Privileged communications
The attorney-client privilege is the legal protection afforded by common law to communications between attorneys and their clients. Since the privilege belongs to the client and not to the attorney, only the client can waive it.
As a result, attorneys have a legal and professional obligation to refuse to disclose privileged communications, except when the client has waived the privilege; or unless the lawyer is obliged to do so, by a court of competent jurisdiction.
This protection against disclosure ensures that the client can be absolutely frank with his lawyer without fear that what is communicated between them will later be used for another purpose, except with his prior consent.
The privilege between attorney and client is a fundamental right; without it, the legal system could not function: Smith v. Jones (1999), 132 CCC (3d) 225, (SCC) after Cory J. at p. 239 who said: “is the highest privilege recognized by the courts. “
Accounting privilege?
Generally, this protection has not been extended to accountants, not even in Canada: Baron et al. v. The Queen, [1990] 1 CTC 84 (FCTD) aff’d [1991] 1 CTC 125 (FCA); or, in the US: United States v. Arthur Young et al. , (1984) 465 United States 805 (SC)
If an accountant is acting as an agent for a lawyer, to facilitate the provision of legal advice, then his work product may be privileged: Referring to Goodman & Carr et al. [No. 1], [1968] CTC 484 (Ont. SC); Y Southern Railway of British Columbia Ltd., et al. v. Canada (Vice Minister of National Revenues), [1991] CTC 432 (BCSC)
The criteria for determining whether to extend the privilege to accountants were established by the Tax Court of Canada: Susan Hosiery v. MNR , [1969] CTC 353.
Limited or absolute?
In England, attorney-client privilege has been found to be absolute. It was deemed too crucial for the administration of justice to interfere with: R. v. Derby Magistrates Court, [1995] 4 All ER 526.
In the US, attorney-client communications will generally be considered privileged if all four of the Wigmore test criteria are met: JH Wigmore, Evidence in Common Law Lawsuits, Flight. 8. (McNaughton Review) Boston: Little, Brown & Co., 1961.
In Canada the privilege is not absolute, although its exceptions are limited: prevent a risk to public safety (Smith v. Jones, over); prevent a risk to prison security (Solosky v. The Queen, [1980] 1 SCR 821); where communication itself is a crime (Descoteaux c. Mierzwinski, [1982] 1 SCR 860); or where the accused can demonstrate that his innocence is at stake (R. v. Leipert, [1997] 1 SCR 281).
Although the courts can override the attorney-client privilege: R. v. Dunbar and Logan, (1982), 68 CCC (2d) 13 (Ont. CA), an annulment will not be automatic even when the accused needs the information to give a complete answer and defense: R. v. Mills, (1999), 139 CCC (3d) 321 at p. 364 according to McLachlin J.
A court will weigh the principles of fundamental justice as well as the provisions of the Letter before allowing privilege to be set aside.
The Supreme Court of Canada has established a flexible two-part test to balance the competing interests of a defendant’s need for a full response and defense, and the inviolability of attorney-client privilege: R. v. O’Connor, [1995] 4 SCR 411 (SCC)
Privilege and Law on Income Tax
Although Parliament recognizes the existence and application of the attorney-client privilege, it has incorporated the Law on Income Tax (“ITA”) a legal exclusion for the “accounting records“From an attorney. That means that attorneys’ journals, vouchers, and checks will not be protected from disclosure as privileged (§232 (1) ITA), due to that restrictive definition.
Parliament has also provided that the procedures for claiming privilege over documents to be seized or examined are only applicable if those documents were in the possession of a lawyer at the time of the events: §232 (3) and (3.1) ITA ; In re Sandwell Ltd. , [1969] CTC 617.
If a seizure is made under §232 (3) or (3.1) ITA, then the taxpayer, or their attorney, has only fourteen (14) days to submit a request to a court for a hearing to confirm the existence of the privilege (§ 232 (4) ITA). If an application is not filed within that time, a judge can order delivery of the documents to the CRA: §232 (6) ITA.
A note of caution to the CRA is that §488.1 in the Criminal Code (“CC”), a provision similar to §232 ITA, has been declared unconstitutional under §8 of the Letter. The Supreme Court of Canada found that the legal proceedings violated the discretion of the Court in handling claims of attorney-client privilege: Lavallee et al. v. Canada (Attorney General), [2002] 3 SCR 209.
Arbor, J.’s comments on Valley (at §21) suggest that §232 may also be unconstitutional because it reflects §488.1 CC.
Privilege and the Canadian Revenue Agency
The CRA has its own ideas about what is, or is not, the proper subject of a claim of privilege by an attorney.
