Iggillis Holdings Inc. v. Canada (National Revenue)

Iggillis Holdings Inc. v. Canada (National Revenue)
Court (s) Database
Federal Court Decisions
Date
2016-12-07
Neutral citation
2016 FC 1352
File numbers
T-126-15
Notes
A correction was made on October 30th, 2017
Reported Decision
Decision Content
Date: 20161207
Docket: T-126-15
Citation: 2016 FC 1352
Ottawa, Ontario, December 7, 2016
PRESENT: The Honourable Mr. Justice Annis
BETWEEN:
THE MINISTER OF NATIONAL REVENUE
Applicant
and
IGGILLIS HOLDINGS INC. AND IAN GILLIS
Respondents
and
ABACUS CAPITAL CORPORATIONS MERGERS AND ACQUISITION
Intervener
JUDGMENT AND REASONS
Table of Contents
I. Overview.. 4
II. Statement of Facts. 14
III. Legislative Framework. 20
IV. Issues. 21
V. Analysis. 21
A. Is the Abacus Memo Prima Facie Protected by Solicitor-client Privilege?. 21
(1) The Law of SCP. 21
(2) The Abacus Memo is prima facie protected by SCP. 22
B. Is the Abacus Memo Protected by Common Interest Privilege?. 27
(1) The Law of CIP. 27
(2) The Abacus Memo is protected by CIP in accordance with Pitney Bowes. 32
C. Is CIP a Valid Component of the Doctrine of Solicitor-client Privilege?. 37
(1) Introduction. 37
(2) The Establishment and Recent Expansion of Legal Advisory CIP. 38
(3) Advisory CIP as an Exception to Waiver is Irreconcilable with and Eviscerates SCP Doctrine of any Meaning 56
(4) SCP Must Be Construed Narrowly. 64
(5) Emerging Rationales for CIP Have No Basis. 68
D. Maintaining Litigation CIP while Rejecting Advisory CIP. 71
(1) Introduction. 71
(2) Should the Court consider whether CIP be confined to the litigation context?. 72
(3) The Rationale and Purposes of Litigation Privilege and Advisory SCP are Fundamentally Different 74
(4) Communications in Anticipation of Litigation Are Distinct from Those that Anticipate Creating Litigation 81
(5) The Different Rationales of Litigation Privilege and SCP Result in Different Rationales for Whether to Recognize a CIP 84
(6) Revisiting Ambac and Professor Giesel’s Article. 86
VI. A Cost/Benefit Analysis of CIP. 88
A. Cost Benefit Analysis Cannot be Applied to Graft Advisory CIP onto the Class Privilege of SCP 88
B. The Benefits of CIP to the Administration of Justice. 90
(1) The benefits to the administration of justice described in Ambac. 90
(2) Encouraging quality disclosure for more effective representation leading to more compliant behaviour 92
(3) CIP Assists in Avoiding Litigation and Liability. 96
(4) Systemic Benefits of CIP. 99
C. Costs of CIP to the Administration of Justice. 100
(1) An Expansion of the Quantity of Privileged Communications. 100
(2) CIP Denies the Courts Important Relevant Substantive Evidence. 102
(3) Advisory CIP Provides a Privilege Not Available to Most Users of Advisory Legal Services. 104
(4) Potential for Abuse of CIP. 105
(5) Advisory CIP is a Cost to the Administration of Justice By Enabling Commercial Transactions that Anticipate Litigation. 110
D. External Social Policies. 110
(1) Policy Factors are Irrelevant to CIP. 111
(2) The social policy benefits of CIP must be proven on a balance of probabilities. 112
(3) The evidence supporting that CIP is necessary to foster commercial transactions is speculative at best 114
(4) Advisory CIP Undermines the Administration of Justice by Enabling Commercial Transactions that Anticipate Litigation. 117
(5) Many commercial transactions said to be enabled by CIP provide no value but contribute to the challenges facing societies. 119
VII. Conclusions. 122
I. Overview [1] This application concerns whether the Respondents are entitled to claim a Common Interest Privilege [CIP] to protect solicitor-client privileged communications disclosed during the negotiation of a commercial transaction for the sale of the shares of corporations of the Respondents to the Intervener. The communications are alleged to pertain to a common legal interest of the contracting parties to enable the completion of the sale.
[2] Given the somewhat unorthodox evolution of the disposition of this matter, the Court provides a brief description of the process followed to reach its conclusions. This also serves as a roadmap of the decision.
[3] The Applicant served an identical Requirement for Information [the Requirements] on the Respondents to produce a document [the Abacus Memo or the Memo] pursuant to subsection 231.2(1) of the Income Tax Act, RSC 1985, c 1 (5th Supp), as amended [the ITA or the Act].
[4] The two Respondents refused to produce the Memo. The Applicant now brings this summary application under subsection 231.7(1) of the Act to enforce the Requirements. Abacus Capital Corporations Mergers and Acquisitions [Abacus or the Intervenor] has intervened in this matter, filing evidence and advancing arguments in support of its claim of solicitor-client privilege [SCP] over the Abacus Memo.
