Docket: T-1272-14
Citation:
2015 FC 524
Ottawa, Ontario, April 23, 2015
PRESENT: The
Honourable Mr. Justice Mosley
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BETWEEN:
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THE
MINISTER OF NATIONAL REVENUE
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Applicant
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and
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REVCON OILFIELD CONSTRUCTORS INCORPORATED
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Respondent
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ORDER AND REASONS
I.
BACKGROUND
[1]
This is a summary application commenced by the
Minister under section 231.7 of the Income Tax Act, RSC 1985, c 1 (5th
Supp) [the Act]. The Minister sought a compliance order in respect of Requests
for Information issued to the Respondent on April 11, 2013 and October 25,
2013.
[2]
The Respondent, Revcon, is an Alberta
corporation incorporated in 2006. Messrs Christian Billesberger and David
Szatkowski are its directors. The Canada Revenue Agency [CRA] is auditing Revcon
with regard to a corporate restructuring which occurred between November 7 and
December 31, 2011. In communications and meetings with the CRA, the Respondent
took the position through counsel, then Mr Lyndon Thiessen, that the requested
information [the Retained Documents] is subject to solicitor-client privilege
and need not be disclosed.
[3]
When the matter came on for hearing at the
General Sittings of the Court at Edmonton on July 14, 2014, counsel for the Respondent,
then Mr Douglas J Forer, again asserted solicitor-client privilege with respect
to the information sought by the Minister. As a result, an Order was issued
setting a schedule for the service and filing of documents to be completed by
February 16, 2015. Furthermore, the parties were to request a special hearing
no later than March 31, 2015.
[4]
The Respondent filed and served the affidavit of
Christian Billesberger sworn on August 29, 2014. Mr Billesberger is the Secretary-Treasurer
of the Respondent and one of its Directors. In this affidavit, Mr Billesberger
divides the Retained Documents into three categories. The specific items within
each category are set out in three schedules to his affidavit: Schedule A,
Schedule B and Schedule C.
[5]
The Billesberger affidavit provides four
distinct rationales for claiming privilege over the information in the three
schedules.
[6]
First, privilege is claimed over items that
would identify Law Firm X, an undisclosed law firm which was retained by the
Respondent’s counsel for the purposes of the restructuring transactions being audited
[the Law Firm X claim].
[7]
Second, privilege is claimed over items which
include “shorthand tax law language used by Law Firm X
that describes the Transactions in a manner that could potentially be
prejudicial to the Respondent’s interests” [the Nomenclature claim].
[8]
Third, privilege is claimed over items which
include Law Firm X’s opinion respecting the transactions or the work product of
Law Firm X’s legal retainer [the Structuring claim].
[9]
Fourth, privilege is claimed over items which were
communications for the purpose of obtaining legal advice or assistance [the
Legal Advice claim].
[10]
Counsel for the Applicant cross-examined Mr
Billesberger on October 8, 2014 and filed an additional reply on January 15,
2015. On the date of the scheduled hearing (March 19, 2015), the Respondent
filed a Record consisting of Mr Billesberger’s affidavit, a five page
Memorandum of Fact and Law and a List of Authorities consisting of excerpts
from academic texts and two decisions: Canada (Attorney General) v Federation
of Law Societies of Canada, 2015 SCC 7 and Thompson v Canada (Minister
of National Revenue), 2013 FCA 197.
[11]
When the matter came on for hearing on March 19,
2015, counsel for the Respondent acknowledged that his client was not in
compliance with the July 14, 2014 scheduling Order. Aside from being out of
time to file any additional material, the Respondent had failed to provide the
names of the senders and recipients of many of the Retained Documents as
required by the July 14, 2014 Order. Counsel conceded that he had no
authorities to submit in support of several of the rationales advanced in the
Billesberger affidavit. He urged that the Court accede to the Applicant’s
request for alternate relief – namely, that the Court review the actual documents
to determine whether any of them contain privileged information.
