Canada (Minister of National Revenue) v. Welton Parent Inc.

Canada (Minister of National Revenue) v. Welton Parent Inc.
Court (s) Database
Federal Court Decisions
Date
2006-01-24
Neutral citation
2006 FC 67
File numbers
T-506-04
Notes
Digest
Decision Content
Date: 20060124
Docket: T-506-04
Citation: 2006 FC 67
Ottawa, Ontario, January 24, 2006
PRESENT: THE HONOURABLE JOHANNE GAUTHIER
BETWEEN:
MINISTER OF NATIONAL REVENUE
Applicant
and
WELTON PARENT INC.
Respondent
REASONS FOR ORDER AND ORDER
[1] Welton Parent seeks an order cancelling or varying my order dated March 31, 2004 authorizing the Minister of National Revenue to impose on it a requirement which seeks to produce information and documents relating to one or more unnamed persons under subsection 231.2(3) of the Income Tax Act, R.S.C. 1985, c.1 (5th Supp.) (ITA).
[2] This order of March 31, 2004 was granted on an ex parte application. Pursuant to subsection 231.2(6) of the ITA, it may be cancelled if I am not satisfied that the conditions set out in paragraphs 231.2(3)a) and b) have been met, and it can be confirmed or varied even if I am satisfied that those conditions have been meet.
[3] In addition to challenging the validity of this order and the resulting requirement on the basis that the statutory conditions for issuing it were not met, Welton Parent challenges its validity on three additional grounds which it says are each independently sufficient to justify quashing it.
[4] It submits that:
i) the requirement imposed on it seeks information and documents that are protected by solicitor-client privilege;
ii) subsections 231.2(3), (5), (6) and section 232 of the ITA unjustifiably infringe sections 7 and 8 of the Canadian Charter of Rights and Freedom, Part I of the Constitution Act, 1982, being Schedule B to the Canada Act 1982 (U.K.), 1982, c.11 (Charter),by failing to provide for adequate protection of solicitor-client privilege and are, therefore, of no force and effect. In that respect, the Court should apply the reasoning of the Supreme Court of Canada in Lavallee, Rackel & Heintz v. Canada (A.G.), [2002] 3 S.C.R. 209 in which section 488.1 of the Criminal Code, R.S.C. 1985, c. C-46, which mirrored section 232 of the ITA, was quashed. Alternatively, for the same reason, the order of March 31, 2004 unjustifiably infringes sections 7 and 8 of the Charter and should be quashed pursuant to subsection 24(1) of the Charter and subsection 231.2(6) of the ITA.
iii) the Minister failed to make a full and frank disclosure of all the facts and information within the knowledge of the Canada Custom Revenue Agency (CCRA) that would indicate that the information and documents sought by the requirement are privileged or potentially privileged.
BACKGROUND
[5] CCRA is conducting audits, for the taxation years of 1997 to 2003 inclusive, of various Canadian employers who have claimed expenses for salaries and wages incurred in respect of contributions to what those unnamed employers claim to be offshore "health and welfare trusts" for the benefit of their employees.
[6] The interpretation bulletin IT-85R2 defines "health and welfare trust" as a vehicle which allows special treatment for employers acting for the benefit of their employees. A health and welfare trust contribution that meets the criteria set out in the bulletin and the costs related to it may be deducted by an employer as a business expense.
[7] During the course of the audits referred to above, approximately twenty-five health and welfare trusts were identified and CCRA is of the view that these trusts did not in fact meet the criteria established in the interpretation bulletin because, among other things:
a) the employers have been contributing amounts to offshore trusts which could revert back to them in the future;
b) the contributions have been unreasonably high in light of the wages earned by the employees and in light of comparable insurance plans;
c) the funds available are used for other things than to provide health and welfare benefits;
d) the payments are not made enforceable by the trust; and
e) the employer and the trustee are not dealing at arm's length.
[8] On that basis, CCRA's position has been that contributions to such trusts will not be deductible in the year they are made.