For example, the CRA internally publishes guidance for handling claims of privileges during the execution of search warrants. His document R350 E (99) recites, in part:
“(3) Despite recent legal challengesThe following should be noted with respect to attorney-client privilege: a. Clearly, it is the responsibility of the attorney or client to demonstrate that an attorney-client relationship existed for the attorney-client privilege to apply. B … The limits of attorney-client privilege may not be fully understood by all members of the legal profession. Some lawyers confuse the principle of confidentiality with the rule of privilege“: pp. 1 – 2. [Emphasis added]
With this verbiage, the CRA gives the impression that the CRA considers itself a better arbiter of privilege than the attorneys who are professionally obligated to protect it.
Is the CRA’s interpretation of the privilege law correct? In this writer’s opinion, no, and for the following reasons:
I. It is not appropriate for the CRA to advise its officers conducting searches of law offices to ignore the law (namely , “despite recent legal challenges“);
ii. A search warrant cannot be issued regarding documents known to be protected by attorney-client privilege: Valley, above, §49.1;
iii. It is the obligation of the CRA declarant to meet certain criteria and satisfy a judge of the same, before such search can be authorized (Ibid. , §49.2 to .4; and §487 CC);
iv. Although legal counsel must claim the attorney-client privilege as a duty to his client, failure to do so will not make a privileged communication admissible: Bell v. blacksmith, [1968] SCR 664 (SCC);
v. §488.1 (8) CC says, “No officer will examine, make copies, or make sixteen copies of any document without providing a reasonable opportunity to claim attorney-client privilege under subsection (2). “; Y
§232 (12) ITA says, “No officer inspect, examine, or 16 a document held by an attorney without giving the attorney a reasonable opportunity to make a claim under this section“.
In other words, before CRA officials do whatever is necessary to ensure that the taxpayer’s attorney, or a member of the province’s Bar Association, is present to protect privileged interests in the material being seeks.
Therefore, the responsibility rests with the search officer first, make sure the attorney has a reasonable opportunity to file a claim; they assume that because no claim was made, no privilege exists. The CRA is also subject to the law: Ludmer v. Canada, [1995] 2 FC 3 (FCA), Knight DJ by curio in the P. 17;
saw. The attorney-client privilege may be increased in any circumstance where the privileged communication is likely to be disclosed without the client’s consent: Descoteaux c. Mierzwinski, [1982] 1 SCR 860;
vii. Once a claim has been made under §488.1 (2) CC (cf. , §232 (3) or (3.1) ITA) the legislation defines the procedure to seal and bring an application before a judge to determine if the seized / sealed materials are privileged §488.1 (2) (cf. , §232 (4) ITA).
Empowerment legislation does not give CRA officials authority to override the rights of attorneys to claim the privilege or to revoke the privilege itself.
By advising its officials to do both, the CRA appears to be violating its legislative mandate, prevailing jurisprudence, as well as section 8 of the law. Letter;
viii. Apparently, the CRA still considers privilege a matter of evidence, but attorney-client privilege has become a rule of substantive law: Solosky v. The Queen, [1980] 1 SCR 821; Descoteaux c. Mierzwinski, [1982] 1 SCR 860; Lavallee, Rackel and Heintz v. Canada (Attorney General) et al. , [2002] 3 SCR 209;
ix. Despite the lack of deference of the CRA to the courts, it is the Courts and not the CRA, who establish the proper interpretation of the law: Descôteaux c. Mierzwinski, [1982] 1 SCR 860, at p. 875 by Lamer, J .; Y
X. Any communication between attorneys and their clients that is intended to be confidential has some protection: Greenough v. Gaskell (1833), 39 ER 618; Solosky, over; Smith v. Jones, over.
There is no justification in the ITA or in case law to allow the CRA, or its officials, to usurp the decision-making authority of the judiciary: Descôteaux c. Mierzwinski, above, on p. 891.
Correctly interpreted
According to Parliament, it is the responsibility of the judiciary, not the CRA, to decide whether or not a particular document is subject to the attorney-client privilege: §232 (4) ITA and §488.1 (4) CC.
Arbor, J. in Valley (§20) stated that, “…Attorney-client privilege should only be affected if necessary and even then minimally. “
When applying Valley principles, the definition of ‘law firm’ should be extended to “any place where privileged documents can reasonably be expected to be found“: Festing v. Canada (Attorney General), (2003), 223 DLR (fourth) 448 (BCCA) at §30.
Policy Considerations
It is difficult to reconcile the primary obligation of the Crown to uphold the integrity of the judicial system, with such a restrictive interpretation of the attorney-client privilege as found in R350 E (99), above: Valley, §§ 21, 22 and Letter §§7 and 8.
Privilege is an integral part of the administration of justice and the legal advice of taxpayers who have seized or examined privileged materials, they must exercise eternal vigilance to ensure that their clients Letter the rights have not been violated.
Whether it will improve the CRA’s position on attorney-client privilege remains to be seen, but until it does, taxpayers will have to rely on the courts.