Date: 20070425
Docket: T-2034-06
Citation: 2007 FC 436
BETWEEN:
MINISTER
OF NATIONAL REVENUE
Applicant
and
S.
BRUCE CORNFIELD
Respondent
and
THE LAW SOCIETY OF BRITISH COLUMBIA
Intervener
REASONS FOR
ORDER
SNIDER
J.
[1]
The
Minister of National Revenue (the Minister) is asking
this Court to issue an Order (Compliance Order), under section 289.1 of the Excise
Tax Act, R.S.C, 1985, c. E-15, that would require the Respondent, Mr. S.
Bruce Cornfield, to provide certain documents and information to the Minister.
I. Background
[2]
Mr. Cornfield is a lawyer and a member of the
Law Society of British Columbia. His client, Child Construction Ltd. (CCL), is
indebted to Her Majesty the Queen in Right of Canada for GST in the amount of
$53,382.29 as of September 15, 2006.
[3]
In July 2003, Mr. Cornfield handled the
conveyance involving a transfer of property by CCL to a third party.
[4]
By letter served on January 6, 2006, the
Minister issued a requirement for information (RFI) pursuant to subsection
289(1) of the Excise Tax Act, requiring Mr. Cornfield to provide the
following information and documents to the Minister (the Information and
Documents) within 30 days of the date of service of the RFI:
(a)
A statement of adjustments with respect to the
sale of the property described as Parcel Identifier 023014806, Strata Lot 105,
Section 9, Victoria District,
Strata Plan VIS3305, by CCL to Sarah Harper and Richard Allan Stensrud, on July
30, 2003.
(b)
A copy of the direction to pay with respect to
the property transaction identified in paragraph (a) above.
(c)
Copies, front and back, of the cancelled cheques
in regards to the distribution of monies with respect to the property
transaction identified in paragraph (a) above.
[5]
Mr. Cornfield has refused to provide the
Minister with the Information and Documents sought by the RFI within 30 days.
In a letter to the Vancouver Island Tax Services Office of the Canada Revenue
Agency (CRA), dated January 23, 2006, Mr. Cornfield explained his reasons for
not providing the Information and Documents:
I have been
unable to locate my client . . . Absent instructions to the contrary from the
client, I must take the position that the requested information may be subject
to a solicitor-client privilege. . . . I draw your attention to the Professional
Conduct Handbook for B.C. Lawyers that states:
a lawyer who is
required under the Criminal Code, the Income Tax Act, or any
other federal or provincial legislation, to produce or surrender a document or
provide information which is or may be privileged shall, unless the client
waives the privilege, claim a solicitor-client privilege in respect to the
document.
Given the above,
what you are asking me to do is something that is contrary to my governing
society’s code of conduct, and compliance may even result in disciplinary
action against me.
[6]
Upon application, the Law Society of British
Columbia (the Law Society) was granted intervener status in this Application by
Order of Justice Gauthier dated December 20, 2006. In her Order, Justice
Gauthier described the right of the intervener to:
make
representations in writing and orally in respect of all issues concerning
solicitor-client privilege raised in this application including the procedures
which a Court should follow in considering an order for production of documents
in the possession of a lawyer and the protection of solicitor-client privilege
in the face of a demand for production of documents by the applicant.
[7]
Written and oral submissions were made by the
Minister and the Law Society.
II. Issues
[8]
The overarching issue in this application is
whether the Compliance Order should issue to require Mr. Cornfield to produce
the Information and Documents. To respond, two questions must be addressed:
- Are the
Information and Documents, in this case, subject to solicitor-client
privilege?
- Does s. 289.1
of the Excise Tax Act provide adequate protection to the rights of
the lawyer’s client (or former client) to claim solicitor-client
privilege? And, if not, should the Federal Court consider adding certain
procedural safeguards such as a requirement to serve notice on the client?
[9]
As I understand the submissions of the
Intervenor, they are not seeking to require the suggested procedures be applied
to this particular case. Thus, if I determine that the Information and
Documents are not subject to solicitor-client privilege and that the other
requirements of s. 289.1 have been met, the Compliance Order will issue.
III. Analysis
A. What is the relevant statutory
framework?
[10]
In brief, the relevant provisions of the Excise
Tax Act operate in the following manner. The full text of these provisions
is set out in Appendix A to these reasons. Almost identical provisions are
contained in the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.).
