Novacor Chemicals (Canada) Ltd. v. R., [1999] 2 CTC 145, 99 DTC 5615

Hugessen J.:

I have before me this morning paragraph 3 of a motion made by the plaintiffs. Paragraphs 1 and 2 of that motion were disposed of last week and paragraph 3 was put over to today.

In form, the motion seeks the re-attendance of the defendant’s representative on discovery, one James C. Powell, to answer further questions. In fact, counsel are agreed that what is at issue between them is a claim to privilege by the defendant with respect to originally five documents, now only four, which are listed in the defendant’s affidavit of documents.

A word of background is helpful.

The action by the plaintiffs against the Crown seeks the recovery of certain monies said to have been recovered by the Crown from one Wright. Wright was formerly an employee of the plaintiffs. He was charged with and plead guilty on first appearance to tax evasion. The taxes which he evaded were the taxes which would have been due by him on certain secret commissions earned by him while he was in the plaintiffs’ employ. Those commissions were paid to him by a third party and, it is alleged, without the plaintiffs’ knowledge. Mr. Powell, the defendant’s representative on discovery was, and I believe is, an investigator with the London office of Revenue Canada and he investigated Wright’s taxation affairs.

The documents, which are in issues, are listed in paragraphs (a) to (e) inclusive, in the defendant’s written answers to undertaking number 1 contained in a letter from defendant’s solicitor under date of August 27, 1998 and I list them herewith:

(a) Combined primary and appraisal stage report dated January 6, 1988, prepared by Investigator J.C. Powell:

(b) Letter dated March 14, 1988, for P.E.D. Broder, Director-Taxation, London District Office, Revenue Canada, to G.H. McCracken, Q.C., Toronto Regional Office, Department of Justice (Canada), with attached schedules and correspondence;

(c) Letter dated March 23, 1988, From James C. Powell, Special Investigations Section, Revenue Canada, to G.H. McCracken, Q.C., with attached agreed statement of facts;

(d) Letter dated March 30, 1988, from G.H.McCracken, Q.C., to J.C. Powell, Revenue Canada, London; and

(e) Report on completed prosecution dated May 9, 1988, by J.C. Powell, London District Office, Revenue Canada, to R.W. Moore, Director, Special Investigations Section, Ottawa, with attached photocopies of newspaper clippings.

Prior to today’s hearing, the claim to privilege in respect of some of the attachments to those letters was withdrawn since those materials are already in plaintiffs’ hands. Also, the claim to privilege in its entirety was withdrawn with respect to item (e). Accordingly, there remain for determination the documents listed as (a) through (d) inclusive.

I say it once with respect to items (b), (c) and (d), that I have read them and there is no doubt in my mind whatever that they are protected by the solicitor and client privilege; they are communications between a client department and a solicitor in the Department of Justice with respect to pending litigation. Those documents are and remain privileged and need not be produced.

There remains for discussion the document listed as (a) in the above list. It is, on its face, a report of an investigation by an investigator with the Department of National Revenue. It is an internal document. There is no indication that any of the signatories of that document or the intended recipient of that document were solicitors. Indeed, it is quite clear that it is a hierarchical report signed by three persons in the London office and addressed to a more senior person at the head office.

I can see nothing in that report which indicates to me that it is prepared for the purposes of obtaining or seeking legal advice or in contemplation of litigation. It talks of the possibility of a prosecution of Wright and seeks authority to undertake such a prosecution but I do not see, in that bare fact alone, an indication that the document was prepared in contemplation of litigation or was intended to be transmitted to solicitors.

The internal evidence in the document indeed, indicates to me quite strongly, that the authors of it did not intend it to go to solicitors. The first paragraph on page 4 reads as follows:

At this point, we have no reason to believe that co-operation will not be forthcoming and we plan to forward a prosecution report to the Department of Justice in February, which will set out the final intent on the part of Mr. Wright to conclude this matter quickly by guilty plea.

The final paragraph of the document is also instructive. It reads:

We recommend proceeding to prosecution as rapidly as possible. No recommendation is contemplated for proceeding by indictment or asking for a jail sentence, due to the co-operation of the taxpayer and the repatriation of funds.

I conclude that the document is not protected by solicitor and client privilege.

When this matter was originally raised, only solicitor and client privilege was suggested as a base for withholding it. However, at today’s hearing counsel for the defendant Crown asserted two other possible basis upon which the document might be privileged.

The first, is the so-called investigation privilege. Counsel’s assertion thereof relies upon the recent judgment of the Court of Appeal for Ontario in the case of R. v. Richards^. Whether or not, there is room for such a privilege in a case such as this, I am satisfied that, even if I were to apply the law as laid down by the Ontario Court of Appeal, the document would not qualify for privilege. The privilege is, as stated by the Court, a qualified one and requires that the Court balance the relevance of the document against any possible harm to the public interest that might flow from the document’s revealing investigative techniques. There is, in my mind, absolutely no question that the document here is relevant and I have read it with some care and am entirely satisfied that it reveals nothing about investigative techniques which any intelligent taxpayer does not already know and know very well.

The third possible basis of withholding the document is section 241 of the Income Tax Act. This is a matter of some considerable concern to me because it 1s, of course, a statutory prohibition against disclosure of confidential taxpayer information. I note, however, with some displeasure that the matter has been raised only today. Section 241 was certainly, in counsel’s mind, when the answers to undertakings were written because it was invoked in respect of other documents, but it was not invoked in respect of this one. Counsel for the plaintiffs quite rightly points out that there has in fact been a high level of co-operation from Mr. Wright and had he had any reasonable sort of notice of this claim to privilege, he would have been able to communication with Mr. Wright and quite possibly to obtain his consent. Be that as it may, the prohibition of the statute is, in my view, one that must prevail. However, I do not think that the document contains so much information about Mr. Wright’s and his companies’ personal taxation matters that it cannot be revealed subject to suitable editing.

So I propose to make an order allowing the document to be revealed, subject to counsel for the defendant, editing it, by blacking out those portions of it which, in her view, would constitute a breach of section 241 of the Income Tax Act. Subsequent to that, if any issues need to be settled and if the plaintiff requires the matter to be further investigated, counsel for plaintiff is at liberty to make a motion to reveal further parts of that document. It is my initial impression, at any rate, that counsel will have all that they need even when those parts of the document which contain confidential information have been removed, but if that hope is not realized, so be it and I will have to deal with it at a later time. I make, finally, no comment on Crown counsel’s suggestion which was made at the hearing that she may, in due course, receive instructions to object to the production of the document on the basis of section 37 of the Canada Evidence Act. That is not a matter which I can take cognisance of at this time.

Accordingly, an order will go in accordance with paragraph 3 of the motion requiring Mr. Powell to re-attend and answer all proper questions bearing on the document listed as item (a) in the Crown’s answers to undertakings dated August 27, 1998.

Motion granted in part.