[12]
The Court has the power to receive documents for
which solicitor-client privilege is asserted in a sealed envelope and review
them so as to determine whether a proper claim of privilege has been made out. In
Canada (Privacy Commissioner) v Blood Tribe Department of Health, 2008
SCC 44 at para 17 [Blood Tribe], Justice Binnie explained that this
power ought to be used sparingly: “Even courts will
decline to review solicitor-client documents to adjudicate the existence of
privilege unless evidence or argument establishes the necessity of doing so to
fairly decide the issue…”
[13]
In this instance, the Court was not satisfied
that it had sufficient evidence or argument to decide the issue fairly. In the
absence of any objection from the Applicant and in the interests of proceeding with
prudence, the Court agreed to review the documents. An Order to that effect was
issued on March 24, 2015.
[14]
On March 31, 2015 counsel for the Respondent
forwarded two boxes of documents under seal loosely organized into Sections “A”, “B” and “C” , corresponding to the schedules attached to the
Billesberger affidavit. The Court notes that this material does not appear to
be a complete response to the information requests but, rather, merely that for
which the privilege claims are maintained.
II.
ISSUES:
[15]
The sole issue before the Court is whether the
Retained Documents are subject to solicitor-client privilege. There is no issue
as to whether the Applicant has satisfied the conditions that must be
established under subsection 321.7 (1) of the Act before the Court may order
compliance. In particular, it is clear that the Respondent was required under
sections 231.1 or 231.2 to provide access, assistance, and information or documents
to the CRA and failed to do so. If the claims of privilege are without merit,
there is no obstacle to issuing a compliance order.
III.
LEGAL FRAMEWORK:
[16]
Section 231.7 of the Act explicitly protects
documents or information covered by solicitor-client privilege. The Act defines
“solicitor-client privilege” at subsection
232(1).
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“solicitor-client
privilege” means the 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 the person and the person’s lawyer in professional confidence, except
that 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.
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« privilège des
communications entre client et avocat » Droit qu’une personne peut posséder,
devant une cour supérieure de la province où la question a pris naissance, de
refuser de divulguer une communication orale ou documentaire pour le motif
que celle-ci est une communication entre elle et son avocat en confidence
professionnelle sauf que, pour l’application du présent article, un relevé
comptable d’un avocat, y compris toute pièces justificative out tout chèque,
ne peut être considéré comme une communication de cette nature.
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[17]
Solicitor-client privilege attaches to all
interactions between a client and his or her lawyer when the lawyer is engaged
in providing legal advice or otherwise acting as a lawyer, as opposed to acting
as a business counsellor or in some other non-legal capacity: Blood Tribe,
above, at para 10.
[18]
In order to uphold a claim of solicitor-client
privilege, a court must determine (1) that legal advice has been sought from a
professional legal adviser in her capacity as such, (2) that the communications
relate to that purpose and (3) that the communications were made in confidence
by the client and the solicitor. See Descôteaux et
al v Mierzwinski, [1982] 1 S.C.R. 860 at 892-893:
In summary, a lawyer’s client is entitled to
have all communications made with a view to obtaining legal advice kept
confidential. Whether communications are made to the lawyer himself or to employees, and
whether they deal with matters of an administrative nature such as financial
means or with the actual nature of the legal problem, all information which
a person must provide in order to obtain legal advice and which is given in
confidence for that purpose enjoys the privileges attached to confidentiality.
[Emphasis added]
[19]
The onus to establish that the Retained
Documents fall within the scope of solicitor-client privilege is on the
Respondent. In Belgravia Investments Limited v Canada, 2002 FCT 649 [Belgravia],
Justice Heneghan wrote at paras 47-48:
The party asserting privilege carries the
evidentiary burden. The Applicants must show, on a balance of probabilities,
that the documents in question are a communication between a solicitor and a
client that involves the seeking or giving of legal advice, and that the parties
intend to be confidential. […]
The party claiming the privilege must do
more than baldly assert the privilege.
[20]
Tax planning communications are not privileged.
Also, facts that exist independently of a communication are not privileged: Belgravia,
above, at paras 44-45.
[21]
In Canada (National Revenue) v Kitsch,
2003 FCA 307 at paras 35-47, the Federal Court of Appeal affirmed that there is
no such thing as “accountant-client privilege”.
