The End of Advisory Common Interest Privilege?

Solicitor-client privilege (SCP) was dealt a serious blow in Iggillis Holdings Inc. v. Canada (National Revenue) (2016 FC 1352; under appeal). As a result of this decision, parties to a transaction who share privileged information with each other could have a difficult time refusing the CRA's requests for that information. Joint representation would preserve privilege, but it would delay transactions and increase costs.

Communication between a lawyer and a client that entails the seeking or giving of legal advice and that is intended to be confidential is subject to SCP (Solosky v. The Queen, [1980] 1 SCR 821). SCP—the principle that persons should be able to communicate frankly with their lawyers in order to have their interests fully represented—is a fundamental principle of the Canadian justice system. SCP belongs to the client and can be waived only by the client. As a general rule, it has been accepted that once the client waives SCP by divulging privileged information to a third party, the client waives SCP as against the whole world.

A defence against a waiver of SCP to a third party—advisory common interest privilege (advisory CIP)—has been developed by the courts. This defence could be relied on to ensure that SCP was not waived when the parties that shared information protected by SCP had a common interest in completing a commercial transaction (Pitney Bowes of Canada Ltd. v. Canada, 2003 FCT 214, and Fraser Milner Casgrain LLP v. Canada (Minister of National Revenue), 2002 BCSC 1344). This meant that in undertaking a transaction, lawyers for the seller and lawyers for the buyer could share certain information that was subject to SCP and not lose the privilege for the shared information.

Iggillis has taken a novel approach to advisory CIP. The FC rejected the rationale that advisory CIP is a valid defence to the waiver of SCP: "CIP is not a valid component of SCP doctrine" (paragraph 92). The court explained that advisory CIP is incompatible with the doctrine of SCP: SCP exists to encourage "full and frank disclosure of information by the client to the lawyer," and sharing information with third parties goes against the fundamental principles of SCP (paragraph 104). Further, disclosure of "privileged communication to . . . a third party . . . does nothing to enhance the relationship between the clients and their respective lawyers" (paragraph 147). The court found that advisory CIP "provides no benefit to the administration of justice" (paragraph 298); instead, it encourages transactions that anticipate litigation and excludes large amounts of relevant evidence from any resulting litigation.

How should lawyers adjust their practices to account for this decision? For completed transactions, counsel faced with a CRA requirement to produce shared documents of this type should resist disclosure on the basis of SCP. If the CRA takes the matter to court, counsel may wish to have the matter held in abeyance pending the FCA's guidance in Iggillis.

For contemplated transactions, it may be possible to fit within the joint-representation proviso expressly permitted in Iggillis: the parties could jointly hire one counsel to advise them on a certain aspect of the transaction in which the parties have a common interest. For example, parties could jointly hire a tax counsel to prepare a step memorandum (a memo that outlines the steps of the contemplated transaction and provides a legal analysis of the tax consequences of each step for both parties). However, that counsel must be instructed only by each party directly (and not by either party's independent counsel), a requirement that will add costs and delays to the transactions.

Alex Klyguine
Borden Ladner Gervais LLP, Toronto

Samantha Breaks
Borden Ladner Gervais LLP, Toronto

Josh Schmidt
Schmidt & Gilmour Tax Law LLP, Vancouver

Canadian Tax Focus
Volume 7, Number 1, February 2017
©2017, Canadian Tax Foundation