Crown Unsuccessfully Asserts Solicitor-Client Privilege

Solicitor-client privilege is most commonly raised in tax disputes to shield taxpayers' communications from disclosure to the CRA or to the Crown: it is an important exception to the CRA's otherwise substantial authority to require taxpayers to provide information upon audit or issuance of a "requirement for information" under the Income Tax Act and the Excise Tax Act (sections 231.2 and 289, respectively) and to the obligation to produce for inspection relevant documents at discovery.

In 506913 NB Ltd. (2012 TCC 210), the Crown asserted solicitor-client privilege to prevent the taxpayer from using communications between the Department of Justice and the CRA. In the course of an appeal by a taxpayer of GST/HST assessments, the Crown brought a motion for a court order prohibiting the taxpayer from using certain documents on the basis that they contained legal advice from Justice to the CRA and were therefore protected by solicitor-client privilege. The documents in question had been inadvertently disclosed to the taxpayer in the course of related criminal proceedings against the taxpayer several years earlier.

The TCC noted that the fact that a lawyer works for an in-house government legal service does not affect the creation or character of the privilege (R v. Campbell, [1999] 1 SCR 565), and it cited case law specifically confirming that legal advice given by Justice to the CRA is privileged (Global Cash Access (Canada) Inc., 2010 TCC 493). The court reviewed each of the documents at issue and found that they were protected by solicitor-client privilege, at least at the time that they were created. However, the court concluded that the privilege had been waived because the Crown had inadvertently disclosed the documents to the taxpayer in the course of the related criminal proceedings, and therefore they could be used by the taxpayer. Although inadvertent disclosure alone is insufficient, knowledge and silence on the part of the person claiming privilege and reliance on the person in receipt of the privileged communications may constitute an implied waiver (Chapelstone Developments Inc., 2004 NBCA 96). (Waiver of solicitor-client privilege is to be distinguished from loss of litigation privilege, which by its nature applies only while litigation is contemplated or is under way.) In this case, the Crown had been aware for a number of years that the documents had been disclosed, and it had not objected to their use in the criminal proceedings.

While the court noted that privilege can be waived only by the client, not by the solicitor, it did not explain how the Crown's disclosure and inaction constituted waiver by the CRA--that is, the client--which presumably was not involved in the criminal proceedings.

Although the Crown was ultimately unsuccessful in this instance, the case illustrates how solicitor-client privilege can be raised to resist disclosure of communications between Justice and the CRA to the taxpayer during litigation. The same principles should apply to disclosure to the taxpayer in other situations, such as access-to-information requests, and to communications between the provincial counterparts of Justice and the CRA. The case also underscores the importance of safeguarding privileged communications from inadvertent disclosure and of taking timely action once disclosure is discovered.

Simon Thang and Brian R. Carr
Moskowitz & Meredith LLP, Toronto
simonthang@mmtaxlaw.ca
briancarr@mmtaxlaw.ca

Canadian Tax Focus
Volume 2, Number 3, August 2012
©2012, Canadian Tax Foundation