Evans J.:
A. Introduction. (L10/R4320/T0/BT1) test_linespace (271>257.55) 1.023 0060_2613_2743
This is an in camera application pursuant to Rule 300 of the Federal Court Rules, 1998 [SOR/98-106] and section 232 of the Income Tax Act [R.S.C. 1985 (5th Supp.), c. I] [as amended] for a determination of whether clients of the applicant have solicitor-client privilege in documents that the applicant has been required to provide by a requirement issued by the Minister of National Revenue [hereinafter “the Minister”] pursuant to section 231.2(1) of the Income Tax Act.
An Order of Campbell J. dated July 13th, 1998 requires the applicant to produce the documents to a judge of this Court at the hearing of this Motion. Counsel for the applicant may open the sealed package in the possession of the applicant in the presence of counsel for the respondent in order for counsel to review the documents to facilitate the hearing of the application. Upon completion of the review, the package must be resealed and retained as provided by subsection 232(3.1) of the Income Tax Act.
The applicant makes application for: (a) a determination that his clients, André Desmarais and TEW Investments Ltd., have a solicitor-client privilege in respect of certain of the documents of which production is required by the requirement; (b) an Order that the documents be released to the applicant; (c) an order granting the applicant costs of this motion and (d) such further and other relief as to this Court may seem fit.
B. Factual Background (L26/R3748/T0/BT1) test_marked_paragraph_end (2184) 1.016 0060_7533_7699
The applicant is a partner in the law firm of Swinton & Company, barristers and solicitors, of Vancouver, British Columbia, and is the solicitor for TEW Investments Ltd. and André Desmarais.
On May 22nd, 1998, the applicant was personally served with a letter dated May 22, 1998 from the Department of National Revenue, Taxation, requiring the applicant to produce documents relating to TEW Investments Ltd. and André Desmarais pursuant to subsection 232.2( 1 ) of the Income Tax Act. Within 30 days of receipt of the requirement letter the applicant is required to provide:
All file, working papers, trust ledgers, cancelled cheques and memoranda pertaining to cheque No. 07552 dated November 7th, 1997 for $97,000.42 issued by your company to the order of TEW Investments.
The applicant argues that this letter requires him to provide documents that may be subject to solicitor-client privilege of André Desmarais or TEW Investments Ltd., and has accordingly placed copies of all documents falling within the terms of the requirement letter in a sealed envelope which he initialed, dated, and retained in his possession.
C. Statutory Framework (L16/R3620/T0/BT1) test_marked_paragraph_end (1534) 1.048 0061_3493_3663
The sections of the Income Tax Act relevant to this proceeding are as follows:
231.2 (1) Notwithstanding any other provision of this Act, the Minister may, subject to subsection (2), for any purpose related to the administration or enforcement of this Act, by notice served personally or by registered or certified mail, require that any person provide, within such reasonable time as is stipulated in the notice,
(b) any document.
232. (1) In this section,
(a) “judge” means a judge of a superior court having jurisdiction in the province where the matter arises or a judge of the Federal Court of Canada;
(e) “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 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.
(4) Where a document has been seized and placed in custody under subsection (3) or is being retained under subsection (3.1), the client, or the lawyer on behalf of the client, may
(a) within 14 days after the day the document was so placed in custody or commenced to be so retained apply, on three clear days no- tice of motion to the Deputy Attorney General of Canada, to a judge for an order
(i) fixing a day, not later than 21 days after the date of the order, and place for the determination of the question whether the client has a solicitor-client privilege in respect of the document, and
(ii) requiring the production of the document to the judge at that time and place;
(b) serve a copy of the order on the Deputy Attorney General of Canada and, where applicable, on the custodian within 6 days of the day on which it was made and, within the same time, pay to the custodian the estimated expenses of transporting the document to and from the place of hearing and of safeguarding it; and
(c) if the client or lawyer has proceeded as authorized by paragraph (b), apply at the appointed time and place for an order determining the question.
(5) An application under paragraph (4) (c) shall be heard in camera, and on the application
(a) the judge may, if the judge considers it necessary to determine the question, inspect the document and, if the judge does so, the judge shall ensure that it is repackaged and resealed; and
(b) the judge shall decide the matter summarily and,
(1) if the judge is of the opinion that the client has a solicitor-client privilege in respect of the document, shall order the release of the document to the lawyer, and
(ii) if the judge is of the opinion that the client does not have a solicitor-client privilege in respect of the document, shall order
(A) that the custodian deliver the document
to the officer or some other person designated by the Deputy Minister of National
Revenue, in the case of a document that was seized and placed in custody under subsection (3), or
(B) that the lawyer make the document available for inspection or examination by the officer or other person designated by the Deputy Minister of National Revenue, in the case of a document that was retained under subsection (3.1), and the judge shall, at the same time, deliver concise reasons in which the judge shall identify the document
without divulging the details thereof.
