Minister of National Revenue v. Welton Parent Inc., (2006) 286 F.T.R. 161 (FC)

• Judge: Gauthier, J.
• Court: Federal Court (Canada)
• Case Date: January 24, 2006
• Jurisdiction: Canada (Federal)
• Citations: (2006), 286 F.T.R. 161 (FC);2006 FC 67

MNR v. Welton Parent Inc. (2006), 286 F.T.R. 161 (FC)

MLB headnote and full text

Temp. Cite: [2006] F.T.R. TBEd. FE.023

Minister of National Revenue (applicant) v. Welton Parent Inc. (respondent)

(T-506-04; 2006 FC 67)

Indexed As: Minister of National Revenue v. Welton Parent Inc.

Federal Court

Gauthier, J.

January 24, 2006.

Summary:

The Canada Customs and Revenue Agency (CCRA) conducted audits of various employers who had claimed expenses for salaries and wages incurred in respect of contributions to what those unnamed employers claimed to be offshore "health and welfare trusts" for the benefit of their employees. CCRA identified approximately 25 health and welfare trusts that did not meet the criteria established by an interpretation bulletin. In the 25 cases, CCRA found an actuarial valuation prepared by Welton Parent. Welton Parent had been retained by three separate lawyers. The lawyers had used the valuations to render legal opinions to their clients (the unnamed taxpayers) respecting the financing or setting up of the health and welfare trusts. The valuations were also remitted to the custodian or the trustee of the various plans. CCRA obtained an ex parte order authorizing it to impose on Welton Parent a requirement to produce information and documents relating to the unnamed taxpayers (Income Tax Act, s. 231.2(3)). Welton Parent applied to cancel or vary the order.

The Federal Court allowed the motion in part and varied the order to delete the requirement that Welton Parent disclose the names of the lawyers’ clients. Any references to such names were to be deleted from any documentation and information to be provided to CCRA pursuant to the requirement.

Civil Rights - Topic 1508

Property - General principles - Expectation of privacy - Section 231.2(3) of the Income Tax Act authorized, on an ex parte application by the Minister of National Revenue, a judge to impose on a third party a requirement under s. 231.2(1) relating to unnamed persons - Section 231.2(5) permitted the third party to apply for a review - Section 231.2(6) permitted the reviewing judge to cancel, confirm or vary the authorization - A third party subject to a requirement to produce asserted that ss. 231.2(3), 231.2(5) and 231.2(6) contravened s. 8 of the Charter because they did not allow a requirement to be cancelled by the court on grounds of solicitor-client privilege - The Federal Court stated that a taxpayer’s expectation of privacy respecting legal advice sought was of the highest order - However, the common law guidelines set out in Lavallee, Rackel & Heintz et al. v. Canada (Attorney General) (S.C.C.), adapted to the circumstances, applied and constituted a sufficient safeguard - Parliament intended the court to take the steps necessary to protect solicitor-client privilege - The sections did not constitute an unjustified infringement of s. 8 - See paragraphs 117 to 152.

Civil Rights - Topic 1646

Property - Search and seizure - Unreasonable search and seizure defined - [See Civil Rights - Topic 1508 ].

Evidence - Topic 4242

Witnesses - Privilege - Lawyer-client communications - Privilege - Communications between lawyer and third party - The Canada Customs and Revenue Agency (CCRA) conducted audits of various employers who had claimed expenses for salaries and wages incurred in respect of contributions to offshore "health and welfare trusts" for the benefit of their employees - CCRA identified approximately 25 health and welfare trusts that did not meet the criteria established by an interpretation bulletin - Each of the 25 cases had an actuarial valuation prepared by Welton Parent - Welton Parent had been retained by three separate lawyers - The lawyers had used the valuations to render legal opinions to their clients (the unnamed taxpayers) respecting the financing or setting up of the trusts - CCRA obtained an ex parte order authorizing it to impose on Welton Parent a requirement to produce information and documents relating to the unnamed taxpayers (Income Tax Act, s. 231.2(3)) - The Federal Court held that Welton Parent’s files did not fall in the class of solicitor-client privilege simply because the lawyers used its views to provide legal advise to their clients - See paragraphs 33 to 81.

