterminer si le rapport de vérification est un document privilégié dont l’appelant peut refuser la production.

L’appelant ne discutera pas les autres motifs soulevés par lui en première instance, car c’est sur la question du privilège que permission lui a été donnée d’en appeler devant cette Cour.

L’appelant invoque que, lorsqu’un contribuable en appelle de l’une de ses cotisations devant la Cour Provinciale, il fournit alors à ses procureurs le rapport de vérification concernant ce contribuable, afin de leur permettre d’établir une défense. Le rapport devient alors un document fourni à ses procureurs, à l’occasion ou en prévision du procès, revêt un caractère confidentiel, participe à l’immunité du secret professionnel et est par conséquent privilégié de toute production. C’est le cas du rapport de M J-C Joncas, dont production a été refusée par l’appelant.

It is to be noted at the outset that no question of Crown or ministerial privilege arises in this case since no affidavit has been tendered by the Minister or Deputy Minister establishing that the disclosure of the audit report would be contrary to public order as contemplated under Article 308 CCP. Further, there is no suggestion that the report contains the names of any informers, the revelation of which would be contrary to the common law rule against the disclosure of information of that kind (Bisaillon v Keable, [1983] 2 SCR 60). Nor does appellant object to the production of the report on grounds of its relevancy to the issues involved in the reassessment and the appeal before the Provincial Court.

Counsel for the Deputy Minister contends, in essence, that since the audit report was prepared not only for the use of the Minister but also for the use of counsel in the event of litigation, it is protected from disclosure on grounds of the professional privilege existing between the Minister and his attorneys. He invokes Article 9 of the Quebec Charter of Human Rights and Freedoms (1977 RSQ Ch C-12). He relies on the decisions of this Court in La Prévoyance Cie d’Assurance v Construction du Fleuve Ltée ([1982] CA 532) and The Montreal Street Railway Co v Feigleman ((1913), 22 BR 102), as well as on a number of English decisions which are summarized in Seabrook v British Transport Commission ([1952] 2 All ER 15).

There is no doubt that a report prepared by a party for the use of his counsel in a lawsuit that is pending or anticipated is protected by professional privilege and its disclosure cannot be compelled. This is equally true whether the report is prepared by the party directly and remitted to his counsel or whether it is requested by an agent or employee of the party from another agent or employee and later remitted to counsel. The Prévoyance case and the Feigleman case, (supra), are clear authority for the proposition that it is the purpose of the report that determines its privileged character and not the identity of the person who requests it.

But that general principle does not solve the problem here. The audit report in the present case was not prepared solely for the purpose of briefing the Minister’s attorneys with a view to pending or anticipated litigation. Nor do I believe that this was its predominant purpose.

The primary purpose of the audit report was to determine the taxable income of the taxpayer for the years in question and to enable the Minister to decide whether or not to reassess tax on her income for those years. The primary purpose, then, was to enable the Minister to carry out his duty under section 1010 of the Act:

1010. 1. Le ministre peut, en tout temps, déterminer l’impôt, les intérêts et les pénalités en vertu de la présente partie, ou donner avis par écrit à tout contribuable qui a produit une déclaration fiscale pour une année d’imposition à l’effet qu’aucun impôt n’est payable pour cette année d’imposition.

2. Le ministre peut aussi déterminer de nouveau l’impôt, les intérêts et les pénalités en vertu de la présente partie et faire une nouvelle cotisation ou établir une cotisation supplémentaire, selon le cas . . .

This, of course, may not be the only purpose of the report. Where an appeal from the reassessment does ensue, the report may be remitted to the Minister’s attorneys for use in the litigation, but that, in my view, is not the purpose for its preparation nor its predominant purpose.

Where a document or report has been prepared for more than one purpose, as is the case here, the English authorities appear to have evolved considerably since the Seabrook case, (supra), referred to by appellant.

Phipson (On Evidence, 13th edition, 1982, p 303) describes the present state of the law as follows:

Often the dealings with the third party are not prompted by a single motive, and in such cases it is necessary to investigate the purpose for which the communication with the third party chiefly took place. In Waugh v BRB ([1980] AC 521 HL), a claim was brought under the Fatal Accidents Acts and the widow sought discovery of an accident report made two days after the event. The report contained signed statements, and one of the purposes for which it was prepared was submission to the defendant’s legal

advisers. It was held by the House of Lords that a document would attract legal professional privilege only if the sole or predominant purpose of its preparation is to enable it to be used by lawyers, and the older authorities to the contrary were overruled. There is thus no need any more to use the escape route from these decisions provided in Longthorn v BTC (1959 1 WLR 530). The only question to be answered is whether the dominant purpose of the document was that it should be submitted to legal advisers. [Emphasis added]

In Waugh v British Railways Board ([1979] 2 All ER 1169), therefore, the House of Lords specifically rejected the proposition that a document is privileged where anticipated litigation is merely one of its purposes and held that it would only be privileged if the dominant purpose for which it was prepared was the submission to a legal adviser for advice or use in litigation. Lord Wilberforce, after considering Seabrook and other authorities, stated (1174):

My Lords, for the reasons I have given, when discussing the case in principle, I too would refuse to follow those cases. It appears to me that unless the purpose of submission to the legal adviser in view of litigation is at least the dominant purpose for which the relevant document was prepared, the reasons which require privilege to be extended to it cannot apply. On the other hand to hold that the purpose, as above, must be the sole purpose, would, apart from difficulties of proof, in my opinion, be too strict a requirement, and would confine the privilege too narrowly: as to this I agree with Barwick CJ and in substance with Lord Denning MR. While fully respecting the necessity for Eveleigh LJ and Sir David Cairns to follow previous decisions of their court, I find myself in the result in agreement with Lord Denning MR’s judgment. I would allow the appeal and order disclosure of the joint report.

