In a June 3, 2016 judgment, the Supreme Court of Canada confirmed that requirements to provide documents or information under the Income Tax Act (“ITA”) issued to lawyers or notaries with respect to their clients’ affairs constitute unreasonable seizures contrary to section 8 of the Canadian Charter of Rights and Freedoms and, consequently, that sections 231.2(1), 231.7, as well as the accounting records exception set out in subsection 232(1), are unconstitutional and of no force or effect for lawyers and notaries acting as legal counsel.
The facts of the case are simple. A number of notaries were issued requirements by the CRA to provide information and documents with respect to their clients’ affairs. The requirements notified the notaries that failure to comply was a criminal offence punishable by fine or imprisonment. The Chambre des notaires sought a declaratory judgement from the Superior Court to have the relevant legislative provisions declared of no force or effect against its members.
In 2010, the Superior Court found in favour of the Chambre des notaires. In 2014, the Québec Court of Appeal confirmed the decision of the Superior Court.
The Supreme Court raised two questions. First, whether the requirements intruded upon a reasonable expectation of privacy. Second, whether the intrusion was reasonable.
Clients Have an Extremely High Expectation of Privacy with Respect to Legal Counsel Records
The Supreme Court had already concluded in McKinlay Transport that requirements to provide information or documents under the tax legislation constitute seizures for purposes of section 8 of the Charter.
The Supreme Court expressly rejected the Attorney General’s argument that the clients’ reasonable expectation of privacy was reduced because the requirements were issued in a civil context. The Supreme Court confirmed that the professional secrecy protection under section 8 of the Charter is invariably high, regardless of whether seizures are sought in a criminal or civil context.
The Application of the Current Requirement Scheme to Lawyers and Notaries is an Unreasonable Intrusion on Their Clients’ Right to Privacy
In answering the second question, the Supreme Court held that the protection that should be afforded to professional secrecy must reflect that it is both a principle of fundamental justice and a legal principle of supreme importance. Consequently, the Supreme Court noted that the usual framework of analysis under section 8 of the Charter, which would require an assessment of the facts of each case, would be inappropriate. Instead, the Supreme Court held that any procedure or legislative provision interfering with the secrecy shall be considered unreasonable under the Charter, unless the intrusion is absolutely necessary.
The Supreme Court agreed with the Courts below that several issues made the application of the requirement provisions to lawyers and notaries unreasonable and contrary to section 8 of the Charter, including that the clients were not notified of the requirements, that an inappropriate burden was placed on the lawyer or notary to defend the privilege, that compelling the disclosure of the information or documents through requirements was not absolutely necessary, and that no other measures were provided in the legislation to mitigate the impairment.
With respect to the absence of the notice, the Supreme Courts noted that professional secrecy belongs to the client, not to the lawyer or notary, and only the client may waive it, which made it inappropriate that the ITA did not provide for a client notification or contestation mechanism.
Furthermore, the Supreme Court concluded that the requirements issued to lawyers and notaries impose an undue burden on them, as they alone could object against the requirements on the basis of privilege. Unless counsel objected to the requirements, the legislative scheme enabled the CRA to obtain information or documents to which it would not have been otherwise entitled.
The Supreme Court also concluded that “the entire requirement scheme is flawed in that it authorizes a seizure that cannot be characterized as a measure of last resort.” The Supreme Court further ruled that, under the principle of minimal impairment, requirements for information to obtain documents relating to a client’s affairs should only be issued to lawyers or notaries when “absolutely necessary”, a requirement which does not exist under the current scheme. It bears note however that the Supreme Court specified that if the client was alerted as to the issuance of the requirement, it would not be necessary for the requirement to be issued to a lawyer or notary as a last resort only.
The Supreme Court noted that the identified defects are “all the more unacceptable given that they could easily be mitigated and remedied by way of measures that are compatible with the state’s obligations relating to the protection of professional secrecy.”
Constitutionality of the Exclusion of Accounting Records from the Definition of “Solicitor-Client Privilege” in Subsection 232(1)
The definition of the “solicitor-client privilege” in subsection 232(1) precluded legal counsel from invoking professional secrecy to refuse to disclose accounting records.
The Supreme Court held that subsection 232(1) is inoperative, noting that “whether a document or the information it contains is privileged depends not on the type of document it is but, rather, on its content and on what it might reveal about the relationship and communications between a client and his or her notary or lawyer.”
The same debate was central to a companion case, Canada (National Revenue) v. Thompson, where the Supreme Court concluded that the requirement to provide documents or information addressed to a lawyer, Mr. Thompson, was “foreclosed,” given the declaration of invalidity pronounced in Chambre des notaires.
The Supreme Court’s judgment in Chambre des notaires confirms well-established principles. The Supreme Court reiterates that although, the objectives of tax audits and collection are commendable, professional secrecy is a principle of fundamental justice and a legal principle of supreme importance which has to be respected unless the intrusion thereon is “absolutely necessary,” in which case the impairment shall be as minimal as possible.
It is important to note that the Court emphasized that whether or not a document is privileged depends not on the type of document it is, but on what it might reveal.
Subsections 231.2(1), 232(1) as well as section 231.7 will undoubtedly be amended in due course to address the constitutional deficiencies identified by the Supreme Court.