Minister of National Revenue v. Grant Thornton, (2012) 421 F.T.R. 79 (FC)

• Court: Federal Court (Canada)
• Case Date: March 12, 2012
• Jurisdiction: Canada (Federal)
• Citations: (2012), 421 F.T.R. 79 (FC);2012 FC 1313

MNR v. Grant Thornton (2012), 421 F.T.R. 79 (FC)

MLB headnote and full text

[French language version follows English language version]

[La version française vient à la suite de la version anglaise]

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Temp. Cite: [2012] F.T.R. TBEd. NO.043

The Minister of National Revenue (applicant) v. Grant Thornton (respondent) and Foremost Industries (intervenor)

(T-848-11; 2012 FC 1313; 2012 CF 1313)

Indexed As: Minister of National Revenue v. Grant Thornton

Federal Court

Crampton, C.J.

November 13, 2012.

Summary:

The Canada Revenue Agency (CRA) was reviewing a reorganization of Foremost Industries Income Fund, which was administered by Foremost. Particularly, the CRA was investigating losses claimed by one of the Fund's unit holders. Grant Thornton was the Fund's auditor. Bell, a lawyer, chartered accountant and initial Fund trustee, was general counsel for Foremost. The CRA sent a demand letter to Grant Thornton under s. 231.1(1)(a) of Income Tax Act, requiring production of documents relating to the reorganization. Grant Thornton advised that Foremost claimed solicitor-client privilege for three documents (two memos by Bell and one co-authored by Bell and Shaw). The CRA applied under s. 231.7(1) for a compliance order. Foremost, granted leave to intervene, claimed solicitor-client privilege and also challenged the constitutionality of the compelled production provisions as constituting an unreasonable search and seizure (Charter, s. 8).

The Federal Court held that the three documents need not be disclosed because all three documents were protected by solicitor-client privilege. Accordingly, it was unnecessary to deal with the constitutional issue.

Evidence - Topic 4230

Witnesses - Privilege - Lawyer-client communications - General - The Federal Court stated that the principle of solicitor-client privilege "protects from disclosure (i) communications between a solicitor and his or her client, (ii) which entail the seeking or giving of legal advice, and (iii) which are intended to remain confidential. ... [solicitor-client privilege] protects all communications made within the framework of the solicitor-client relationship ... [solicitor-client privilege] does not extend to purely business or policy advice that may be provided by a solicitor ... the foregoing applies with equal force to a solicitor's work product. ... a solicitor's work product produced for the purpose of giving legal advice and intended to remain confidential is protected by [solicitor-client privilege] ... while such work product itself is protected by [solicitor-client privilege], facts that have an independent existence and do not arise 'out of the solicitor-client relationship and of what transpires within it' are not so protected if they are otherwise discoverable" - See paragraphs 21 to 23.

Evidence - Topic 4237

Witnesses - Privilege - Lawyer-client communications - Documents - General - The Canada Revenue Agency (CRA) was reviewing a reorganization of Foremost Industries Income Fund - Grant Thornton was the Fund's auditor - Foremost was the administrator - Bell, a lawyer, chartered accountant and initial Fund trustee, was general counsel for Foremost - The CRA sent a demand letter to Grant Thornton under s. 231.1(1)(a) of Income Tax Act, requiring production of documents relating to the reorganization - Grant Thornton advised that Foremost claimed solicitor-client privilege for three documents (two memos by Bell and one co-authored by Bell and Shaw) in its possession - The CRA applied under s. 231.7(1) for a compliance order - Foremost, granted leave to intervene, claimed solicitor-client privilege - The Federal Court, after examining the three documents, held that they all contained either legal advice of solicitor work product, and were protected by solicitor-client privilege - The court rejected the CRA's claim that the documents were communications by Bell in his capacity as an accountant or trustee, as opposed to a lawyer - The documents were not knowingly disclosed to the auditor under an express or implied limited waiver of privilege - They were inadvertently disclosed in circumstances where, together with the administrator's swift action to assert solicitor-client privilege upon discovering the inadvertent disclosure, the exercise of the court's discretion to retain solicitor-client privilege was warranted - The documents were generated within the framework of a solicitor-client relationship, related to the giving of legal advice and were intended to be kept confidential, as evidence by their being marked "privileged" - See paragraphs 1 to 74.

