Kenneth E.G. Taves v. Her Majesty the Queen, [1995] 2 CTC 347

Baker J.:—Mr. Taves, the petitioner, is a member of the law firm of Farris, Vaughan, Wills & Murphy. That law firm and the petitioner, as a member of the firm, are solicitors for two companies Lawrence Mining Corp. ("Lawrence") and Columbian Northland Exploration Ltd. ("Columbian"). The law firm was served by Revenue Canada Taxation with two letters dated April 30, 1993. The first, which pertains to Columbian, is a demand pursuant to the provisions of paragraphs 231.1(a) and (b) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72,

c. 63) (the "Act") to provide information and documents concerning Trafalgar Partnership. In the case of Lawrence the demand, pursuant to the same paragraphs, pertains to Georgia Ltd. Partnership. Pursuant to the provisions of subsection 232(3.1) Mr. Taves claimed a solicitor-client privilege in respect of certain documents in the possession of the law firm. Mr. Taves placed the documents in two packages labeled "Lawrence Mining" and "Columbian Northland" respectively and then brought a petition before this court seeking a direction from the court that the documents are subject to solicitor-client privilege and accordingly not subject to production to Revenue Canada Taxation.

Subsection 232(5) requires the application to be heard in camera, which it was, authorizes the judge to inspect the documents, directs the court to decide the matter summarily and to deliver concise reasons identifying the documents without divulging the details of them.

In cases such as this, normally there is a complete listing of the documents either in categories or sub-categories. In this case, although there was a list, some documents were not listed and in some instances the documents listed had several attachments which were either not referred to at all or alternatively referred to only as "attachments".

The definition of solicitor-client privilege contained in the Income Tax Act, paragraph 232(1 )(e) reads:

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 him and his lawyer in professional confidence, except for the purposes of this section an accounting record of a lawyer, including any supporting voucher or cheque, shall be deemed not to be such a communication.

It has been held that the effect of the provision is to maintain the common law scope of solicitor-client privilege except to create a statutory exception with respect to those documents falling within the category of "an accounting record of a lawyer, including any supporting voucher or cheque”.

See Susan Hosiery Ltd. v. M.N.R., [1969] C.T.C. 533, 69 D.T.C. 5278 (Ex.) and Re Sokolov, [1968] C.T.C. 414, 68 D.T.C. 5266 (Man. Q.B.).

The Lawrence documents

I will deal first with the documents pertaining to Lawrence.

1. The first document is a letter dated February 25, 1988 from the law firm to Lawrence. Attached to it is a cheque stub, a cheque requisition and a computer printed document entitled "billing memo" which lists unbilled time and disbursements on the file and seeks a direction from the solicitor for fees and disbursements to be billed. The letter in my view is privileged being in the nature of a statement of account which contains some description of services rendered. Whether or not statements of account rendered by lawyers to their clients were subject to privilege was initially a matter of some disagreement. The Manitoba Court of Queen’s Bench in its decision in Re Sokolov, supra, dealt with whether or not a bill of costs from a law firm retained as agents by another law firm was privileged in respect of the law firm’s client. In that case the Court held that such an account was a "voucher" within the meaning of the definition of solicitor-client privilege in the Income Tax Act. The Court said at page 416 (D.T.C. 5268):

The bill will eventually be paid by Sokolov and Company and the amount presumably charged to the client as a disbursement. If necessary the solicitor would produce the account from Cowan and Company to support his billing. Voucher is defined in the Oxford Universal Dictionary as:

A written document or note, or other material evidence, serving to attest the correctness of accounts or monetary transactions, to prove the delivery of goods or valuables, etc. The document is not privileged.