Evidence - Topic 4242

Witnesses - Privilege - Lawyer-client communications - Privilege - Communications between lawyer and third party - The Canada Customs and Revenue Agency (CCRA) conducted audits of various employers who had claimed expenses for salaries and wages incurred in respect of contributions to offshore "health and welfare trusts" for the benefit of their employees - CCRA identified approximately 25 health and welfare trusts that did not meet the criteria established by an interpretation bulletin - Each of the 25 cases, had an actuarial valuation prepared by Welton Parent - Welton Parent had been retained by three separate lawyers - The lawyers had used the valuations to render legal opinions to their clients (the unnamed taxpayers) respecting the financing or setting up of the trusts - CCRA obtained an ex parte order authorizing it to impose on Welton Parent a requirement to produce information and documents relating to the unnamed taxpayers (Income Tax Act, s. 231.2(3)) - The Federal Court held that this was an exceptional case and the taxpayers’ names were protected by solicitor-client privilege - The court refused to infer that the taxpayers had implicitly authorized their lawyers to waive the privilege on the nature and substance of their legal advice when they authorized the lawyers to obtain an actuarial report - Further, the privilege protecting the fact that they sought legal advice respecting the plans, and the nature and substance of such advice, was not waived - The court varied the ex parte order accordingly - See paragraphs 82 to 116.

Evidence - Topic 4254

Witnesses - Privilege - Lawyer-client communications - Waiver - General - The Federal Court agreed that solicitor-client privilege should not lightly be abrogated - A client’s intention to waive was not always determinative because other considerations unique to the adversarial system, such as fairness to the opposite party and consistency of positions, might come into play - Normally, the essentials of a waiver of a legal right (such as a time limitation or contractual rights) included a conscious intention to relinquish that right - The Court should depart from the general principles applicable to the waiver of other types of legal rights only when absolutely necessary - It was because of the fundamental nature of the privilege that courts were becoming more reluctant to find waivers of solicitor-client privilege, particularly legal advice privilege, than in the past - This might also explain why concepts such as common interest privilege and limited waivers have been developed - See paragraphs 100 to 105.

Income Tax - Topic 9258

Enforcement - Production of information - Demand of information - Respecting unnamed persons - [See Civil Rights - Topic 1508 and both Evidence - Topic 4242 ].

Income Tax - Topic 9258

Enforcement - Production of information - Demand of information - Respecting unnamed persons - The Canada Customs and Revenue Agency (CCRA) conducted audits of various employers who had claimed expenses for salaries and wages incurred in respect of contributions to offshore "health and welfare trusts" for the benefit of their employees - CCRA identified approximately 25 health and welfare trusts that did not meet the criteria established by an interpretation bulletin - In the 25 cases, CCRA found an actuarial valuation prepared by Welton Parent - Welton Parent had been retained by three separate lawyers - The lawyers had used the valuations to render legal opinions to their clients (the unnamed taxpayers) respecting the financing or setting up of the trusts - CCRA obtained an ex parte order authorizing it to impose on Welton Parent a requirement to produce information and documents relating to the unnamed taxpayers (Income Tax Act, s. 231.2(3)) - The Federal Court refused to cancel the order on the basis that it was not sought for the purpose of verifying compliance with any "duty or obligation" under s. 232.1(3)(b) - CCRA had sought the information to verify compliance by the unnamed taxpayers with their duty to pay tax - CCRA was clearly investigating the taxpayers and there was a potential problem with their deductions - See paragraphs 27 to 32.

Income Tax - Topic 9258

Enforcement - Production of information - Demand of information - Respecting unnamed persons - The Canada Customs and Revenue Agency (CCRA) conducted audits of various employers who had claimed expenses for salaries and wages incurred respecting contributions to offshore "health and welfare trusts" for the benefit of their employees - CCRA identified approximately 25 health and welfare trusts that did not meet the criteria established by an interpretation bulletin - In the 25 cases, CCRA found an actuarial valuation prepared by Welton Parent - Welton Parent had been retained by three separate lawyers - The lawyers had used the valuations to render legal opinions to their clients (the unnamed taxpayers) respecting the financing or setting up of the trusts - CCRA obtained an ex parte order authorizing it to impose on Welton Parent a requirement to produce information and documents relating to the unnamed taxpayers (Income Tax Act, s. 231.2(3)) - The Federal Court stated that CCRA had a duty on the ex parte application to ensure disclosure of all available information that might impact on the court’s exercise of its discretion, particularly respecting the need to impose special conditions to protect solicitor-client privilege - The court had not been presented with all the evidence that potentially indicated that it was reasonable to expect that the taxpayers’ names were protected by solicitor-client privilege - However, in the circumstances, where there was no intent to deceive, the breach only affected the authorization with respect to the request to disclose the names - The court varied the order to protect the taxpayers’ names - See paragraphs 153 to 177.