[9] In the twenty-five cases referred to above, CCRA found an actuarial valuation prepared by the actuarial firm of the respondent, Welton Parent. In each case, it appears that CCRA was well aware that Welton Parent was providing those valuations to Ottawa lawyers. It also knew that the respondent did not deal directly with the unnamed employers.[1]
[10] Although at the time the authorization was sought, CCRA was only aware of the involvement of two lawyers, Gregory Sanders and William Johnston, it is clear that Welton Parent also provided similar services to a third Ottawa lawyer, Hari S. Nesathurai.[2] Each of these lawyers uses a slightly different legal structure to establish their respective group sickness and accident insurance plans, but these plans are essentially the same. A "group sickness and accident insurance plan" is one type of benefit plan that qualifies under the interpretation bulletin IT-85R2 as a "health and welfare trust". Hereinafter, I will refer to the arrangements set up by the three Ottawa lawyers as "the Plans".
[11] It is not contested that the three lawyers were retained to provide legal advice to their clients, the unnamed taxpayers. CCRA takes the position, however, that prior to the reply to its motion record, it was not fully aware of their role and their exact relationship with Welton Parent.
[12] The evidence shows to my satisfaction that the legal mandate of these lawyers included the setting up of the Plans and the giving of an opinion to the unnamed employers on the taxability of expenses associated with the Plans.
[13] There is no evidence that those lawyers actually promoted the use of the Plans[3] or that they were involved in the financing or setting up of the Plans in any capacity other than as legal advisers. In fact, the evidence indicates that employers wishing to set up such Plans were actually referred to the three counsel by accountants and financial advisers. For example, Mr. Sanders received referrals from various Canadian chartered banks, including the Royal Bank of Canadaand the Canadian Imperial Bank of Commerce.
[14] Those lawyers retained Welton Parent directly to perform actuarial valuations of the liabilities and funding requirements of their Plans and to make recommendations based on each unnamed employer's ability to pay. The extent to which the actuarial valuations were used to render the legal opinion and fulfill the legal mandate of each lawyer will be discussed later. It is sufficient to say at this stage that, in addition to being used by the three lawyers for their own purposes, these valuations were also remitted to the custodian or the trustee of the various Plans because, in each case, they had a contractual obligation to obtain such valuations once a given Plan was established.
[15] In the course of some of its audits, CCRA obtained copies of legal opinions rendered by Mr. Sanders and Mr. Johnston to some of the taxpayers it was investigating. In those instances, the Court can only assume that the taxpayers waived their legal advice privilege.
[16] As it appears clearly from the affidavit of Daniel Rivet, dated March 5, 2004 and submitted in support of the Minister's ex parte application to the Court for the order authorizing the imposition of a requirement on Welton Parent, one of the main purposes of the requested requirement was to obtain the names of the employers who had established such Plans and were still unknown to CCRA.
[17] In his affidavit, Mr. Rivet also mentions that, if necessary, CCRA would also issue a requirement to the employers or the "promoters" at a later date to obtain additional documentation such as letters of wishes and trust agreements.
[18] The involvement of the Ottawa lawyers is mentioned only once in this affidavit and it is in a paragraph which explains why the arrangements failed to meet the criteria set out in the interpretation bulletin.
[19] At subsection 9(h) of his affidavit, Mr. Rivet states:
9) Review of trust agreements to date reveal that these arrangements are failing to meet the above criteria for a number or reasons. These include cases where:
(...)
(h) the documents in the files that have been reviewed by the CCRA are similar and originate from two Ottawa based lawyers (the "promoters");
[20] Thereafter, in his affidavit and in his testimony before the Court at the hearing to obtain the authorization, Mr. Rivet referred to these lawyers only as promoters. He did not indicate that CCRA had obtained copies of the legal opinions provided by these lawyers which clearly indicate that their role was mainly to act as legal advisers to their clients, the unnamed employers. In the course of these audits, it also appears that CCRA had several discussions with Welton Parent and at least one of the Ottawa lawyers.
[21] In addition to the flaws identified in paragraph 9 of his affidavit, Mr. Rivet also indicates that Welton Parent did not calculate the contributions to the Plans in accordance with accepted actuarial standards (paragraph 12 of his affidavit).