The same issue was subsequently considered by the Ontario High Court of Justice in The Mutual Life Assurance Co. of Canada v. The Deputy Attorney General of Canada, [1984] C.T.C. 155, 84 D.T.C. 6177 (Ont. H.C.). There Mr. Justice Southey considered whether or not a statement of account rendered by a law firm to its client was "an accounting record of a lawyer". In that case the statement of account contained no legal advice but referred to professional services rendered by a number of lawyers in the law firm about the project in question. Further, the statement of account contained an itemized list of disbursements made by the law firm. The Court held that absent the accounting record exception in the definition of solicitor-client privilege in the Income Tax Act, the Court would have "no difficulty" in deciding that a statement of account like that described is ordinarily a document to which the solicitor-client privilege attaches on the basis that a statement of account is a communication by solicitor to client "relating to the obtaining of legal advice". Mr. Justice Southey concludes that such a document is not an accounting record of a lawyer, nor a supporting voucher or a cheque. He describes his reasoning in the following paragraph at page 157 (D.T.C. 6179): "In my view, the statement of account which was seized in the files of the client cannot be described as an accounting record of a lawyer...nor is it a supporting voucher or cheque. This document could be regarded as a supporting voucher for the accounting records of Mutual Life, but I do not think that documents sent out by the lawyers which would not ordinarily be returned to them can be regarded as part of the accounting record of the lawyer. Those records, in my view, would ordinarily be the ledgers of the law firm and its other books of accounts together with the documents preserved in the files of the lawyer which support those entries."

In Playfair Developments Ltd. v. M.N.R., [1985] 1 C.T.C. 302, 85 D.T.C. 5155 (Ont. S.C.), Mr. Justice Galligan of the Supreme Court of Ontario dealt with a document described as "an account and a solicitor’s reconciliation of their disposition of certain funds in the trust account". The Court held that neither the account nor the trust statement were part of the accounting records and held they were privileged. Similarly, it was held that a letter from the client to the law firm enclosing a cheque to pay an interim account was not an accounting record and was privileged. Presumably, the only basis for so holding must have been the previously expressed view that communications relating to solicitors’ accounts and payment thereof are "related to the giving or obtaining of legal advice".

Based on these authorities, it appears that the letter from the law firm to the client dealing with the application of disbursements is not an accounting record and is privileged. The tear-off portion of the cheque, on the other hand, appears to be an accounting record and accordingly not privileged based on the authority of the Playfair Developments decision at pages 305-06 (D.T.C. 5157). The other two documents, the cheque requisition and the billing memo, are in my view, privileged documents and do not fall within the exception of accounting records. In Playfair Developments, supra, at page 305 (D.T.C. 5157), the Court dealt with the issue of the status of such communications. While holding that the act of what is done with a client’s trust funds is not privileged because of the provisions of paragraph 232(1 )(e) of the Income Tax Act, the Court said:

It seems to me that instructions given by solicitors to the accounting department which resulted in various financial activities that are recorded in the accounts do not fall within the meaning of "accounting record” or any "supporting voucher or cheque". Nor do I think that they form any part of the financial transactions themselves. It is my opinion therefore that all of those interoffice communications are privileged and I so rule. It is clear that the Court is discussing what it has earlier stated at 305 (D.T.C. 5157) to be “all of the documents are written communications between personnel and the solicitor’s office relating to the application, disbursement or use of certain funds belonging to the client”.

2. The next document contained in the file, which was not listed, is clearly labeled "trust ledger" and is titled "Lawrence Mining Corp.". As I have already stated, ledgers have been found to be accounting records. The question of whether or not, however, a ledger recording the disposition of trust funds on a client’s behalf is a privileged document was specifically dealt with in two decisions of this Court. The first, Cox v. The Attorney General of Canada, [1988] 2 C.T.C. 365, 88 D.T.C. 6494 (B.C.S.C.), is a decision of Mr. Justice Tyrwhitt-Drake. In that case, the Court held that the record of a client’s trust account is not the accounting record of a lawyer. In doing so, he specifically chose not to follow a decision of Mr. Justice Collier of the Federal Court in Re Income Tax Act, [1981] C.T.C. 380, (sub nom. Re Romeo’s Place Victoria Ltd.), 81 D.T.C. 5295 (F.C.T.D.), in which Mr. Justice Collier had stated, at page 388 (D.T.C. 5300):

Trust account records are, undoubtedly, accounting records of a lawyer.

Little more than a year later, Mr. Justice Coultas in Heath v. Canada, [1990] 2 C.T.C. 28, 90 D.T.C. 6009 (B.C.S.C.), declined to agree with Mr. Justice Tyrwhitt- Drake. Reviewing decisions prior to that of Mr. Justice Tyrwhitt-Drake and subsequent to it in other jurisdictions, Mr. Justice Coultas stated at page 36 (D.T.C. 6015):

This finding of Judge Tyrwhitt-Drake stands alone. No court in Canada either prior or subsequent to it, has so found.

