Canada: Supreme Court Of Canada Upholds Solicitor-Client Privilege In Tax Administration And Enforcement


The Supreme Court released two unanimous decisions on June 3, 2016 upholding solicitor-client privilege in the context of requirements (Requirements) by the Canada Revenue Agency (CRA) to produce documents or information for tax administration or enforcement purposes. Both cases resolve the issue of the extent to which the state can narrow the common law definition of solicitor-client privilege in a statutory scheme with no notice provision to an affected client and no opportunity for the client to submit why the information should remain protected. These cases were heard almost a full year apart on December 4, 2014 and November 3, 2015 and the Court delayed its usual reserve of 6 months to write these together.

The Canadian Bar Association, the Federation of Law Societies of Canada and the Criminal Lawyers' Association intervened in both appeals, while the Advocates' Society intervened in the Quebec appeal only, all to challenge the Income Tax Act (ITA) Requirement provisions and seek to safeguard solicitor-client privilege as a principle of fundamental justice.

Section 231.2(1) of the ITA authorizes the Minister of National Revenue (Minister) to require, by means of a simple letter, that any person provide information or documents that might be of assistance in the administration or enforcement of the ITA. It applies, among others, to lawyers and notaries.

Should anyone refuse to comply with such a Requirement, the Minister can apply to the Federal Court under s. 231.7 for a compliance order requiring the person to do so. The court may grant the application if the information or documents being sought is not protected from disclosure by "solicitor-client privilege", which is defined in s. 232(1) of the ITA as "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 the person and the person's lawyer in professional confidence". This definition was enacted in its current form in 1965, well ahead of the more modern jurisprudence on solicitor-client privilege. The statutory definition of the privilege goes on to purport to exclude, however, "an accounting record of a lawyer, including any supporting voucher or cheque".

Under s. 238(1) of the ITA, any person who does not provide the required information or documents in the manner and within the reasonable time specified in the Minister's notice is guilty of an offence and is liable on summary conviction to a fine of not less than $1,000 and not more than $25,000, or to both a fine and imprisonment for a term not exceeding 12 months. A lawyer or notary who is prosecuted will be acquitted if the lawyer or notary (1) had reasonable grounds to believe that the required information or document was protected from disclosure by solicitor-client privilege; and (2) expressly communicated the refusal and the reason behind it to the Minister (s. 232(2) ITA).


In the first case of Minister of National Revenue v. Duncan Thompson, the Court was asked to interpret the ITA provision that purports to create an exception to privilege for accounting records of lawyers. The issue was whether courts are required to apply this exception without further inquiry and, if not, whether the Court of Appeal erred in imposing a procedure to determine whether solicitor-client privilege applies to information or documents once Parliament has legislated, with clear and explicit language, a narrowing of the definition of solicitor-client privilege.

The respondent Duncan is a lawyer who, as a taxpayer in arrears of taxes, faced CRA collection proceedings pursuant to the ITA. The CRA issued a Requirement seeking information and documents pertaining to the lawyer's income and expenses, and assets and liabilities, including a current accounts receivable listing. The lawyer provided some, but not all, of the information and documents set out in the Requirement. The CRA subsequently found that he had provided no details regarding his accounts receivable, other than a total balance owing.

The lawyer challenged the Requirement, based on a claim of solicitor-client privilege. He sought a determination of whether s. 231.2(1) of the ITA can be interpreted, applied or enforced so as to require a lawyer who is the subject of enforcement proceedings by the CRA to divulge information about his clients, information which he argued is protected by solicitor-client privilege. He also submitted that the Requirement was akin to an unreasonable search or seizure and thus was contrary to s. 8 of the Canadian Charter of Rights and Freedoms (Charter).

The Application Judge of the Federal Court rejected the claim of solicitor-client privilege on the basis that the financial records of the lawyer's payables and receivables were "accounting records" and by statutory definition a valid exception to solicitor-client privilege. Despite the fact that client names might be included, the Judge reasoned that the Requirement did not seek disclosure of the content of solicitor-client consultations or communications.