Advice given by an accountant (or, I would add, by a lawyer for accounting or
tax planning purposes) does not fall within the scope of solicitor-client privilege:
Canada (National Revenue) v Grant Thornton, 2012 FC 1313 at para 22.
[22]
This understanding of the scope of the privilege
was reiterated by Justice Binnie in Blood Tribe, above, at para 10:
While the solicitor-client privilege may
have started life as a rule of evidence, it is now unquestionably a rule of
substance applicable to all interactions between a client and his or her lawyer
when the lawyer is engaged in providing legal advice or otherwise acting as a
lawyer rather than as a business counsellor or in some other non-legal
capacity…
[Emphasis added]
[23]
Moreover, the client may waive the privilege
and authorize the release of the communications to a third party. In such
instances, the communications are no longer privileged: see e.g. Taxpro
Professional Corporation v Canada (National Revenue), 2011 FC 224 at para
32, aff’d 2011 FCA 306.
IV.
ANALYSIS:
[24]
In this instance, it is clear that the
Respondent shared some of the Retained Documents with accountants and commodity
traders. There is nothing in the record before the Court to suggest that these
individuals are anything other than third parties. Privilege does not attach to
communications shared with such persons.
[25]
The Respondent has provided me with no authority
to support the proposition that the Law Firm X and Nomenclature claims are
valid bases upon which to claim solicitor-client privilege. The idea that the
identity of a law firm or lawyer retained by a client to provide tax planning
advice is privileged finds no support in the law. It does not matter whether
the law firm was retained “indirectly” by
another firm directly retained by the client. A communication revealing the
name of a law firm or lawyer – without anything else, such as actual legal
advice – is not a confidential communication made for the purpose of receiving
legal advice from a lawyer acting in a legal capacity. The name of a law firm,
without more, is not protected by solicitor-client privilege. Nor is the
revelation of shorthand tax language used by tax planning advisors.
[26]
During the cross-examination, Mr Billesberger claimed
to have not seen most of the Retained Documents over which he had baldly
asserted privilege in his affidavit. He claimed to lack knowledge of the list
of transactions and statements of account that the CRA was interested in, and
of communications other than the emails under Schedule B which included him in
the recipient or “cc” field. With respect to the
majority of the Retained Documents, Mr Billesberger’s evidence amounted to
little more than opinion, speculation or hearsay, since he said he not have
firsthand knowledge of their content when swearing the affidavit. This is
insufficient to ground a claim of privilege.
A.
Schedule “A” claims
[27]
Included in the material submitted to the Court
under seal are two Closing Books (in three-ring binders) prepared for
transactions undertaken by the Respondent, dated December 8 and 9 and December
20, 2011. There are also two CD-ROMs with electronic copies of the same
material. Mr Billesberger averred that a claim of solicitor-client privilege
was made for and on behalf of the Respondent with respect to the contents of
the Closing Book for December 8 and 9, 2011 and the associated CD-ROM. No
reference is made in Mr Billesberger’s affidavit to the December 20, 2011 Closing
Book and the associated CD-ROM.
[28]
The Closing Book binder for the December 8 and
9, 2011 transactions contains a three page index describing 24 documents to be
found at sequentially numbered tabs. Two documents, described as CRA forms to
be found at tabs 3 and 6 in the index, are not included.
[29]
The index is followed by a 12 page letter dated
December 22, 2011 from Douglas J Forer of the McLennan Ross LLP law firm to the
attention of Lyndon Thiessen of the Ritchie Mill Law Office, on behalf of
1239744 Alberta Ltd, with respect to a series of share transactions involving that
company and 1239749 Alberta Ltd. The letter includes legal advice with regard
to the income tax reporting requirements and tax consequences of the
transactions for named individuals.
[30]
Attached as Appendix “A”
is a description of terms employed in the reporting letter and a statement that
McLennan Ross LLP’s clients in the matter are 1239749 Alberta Ltd, 1239744
Alberta Ltd, David Szatkowski, Nicole Bauman and Christian Billesberger, and
that Craig McDonald, Chartered Accountant, is their agent, and that Ritchie
Mill Law Office, c/o Lyndon Thiessen, is their counsel for the purposes of
receiving solicitor-client privileged material.