Even before the decision in Waugh, moreover, the House of Lords had distinguished the Seabrook case from cases where the predominant purpose of a report or document was a purpose other than to aid in anticipated litigation.

In Alfred Crompton Amusement Machines Ltd v Commissioners of Customs and Excise ([1972] All ER 1169, 1183), Lord Cross of Chelsea stated:

One day it may be necessary for this House to consider the point but in my judgment it does not arise for decision in this case. In the Ogden and Seabrook type of case the reports in question are obtained for two or more quite separate purposes. Here the two purposes for which the documents in question were obtained or came into existence were parts of a single wider purpose — namely, the ascertainment of the wholesale value in the manner prescribed by the Act. The first, and the sole immediate, purpose was to help the commissioners to fix what in their opinion was the true value; the second purpose was to help the solicitor, if the commissioners’ opinion was challenged, to prepare their case for the arbitration. It was not — and hardly could have been — suggested that the mere fact that the commissioners would know in every case that their opinion might be challenged would itself enable them to claim that such documents as are in question here would be the subject of legal professional privilege whenever in fact their opinion was challenged. What is said to make them privileged in this case is the fact that the commissioners happened to expect that there would be an arbitration and called in the solicitor to “hold their hands” in the early stages. But, even so, in this case just as much as in cases in which no arbitration was in fact anticipated the commissioners had to form their own opinion as to value on the evidence available to them, including these documents, before any arbitration could take place. This feature of the case appears to me to distinguish it from the Ogden or Seabrook type of case . . .

The position seems to be analogous here. The prime purpose of the audit report was to enable the Minister to determine the taxpayer’s income and to assess tax on that income. While the Minister might have known that his assessment could be challenged by an appeal to the Provincial Court and that, in such event, the report would be used by counsel, that was not the purpose for its preparation nor the purpose for its delivery to the Minister.

In my view, the trend towards more liberal disclosure of evidence is no less evident in Canada and in Quebec than it is in England. Mr Justice Le Dain, in The Queen v Hawker Siddeley Canada Ltd ([1977] 2 FC 162, 166) wrote:

The dispute in this case is as to whether, on the documentary evidence, the appellant has discharged the burden of clearly showing that one of the purposes for instituting the inquiry was the preparation of a report that would be submitted to legal advisors to assist them in anticipated litigation. A party should bring himself clearly within the requirements of a claim for privilege. It is in the interests of justice that there be the fullest possible disclosure of all relevant material capable of throwing light upon the issues in a case.

We are all of the opinion that the appellant has not discharged this burden in the present case. It is no doubt reasonable to conclude that, at the time the Board of Inquiry was established, the possibility of litigation was contemplated in view of the exchange of correspondence that had taken place between the parties only shortly before the appointment of the Board. The evidence does not clearly show, however, that a purpose in setting up the Board was to obtain a report that would be laid before legal advisors to assist them with respect to such litigation . . .

The need for openness is particularly acute in tax cases where the burden of proof is on the taxpayer to establish that the Minister’s reassessment was incorrect. This can be a very heavy burden indeed if he is not fully informed as to the basis of that reassessment.

It is true, of course, that the audit report might contain information that is not directly admissible in evidence. We have not examined the report. There might well be statements of witnesses that amount to hearsay and parts of the report that involve opinions and conclusions rather than facts. For that reason, there can be no question of allowing the production of the report as evidence. But that was not the intention of the judge who dismissed the objection. It seems clear that he intended only that the report be disclosed to respondent:

Le rapport ne constituera un témoignage écrit que si, à l’audition au mérite, la requérante cherche à produire le rapport pour prouver des allégations qui y sont mentionnées. L’objection, qui pourrait être alors formulée, sera appréciée par le juge au fonds, mais est prématurée au stade de l’interrogatoire au préalable.

D’ailleurs, de façon générale, selon le choix ou l’utilisation que la requérante fera au mérite l’intimé pourra toujours s’objecter à ce moment.

Quite clearly, each of the documents forming part of the report will have to be examined on a document by document basis to determine its admissibility in evidence (Solosky v R, [1980] 1 SCR 821, 837). But counsel for the Deputy Minister will have ample opportunity to assert any relevant objections before the trial judge on the merits, or, if necessary, even prior to trial, before the Provincial Court or a judge of that Court, should respondent seek to introduce into evidence any inadmissible documents or material contained in the audit report or should there be any dispute as to the disclosure of the names of witnesses that the Deputy Minister considers should not be divulged. At this stage, however, I agree with the first judge that the objection is premature.

In deciding the present appeal, we can only do so on the record as constituted before this Court and, on the basis of the record, the only question to be decided is whether or not the audit report is protected from disclosure by professional privilege. For the reasons given above, in my opinion it is not.

I would therefore dismiss the appeal with costs.

LA COUR, statuant sur l’appel d’un jugement de la Cour Provinciale du district de Québec, rendu par M le juge Louis-Philippe Bouchard le 8 mars 1984, rejetant l’objection du Sous-Ministre du Revenu du Québec à la production d’un rapport de vérification demandée par l’intimée lors d’un interrogatoire au préalable après défense:

Après étude du dossier, audition et délibéré;

Pour les motifs exposés dans l’opinion écrite de monsieur le juge Rothman déposée avec le présent jugement, à laquelle souscrivent monsieur le juge Kaufman et madame le juge L’Heureux-Dubé:

REJETTE l’appel avec dépens.