Mr. Justice Coultas was essentially of the view that the effect of the decision in Cox was to conclude that the expression "accounting records of a lawyer" in paragraph 232(1)(e) meant the accounting record of a lawyer relating to his own business. He held that such an interpretation would render meaningless the provision in the section since, as he stated at page 36 (D.T.C. 6015):

In my view, no issue of privilege would arise if the exception in the section referred to a lawyer’s accounting records only as they relate to his own business.

He held that accounting records are jointly and severally the records of each individual lawyer and the law firm and that the accounting records of the lawyer even as they pertain to the trust funds of the client do not become the property of a client any more than hospital records of a patient’s treatment become the property of the patient.

With due respect to Mr. Justice Tyrwhitt-Drake, I am of the view that I should adopt the reasoning in the decision of Mr. Justice Coultas. Accordingly, I hope that the trust ledger is not a privileged document and is subject to production.

3. The next Lawrence document is a letter dated December 2, 1987 with two attached unexecuted documents. The documents not having been executed, they may be considered to be draft documents and the letter, implying as it does the law firm’s advice to its client to execute the documents, is privileged.

4. The next document is a letter from the law firm to its client dated February 26, 1988. Attached to it is an accounting of the use of the client’s funds in connection with the transaction. Both documents are in my view privileged.

5. The next document is a letter from the law firm to Lawrence dated December 10, 1987. This clearly pertains to legal advice and is privileged.

6. The next document consists of four pages of handwritten notes and diagrams. On the face of the documents and based on submissions made in argument, these are notes and diagrams made by Mr. Taves and are privileged.

7. The final document is a letter dated November 26, 1987 from the law firm to Lawrence. It clearly consists of legal advice and is privileged.

Accordingly, with respect to the Lawrence documents, I direct that all of the documents be returned to Farris, Vaughan, Wills & Murphy and that the law firm then surrender to, or make available to the Department of National Revenue, photocopies of the cheque stub and trust ledger previously referred to. The balance of the documents are subject to solicitor-client privilege.

The Columbian documents

1. I now turn to the Columbian documents. The first is a letter from Columbian to its solicitors dated October 7, 1987 and is a privileged communication.

2. The second document is handwritten notes made by Mr. Taves concerning its client transaction and is privileged.

3. The third document is a letter from the law firm to Columbian dated November 26, 1987 and contains legal advice and is clearly privileged.

4. The fourth document is a handwritten memorandum from one lawyer at Farris & Company to another. Consultations between lawyers in a firm to permit one of the lawyers to provide advice to a client is a privileged communication. Authority for that proposition is found in the Playfair Developments case at page 308 (D.T.C. 5159).

5. The next document was not listed. It is a handwritten note, undated, which is clearly related to the provision of advice and opinions to the client and is privileged.

6. The next document is a letter dated November 30, 1987 from Columbian to the law firm and attached to the covering letter is a letter from a firm of chartered accountants, Coopers & Lybrand, to Columbian. That letter is referred to in the covering letter by the following words:

For your reference, attached is a copy of Columbian Northland Exploration Ltd.’s engagement letter with Coopers & Lybrand for services rendered and to be rendered in this tax related transaction.

While the covering letter is clearly privileged, I am of the view that correspondence between Columbian and its accountants is not subject to privilege. The Coopers & Lybrand letter should be produced.

7. The next document is comprised of handwritten notes dated November 13, 1987 and they are privileged as are all of the handwritten notes and diagrams listed.

8. The next document following the handwritten notes is a letter dated December 3, 1987. This document was listed as document number 14 on the list of documents and is a document about which there is some issue. The letter is addressed by the law firm to Mr. David Anthony, a principal of Columbian Northland, and the person from whom the law firm was generally receiving its instructions. While it is clear from the letter that it concerns the same transaction as the other documentation and correspondence, it is less clear that it is a document which is privileged in respect of Columbian. I am satisfied, however, that even if it is not so protected, it is a privileged communication as between the law firm and Mr. Anthony and accordingly it need not be produced.