[22] The order of March 31, 2003 was issued without special conditions or reference to solicitor-client privilege. When the requirement was delivered to Welton Parent, it immediately contacted the three lawyers who had appointed it. The lawyers in turn sought to obtain instructions from the unnamed employers as to whether or not they were authorized to waive solicitor-client privilege, with respect to their names and the other information in the files of Welton Parent. They were instructed to file the present motion to preserve privilege and have done so through the respondent, Welton Parent.[4]
[23] No attempt was made by CCRA to contact the Ottawalawyers to discuss the issue of privilege when the requirement was served. However, CCRA agreed to suspend the time granted to reply to the requirement until a decision is made with respect to this motion.
[24] Extensive evidence was filed by both parties on this motion. In particular, the respondent filed affidavits by Gregory Sanders, William Johnston, Hari S. Nesathurai and Joann Williams (Welton Parent) and the Minister filed an additional affidavit of Daniel Rivet. All affiants were cross-examined.
LEGISLATION
[25] The most relevant provisions of the ITA are the following:
Income Tax Act, R.S.C. 1985, c.1 (5th Supp.):
231.2(3) On ex parte application by the Minister, a judge may, subject to such conditions as the judge considers appropriate, authorize the Minister to impose on a third party a requirement under subsection 231.2(1) relating to an unnamed person or more than one unnamed person (in this section referred to as the "group") where the judge is satisfied by information on oath that
(a) the person or group is ascertainable; and
(b) the requirement is made to verify compliance by the person or persons in the group with any duty or obligation under this Act.
(c) (Repealed by S.C. 1996, c. 21, s. 58(1).)
(d) (Repealed by S.C. 1996, c. 21, s. 58(1).)
(5) Where an authorization is granted under subsection 231.2(3), a third party on whom a notice is served under subsection 231.2(1) may, within 15 days after the service of the notice, apply to the judge who granted the authorization or, where the judge is unable to act, to another judge of the same court for a review of the authorization.
(6) On hearing an application under subsection 231.2(5), a judge may cancel the authorization previously granted if the judge is not then satisfied that the conditions in paragraphs 231.2(3)(a) and 231.2(3)(b) have been met and the judge may confirm or vary the authorization if the judge is satisfied that those conditions have been met.
Loi de l'impôt sur le revenu, L.R.C. (1985), ch. 1 (5e suppl.) :
231.2 (3) Sur requête ex parte du ministre, un juge peut, aux conditions qu'il estime indiquées, autoriser le ministre à exiger d'un tiers la fourniture de renseignements ou production de documents prévue au paragraphe (1) concernant une personne non désignée nommément ou plus d'une personne non désignée nommément -- appelée "groupe" au présent article --, s'il est convaincu, sur dénonciation sous serment, de ce qui suit:
a) cette personne ou ce groupe est identifiable;
b) la fourniture ou la production est exigée pour vérifier si cette personne ou les personnes de ce groupe ont respecté quelque devoir ou obligation prévu par la présente loi;
c) (Abrogé par L.C. 1996, ch. 21, art. 58(1).)
d) (Abrogé par L.C. 1996, ch. 21, art. 58(1).)
(5) Le tiers à qui un avis est signifié ou envoyé conformément au paragraphe (1) peut, dans les 15 jours suivant la date de signification ou d'envoi, demander au juge qui a accordé l'autorisation prévue au paragraphe (3) ou, en cas d'incapacité de ce juge, à un autre juge du même tribunal de réviser l'autorisation.
(6) À l'audition de la requête prévue au paragraphe (5), le juge peut annuler l'autorisation accordée antérieurement s'il n'est pas convaincu de l'existence des conditions prévues aux alinéas (3)a) et b). Il peut la confirmer ou la modifier s'il est convaincu de leur existence.
[26] The other relevant sections such as 231.7, 232 and 238 of the ITA, sections 7, 8 and 24 of the Charter and sections 487 and 488.1 of the Criminal Code are included in Annex 1.
ANALYSIS
A- Should the requirement be cancelled because it was not sought for the purpose of verifying compliance with any "duty or obligation" under paragraph 232.1(3)b) of the ITA?
[27] As mentioned, the respondent argues that the applicant has failed to provide the Court with proper evidence showing that the requirement was necessary to verify compliance with any specific "duty or obligation" under the ITA. In their view, the Minister only referred to an alleged breach of an untested interpretation bulletin which is not binding on the courts or CCRA.