[31]
Also attached as Appendix “B” is a statement of “Facts
and Assumptions” relating to the share structure and ownership of the
two numbered Alberta corporations. Immediately following the statement in
Appendix “B” are three pages of charts illustrating
the corporate structure of the two numbered Alberta corporations and Revcon
before and after the December 8 and 9, 2011 transactions.
[32]
The December 22, 2011 letter from Mr Forer with
appendices “A” and “B”
is privileged. It is not clear whether the corporate structure charts were
part of Mr Forer’s letter or are otherwise privileged as legal work product. The
Court is satisfied that they should be treated as such out of an abundance of
caution.
[33]
The remaining documents at the tabs numbered 1
through 24 of the Closing Book are corporate board resolutions, shareholder
agreements, share conversion agreements, share purchase agreements, and other
such corporate instruments. None of them are communications between a client
and a lawyer intended to be made or received for the purpose of obtaining legal
advice. They are evidence, rather, of completed corporate transactions related
to the restructuring scheme. Therefore, they are not privileged. Similarly, the
three page index is not privileged as it merely describes the contents of the
binder.
[34]
The Closing Book dated December 20, 2011
contains a nine page index and 69 numbered tabs containing documents relating
to a series of transactions by Revcon and other corporate entities between
November 4 and December 5, 2011. None of this material is privileged. I note
that tabs 23 and 31 include information on transfers from or between a lawyer’s
trust accounts. Such information is not privileged: Canada (Minister of
National Revenue) v Reddy, 2006 FC 277. Tabs 49 and 51 contain information
that was already sent to the CRA.
[35]
As noted above, the two CD-ROM disks appear to
contain the same information as the Closing Books. The same findings regarding
privilege apply to their content.
B.
Schedule “B” claims
[36]
The Schedule “B” claims
relate to a series of messages from the email accounts of Christian
Billesberger and Dave Szatkowski (also a Director of Revcon). The messages are
to and from Monica Surgenor (Revcon’s Office Manager), Douglas Forer, Lyndon
Thiessen and several other persons including Craig MacDonald, a Chartered
Accountant. There is considerable duplication as the same strings of messages
appear to have been retained in several email accounts. Most of the messages
relate to transactional matters and are not communications for the purpose of
obtaining or receiving legal advice.
[37]
Mr Billesberger claimed solicitor-client
privilege with respect to these emails in relation to the Law Firm X Claim and
Nomenclature Claim. As explained above, there is no basis in law to support
these arguments. The Court rejects, therefore, the claims respecting the
redactions under the headings “Source”, “Recipient” and “C.C.”
and “Subject” in the columns set out in Schedule
“B” to Mr Billesberger’s affidavit.
[38]
In addition, Mr Billesberger claimed privilege over
communications for the purpose of obtaining legal advice or assistance for the
Respondent in respect of the Applicant’s audit of the transactions “and related matters” and, generally, for the
Structuring Claim.
[39]
Having read the emails provided to the Court on
March 31, 2015 and loosely organized under the heading “B”,
the Court is satisfied that the following contain communications for the
purpose of obtaining legal advice and are, therefore, privileged.