[11]
The Minister is authorized, pursuant to s.
289(1) of the Excise Tax Act, to require a person to provide any
requested information or documents, upon notice. It is important to note that
the Minister’s authority is not restricted to the taxpayer. Third parties may
be served with requests for information. The only stipulation is that the
purpose be “related to the administration or enforcement of this Part,
including the collection of any amount payable or remittable under this Part”.
[12]
Where a request for information is made and the
person has failed to comply, s. 289.1 provides the Minister with a means to
enforce compliance with s. 289. Specifically, s. 289.1(1) allows the Minister
to seek, by way of “summary application”, a court order requiring the person to
provide the information or document sought under s. 289. To issue the order –
commonly referred to as a Compliance Order – the judge must be satisfied that:
(a) the person was required under s. 288 or s. 289 to provide the information;
and (b) “in the case of information or a document, the information or document
is not protected from disclosure by solicitor-client privilege (within the
meaning of subsection 293(1))”.
[13]
The definition of solicitor-client privilege, in
s. 293(1) of the Excise Tax Act, is as follows:
|
"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 invoice, voucher or cheque,
shall be deemed not to be such a communication.
|
«privilège des
communications entre client et avocat » Droit qu’une personne peut posséder,
devant une cour supérieure de la province où l’affaire prend naissance, de
refuser de divulguer une communication entre elle et son avocat en confidence
professionnelle. Toutefois, pour l’application du présent article, le relevé
comptable d’un avocat, y compris une facture ou une pièce justificative ou
tout chèque, ne doit pas être considéré comme une communication de cette
nature.
|
[14]
Under s. 289.1(2), the person must be given
notice of the application at least five clear days before it is heard.
Subsection 289.1(3) gives the judge hearing the application the discretion to
impose such conditions on the order as the judge considers appropriate.
B. What has
been the practice of the Federal Court in these matters?
[15]
The Excise Tax Act and the Income Tax Act
contain an explicit procedure for bringing compliance order applications. As
noted above, s. 289.1 (1) of the Excise Tax Act provides that the
compliance order is to be obtained “on summary application by the Minister”. The
same requirement for a “summary application” is set out in s. 231.7 of the Income
Tax Act. In that context, Prothonotary Lafrenière of this Court provided a
format for bringing such applications in Minister of National Revenue v. Norris,
2002 CarswellNat 1250, [2002] 3 C.T.C. 346. In Norris, the Prothonotary
authorized the Minister of National Revenue to institute proceedings under s.
231.7 of the Income Tax Act by way of motion under Rule 358 et seq.
of the Federal Courts Rules, SOR/98-106 (the Rules), rather than
by way of application under Rule 300 et seq. of the Rules. As stated by
Prothonotary Lafrenière in Norris, above, at paras. 5-7:
Although a proceeding under
subsection 231.7 of the Income Tax Act must be brought by way of notice
of application, the procedure set out in the Federal Court Rules, 1998
which governs applications appears ill-suited for summary disposition of such
matters. Consequently, in this particular case and subject to any further
directions or order of the Court, the following procedure should be followed in
the proposed proceeding under subsection 231.7.
The Applicant shall file a Notice
of Application in Form 301, to be treated by the Registry as both an
originating document and notice of motion, which shall:
(a) set out the day, time and
place at which the application will be heard, either at a General Sittings of
the Court or such special sitting date as may have been appointed by the
Judicial Administrator upon informal request by the Applicant:
(b) be amended by deleting any
references to Rule 300 et seq.;
(c) contain a notice in capital
and bold characters which reads as follows: “The Respondent who wishes to
oppose the application shall serve a Respondent’s Record and file three copies
of it not later than 2:00 p.m. on the last business day before the hearing of
the application.”; and
(d) be accompanied by the
appropriate filing fee.
Once the Notice of Application
has been filed, the Applicant shall personally serve the Respondent with an
Application Record containing a table of contents, the notice of application,
each supporting affidavit and documentary exhibit and the Applicant’s
memorandum of fact and law. The Applicant shall file three copies of the
Application Record, and proof of service thereof in accordance with ss. 237.1
of the Income Tax Act, forthwith and in any event no later than two
clear days before the return date of the hearing of the application.