[28] Welton Parent submits that subsection 231.2(3) sets a very high threshold for the issuance of an unnamed person requirement that must be contrasted with the threshold set out at subsection 231.2(1), which permits the issuance of a requirement "for any purpose related to the administration or enforcement of this act".
[29] On the other hand, the Minister says that the requirement is valid because the requested information may be relevant to the determination of the tax liability of the unnamed taxpayers and that, indeed, section 231.2 sets a low threshold even for unnamed persons.
[30] It is not disputed that, in this particular instance, the group of unnamed taxpayers is ascertainable (paragraph 231.2(3)a)). I am satisfied that the affidavit of Mr. Rivet (in particular paragraphs 3, 17, 21 and 25) and his testimony (particularly at page 464, line 10 through page 465 of volume 4 of Welton Parent's motion record) at the ex parte hearing established that the Minister was seeking the required information to verify compliance by the unnamed employers with their duty to pay taxes on all revenues except for deductions permitted under the ITA.
[31] The unnamed employers are clearly the persons who are being investigated by the applicant and I am satisfied on the evidence presented that there may be a problem with the deductions made by these unnamed employers, with respect to their contributions to the Plans.
[32] This situation is very similar to the one recently reviewed by the Federal Court of Appeal in Canada (M.N.R.) v. National Foundation for Christian Leadership, [2005] F.C.J. No. 1115 (F.C.A.)(QL), where Justice Sharlow confirmed that the conditions in paragraph 231.2(3)b) had been properly met. I conclude that the order authorizing the issuance of the requirement should not be cancelled on that basis.
B- Are the information and documents targeted by the requirement protected from disclosure by solicitor-client privilege?
1) Information and documents other than the names of the employers:
[33] After reviewing the evidence, particularly the affidavits of Gregory Sanders, William Johnston and Hari S. Nesathurai, the transcripts of their cross-examinations and the samples of their opinions, I conclude that the valuation reports of Welton Parent and the advice it provided were important elements on which all counsel relied to give their opinions on the tax consequences of the Plans they were mandated to establish on behalf of their clients. There is no doubt that, for Mr. Sanders, an actuarial opinion was necessary to support the reasonableness of the clients' deductions under the ITA (motion record, volume 4, page 558). Similarly, Mr. Johnston's uncontradicted evidence was that such an opinion was an essential pre-condition for him to opine on compliance with Canadian income tax law (motion record, volume 3, page 217). For Mr. Nesathurai, it is equally clear that the actuary report was essential to determine whether the funding of the plan was reasonable. Only after receiving a confirmation of the reasonableness of the actuarial assumptions was he able to provide his legal opinion to his client. Even the applicant recognizes that pursuant to the interpretation bulletin, an actuarial report is essential to determine whether the contributions can be deducted.
[34] There is uncontradicted evidence that the lawyers' clients expected that the information given to their lawyers for the purpose of obtaining legal advice would remain privileged and confidential and would be disclosed to no one without their express consent.
[35] For example, the evidence of Gregory Sanders is that he discussed privilege virtually every time he first met with a potential client. He advised his clients that all information that they conveyed to him would be privileged, "including their names and contact information", since he was a tax lawyer and disclosing their name would violate their rights with respect to privilege (cross-examination of Mr. Sanders, motion record, volume 4, pages 484 to 486, questions 49, 50 and 52).
[36] It appears that Mr. Johnston even advised his clients not to tell others that he was their lawyer, because Ottawa is not a very big town and people know that he is a tax law practitioner with a specialized tax practice (motion record, volume 4, page 646).
[37] The lawyers also provided evidence that they had always expected that all the information that they provided to Welton Parent about their clients would be privileged and would be kept in the strictest confidence and not disclosed to anyone except themselves or their clients.
[38] On that basis, Welton Parent, on behalf of the unnamed employers, urges the Court to conclude that all the information in its files are protected by the legal advice privilege.
[39] I will deal with the status of the names of the various employers as a separate issue because, in respect of this question, the parties do not appear to disagree on the law. Rather, they disagree on how it should apply in the particular circumstances of this case. In contrast, their disagreement with respect to the other information and documentation referred to in the requirement directly concerns the extent of the concept of legal advice privilege in Canada.