Income Tax - Topic 9281

Enforcement - Lawyer-client privilege from disclosure - General - [See both Evidence - Topic 4242 ].

Income Tax - Topic 9284

Enforcement - Lawyer-client privilege from disclosure - Waiver - [See second Evidence - Topic 4242 ].

Practice - Topic 3059

Applications and motions - General - Duty of disclosure on ex parte applications and motions - [See third Income Tax - Topic 9258 ].

Cases Noticed:

Lavallee, Rackel & Heintz et al. v. Canada (Attorney General), [2002] 3 S.C.R. 209; 292 N.R. 296; 312 A.R. 201; 281 W.A.C. 201; 164 O.A.C. 280; 217 Nfld. & P.E.I.R. 183; 651 A.P.R. 183; 2002 S.C.C. 61, affing. (2000), 255 A.R. 86; 220 W.A.C. 86; 184 D.L.R.(4th) 25 (C.A.), affing. (1998), 218 A.R. 229; 160 D.L.R.(4th) 508 (Q.B.), appld. [para. 4].

Minister of National Revenue v. National Foundation for Christian Leadership (2005), 339 N.R. 275 (F.C.A.), refd to. [para. 32].

Susan Hosiery Ltd. v. Minister of National Revenue, [1969] 2 Ex. C.R. 27, refd to. [para. 40].

Interprovincial Pipe Line Inc. et al. v. Minister of National Revenue, [1996] 1 F.C. 367; 102 F.T.R. 141 (T.D.), refd to. [para. 41].

AFS and Co. Limited Partnership v. Canada, [2001] F.T.R. Uned. 426; 2001 D.T.C. 5330 (T.D.), refd to. [para. 41].

General Accident Assurance Co. et al. v. Chrusz et al. (1999), 124 O.A.C. 356 (C.A.), refd to. [para. 42].

Long Tractor Inc. et al. v. Canada (Attorney General) (1997), 162 Sask.R. 161; 155 D.L.R.(4th) 747 (Q.B.), dist. [para. 43].

Methanex Corp. et al. v. Minister of National Revenue, [1997] 1 W.W.R. 573; 191 A.R. 223 (Q.B.), dist. [para. 43].

Cineplex Odeon Corp. v. Minister of National Revenue (1994), 114 D.L.R.(4th) 141 (Ont. Gen. Div.), dist. [para. 43].

Telus Communications Inc. v. Canada (Attorney General) (2004), 329 N.R. 96 (F.C.A.), dist. [para. 43].

Solosky v. Canada, [1980] 1 S.C.R. 821; 30 N.R. 380, refd to. [para. 44].

Descoteaux et al. v. Mierzwinski et al., [1982] 1 S.C.R. 860; 44 N.R. 462, refd to. [para. 44].

R. v. McClure (D.E.), [2001] 1 S.C.R. 445; 266 N.R. 275; 142 O.A.C. 201, refd to. [para. 44].

Stevens v. Prime Minister (Can.), [1998] 4 F.C. 89; 228 N.R. 142 (F.C.A.), refd to. [para. 44].

Wheeler v. Le Marchant (1881), 17 Ch. D. 675, refd to. [para. 49].

Pratt Holdings Pty. Ltd. v. Commissioner of Taxation, [2004] F.C.A.F.C. 122 (F.C.A.), refd to. [para. 56].

Price Waterhouse (a firm) v. BCCI Holdings (Luxembourg) SA et al., [1992] B.C.L.C. 583 (Ch. Div.), refd to. [para. 56].

Three Rivers District Counsel et al. v. Bank of England, [2004] 4 All E.R. 948; 329 N.R. 298; [2004] UKHL 48, refd to. [para. 56].

Prosperine v. Ottawa-Carleton (Regional Municipality), [2003] O.J. No. 1414 (Sup. Ct. Master), refd to. [para. 63, footnote 7].

College of Physicians and Surgeons (B.C.) v. Information and Privacy Commissioner (B.C.) et al. (2002), 176 B.C.A.C. 61; 290 W.A.C. 61 (C.A.), refd to. [para. 64].

Lamey v. Rice (2000), 227 N.B.R.(2d) 295; 583 A.P.R. 295; 190 D.L.R.(4th) 486 (C.A.), refd to. [para. 67].