[16]
Although one may argue that the Order was limited to the particular case
before the Prothonotary, the procedure that he outlined has been followed, for
compliance orders under both the Income Tax Act and the Excise Tax
Act, since 2002.
[17]
Consistent with the direction provided by Prothonotary Lafrenière and
with the notice provisions set out in s. 289.1(2) of the Excise Tax Act,
the Minister’s practice is to serve notice on “the person against whom the
order is sought”. Thus, the Minister, following s. 289.1(2) of the Excise
Tax Act and the direction of Prothonotary Lafrenière, has not followed Rule
303 of the Rules and named, as a Respondent, the affected taxpayer as a “person
directly affected by the order sought in the application”.
C. Are the Information and Documents sought in this case subject to
solicitor-client privilege?
[18]
I turn now to the first issue before me. Specifically, should a
Compliance Order be issued? Resolution of this issue requires that I first determine
whether the Information and Documents, in this case, are subject to
solicitor-client privilege.
[19]
In recent decisions, the Courts have consistently affirmed that, in the
context of a real estate transaction, cheques from a solicitor’s account and a
statement of adjustments are not subject to solicitor-client privilege (In
the Matter of the Legal Profession Act and Martin K. Wirick, 2005 BCSC 1821,
51 B.C.L.R. (4th) 193, [2005] B.C.J. No. 2878 (B.C. Sup. Ct.) (QL); Minister
of National Revenue v. Vlug, 2006 FC 86, 2006 D.T.C. 6285, [2006] F.C.J.
No. 142 (F.C.) (QL); Canada (Minister of National Revenue) v. Reddy,
2006 FC 277, 146 A.C.W.S. (3d) 568, [2006] F.C.J. No. 348 (F.C.) (QL); Canada
(Minister of National Revenue) v. Singh Lyn Ragonetti Bindal LLP, 2005 FC
1538, [2006] 1 C.T.C. 113, [2005] F.C.J. No. 1907 (F.C.) (QL)). More
specifically, the Federal Court in Singh Lyn Ragonetti Bindal LLP, Vlug
and Reddy held that such documents and information requested under the Excise
Tax Act or the parallel provisions of the Income Tax Act are not
subject to solicitor-client privilege.
[20]
Given this clear authority, there is no question that the Information
and Documents requested in the RFI are not the subject of solicitor-client
privilege.
D. Should the procedures currently used by the Court be
amended?
[21]
The Law Society has intervened in this application with a concern that
they describe as the “greater good”. They assert that, once a lawyer is served
with an RFI, the lawyer is in an immediate conflict between their duty to their
client vis-à-vis privilege and the duty to comply with the statute. At a
minimum, the Law Society requests that this Court direct the Minister to take
the following steps in all such compliance order applications:
- Name the taxpayer as a Respondent to the application
pursuant to Rule 303 of the Rules, thereby giving the taxpayer immediate
rights to assert any claims of privilege; and
- Require the sealing of the documents and their submission
to the Court.
[22]
While acknowledging (I think) that the Information and Documents in this
case are not subject to solicitor-client privilege, the Law Society argues that
there may be circumstances where this type of document or information held by a
lawyer may be privileged. The Law Society submits that the lawyer’s client is
the only party who can waive that privilege. They refer the Court to certain
provisions of Chapter 5 of the Professional Conduct Handbook of the Law
Society dealing with “Confidential Information”. In particular, paragraphs 13
and 14 are entitled “Disclosure required by law” and provide as follows:
13. A lawyer who is required by
law or by order of a court to disclose a client’s affairs shall not divulge
more information than is necessary.
14. A lawyer who is required
under the Criminal Code, the Income Tax Act or any other federal or provincial
legislation, to produce or surrender a document or provide information which is
or may be privileged shall, unless the client waives the privilege, claim a
solicitor-client privilege in respect of the document.
[23]
In general, I would not presume to interpret the
rules of the Law Society. However, in this case, two of these rules have been
raised as a reason for changing the practice of the Federal Court. Accordingly,
I feel that I should respond to the arguments before me. And, in my view, there
are a number of problems with those arguments.
[24]
In the face of consistent and clear direction from this and other courts
that documents in the nature of those described in the RFI are not subject to
solicitor-client privilege, it is difficult to see how paragraph 14 of Chapter
5 of the Professional Conduct Handbook of the Law Society can have any
applicability. Paragraph 14 applies only where the document or information “is
or may be privileged”. If the Information and Documents do not satisfy that
test, paragraph 14 is not engaged.