[40] In effect, the respondent says that the law in Canadaactually recognises that its report and correspondence with the Ottawa lawyers are privileged. For Welton Parent, a correct interpretation of the decision of President Jackett in Susan Hosiery Ltd. v. Canada (M.N.R.), [1969] 2 Ex. C.R. 27 indicates that communications between a client's accountant and a solicitor are privileged where the accountant was hired in the context of providing legal advice.
[41] This decision was in their view properly interpreted and applied by Justice Gibson in Interprovincial Pipe Line Inc. v. M.N.R., [1996] 1 F.C. 367 at page 383, and by Justice Heneghan in AFS and Co. v. Canada, 2001 D.T.C. 5330.
[42] According to the respondent, Susan Hosiery has been interpreted too restrictively in several decisions including the decision of the Court of Appeal of Ontario in General Accident Assurance Company et al. v. Chrusz et al., [1999] O.J. No. 3291.The respondent also says that Chrusz should be distinguished because, contrary to what happened in that case, there is no evidence here that the unnamed taxpayers are trying to use the legal advice privilege to artificially shield evidence that would otherwise not have been privileged.
[43] The respondent also refers to other decisions, such as Long Tractor Inc. v. Canada (Deputy Attorney General) (1997), 155 D.L.R. (4th) 747, Methanex Corp. v. Canada(Department of National Revenue), [1997] 1 W.W.R. 573, Cineplex Odeon Corp. v. M.N.R. (1994), 114 D.L.R. (4th) 141, Telus Communications Inc. v. Canada (Attorney General), [2004] F.C.J. No. 1918 (C.A.)(QL), which allegedly support its position.
[44] There is no doubt, and it is not contested, that solicitor-client privilege is a fundamental right and a substantive rule of law in Canada (Canada v. Solosky, [1980] 1 S.C.R. 821, Descôteaux v. Mierzwinski, [1982] 1 S.C.R. 860, R. v. McClure, [2001] 1 S.C.R. 445 and Lavallee, above). Courts have also often recognized the need to adopt a very liberal approach to the scope of such privilege (Stevens v. Canada (Prime Minister), [1998] 4 F.C. 89 (C.A.) at paragraph 21).
[45] Because of the importance of the concept and recognizing the significance of the issue raised by the respondent in the context of multi-disciplinary practices and in areas of the law which have become extremely complex, such as tax law, the Court has very carefully examined all the authorities cited even though I will not deal in detail with each and every one of them here.
[46] Before reviewing these authorities, it is important to mention that the parties agree that Welton Parent was not serving as a channel of communication between the three lawyers involved
in this case and their clients. In fact, Welton Parent never communicated with anybody other than the solicitors themselves.[5]
[47] Also, as indicated, Welton Parent has taken the position that the Court does not need to change the law to conclude that their files are privileged. It simply has to properly construe the existing case law.
[48] The Minister takes the opposite view. He says that Canadian law on the subject has been properly summarized by Justice Doherty in Chrusz and that to conclude that the documentation and information in the possession of Welton Parent in this case is privileged would require an extension of the law with respect to legal advice privilege.
[49] In Susan Hosiery, the Exchequer Court of Canada used the decision in Wheeler v. Le Marchant (1881), 17 Ch. D. 675 as the starting point for its analysis of the law with respect to solicitor-client privilege.
[50] In Wheeler, a land surveyor had been retained by a solicitor for the purpose of obtaining information required to enable him to give the legal advice sought by his client.
[51] As in the present case, it was clear that the land surveyor had not been engaged to serve as a conduit between the solicitor and his client for the purpose of obtaining legal advice. He was not a representative or agent of the client. The English Court of Appeal decided that the communications between the solicitor and his expert were not communications to which legal advice privilege extended.
[52] After quoting from Justice Cotton's decision in Wheeler, President Jackett said that none of the decisions to which he had been referred since then seemed to have changed or added to the law so far as it was relevant to what he had to decide on the motion before him.
[53] I therefore understand that in Susan Hosiery, the Court applied to the particular facts before it the law as it then stood. The Court simply reformulated the principles set out in Wheeler, by saying at paragraph 8:
(a) all communications, verbal or written, of a confidential character, between a client and a legal adviser directly related to the seeking, formulating or giving of legal advice or legal assistance (including the legal adviser's working papers, directly related thereto) are privileged; and
(b) all papers and materials created or obtained specially for the lawyer's "brief" for litigation, whether existing or contemplated, are privileged.
