In the course of an audit, the Canada Customs and Revenue Agency ("CCRA") has the ability to require a taxpayer’s accountants and lawyers to provide documents and information in their possession. CCRA’s rights are not unrestricted and, in several recent cases, the scope of the protection of documents from disclosure on the grounds of solicitor-client privilege has been tested.
Good News—Extension of the Scope of Privilege to Shared Legal Opinions
Two recent cases have held that solicitor-client privilege was maintained even though the legal opinions in question had been shared by the client with another party to the transaction. The issue was whether the privilege that normally protects a legal opinion from disclosure had been waived or terminated when the opinion was shared with the other party.
In the recent Federal Court-Trial Division case of Pitney Bowes, the documents were legal opinions relating to a leasing transaction involving several different parties. The parties had agreed that if a number of parties needed legal advice in areas where they were not adverse in interest, they would all obtain advice from one law firm. Two legal opinions obtained by certain parties to the transaction were in fact shared with other parties to whom the opinions were not addressed.
The court found that these legal opinions remained privileged based on the facts of the case. The expectation and intention of the parties before the opinions were obtained was that the opinions would be shared so that the parties had a common understanding of the legal aspects of the transaction, this was economical and facilitated completion of the commercial transaction, and the sharing of the opinions was only among other parties with like interests for their collective benefit.
A similar result was achieved in the recent Supreme Court of British Columbia case of Fraser Milner Casgrain LLP and Gilbert Schmunk. Documents reflecting communications between Fraser Milner and its clients had been disclosed to another group of companies. The documents were found to have been prepared for the purpose of providing legal advice common to the interests of both parties with a view to having the transactions between them completed in an effective way. The disclosure of the documents by one party to the other was found not to result in a waiver of privilege because the disclosure was to facilitate the transaction which they had a common interest in completing.
These two cases leave open the possibility that, depending on the facts, the disclosure of legal advice obtained by a client to another party to the same transaction may be interpreted as a waiver of privilege. Because the scope of the "common interest" privilege for commercial transactions is not yet clear, taxpayers should still try to avoid sharing or disclosure to other parties of any sensitive legal opinions and other legal communications, particularly tax opinions and tax planning documents.
Bad News—Continued Problems Asserting Privilege where Accountants Involved
A recent Federal Court-Trial Division case (Tower) is a useful reminder of the difficulties resisting disclosure of an accountant’s tax files, tax planning documents and other documents. In this case, arguments were made that documents in the possession of BDO Dunwoody were protected from disclosure by virtue of a client-accountant privilege or some other type of privilege. No such privilege was granted by the court. Some good news in this case was that only existing documents had to be provided. BDO Dunwoody was not required to create responses to written questions effectively included in CCRA’s requirement, such as explanations of the clients’ reasons for carrying out certain transactions.
Another case decided by the Federal Court-Trial Division in 2002 (Belgravia Investments) reminds us that solicitor-client privilege attaches to communications between a solicitor and their client’s accountant only where the communications concern legal advice, and the accountant is acting as an agent of the client to obtain legal advice. Because one of the hallmarks of the solicitor-client relationship is confidentiality, the involvement of an accountant as a party to a communication, or the disclosure of a communication to an accountant, can sometimes result in loss of a solicitor-client privilege that would otherwise exist.
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