(March 21, 2014 – 2014 QCCA 552)
[This commentary was provided through the courtesy of Paul Prokos and Michael Lubetsky of Davies. I am indebted to Guy Du Pont, Ad. E., for initiating the collaboration.]
In
Attorney General of Canada v. Chambre des Notaires du Québec (“Chambre des notaires”) , the Quebec Court of Appeal declared unconstitutional and inoperative the provisions of the
Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), allowing the issuance of “Requirement for Information” letters (“RFI”s) to Quebec notaries and lawyers demanding information and documentation relating to their client’s affairs.
At the heart of the debate were the potential violations of privilege that may result from such RFIs, and in particular:
(1) whether the Minister’s powers to issue RFIs and to seek compliance orders under sections 231.2 and 231.7 ensured adequate protection of solicitor-client privilege; and
(2) whether the definition of “solicitor-client privilege” at paragraph 232(1), which expressly deems not privileged “an accounting record of a lawyer, including any supporting voucher or cheque”, took precedence over the common-law notion of privilege.
The
Chambre des notaires du Québec (the professional order for notaries) initiated the case following unsuccessful attempts to negotiate a framework with the Canada Revenue Agency to govern RFIs issued to notaries for information and documents relating to their clients. (It bears note that in Quebec, notaries hold law degrees and perform a variety of legal services performed by lawyers in other provinces). The
Barreau du Québec (the professional order for lawyers) intervened in the case to support of the the
Chambre’s position that the provisions of the
Income Tax Act allowing for the issuance of RFIs to a taxpayer’s lawyer and notary inadequately protected solicitor-client privilege, and thus violated constitutional guarantees against unreasonable search and seizure.
In 2010, the Quebec Superior Court agreed with the
Chambre and declared the impugned provisions unconstitutional, as well as declared a list of 17 categories of documents that were “
prima facie protected by privilege”.
The Court of Appeal, in a unanimous judgement, struck out the declaration relating to the 17 categories of documents, but it upheld the lower court’s finding that the impugned provisions were unconstitutional and inoperative in the context of RFIs issued to lawyers and notaries in Quebec. The Court of Appeal emphasised, however, that its holding was limited to such RFIs; the impugned provisions remain in force and effect for all other RFIs.
In its analysis, the Court of Appeal focused in particular on: (1) the absence of a requirement to inform a taxpayer that his or her legal advisor has received an RFI in relation to their tax affairs (par. 116); and (2) the absence of the involvement of the taxpayer in the RFI contestation process (par. 118).
Concerning the former issue, the AGC argued that operating practice at the CRA has been to inform a taxpayer that his or her legal advisor has received an RFI. However, the Court of Appeal found that practice insufficient to save the RFI provisions, since “we cannot conclude in the constitutionality of a regime based on the presumption that the Minister will always act honorably” (par. 122):
[122] […] That would, without doubt, be an honorable behaviour on the part of the Minister, however, as Justice Arbour states in Lavallee, we cannot conclude in the constitutionality of a regime based on the presumption that the Minister will always act honorably, as justice Cory writes in the case
R v. Bain, cited in Lavallee: “the protection of basic rights should not be dependent upon a reliance on the continuous exemplary conduct of the Crown, something that is impossible to monitor or control.”
The Court of Appeal also addressed the AGC’s concern that a lawyer or notary’s office would become a “black hole” for information hidden from tax officials:
[129] With much imagery, the Appellants argued that tax investigations, and in particular requirements for information, should not be blocked by the “black hole” of professional secrecy. Notarial or law firms cannot become a place where all of the documents concerning a client or that have been received from a client are hidden. […] Even if this is correct however (given that no one can maintain that everything in the possession of a notary or lawyer is protected by professional secrecy), it remains that a notarial or law firm must not be transformed – and I will paraphrase justice Lebel in
Maranda c. Richer – into an document archive service for the tax authorities.
The Court of Appeal also invalidated that the provision of section 232(1) that deemed an “accounting record of a lawyer, including any supporting voucher or cheque” not covered by privilege, holding that that a statutory definition cannot limit the common-notion of privilege and that it remained the responsibliity of a judge to decide, on a case by case basis, whether a document is privileged or not. (par. 146). In this regard, the holding of the Court of Appeal overlapped somewhat with that of the Federal Court of Appeal in
Thompson v. Canada (National Revenue)(“Thompson”) (2013 FCA 197), which concerned an RFI issued to a lawyer in Alberta and where the Federal Court of Appeal held that the definition of “solicitor-client privilege” in section 232(1) was not determinative.
In Thompson, the Federal Court of Appeal did not go so far as to declare section 232(1) (or any other provisions in the
Income Tax Act relating to RFIs) unconstitutional, and it expressly declined to place any importance on the lower court decision in
Chambre de notaires, which at that time was under appeal.
The Supreme Court of Canada has recently granted leave to appeal
Thompson, and will, no doubt, in the context of that appeal, be called upon to resolve the constitutional quandary that has been created by the fact that two courts of appeal have formed different views on the constitutionality of issuing RFIs to a taxpayer’s counsel.