The Federal Court of Appeal allowed the lawyer's appeal in part, on the basis that there may be rare circumstances where such records contain solicitor-client privileged information with respect to client names. The Federal Court of Appeal therefore sent the matter back to the Federal Court for a new hearing to assess whether any individual documents and client names contained in those documents were actually protected by solicitor-client privilege. However, it dismissed the lawyer's Charter argument under s. 8. The Court of Appeal further directed that in circumstances where a court is exercising discretion that may limit solicitor-client privilege, the holders of any potentially privileged information should be notified and have an opportunity to participate in determining whether the information should be disclosed. This framework for judicial discretion would allow for different treatment of a document that is entirely an accounting record of a lawyer, as opposed to one including solicitor-client privileged information, in which case appropriate redacting may be required.

The Supreme Court decision was written jointly by Wagner and Gascon JJ. (McLachlin C.J. and Abella, Cromwell and Karakatsanis JJ. concurring; Rothstein J. at the hearing, but not participating in the judgment due to his retirement). They found Parliament's intention to exclude "an accounting record of a lawyer" from the scope of solicitor-client privilege to be clear and unequivocal. However, even though s. 8 of the Charter was not a live ground of appeal in this case, the Court's decision in the companion Chambre des notaires case also determined this appeal. In Chambre des notaires, the Court concluded that the statutory exception as it applied to lawyers and notaries was constitutionally invalid as an unjustified breach of s. 8 of the Charter. As the Requirement scheme was declared invalid, there was no reason to send this back to the Federal Court to assess each document for solicitor-client privileged information.

While the Court's Chambre des notaires decision on the s. 8 analysis was determinative of both appeals, the Court did emphasize these points in the Thompson decision:

  1. solicitor-client privilege has evolved since the ITA Requirement provisions were enacted, from a mere evidentiary rule to a rule of substance and principle of fundamental justice;
  2. the express language in the ITA, together with the Requirement provisions' legislative history, unlike the statutory provision of the PIPEDA interpreted in the Blood Tribe decision, made clear and unambiguous Parliament's intention to exclude a lawyer's accounting records from solicitor-client protection; and
  3. a lawyer is not the alter ego of his or her client and should Parliament choose to modify the existing ITA to remedy its constitutional defects, any new scheme must allow for a court to assess a request for access to such presumptively privileged information on the basis that clients whose information is being sought are notified and given the opportunity to participate and assert the protections that apply to them.

Chambre des notaires

In the second case of Attorney General of Canada v. Chambre des notaires du Québec, the Court was asked whether s. 231.2(1), s. 231.7 and the definition of "solicitor-client privilege" in s. 232(1) of the ITA infringe rights guaranteed by s. 7 of the Charter or infringe rights against unreasonable search and seizure guaranteed by s. 8 of the Charter insofar as they apply to a lawyer or notary. If so, can such infringements be justified under s. 1 of the Charter?

The Chambre des notaries, as a result of its members' practice concerns about professional secrecy, brought an action under art. 453 of the Code of Civil Procedure for a declaration that s. 231.2(1) and 231.7, together with the exception set out in the definition of "solicitor-client privilege" in s. 232(1), are unconstitutional in relation to notaries of the province of Quebec on the basis that they are contrary to the Charter.

The Barreau, on behalf of lawyers in Quebec, joined in the action in the lower courts by intervening in support of the Chambre. Both the Superior Court and the Court of Appeal ruled in favour of the Chambre and the Barreau. The Court of Appeal found that, pursuant to s. 52 of the Constitution Act, 1982, ss. 231.2(1) and 231.7 and the exception in s. 232(1) are unconstitutional and of no force or effect with respect to Quebec lawyers and notaries for all information and documents protected by professional secrecy.

Being in substantial agreement with the Court of Appeal, the Court dismissed the appeal. To address whether the impugned ITA provisions were contrary to s. 8 of the Charter, the Court addressed two questions: first, whether the CRA's action intruded upon an individual's reasonable expectation of privacy, so as to constitute a seizure within the meaning of s. 8; and second, whether the seizure was an unreasonable intrusion on that right of privacy.

For the first question, the Court simply relied on its previous decision holding that a Requirement under what is now s. 231.2(1) of the ITA constitutes a seizure within the meaning of s. 8. The Court firmly and unequivocally reinforced the right to professional secrecy as a rule having "deep significance and a unique status in our legal system": "[t]he fundamental importance of the right to professional secrecy of lawyers is a cornerstone not only of our judicial system but, more broadly, of our legal system". This right is not diminished by the administrative context (rather than criminal context) within which the ITA Requirement provisions operate. The expectation of privacy in solicitor-client privileged communications is always high, regardless of the reasons why disclosure is being sought. Barring rare exceptions, information protected by professional secrecy that is in the possession of a lawyer is immune from disclosure.