Sunwell Engineering Co. et al. v. Mogilevsky et al. (1986), 9 C.P.R.(3d) 479 (Ont. Master), dist. [para. 71].

Belgravia Investments Ltd. et al. v. Canada (2002), 220 F.T.R. 246 (T.D.), refd to. [para. 77].

Maranda v. Richer - see Maranda v. Leblanc.

Maranda v. Leblanc, [2003] 3 S.C.R. 193; 311 N.R. 357, refd to. [para. 87].

Solicitor, Re (1962), 36 D.L.R.(2d) 594 (B.C.S.C.), affd. (1964), 45 D.L.R.(2d) 134 (C.A.), leave to appeal refused [1965] S.C.R. 84, refd to. [para. 87].

Legal Services Society (B.C.) v. Information and Privacy Commissioner (B.C.) et al. (2003), 182 B.C.A.C. 234; 300 W.A.C. 234; 226 D.L.R.(4th) 20 (C.A.), refd to. [para. 88].

Saskatchewan River Bungalows Ltd. and Fikowski v. Maritime Life Assurance Co., [1994] 2 S.C.R. 490; 168 N.R. 381; 155 A.R. 321; 73 W.A.C. 321, refd to. [para. 103].

Philip Services Corp. v. Ontario Securities Commission (2005), 202 O.A.C. 201 (Div. Ct.), refd to. [para. 105].

R. v. Piersanti & Co. - see Piersanti v. Canada (Attorney General).

Piersanti v. Canada (Attorney General) (2003), 167 O.A.C. 384 (C.A.), leave to appeal refused (2003), 320 N.R. 197; 189 O.A.C. 199 (S.C.C.), refd to. [para. 126].

Festing et al. v. Canada (Attorney General) (2003), 179 B.C.A.C. 161; 295 W.A.C. 161; 172 C.C.C.(3d) 321 (C.A.), refd to. [para. 126].

R. v. Edwards (C.), [1996] 1 S.C.R. 128; 192 N.R. 81; 88 O.A.C. 321, appld. [para. 127].

R. v. McKinlay Transport Ltd. and C.T. Transport Inc., [1990] 1 S.C.R. 627; 106 N.R. 385; 39 O.A.C. 385, refd to. [para.. 129].

Bisaillon et al. v. Ministre du Revenue national et al. (1999), 264 N.R. 21 (F.C.A.), refd to. [para. 131].

Festing et al. v. Canada (Attorney General) (2003), 159 B.C.A.C. 65; 259 W.A.C. 65; 159 C.C.C.(3d) 97 (C.A.), refd to. [para. 126].

R. v. McNeney (1984), 11 C.C.C.(3d) 557 (B.C. Prov. Ct.), refd to. [para. 149].

R. v. Araujo (A.) et al., [2000] 2 S.C.R. 992; 262 N.R. 346; 143 B.C.A.C. 257; 235 W.A.C. 257, refd to. [para. 154].

Minister of National Revenue v. 159890 Canada Inc. (1997), 135 F.T.R. 201; 97 D.T.C. 5495 (T.D.), refd to. [para. 155].

Ruby v. Royal Canadian Mounted Police et al., [2002] 4 S.C.R. 3; 295 N.R. 353, refd to. [para. 155].

Statutes Noticed:

Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1, sect. 231.2(3), sect. 231.2(5), sect. 231.2(6) [para. 25].

Authors and Works Noticed:

Sopinka, John, Lederman, Sidney N., and Bryant, Alan W., The Law of Evidence in Canada (2nd Ed. 1999), p. 756, para. 14.96 [para. 102].

Sopinka, John, Lederman, Sidney N., and Bryant, Alan W., The Law of Evidence in Canada (2nd Ed. 1999) (2004 Supp.), paras. 14.71.3 [para. 68]; 14.71.5 [para. 79, footnote 9].

Counsel:

Roger Leclaire and Carole Benoit, for the applicant;

Al Meghji, Mahmud Jamal and Derek Leschinsky, for the respondent.

Solicitors of Record:

John H. Sims, Q.C., Deputy Attorney General of Canada, Ottawa, Ontario, for the applicant;

Osler, Hoskin & Harcourt LLP, Toronto, Ontario, for the respondent.

Gauthier, J., of the Federal Court, heard this application at Ottawa, Ontario, on August 29 and 30, 2005, and delivered the following reasons for order on January 24, 2006.