[5] The Abacus Memo is authored by Joel Nitikman [Mr. Nitikman], legal Counsel for the Intervener, Abacus, and was disclosed to Richard Kirby [Mr. Kirby], legal Counsel for the two Respondents, in the course of a purchase by Abacus and sale by the two Respondents of certain assets and shares [the shares]. Mr. Kirby also participated in the formulation of the contents of the Memo in exchanges with Mr. Nitikman prior to it being drafted.
[6] Abacus is composed of a large group of corporations, partnerships and trusts. It assists in tax planning efforts, in particular by providing advice on corporate transaction structures. The benefits of this advice, in the form of reduced payable taxes, are shared with the persons or entities using its services. In this case, there were 17 sub-transactions [the transactions] entered into (including pre-sale and post-sale transactions and the sale itself) for the purpose of finalizing what is described collectively as the “Transaction”, whereby an Abacus entity acquired the shares of the Respondents’ corporations.
[7] No formal letter of intent was entered into between the Respondents and Abacus. However, the transactions and their effect in terms of the Act’s application to them were described in the Memo over which the Respondents now claim as protected by SCP.
[8] More specifically, the Respondents claim that the Memo is subject to CIP. This is a legal doctrine that is an adjunct to standard SCP, whereby the disclosure of privileged communications made to parties sharing a common legal interest does not result in waiver of the privilege so as to terminate its protection from disclosure in truth-serving legal processes.
[9] There remains some confusion concerning the application of CIP. There is no controversy regarding the privileged nature of communications involving a common interest in situations where two or more clients are represented by the same lawyer. This is commonly described as joint client privilege [JCP]. However, there is some controversy with regard to the doctrine of SCP where different clients are represented by different lawyers [allied lawyers] who share privileged information on a matter of common legal interest not related to actual or anticipated litigation. These most often pertain to commercial transactions, such as in this matter. For the purposes of this case, and in most recent cases on this subject, CIP refers specifically to the allied lawyer situation, as distinct from the sharing of legal communications in a JCP context.
[10] The Respondents rely on copious American and Canadian case law, indeed on jurisprudence from around the common law world, to demonstrate that CIP is an accepted doctrine to be applied in all areas of SCP, including commercial transactions. There remains, however, considerable controversy over the scope of CIP, as thirteen American States have restricted it to litigation-related matters including situations of anticipated litigation. In particular, the Court will be referring to the very recent decision of June 9, 2016 by the New York Court of Appeals in the matter of Ambac Assurance Corp v Countrywide Home Loans Inc, 27 NY (3d) 616 (CA 2016) [Ambac] that makes this distinction and refused to apply CIP outside of litigation-related circumstances. For the purpose of analyzing this distinction, non-litigation CIP is referred to most often in this decision as “(legal) advisory CIP” to distinguish it from “litigation CIP”. Advisory CIP is also often referred to in the case law as “transactional CIP”, because most of the jurisprudence on the subject concerns commercial transactions.
[11] It is not the Applicant’s submission that advisory CIP should be distinguished from litigation CIP. Advisory CIP has broad acceptance across Canada, although only considered once in this Court in Pitney Bowes of Canada Ltd v R, 2003 FCT 214 [Pitney Bowes]. The decision upheld the doctrine, but in what the Court determines were JCP circumstances. Neither CIP, nor any distinction in its application has been considered by the Federal Court of Appeal, the Supreme Court of Canada, or the Supreme Court of the United States.
[12] The Applicant argues that the Memo is not privileged because it is primarily a “business document” wherein the legal advice is incidental to the true nature of the transaction. The Applicant also claims that the Memo is not subject to CIP and, therefore, that Abacus lost or waived its privilege over the Memo when Mr. Nitikman circulated the Memo to Mr. Kirby. The Court rejects the Applicant’s submissions.
[13] Nevertheless, the consequences of CIP in this case caused the Court concerns in terms of fairness due to its impact if applied in a legal process challenging the Transaction. The Court also had difficulties understanding the justification for the doctrine of CIP as articulated in the Canadian jurisprudence cited in Pitney Bowes. The Court was not originally aware of the unsettled state of the law in the United States with respect to the limited application of CIP to litigation related matters, as this was not an issue raised by the Applicant.
[14] The Court’s first concern was the effect of CIP on the Court’s ability at trial to ultimately decide the substantive matter if the Memo was found to be privileged. In this case, the only evidence before the Court describing how the Transaction was concluded would have been the resulting transactions themselves, as described in public documents. This was acknowledged by Counsel for the Respondents. This means that lawyer-to-lawyer legal communications and related information pertaining to how the agreement was negotiated would no longer be available to the courts. This struck the Court as a result that would not only deny the courts an extensive quantity of information on how transactions were formed, but also highly relevant substantive information that in many respects could determine the outcome of the litigation.