[54] It then added at paragraph 12:
Applying these principles, as I understand them, to materials prepared by accountants, in a general way, it seems to me
(a) that no communication, statement or other material made or prepared by an accountant as such for a business man falls within the privilege unless it was prepared by the accountant as a result of a request by the business man's lawyer to be used in connection with litigation, existing or apprehended; and
(b) that where an accountant is used as a representative, or one of a group of representatives, for the purpose of placing a factual situation or a problem before a lawyer to obtain legal advice or legal assistance, the fact that he is an accountant, or that he uses his knowledge and skill as an accountant in carrying out such task, does not make the communications that he makes, or participates in making, as such a representative, any the less communications from the principal, who is the client, to the lawyer; and similarly, communications received by such a representative from a lawyer whose advice has been so sought are none the less communications from the lawyer to the client.
[55] Based on the evidence then before the Court and after recognizing that, in practice, smaller corporations do engage accountants to act for them in such matters, President Jackett concluded that Mr. Pall, Susan Hosiery's auditor, was indeed acting as representative of Susan Hosiery for the purpose of obtaining legal advice from Susan Hosiery's lawyer when it communicated with the lawyer. Thus, their communications were privileged.
[56] This interpretation of Wheeler has been adopted in England and in Australia (see Pratt Holdings Pty Ltd. v. Commissioner of Taxation, [2004] F.C.A.F.C. 122 (F.C.A.) at paragraphs 23 to 33 and 91 to 97, Price Waterhouse (a firm) v. BCCI Holdings (Luxembourg) SA and other, [1992] BCLC 583 (Ch. Div.), page 5, Three Rivers District Counsel and others v. Governor and Company of the Bank of England (No. 5), [2004] UKHL 48, [2005] 4 All ER 948 (H. L.) at paragraph 99).
[57] This is also exactly how the Court of Appeal of Ontario in Chrusz understood Wheeler and Susan Hosiery (see pages 22 and 23 to 27).
[58] For example, at page 23, the Court says: "Wheeler v. Le Marchant, supra, illustrates the first principle that communications to or by a third party are not protected by client-solicitor privilege merely because they assist the solicitor in formulating legal advice for a client". In that respect, Justice Doherty notes that one must be careful when reviewing authorities on this subject given the inconsistent terminology used. He also points out that one must ascertain that comments made in a case about solicitor-client privilege were indeed intended to apply to communications with third parties where litigation was not ongoing or not contemplated.
[59] In Chrusz, the Court of Appeal had to determine whether the report of a claims adjuster who had originally been retained directly by the client, an insurance company, was privileged because, sometime after the appointment of this expert, the insurance company retained a lawyer and directed the claims adjuster to report to the lawyer. The Court of Appeal had to review and analyze the extent of the solicitor-client privilege not only in the context of legal advice but also in the context of litigation because in that case, ultimately, the insurance company commenced an action for fraud against its insured.
[60] The Court considered the rationale for the legal advice privilege (referred to as the solicitor-client privilege in the decision as opposed to the litigation privilege) and reviewed the authorities on the subject, particularly in respect of its application to communications by or to a third party. It concluded[6] that the privilege extended to all situations in which the third party's expertise was required to interpret, for the solicitor, information provided by the client or when the third party serves as a conduit of advice from the lawyer to the client or of instructions from the client to the lawyer.
[61] For Justice Doherty, the existence of a solicitor-client privilege should not depend on the concept of agency; rather, one should adopt a functional approach to determine if it should apply. In that respect, he said at page 26:
I agree with the Divisional Courtthat the applicability of client-solicitor privilege to communications involving a third party should not be determined by deciding whether Mr. Bourret is properly described as an agent under the general law of agency. I think that the applicability of client-solicitor privilege to third party communications in circumstances where the third party cannot be described as a channel of communication between the solicitor and client should depend on the true nature of the function that the third party was retained to perform for the client. If the third party's retainer extends to a function which is essential to the existence or operation of the client-solicitor relationship, then the privilege should cover any communications which are in furtherance of that function and which meet the criteria for client-solicitor privilege.