[25]
Since the Information and Documents under discussion in this application
– and, more generally, as provided for in the Excise Tax Act and the Income
Tax Act – are not privileged, there is nothing for the client to waive. The
provisions of the Excise Tax Act and the Income Tax Act are very
clear. Upon a request, the lawyer must provide the requested information, unless
it is subject to solicitor-client privilege. Whether one uses the definition in
the statutes or a common law definition of solicitor-client privilege, the law
has established that accounting records, including any supporting invoice,
voucher or cheque, are not protected by solicitor-client privilege.
[26]
Further, the position of the Law Society fails to take into account the
difference between confidential and privileged documents. As acknowledged by
counsel for the Law Society, privileged documents form a subset of documents
that are “confidential”. All documents in the possession of a lawyer may be
described as confidential but only those that satisfy the test for a claim of
solicitor-client privilege may be withheld pursuant to the provisions of the Excise
Tax Act and the Income Tax Act. If paragraph 14 of Chapter 5 of the Professional
Conduct Handbook is to apply to documents which, in the opinion of the
courts, are not subject to privilege, then lawyers would be obliged to obtain
the waiver from the client of all documents held by the lawyer for a
client. This ignores the intent of paragraphs 13 and 14 which, on my reading,
permit the disclosure of non-privileged information where a lawyer is required
by law to produce or surrender a document or provide information.
[27]
The Law Society argues that only the client – and not the lawyer – has
the right to decide whether a document may be privileged and whether to claim
that privilege. While this is no doubt correct, it appears to me that, where
the law is clear that certain information is not privileged, such a right
simply does not arise.
[28]
The Law Society raises the problem that sometimes these types of
documents may contain notations or other information that may be privileged.
This is not the case with the Information and Documents that are the subject of
this application; the Law Society does not assert that the documents at issue
in this application are annotated. Further, this situation has never arisen to
the knowledge of the parties to this application. However, I acknowledge that
this situation could arise in a future case. The simple response to this
concern is that a financial or accounting record that contains privileged
information in the form of a notation is not a document that satisfies the
definition of non-privileged information or documents. A Compliance Order may
only be issued if the information or document is not protected from disclosure
by solicitor-client privilege, either pursuant to s. 289.1 of the Excise Tax
Act or under principles of common law. If such circumstances were to arise,
the statute and the Federal Court procedures for obtaining a Compliance Order
would, in my view, suffice to provide the important protection for privileged
documents and information.
[29]
I also note that the judge hearing the application for a Compliance
Order may impose any conditions in respect of the order that the judge
considers appropriate (Excise Tax Act, s. 289.1(3)). Further service
requirements could be imposed. Since the submissions of the Law Society are
based on hypothetical situations, it is impossible to address every possible
scenario.
[30]
Lastly, I turn to the Law Society’s submission that the Minister should
be required to follow Rule 303(1) and name the taxpayer as a Respondent. In
their view, the taxpayer is a “person directly affected by the order sought in
the application”. The problem with this argument is, first, that the Court, in Norris,
above, expressly determined that this Rule would not apply. Second, and more
importantly, the summary application procedure set out in the Excise Tax Act
requires service only on the party from whom the information is sought.
[31]
In sum, I am not persuaded that the evidentiary record in this case
establishes a need for further procedural steps for the protection of
solicitor-client privilege. More generally, there is no evidence that the
current procedure has resulted in a breach of the fundamental legal rights of
solicitor-client privilege. There is no need, at this time, to add a
requirement to serve the taxpayer or to provide a sealed copy of the documents
to the Court, unless such procedures are warranted on the facts of a particular
application.
IV. Conclusion
[32]
In conclusion, I am satisfied that:
(a) the Respondent
was served with the RFI as required under s. 289(1) of the Excise Tax Act;
(b) the Respondent
did not provide the Information and Documents sought by the Minister; and
(c) the Information
and Documents are not protected from disclosure by solicitor-client privilege.
[33]
Accordingly, the Compliance Order will issue.
Further, the Court will provide no direction on the procedure for making
application for Compliance Orders and affirms the procedure set out in the Excise
Tax Act and in Norris, above.
[34]
Since the Minister did not seek costs, no costs will be awarded.
"Judith
A. Snider"
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