Canada (National Revenue) v. Thompson

(Taxation — Income tax — Enforcement — Solicitor client privilege)

On appeal from a judgment of the Federal Court of Appeal (2013 FCA 197), setting aside in part an order of the Federal Court and ordering a new hearing

The Canada Revenue Agency (“CRA”) sent T a requirement pursuant to s. 231.2(1) of the Income Tax Act (“ITA”), requesting various documents pertaining to his personal finances as well as his current accounts receivable listing. T provided the CRA with certain material but claimed solicitor client privilege in further details of his accounts receivable, such as the names of his clients. The Minister of National Revenue applied to the Federal Court for a compliance order pursuant to s. 231.7 ITA. T objected and asked the Federal Court to rule on whether s. 231.2(1) ITA may be interpreted and applied in a manner that abrogates solicitor client privilege. In addition, T claimed that the requirement issued by the CRA constituted an unreasonable search or seizure contrary to s. 8 of the Canadian Charter of Rights and Freedoms.

The Federal Court judge disagreed that client names can be shielded from disclosure to the Minister on the basis of solicitor client privilege. Nor did he find a breach of s. 8 of the Charter. The Federal Court of Appeal held that in some rare circumstances, the records sought may contain privileged information. The clients whose names were in fact privileged would be owed the opportunity to assert and defend this privilege, and T should be given the opportunity to assert the privilege on their behalf. The Federal Court of Appeal therefore sent the matter back to the Federal Court. Moreover, it dismissed T’s Charter challenge. The sole issue raised by the Minister’s appeal before this Court is the statutory interpretation of the purported exclusion of lawyers’ accounting records from the protection of “solicitor client privilege”, as that term is defined in s. 232(1) ITA.

Held (7-0): The appeal should be allowed solely to set aside the Federal Court of Appeal’s disposition. The Minister’s application for a compliance order is dismissed.

Solicitor client privilege has evolved from being treated as a mere evidentiary rule to being considered a rule of substance and, now, a principle of fundamental justice. An intrusion on solicitor client privilege must be permitted only if doing so is absolutely necessary to achieve the ends of the enabling legislation. This Court has rejected a category based approach to solicitor client privilege that distinguishes between a fact and a communication. In this case, absent proof to the contrary, all of the information sought is prima facie privileged.

According to Canada (Privacy Commissioner) v. Blood Tribe Department of Health, 2008 SCC 44, [2008] 2 S.C.R. 574, it is only where legislative language evinces a clear intent to abrogate solicitor client privilege that a court may find that the statutory provision in question actually does so. The definition of “solicitor client privilege” in s. 232(1) ITA is unequivocal, based on the express language of the provision, its legislative history and the purpose of the broader scheme into which it is incorporated. Parliament’s intent to define this privilege so as to exclude a lawyer’s accounting records from its protection could hardly be clearer.

However, Parliament’s intent and its ability, in constitutional terms, to define solicitor client privilege in a particular way are not necessarily equivalent. In light of the Court’s conclusion in Canada (Attorney General) v. Chambre des notaires du Québec, 2016 SCC 20, that the purported exception in s. 232(1) and the ITA’s requirement scheme, insofar as it applies to lawyers and notaries, are constitutionally invalid, the request made to T under that scheme is now foreclosed. It is therefore unnecessary to return the matter to the Federal Court.

It should be added that while the Federal Court of Appeal acted appropriately in sending T’s case back to the Federal Court, the order would have been insufficient to safeguard the rights of T’s clients. Solicitor client privilege is a right that belongs to, and can only be waived by, a client. It is the client and not the lawyer who must be given an opportunity to assert the privilege, and a court must act to facilitate the client’s ability to do so.

Reasons for judgment: Wagner and Gascon JJ. (McLachlin C.J. and Abella, Cromwell and Karakatsanis JJ. concurring)

Neutral Citation: Canada (National Revenue) v. Thompson, 2016 SCC 21

Docket Number: 35590