Client-solicitor privilege is designed to facilitate the seeking and giving of legal advice. If a client authorizes a third party to direct a solicitor to act on behalf of the client, or if the client authorizes the third party to seek legal advice from the solicitor on behalf of the client, the third party is performing a function which is central to the client-solicitor relationship. In such circumstances, the third party should be seen as standing in the shoes of the client for the purpose of communications referable to those parts of the third party's retainer.
[62] It is interesting to note that in drawing this distinction between essential and non-essential functions, Doherty J.A. returned to the seminal case of Wheeler.
[63] Applying this approach, the Court in Chrusz found that the claims adjuster did not have the authority to seek legal advice or to give instructions on legal matters on behalf of the insurance company; his authority did not reach inside the client-solicitor relationship. Rather, his function was to educate the solicitor as to circumstances surrounding the fire so that the client could receive the benefit of better informed advice from his lawyer and could then instruct the latter as to the legal steps to be taken on its behalf. Thus, the claims adjuster's correspondence and communications with the lawyer were not privileged.[7]
[64] In College of Physiciansof British Columbia v. British Columbia (Information and Privacy Commissioner), [2002] B.C.J. No. 2779, the Court of Appeal of British Columbia found the analysis of Justice Doherty in Chrusz compelling and adopted it to determine whether the experts' opinions obtained by the College's lawyer were covered by a legal advice privilege.
[65] In that particular case, the experts were retained to help the lawyer interpret and assess whether the evidence supported an allegation that a certain doctor had hypnotized his patient. The Court, after adopting the functional approach, said:
The experts were not authorized by the College to direct the lawyer to act or to seek legal advice from her. The experts were retained to act on the instructions of the lawyer to provide information and opinions concerning the medical basis for the Applicant's complaint. While the experts' opinions were relevant, and even essential, to the legal problem confronting the College, the experts never stood in the place of the College for the purpose of obtaining legal advice. Their services were incidental to the seeking and obtaining of legal advice.
[66] It concluded that the opinions were not covered by legal advice privilege.
[67] In my review, I have obviously considered the decision of the New Brunswick Court of Appeal in Lamey (Litigation Guardian of) v. Rice (2000), 190 D.L.R. (4th) 486 (N.B.C.A.). In that case, the Court does not refer to or mention Chrusz and, after a brief analysis, it concludes that an adjuster's report prepared at the request of the lawyer, as well as the correspondence between the lawyer and the adjuster, were protected by solicitor-client privilege.
[68] Having carefully considered the reasoning of the Court in that case, I agree with the comments found in the Second Edition Supplement prepared by S. Lederman and A. Bryant, The Law of Evidence in Canada, LexisNexis Buttherworths, 2004, at paragraph 14.71.3, that the better view is that of Justice Doherty in Chrusz.
[69] Before concluding my comments on the authorities, I will briefly refer to the decisions of this Court and of the Federal Court of Appeal[8] cited by the respondent.
[70] In Telus, Justice Linden had to determine whether excised portions of a memorandum were subject to solicitor-client privilege. The Court reviewed certain cases dealing with legal advice communicated to a client through an agent and referred to Susan Hosiery as a case where "the communications between two accountants and a lawyer were deemed to be privileged because the accountants were obtaining legal advice on behalf of the client" (paragraph 15).
[71] The respondent put some emphasis on the fact that Justice Linden approved the decision of Master Peppiat in Sunwell Engineering Co. et al. v. Mogilevski et al. (1986),9 C.P.C. (3d) 479. I do not see how this case supports the respondent's position for it is clear that, in Sunwell, the communications between the patent agent and the client for which privilege was sought were nothing more than a mere passing on and restating of the solicitor's opinion obtained by the patent agent on behalf of his client. This was again a simple conduit case as was the case before the Court of Appeal in Telus, above.
[72] The respondent then says that Justice Gibson, in Interprovincial Pipe-Line Inc., above, accepted that solicitor-client privilege extends "to advice provided by professionals retained by outside counsel in the course of preparation of legal advice to the counsel's clients" (at page 383).