In addressing the second question, the Court balanced the interests at stake, being the individual's right to privacy versus the CRA's interest in carrying out the search and seizure. In considering this question, the Court reiterated that the right to maintain solicitor-client privilege "is a principle of fundamental justice and a legal principle of supreme importance". This right trumped the CRA's interest in obtaining the information and the balancing exercise was therefore considered unhelpful in this case. The Court also rejected the appellant's submission that the excluded information found in the lawyer's accounting records constitutes facts rather than communications and is therefore always excluded from the protection of solicitor-client privilege as defined in s. 232(1). The line between so called facts and communications was impractical to draw.

The Court went on to describe several serious constitutional defects in the ITA Requirement scheme: the client is given no notice of the Requirement; an inappropriate burden is placed on the notary or lawyer; compelling disclosure of the information being sought is not absolutely necessary; and no measures have been taken to help mitigate the impairment of professional secrecy.

The Court also agreed with the Court of Appeal's conclusion that the accounting records exception infringes the rights guaranteed by s. 8 of the Charter. "It is well established that the accounting records of notaries and lawyers are inherently capable of containing information that is protected by professional secrecy." This principle applies even where the accounting record contains no description of the work performed and only the fee amount. Citing an article authored by Gowling WLG partner Gloria Geddes entitled: "The Fragile Privilege: Establishing and Safeguarding Solicitor-Client Privilege", the Court explained numerous instances where accounting records could contain privileged information. The mere fact that such accounting records could potentially involve a breach of professional secrecy was identified as problematic. The expression "accounting record of a lawyer" used in the exception was overly broad, being open to many interpretations. The risk that a client's privileged information might be exposed therefore varies greatly. Professional secrecy will only be set aside when absolutely necessary, only for a very specific purpose and only where the exceptions are precisely defined.

Having determined infringements to s. 8 of the Charter, the Court turned to considering whether the impugned ITA provisions (ss. 231.2(1) and 231.7 and the accounting records exception in s. 232(1)) could be justified by the state under s. 1. For the reasons given earlier, the Court held that the ITA Requirement scheme, as it applies to notaries and lawyers, fails to minimally impair the s. 8 Charter rights and therefore cannot be saved by s. 1.

In conclusion, the Court declared the Requirement scheme in the ITA unconstitutional insofar as it applies to notaries and lawyers in Quebec. The appropriate remedy was to "read down" the provisions, so as to exclude notaries and lawyers from the scope of their operation. Therefore, the Requirement scheme is now prohibited in its application to notaries and lawyers in their capacity as legal advisors. Further, the exception for a lawyer's accounting records set out in the definition of "solicitor-client privilege" was held to be unconstitutional and invalid.

Courts have consistently maintained solicitor-client privilege as a foundational right to our legal system. The privilege belongs to the client and can only be waived by the client. The ITA Requirement scheme, as it purported to apply to lawyers and notaries, effectively resulted in privileged information and documents being compelled to be produced to the CRA, with no notice to the client and consequently no opportunity for the client to challenge its release. The Court rightly found this to be an intolerably overreaching intrusion by the CRA.


There was no suspension of the declaration of constitutional invalidity, so s. 231.2(1) of the ITA immediately has no application to the accounting records of lawyers and notaries in Canada. This means that the CRA must drop tools in respect of all such Requirements currently directed at lawyers and notaries and use other administration and enforcement actions to pursue these tax audit and collection files.

The Court has invited Parliament to draft remedial provisions compliant with the modern scope of solicitor-client privilege and, at minimum, has provided guidance to Parliament on the procedural safeguards necessary to ensure that the clients of lawyers and notaries have participation rights in any court examination of what records are protected.

One can quickly appreciate that in the case of a large law practice, the number of client names and other privileged information and documents in a lawyer's accounting records for a particular time period of interest to the CRA could be very lengthy. Exactly how cumbersome any new process may become awaits new legislation, but even the means by which lawyers would notify clients of a court hearing that may affect them and the decision of clients to participate is problematic, if the goal is to not to disclose to the CRA the identity of clients or their privileged information in the hands of their lawyer.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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