Evidence - Topic 4238.1

Witnesses - Privilege - Lawyer-client communications - Documents - Lawyer's work product - [See Evidence - Topic 4230 ].

Evidence - Topic 4245.7

Witnesses - Privilege - Lawyer-client communications - Common interest privilege - The Federal Court discussed the common interest exception to the rule that solicitor-client privilege was lost when protected information was disclosed to a third party - See paragraphs 51 to 57.

Evidence - Topic 4258

Witnesses - Privilege - Lawyer-client communications - Waiver - By inadvertent or partial disclosure - The Federal Court stated that the inadvertent disclosure of documents protected by solicitor-client privilege to a third party did not automatically result in a loss or waiver of that privilege - The court set out factors to be considered in determining whether privilege such be maintained - One factor was "whether the privilege holder took swift steps to assert [solicitor-client privilege] upon learning of the inadvertent disclosure of privileged documents" - Additional factors were "i. the way in which the documents came to be released; ii. the timing of the discovery of the disclosure; iii. the timing of the application to recover the documents; iv. the number and nature of the third parties who have become aware of the documents; v. whether the maintenance of the privilege will create an actual or perceived unfairness to the opposing party; and vi. the impact on the fairness, both actual and perceived, of the processes of the court" - See paragraphs 58 to 64.

Evidence - Topic 4258

Witnesses - Privilege - Lawyer-client communications - Waiver - By inadvertent or partial disclosure - The Canada Revenue Agency (CRA), investigating an income fund, sought disclosure of three documents in possession of the fund's auditor - The administrator of the fund claimed privilege - The CRA argued that, assuming that the documents were subject to solicitor-client privilege, that privilege was waived (limited waiver or waiver by disclosure) - The Federal Court stated that "documents that are protected by [solicitor-client privilege] and that are knowingly disclosed in confidence by the privilege holder to an auditor for the limited purpose of enabling the auditor to perform an audit and issue a fairness opinion retain such protection vis à vis other third parties, under the doctrine of limited waiver. ... there is a strong public interest in companies and other types of business organizations being properly audited, for the benefit of actual and potential shareholders or other members of the investing public, even where the disclosure of privileged information is not strictly mandated by statute. ... In furtherance of that public interest, the disclosure of privileged information that may reasonably be required by an auditor for the purposes of providing a fairness opinion will not be considered to constitute an unlimited waiver of [solicitor-client privilege], when such disclosure is made in confidence and solely for that purpose." - In the present case, where the court held that the disclosure to the auditor was inadvertent, rather than knowingly, the limited waiver exception did not apply - Privilege could only be retained under the doctrine of inadvertent disclosure - See paragraphs 47 to 50.

Income Tax - Topic 9284

Enforcement - Lawyer-client privilege from disclosure - Waiver - [See Evidence - Topic 4237 ].

Cases Noticed:

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Buffalo et al. v. Canada (Minister of Indian Affairs and Northern Development) et al. (1995), 184 N.R. 139 (F.C.A.), refd to. [para. 22].

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Information Commissioner (Can.) v. Canadian Transportation Accident Investigation and Safety Board (2005), 271 F.T.R. 7; 2005 FC 384, refd to. [para. 78].

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Chambre des notaires du Québec c Canada (Procureur général), [2010] J.Q. 8868; 2010 QCCS 4215, dist. [para. 79].

Counsel:

Wendy Bridges, for the applicant;

Ronald J. Robinson, for the intervenor.

Solicitors of Record:

Myles J. Kirvan, Deputy Attorney General of Canada, Ottawa, Ontario, for the applicant;

Ronald J. Robinson, Calgary, Alberta, for the intervenor.

This application was heard on March 12, 2012, at Calgary, Alberta, before Crampton, C.J., of the Federal Court, who delivered the following judgment on November 13, 2012.