[73] The learned judge did use such a description of the solicitor-client privilege in his decision but, in doing so, he was simply restating the principle as it was put before him by the parties. He clearly says that such a statement of the law was not in dispute. Therefore, he does not analyze the authorities in that respect. There are insufficient details in the decision to enable me to conclude without a doubt that, in Interprovincial Pipe-Line Inc., the accountant Price Waterhouse was not a third party whose functions fell within the parameters set out in Chrusz and Susan Hosiery.
[74] My own review of the authorities leads me to conclude that the statement put before the Court by the parties in Interprovincial Pipe-Line Inc. was inaccurate if it was meant to apply to situations where litigation was not ongoing or contemplated.
[75] The respondent then referred to the decision of Justice Heneghan in AFS and Co., above, particularly to paragraph 21 of her decision where she says:
The jurisprudence has established that there are two distinct branches of solicitor-client privilege: litigation privilege and legal advice privilege. The former protects all communications between the solicitor, client or third parties made in the course of existing or contemplated litigation. The latter protects all communications between a solicitor and client and third parties, that directly relate to the seeking, formulating or giving of legal advice.
(My emphasis)
[76] Again, the decision contains few details as to the exact function performed by and role of the third party whose communications were the subject of the motion. Having carefully considered this decision, I am not prepared to accept that Justice Heneghan intended to add to or extend the law as it existed prior to her decision and as it was expressed in Susan Hosiery and Chrusz, to which she refers.
[77] In any event, Justice Heneghan revisited this issue in Belgravia Investments Ltd. v. Canada, [2002] F.C.J. No. 870. In that case, CCRA requested documents relating to certain investments by Belgravia and the taxpayer claimed that some of them were protected by solicitor-client privilege. This documentation consisted mostly of communications moving from Belgravia to its advisers, both legal and non legal, and the exchange of documents between the legal advisor and the other professional advisers, primarily the accountants.
[78] Justice Heneghan reviews the general principles applicable as well as various authorities, including Susan Hosiery and Chrusz, to determine if there were limits to the application of solicitor-client privilege to communications with non legal professionals or third parties. The learned judge concludes at paragraphs 49 and 50:
The limits on solicitor-client privilege, in relation to non-legal professionals, has been considered. The general rule is that communications, statements or other materials prepared by third parties for and on behalf of a solicitor are subject to the privilege only where those documents are prepared in contemplation of litigation; (...)
Accounting documents will be subject to the privilege if the accountant is used as a representative of a client to obtain legal advice; (...) Where a communication is made to an agent, such as an accountant who must consider it and provide an individual opinion, no privilege attaches. Where a document is created by a lawyer who has been consulted by the client's own lawyer in relation to the client's business, the general rule is that such documents will be privileged; (...).
(My emphasis)
[79] If Justice Heneghan's position in AFS & co. was ambiguous, she certainly clarified her views in Belgravia. I see nothing in her summary of the law that differs from my understanding of the authorities.[9]
[80] In view of the foregoing, the Court concludes that, in the present context, Welton Parent's file, including its reports, notes, drafts and communications with the unnamed taxpayers' lawyers, does not fall within the class of solicitor-client privilege simply because these lawyers used the respondent's views to provide legal advice to their client.
[81] Thus, this leaves only the question of whether, in the present case, the names of the employers are protected by solicitor-client privilege.
2) The names of the employers:
[82] The issue with respect to the disclosure of the names of the employers, as I understand it here, is that, in the very particular circumstances of this case, disclosure of this information would effectively reveal not only the fact that these employers sought legal advice from those specific lawyers but also the nature and the very substance of the legal advice given by the lawyers to these employers with respect to the Plans.
[83] Before reviewing the particular circumstances on which the respondent relies to support its position, I will briefly review the applicable principles.
[84] First, it is agreed that, as mentioned by Justice Arbour in Lavallee, at paragraph 28, "the names of the client may very well be protected by solicitor-client privilege, although this is not always the case".
[85] In saying this, Justice Arbour was echoing the concerns expressed by Justice Coté of the Alberta Court of Appeal in that same case ((2000), 184 D.L.R. (4th) 25) who had said at paragraph 56 that :
The very fact that a certain client consulted a certain type of lawyer may be very sensitive, and may indirectly reveal impo