9, The next document is listed as number 15. It is a letter from the law firm to the Toronto-Dominion Bank Securities Department in Vancouver. The letter confirms telephone instructions for the bank to arrange for a deposit receipt in a specific amount for a certain number of days in the name of the firm in trust, charging a trust account number. Although the letter, in different type, identifies the client, there is nothing in the letter which indicates that the Toronto- Dominion Bank is acting as a financial agent or financial advisor to Columbian as opposed to acting as banker in the ordinary course for the law firm. Counsel for the law firm submitted that the document should be held to be subject to solicitor-client privilege and relied upon the decision in Playfair, supra, where argument had been made that a letter giving legal advice was not privileged because the letter had been directed by the solicitors to a third party as well as to the client. The Court dealt with the matter in this way at page 308 (D.T.C. 5159):

The letter clearly gives legal advice and on its face is privileged. It was submitted that because it was sent to Mr. Casalegno as well as to the client that privilege had been lost. The evidence indicates that Mr. Casaleno was a European financial advisor of the client. By making that financial advisor aware of their legal advice to their client does not appear to me to destroy the obvious privilege that exists in those communications.

[Emphasis added.]

In this case, unlike the case cited, there was no evidence before me that the Toronto-Dominion Bank was the bank of Columbian or in any way an agent of the client as opposed to an agent of the law firm. I hold that the letter is not privileged.

10. Document number 16 on the list is a statement of account rendered to the client. It contains a description of the services rendered and accordingly I hold this document to be privileged.

11. The letter of December 18, 1987 is a letter from the law firm to its client and attached is a photocopy of a cheque. I hold that that letter is privileged but the cheque is a copy of an accounting record and accordingly is not privileged.

12. The document listed as number 18 is a letter from Farris & Company to Columbian dated December 21, 1987. It is actually a photocopy of a letter and superimposed on the letter is a photocopy of a cheque. I hold that the letter itself is privileged but the photocopy of the cheque is not. A new photocopy of the cheque should be prepared eliminating the text of the letter and it should be produced.

13. The document listed as number 19 on the list is an invoice from Farris & Company to Columbian dated December 16, 1987. It is in fact a photocopy of the previous account listed as document 16 and is privileged for the same reasons.

14. Document number 20 was the subject of some dispute. This is a letter from a law firm in Toronto who were retained as agents to act on behalf of a number of clients concerning the Trafalgar Partnership. The letter contains a description of legal services provided and accordingly, in my view, is privileged.

15. Document 21 is a letter from Puget Management Services Ltd., apparently a company of which Mr. Anthony was also a principal, outlining expenses to be paid as a disbursement. Counsel have conceded that this document is not privileged and it should be produced.

16. Document 22 is described as a handwritten note with attachments. It would more correctly be described as a letter from the law firm to Columbian dated February 25, 1988 with attachments. The letter attaches a cheque and contains an accounting of funds including disbursements. I hold that it is privileged. Attached to it is a cheque stub, which for reasons discussed earlier, is not privileged. There are handwritten notes of the solicitor which I hold are privileged. There is a cheque requisition and a billing memo, which for reasons discussed earlier, I find to be privileged.

17. Document 23 is an inter-office memorandum to the accounting department from Mr. Taves and is for reasons stated earlier privileged.

18. Document 24 is a memorandum dated January 10, 1989 from Mr. Taves to his law firm’s accounting department. There are several attachments. The first is a letter dated January 10, 1989 from the law firm to Columbian enclosing a statement of account. That letter is privileged. Attached is a memo to Mr. Taves by his secretary concerning the account which is privileged. The account itself is attached and it is privileged as is the attached billing memo and draft account.

19. Document 25 is some handwritten notes and diagrams apparently made by a solicitor in the firm and accordingly privileged.

20. Document 26 is a letter from Farris & Company to its client dated December 7, 1987 distributing funds concerned with a legal transaction. It is privileged.

21. Document 27 is an inter-office memo from Mr. Taves to his accounting department concerning accounts rendered to its clients which are attached. All are privileged.

22. Document 28 is a letter from Farris & Company to Columbian dated December 10, 1987 and is privileged.

23. Documents 29 and 30 are memos from Mr. Taves to the accounting department. For reasons previously discussed, they are privileged.

24. Document 31 is handwritten notes and diagrams or alternatively, computer produced notes and diagrams which are privileged.

25. Document 32 is handwritten notes and diagrams which are privileged.

Accordingly, with respect to the Columbian documents, I direct all of the documents to be delivered to, or made available to, Farris & Company and Farris & Company will, in accordance with these reasons, deliver the non-privileged documents to representatives of the Department of National Revenue.

Order accordingly.