Canada: Solicitor-Client Privilege Vs The Canada Revenue Agency: The SCC Speaks

"...firms of notaries or lawyers...must not be turned into archives for the tax authorities"1

So says the Supreme Court of Canada in one of two highly anticipated decisions on solicitor-client privilege, offering lawyers fresh guidance on their ethical obligations – particularly when the Canada Revenue Agency comes calling.

Canada (Attorney General) v Chambre des notaires du Québec, 2016 SCC 20 and Canada (National Revenue) v Thompson, 2016 SCC 21 are companion decisions on solicitor-client privilege, in the context of CRA requests for information under the Income Tax Act ["ITA"]. When read together, they confirm three important points about solicitor-client privilege:

  1. The privilege is "as close to absolute as possible" (Chambre at para 28).
  2. However, the privilege can be limited by statute (Thompson at para 24).
  3. But that statutory scheme may be found unconstitutional if not sufficiently respectful of solicitor-client privilege (Chambre at para 81).

Thompson was heard in December 2014 and hadn't been decided by the time Chambre des notaires was heard in October 2015. At that point, it was expected that the two decisions would eventually be released together – which is what happened, on June 3, 2016. The decisions were unanimous, with joint reasons written by two relatively recent Quebec appointees to the Supreme Court, Justices Wagner and Gascon.

Both decisions involved what's known as the "requirement procedure" in the ITA, an incredibly broad scheme. As the Court explained (Chambre at para 1): "This procedure enables the tax authorities to require any person to provide information or documents for any purpose related to the administration of the ITA."

There was an exception for solicitor-client privilege in the ITA if the request was challenged in court, but the ITA provided that "an accounting record of a lawyer"—which the Act did not define, except to say it included "any supporting voucher or cheque"—would not be covered by the privilege.

The CRA's practice of asking Quebec notaries to provide information or documents about their taxpayer clients, without requiring that the clients be notified, led to the Charter challenge in Chambre des notaires.

But first, Thompson.

The Thompson case is procedurally odd, as the Court itself acknowledged (para 35). We know from a case called Canada (Privacy Commission) v Blood Tribe Department of Health, 2008 SCC 44 that Parliament or a legislature can limit solicitor-client privilege by statute if there is a clear legislative intent to do so (Thompson at para 24). According to the Court in Thompson, the ITA provision that defined "solicitor-client privilege" did demonstrate this kind of clear legislative intent, because it exempted lawyers' accounting records from the definition – making these documents more susceptible to seizure by the CRA even though they could contain privileged information.

However, that did not mean the CRA could freely access the lawyer's records once the Thompson decision came out. This is because the very ITA provision the CRA relied on was found unconstitutional in Chambre des notaires. That is why the two decisions need to be read together; Thompson makes little sense without Chambre des notaires.

One point of clarification: the Court preferred the phrase "professional secrecy" in Chambre des notaires, which is the Quebec equivalent of solicitor-client privilege, but the decision applies equally to common-law Canada (para 42).

Chambre des notaires was argued under sections 7 and 8 of the Charter but the Court rested its analysis on section 8 – stopping on the way to confirm that solicitor-client privilege is a principle of fundamental justice under section 7.

Briefly, section 8 was triggered because a "requirement" under the ITA constituted a "seizure."

The requirement scheme unjustifiably infringed section 8 for the following reasons (citing to Chambre):

  • Clients have a reasonable expectation of privacy in "information and documents that are in the possession of the notary or lawyer and in respect of which a requirement is issued" (para 35).
  • The scheme was unreasonable because it did not minimally impair professional secrecy; the CRA did not have to show that the seizure was "absolutely necessary" before it could acquire the materials (para 38). (Note the interplay between section 1 concepts and section 8 here.)
  • There were four particular problems (para 44):

    1. The CRA could require information from the taxpayer client's lawyer without the taxpayer being notified. (This was the Court's biggest concern.)
    2. The scheme placed too heavy a burden on the lawyer, who may have felt torn between her duty to her client and the threat of prosecution for non-compliance under the ITA (para 56).
    3. It was "not absolutely necessary here to rely on notaries or lawyers rather than on alternative sources in order to obtain the information or documents being sought" (para 59).
    4. There were less intrusive alternatives that Parliament could have chosen (e.g. the procedure that Revenu Québec had set up, which included more prerequisites before documents could be sought from lawyers or notaries).
  • However, it was not necessarily a constitutional problem that the CRA didn't have to "seek judicial authorization before sending a requirement" (para 52). In this context, prior judicial authorization is not a bare minimum standard of constitutionality.

Although the Court's remedy discussion could have been clearer (see paras 92-94), the ITA provisions are now invalid, insofar as they request information and documentation from lawyers and notaries, and not just for CRA activities in Quebec. It remains to be seen whether Parliament will amend the ITA to include a more nuanced procedure that better respects solicitor-client privilege and professional secrecy.

In the meantime, key takeaway points for lawyers include the following

  • The "general rule is that information protected by professional secrecy that is in the possession of a legal adviser is immune from disclosure" (Chambre at para 32).
  • This includes accounting records of lawyers, which "are inherently capable of containing information that is protected by professional secrecy" (para 72). Depending on a lawyer's or firm's practice, accounting records can be a trove of privileged information, including clients' names; information about the retainer; "particulars about the work ... performed"; and even litigation strategy (para 74).
  • A lawyer can't make unilateral decisions about whether to disclose documents in her possession. The privilege belongs to the client, so the lawyer can't be the one who decides to waive it – hence the Court's concern that the ITA scheme did not require that the client be notified before the lawyer would have to turn over the requested information or documentation to the CRA.
  • The Court did not define the line "between communications that are protected by professional secrecy [or solicitor-client privilege] and facts that are not so protected," acknowledging that the "line between facts and communications may be difficult to draw" (para 40, bolding added). This blurry line will probably continue to cause confusion in practice. However, the Court's tone suggests it's probably safer to err on the side of characterizing information as containing privileged "communications" and not just free-to-disclose "facts."
  • Solicitor-client privilege offers equal protection whether the investigative body is seeking information for an "administrative, penal or criminal investigation" (para 39; see also para 30).

These cases will certainly have an impact beyond lawyers' and clients' dealings with tax authorities under the ITA. They are important refreshers on the importance of solicitor-client privilege in all areas of Canadian law. And they remind practitioners that this fundamental principle cannot be sacrificed for administrative expediency.


1 Canada (Attorney General) v Chambre des notaires du Québec, 2016 SCC 20 at para 60.

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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