Copyright 2011, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Litigation & Dispute Resolution, November 2011

In its recent decision in Federation of Law Societies of Canada v. Canada (Attorney General), the British Columbia Supreme Court (the Court) affirmed the importance of the solicitor-client relationship, and declared certain federal legislation unconstitutional because it would have interfered with that relationship. This case confirms the importance of solicitor-client privilege, and prevents governments from regulating lawyers for the purpose of accessing client information. By prior agreement among the parties, the decision is nationally binding.

The case concerned the challenge by the Federation of Law Societies of Canada (FLSC) to the application of the federal Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Act) to the legal profession. The FLSC is the national co-ordinating body of Canada's 14 provincial and territorial law societies that govern over 100,000 lawyers and 3,500 Quebec notaries in the public interest. The FLSC argued that the Act violated section 7 of the Canadian Charter of Rights and Freedoms by requiring lawyers to act against their clients' interests.

The purposes of the Act include detecting and deterring money laundering and terrorist financing, facilitating the investigation and prosecution of such offences, and fulfilling Canada's international commitment to fight transnational crime. The Act established and empowered the Financial Transactions and Analysis Centre of Canada (FINTRAC), which has a mandate to facilitate the detection, prevention and deterrence of money laundering and terrorist financing by collecting information, analyzing it, and disclosing it to law enforcement agencies.

The Act would have required all legal professionals (including Quebec notaries) to:

  • identify clients, and verify their identity, whenever a lawyer received C$3,000 or more in the course of a transaction, as a condition of providing the client with legal advice;
  • create and obtain certain records in relation to the client and the transaction, and retain those records for at least five years after the completion of the file; and
  • produce to FINTRAC any document or information on demand, including by warrantless search, and provide FINTRAC with client names and contact information.

The Court found that the Act infringes the Charter because it interferes with the rights of clients to obtain legal advice in confidence from a lawyer who is independent of the state. The Act would have required lawyers to create a paper trail that could be used to prosecute their clients. Such a purpose is contrary to the long-standing protection by courts of the solicitor-client relationship, in which clients are encouraged to tell their lawyers everything that might be relevant to the case or transaction. Clients are unlikely to make full disclosure if they know that information they provide their lawyer can be accessed by law enforcement officials and used against them in a criminal investigation or prosecution.

The Court also agreed with the FLSC that the legislation is unnecessary because law societies have developed rules requiring legal professionals to identify their clients, and to not accept large amounts of cash from clients except in certain circumstances. The Court found that there have been very few breaches of these rules.

Finally, the evidence did not establish that Canada's international stature would be impacted in any significant way by continuation of the status quo. Neither Australia nor the United States has implemented these types of restrictions on lawyers.

This is the second time the FLSC has successfully challenged the application of the Act to lawyers. In 2001, the FLSC and other law societies obtained injunctions from courts in B.C. and many other provinces against provisions of the Act that would have required lawyers to report to FINTRAC any "suspicious transactions" conducted by clients. Following the court decisions, the government repealed the application of the provisions to lawyers. Other professionals such as accountants (whose clients do not have a privilege relationship similar to that which they have with their lawyers) remain subject to these provisions.

What does the Court's most recent decision mean for in-house counsel and those in private practice? First, it reaffirms the ability of lawyers to advise their clients in confidence, secure in the knowledge that governments and other opposing parties have no right to access that advice barring exceptional circumstances such as fraud. In today's fast-paced world, where important information can be transmitted among multiple parties instantaneously, it is valuable to reflect on who is entitled to what information before sending it. Data security is critical to businesses and lawyers alike. Second, the decision reminds all counsel of the importance of maintaining the highest ethical standards of practice. Solicitor-client "privilege" is aptly named: it is a privilege bestowed on the profession for the benefit of clients, in reliance on the profession's collective and individual fulfilment of those high expectations.

The Attorney General of Canada has appealed the decision. The authors are counsel for the FLSC, along with John Hunter.

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