D. Analysis (L6/R4706/T0/BT1) test_marked_paragraph_end (3714) 1.019 0063_1139_1305
Pursuant to subsection 232(5) of the Income Tax Act I inspected the documents placed in the sealed package in order to determine whether they were covered by solicitor-client privilege, and if so, whether they fell within the statutory exemption for “an accounting record of a lawyer, including any supporting voucher or cheque” as provided by subsection 232(1 )(e).
One of these documents was a duplicate of a cheque, which counsel for the applicant, Mr. Hansen, conceded was not privileged. Another document recorded details of professional services rendered by Mr. Burnett to his clients, which counsel for the Minister, Ms. Burch, conceded is covered by solicitor-client privilege.
A third document recorded deposits into and withdrawals from the client’s trust account maintained by Mr. Burnett’s firm. The trust ledger included an entry showing a withdrawal for $97,000.42 on November 7, 1997; this was of the same amount and date as the cheque drawn on Swinton & Company in favour of T.E.W. Investments. Mr. Hansen was prepared to disclose this entry in response to the Minister’s requirement for trust ledgers pertaining to the cheque.
However, he also maintained that other information contained in the trust ledger was not subject to the requirement because it did not “pertain” to that cheque. In response to Ms. Burch’s submission that there was no evidence as to whether the information did or did not “pertain” to that cheque, Mr. Hansen said that it could be assumed that Mr. Burnett had produced for inspection the whole record of the client’s trust account in order not to be suspected of withholding information that he had been required to produce.
Having inspected the entries in the ledger, I have concluded that Mr. Burnett need produce only the one line entry recording the withdrawal of $97,000.42 on November 7, 1997, including the description in the third column of the nature of the withdrawal. I am prepared to infer from the information before me that the other entries do not pertain to that cheque, and are therefore not included in the requirement.
The fourth document was a cheque authorization from Swinton & Company. There is a conflict in the case law as to whether such a document is the subject of solicitor-client privilege, or falls within the statutory exemption in subsection 232(1) relating to “an accounting record of a lawyer, including any supporting voucher or cheque”.
Mr. Hansen relied on Taves v. Canada (1993), [1995] 2 C.T.C. 347 (B.C. S.C.), where Baker J. held that a cheque requisition by a law firm was covered by professional privilege and was not included in the “accounting record” exception. In view of the fact that this is a decision of the British Columbia Supreme Court, and the case at bar is a proceeding arising in that Province, I would usually regard such a clear pronouncement as dispositive, even though if I were sitting as a judge of the Supreme Court of British Columbia it would not be binding on me.
However, I am troubled by the fact that Baker J. relied for his conclusion on Playfair Developments Ltd. v. Deputy Minister of National Revenue, [1985] 1 C.T.C. 302 (Ont. H.C.), even though it is quite clear from the following statement (at para. 13) that Galligan J. in that case came to the opposite conclusion:
In my opinion the cheque requisitions themselves would clearly be a supporting voucher for a lawyer’s accounting record. It would seem to me that a duplicate kept in the lawyer’s files rather than in the accounting department would fall into the same category. Accordingly, all of the documents in this sub-heading are in my opinion not privileged.
I agree with Galligan J.’s reasoning and conclude that, on the plain meaning of subsection 232(1), the cheque requisition is not the subject of solicitor-client privilege under the Income Tax Act.
The fifth document is a memorandum written on the client’s letterhead stationary respecting cheques to be drawn by Mr. Burnett from the client’s trust account. Ms. Burch conceded that, if this document were an instruction from the client to its solicitor, it would be the subject of solicitor-client privilege. However, she contended that it was not at all clear whether the document could be so characterized; for example, she argued, there is no evidence as to whose hand-writing is on the document, or what was its purpose.
On an examination of the document in question, I am prepared to draw the inference that it was an instruction by the client to Mr. Burnett, a conclusion that is supported both on the basis of what it says, and by comparing it with entries in the trust ledger. I hold, therefore, that it is a communication covered by solicitor-client privilege.
I therefore order that the applicant produce the duplicate of the cheque for $97,000.42, and the single line from the trust ledger recording the withdrawal of that sum from the trust account. The applicant must also produce the requisition for this cheque. The applicant need not, however, produce the other information in the trust account ledger, the document describing the professional services rendered by Mr. Burnett or the document that I have characterized as an instruction from the client to Mr. Burnett with respect to the drawing of cheques.
At the end of the hearing, a question arose between counsel about the scope of the confidentiality of these proceedings in view of their in camera nature. Because of the strong commitment to openness in the administration of justice, it is my view that the blanket of confidentiality should only cover that information for the protection of which the proceeding is required by subsection 232(5) to be held in camera.
Accordingly, there must be no disclosure of the content of the documents that I have found to be covered by the solicitor-client privilege under the Income Tax Act, nor of anything said at the hearing that would enable others to identify the content of the privileged documents, or indirectly to make use of it. Subject to that, confidentiality does not include anything else said by counsel for the taxpayer in the course of his submissions, nor, of course, the content of the material that he filed with the Court in support of the application.
Order accordingly.
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