- July 26, 2011 (from Surgenor to Thiessen;
re “Revcon Corporate Assessment”)
- July 27, 2011
(reply from Thiessen to Surgenor, Billesberger and Szatkowski re “Revcon Corporate Assessment”)
- July 30, 2011
(from Szatkowski to Thiessen with copies to Surgenor and Billesberger and
reply from Thiessen, re “Revcon expenses and
Commodity Acct”)
- August 19,
2011 (from Forer to Billesberger, Szatkowski and Thiessen, re “Commodities Straddle”)
- August 22-23,
2011 (series of messages from Billesberger to Thiessen, Forer, Szatkowski
and Pam Felske re “Canadian Business operating in
the US” and replies)
- August 23,
2011 (from Forer to Billesberger, Szatkowski and Thiessen re “Loss corporation” and reply from Szatkowski)
- September 19,
2011 (Billesberger to Thiessen, Forer, Szatkowski and Surgenor re “Update”)
- September 22,
2011 (Forer to Billesberger and Thiessen re “Lossco
Chart”)
- October 21,
2011 (series of messages to and from Billesberger,Forer, Szatkowski, Thiessen
and other persons re “CWB Loan to Revcon Oilfield”)
- November 14,
2011 (from Szatkowski to Thiessen, Billesberger and Surgenor, re “partnerships”)
- November 22,
2011 (from Billesberger to Forer and reply from Forer to Billesberger,
Szatkowski and Thiessen re “Documents for
Transactions”)
- December 15,
2011 (from Forer to Thiessen, Billesberger and Szatkowski re the Reporting
Letter and related documents)
- January 25,
2012 (from Forer to Billesberger and Szatkowski re “Rev Can”)
- January 25,
2012 (a series of messages from Forer to Billesberger and Szatkowski re “Canada Revenue Agency”)
- January 30,
2012 (from Forer to Szatkowski, Billesberger and Thiessen re “Tomorrows meeting”)
- January 30,
2012 (from Forer to Szatkowski, Billesberger and Thiessen)
- November 13,
2012 (from Thiessen to Surgenor, Billesberger and Szatkowski re “CRA audit continued”)
- November 26,
2012 (from Thiessen to Surgenor, Szatkowski and Billesberger re “CRA audit”)
[40]
The other email communications are not
privileged and shall be disclosed to the Applicant. I note, in passing, that Mr
Billesberger’s professed lack of knowledge on cross-examination is surprising
given the extent to which he was an initiator or recipient of communications
relating to these transactions.
C.
Schedule “C” Claims
[41]
This package contains reporting letters and
statements of account from the Ritchie Mill Law Office, McLennan Ross LLP and
several other law firms involved in structuring the transactions relating to
the shares of the two numbered Alberta corporations and Revcon in 2011 and
2012. The reporting letters from the law firms are privileged as they contain
legal advice relating to the tax obligations of Revcon’s Directors and
shareowners arising from the structuring arrangements. Since Maranda v
Richer, 2003 SCC 67, the courts have protected information regarding the
fees to be paid for legal advice. Accordingly, the statements of account are
also privileged.
[42]
A letter dated January 19, 2012 from Douglas
Forer of McLennan Ross to the attention of Pam Felske of the Ritchie Mill Law
Office is not privileged as it merely transmits the corporate minute book for
1538893 Alberta Ltd, a share purchase agreement between several corporate
entities respecting the purchase and sale of Class “A”
common shares in Revcon, and a copy of a minute book for 6251471 Canada Inc
received from an Ottawa law firm.
[43]
Subject to these findings, the application will
be granted with costs.
V.
CONCLUSION:
[44]
I am satisfied that the Applicant requires the
information and documents requested on April 11, 2013 and October 25, 2013 for
purposes related to the administration and enforcement of the Act, and to
conduct an audit of the Respondent under the Act. It is clear that the
Respondent has not provided all of the information and documents sought by the
Minister as described in the requests for information. It is not clear that the
material submitted to the Court on March 31, 2015 for review of the privilege
claims constitute a complete response to the information requests.
[45]
The claims of privilege initially made by Mr
Thiessen on behalf of the Respondent in meetings with CRA and reiterated by Mr
Billesberger in his affidavit of August 29, 2014 were overly broad. The grounds
advanced in support of the claims were largely unfounded and unsupported by any
legal authority. This was made abundantly clear in the scant record submitted
by the Respondent and in the oral representations of Mr Forer at the hearing on
March 19, 2015.
[46]
Accordingly, an Order shall issue requiring the
Respondent to provide the information and documents requested by the Applicant within
30 days of service of a copy of the Order
VI.
COSTS:
[47]
The Applicant submitted a Bill of Costs for the
fees and disbursements incurred in preparing for and attending at the March 19,
2015 hearing. Counsel for the Respondent agreed at the hearing that the amounts
claimed were reasonable subject to an adjustment for the time not required at
that hearing. Accordingly, I will reduce the number of units for that
appearance from 2 to 1 and the total claimed for counsel fees by $140.00. The
total amount for fees and disbursements awarded will be $3,089.12.
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