Requirement provisions inapplicable in respect of lawyers and notaries.

On Friday, the Supreme Court of Canada released two decisions dealing with the constitutionality of demands for information and documents ("requirements") sent to lawyers and notaries under Canada's Income Tax Act (Act). Where a person fails to answer a requirement, the Department of Justice may apply to the Federal Court for a compliance order, potentially leading to fines and imprisonment for contempt of court. Solicitor-client privilege is a defence to an application for a compliance order, but the Act defines "solicitor-client privilege" as excluding "an accounting record of a lawyer."

What You Need To Know

  • The Supreme Court strongly affirmed its consistent view that solicitor-client privilege is a principle of fundamental justice, and confirmed that the privilege applies regardless of the nature of the legal advice being sought or the context in which it is sought, and regardless of the form of the document in which the privileged information is found.
  • The Court held that lawyers and notaries must be able to protect their clients' solicitor-client privileged information and documents against disclosure to tax authorities.
  • The Court recognized that a legislature can abrogate solicitor-client privilege using clear and unambiguous language, but the legislation must comply with the Charter.
  • To comply with section 8 of the Charter, which protects against unreasonable searches and seizures, a statutory scheme must ensure that solicitor-client privilege remains as close to absolute as possible and is not interfered with unless absolutely necessary (whether the seizure is in the regulatory or the criminal context).
  • The requirement scheme of the Act, insofar as it applies to lawyers, and to notaries in Québec, fails to comply with section 8 of the Charter, because:

    • it fails to ensure that clients, whose privileged information and documents are at risk of being disclosed, are provided with notice or an opportunity to respond;
    • it inappropriately places the burden of protecting the privilege solely on lawyers or notaries who, because of the penalty provisions of the scheme, are put in a position of conflict of interest with their clients;
    • it authorizes seizures that cannot be characterized as measures of last resort since the information requested may have been available through alternate, non-privileged, sources; and
    • it excludes the entire category of "accounting records" from the definition of solicitor-client privilege, and in doing so determines whether information is privileged on the basis of the type of document in which it is found, rather than the nature of the information.

The Supreme Court released two decisions on June 3, 2016, one dealing with lawyers and one primarily dealing with notaries in Québec. 

Canada (A.G.) v. Chambre des notaires du Québec was a constitutional challenge by the Chambre des notaires du Québec and the Barreau du Québec to the requirement scheme under the Act.1  The challenge arose out of requirements sent to notaries practising in Québec for information or documents relating to their clients, where the clients were under audit. The Supreme Court held that the requirement scheme constituted an unreasonable search and seizure contrary to section 8 of the Charter insofar as it applies to lawyers and notaries in Québec, because it fails to ensure that the solicitor-client privilege (known in Québec as professional secrecy) remains as close to absolute as possible, and is only interfered with if absolutely necessary. 

The Supreme Court rejected the Minister's argument that the regulatory context of the request implied a lower expectation of privacy. It confirmed that clients' expectation of privacy in their privileged information is always of the highest order, regardless of whether it is at risk of disclosure in an administrative/regulatory proceeding or a criminal one. 

The Court found that the statutory scheme falls short of constitutional requirements. It fails to ensure that clients receive notice that their privileged information is at risk of being disclosed, and have an opportunity to respond. Moreover, it places the burden of protecting the privilege primarily on lawyers and notaries. This is especially problematic because the lawyers and notaries were threatened with penalties if they did not disclose the information at issue, placing them in a position of conflict of interest with their clients. In addition, the blanket exception of "accounting records of a lawyer" from the definition of "solicitor-client privilege" under the Act ignores the fact that privilege arises based on the nature of the information at issue—not the form of document in which the information is contained. Finally, the Court considered it important that the information being sought was not absolutely necessary—there was no indication that the Minister had tried to get the information through other means that did not compromise professional secrecy.

The statutory scheme could not be saved under section 1 of the Charter, because the infringement was not a minimal impairment. The Court held the overall scheme to be unconstitutional insofar as it applies to lawyers, and to notaries in Québec. The "accounting records exception" in the definition of "solicitor-client privilege" in subsection 232(1) of the Act was held to be invalid. 

The companion case of Canada (National Revenue) v. Thompson involved a lawyer from a small Alberta town, whose law practice was under audit.2 The Minister sent a requirement for the lawyer's accounts receivable. The lawyer provided a list of amounts, but refused to provide identifying information about his clients on the basis of solicitor-client privilege. Based on the statutory exclusion of "accounting records of a lawyer" from the definition of solicitor-client privilege, the Federal Court ordered the lawyer to deliver the requested information. The Federal Court of Appeal allowed the appeal in part, sending the matter back to the Federal Court to consider whether solicitor-client privilege may actually attach to any of the client names (even though they were contained within "accounting records"). The Minister appealed. 

Consistent with its decision in Canada (Privacy Commissioner) v. Blood Tribe Department of Health, the Supreme Court held that the language in the definition of "solicitor-client privilege" in section 232(1) of the Act was sufficiently "clear and unambiguous" to abrogate solicitor-client privilege.3 However, the requirement for information revealing the identities of the lawyer's clients was nevertheless foreclosed, because the requirement provisions of the Act were found unconstitutional insofar as they apply to lawyers, in light of the Chambre decision. The Court therefore set aside the Court of Appeal's decision and held that the lawyer's refusal to provide client-identifying information to the Minister in respect of the accounts receivable was valid. 

Taxpayers should continue to exercise care in identifying, maintaining and asserting solicitor-client privilege claims that may apply to information and documents within the books and records of a business, during a tax audit and otherwise.


1 2016 SCC 20

2 2016 SCC 21

3 2008 SCC 44

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.