[15] The Court’s second difficulty arose from the Pitney Bowes decision. The Respondents argue that it is binding on this Court based on the principles of “horizontal” stare decisis and judicial comity applying to decisions of the same court. As it turns out, I do not follow Pitney Bowes as it is distinguishable on the facts as a decision of joint representation. There are also “compelling reasons” that I provide not to apply it (R v Henry, [2005] 3 SCR 609 at para 44 (SCC); Pfizer Canada Inc v Apotex Inc, 2014 FCA 250 at para 115). One of these was my initial concern about the Court’s conclusion that “economic and social values inherent in fostering commercial transactions […] favoured the recognition of such a privilege” (Pitney Bowes at para 17).
[16] The Court did not understand how SCP, which has long been recognized as a class form of privilege not requiring substantiation, was being rationalized in a specific area of legal practice relating to commercial transactions, and moreover, that this was being done on the basis of “economic and social values”. This appeared to be an application of the case-by-case evaluation required for the establishment of a new form of privilege. Upon further examination, the Court concludes that SCP issues are, in any event, limited to factors relating to the administration of justice, meaning that economic and social values are irrelevant to the discussion.
[17] In terms of advancing the “economic and social values” of society, I also could not apply this reasoning to the seventeen pro forma transactions in this case, which were undertaken for the sole purpose of tax avoidance on a commercial transaction. Tax avoidance is permitted in view of the strict application of principles of interpretation and the rule of law, but it is not conduct that should be encouraged and assisted by new privilege doctrines meant to keep relevant evidence challenging the legality of these schemes out of the courts.
[18] Third, the Court also recognized a discrepancy between CIP and what could be described as the founding “Wigmorean principles” of SCP raised in two American cases presented by the Applicant. Among the passages from Wigmore that caught the Court’s eye, was the following citation reproduced in Duplan Corp v Deering Milliken Inc, 397 F Supp 1146 (DSC 1974) at 1175 [Duplan]:
The privilege is designed to secure objective freedom of mind for the client in seeking legal advice (ante, sec. 2291). It has no concern with other persons’ freedom of mind, nor with the attorney’s own desire for secrecy in his conduct of a client's case. It is therefore not sufficient for the attorney, in invoking the privilege, to state that the information came somehow to him while acting for the client, nor that it came from some particular third person for the benefit of the client.
[emphasis added]
[19] The Court further understood that there was originally some controversy over whether CIP could apply beyond JCP circumstances. This raised the issue as to how Wigmorean principles on SCP were circumvented. In Bank Brussels Lambert v Credit Lyonnais (Suisse), 160 FRD 437 (SD NY 1995) [Bank Brussels Lambert], there were references to several cases, one being North River Insurance Co v Philadelphia Reinsurance Corp, 797 F Supp 363 (D NJ 1992). The Court in that matter could not rationalize the inconsistency between the doctrine of CIP and SCP principles stating at page 367 that “the common interest doctrine is completely unleashed from its moorings in traditional privilege law when it is held broadly to apply in contexts other than when there is dual representation” [emphasis added].
[20] Because of the Court’s concerns described above, a direction was issued to Counsel for the parties, requesting submissions on several matters, namely: the reliance in Pitney Bowes upon social and cultural values and other relevant factors of that nature; whether CIP was a class or case-by-case privilege; and assistance in understanding the apparent circumventing of Wigmorean SCP principles by the doctrine of CIP. While the parties responded to the direction, the Court was not satisfied that its queries had been addressed.
[21] It was at this point that the Court learned of a recent article by Professor Grace M. Giesel of the University of Louisville’s Brandeis School of Law (“End the Experiment: The Attorney-Client Privilege Should Not Protect Communications in the Allied Lawyer Setting” (2011-2012) 95 Marq L Rev 475 [the Giesel article or Giesel]). As the title indicates, Professor Giesel “controversially” concludes that CIP, which she describes as “allied lawyer privilege”, should be discarded as a valid privilege principle in both litigation and advisory circumstances. Her thesis is that CIP is incompatible with the doctrine of SCP, while its alleged benefits are outweighed by its costs to truth-seeking legal processes.
[22] Professor Giesel’s survey of the evolution of CIP law demonstrated to the Court’s satisfaction that its acceptance was “a bit stealthy”, disguised as a close cousin of common interest situations in JCP. More importantly, Professor Giesel proved that because of the misapprehension of the relationship between CIP and JCP, at no time in its long history had any meaningful legal analysis been carried out on the doctrine of CIP. She also appears to be the first jurist to conduct a cost-benefit analysis of the doctrine.
[23] The Court next learned that the Giesel article was quoted in Ambac. The New York Court of Appeals, by a majority of 4 to 2, rejected the claim of CIP, restricting the doctrine’s application to the context of litigation, including circumstances of anticipated litigation. It is upon reading this decision that the Court understood that thirteen American States have rejected CIP’s application to commercial transactions.
[24] Ambac is relevant for a number of reasons. It appears to be the first time in 145 years of all forms of CIP application that a court has conducted a form of cost-benefit analysis. The Majority concentrated on the costs, while the Dissent mostly considered the benefits, and also challenged the logic of a distinction in its application to litigation, but not advisory circumstances, when SCP applied across all fields of legal advice. The Majority limited its analysis to the advisory context and found that the costs of CIP outweighed its benefits.
[25] It is of some importance to this case that while the Majority in Ambac agreed with the conclusion in the Giesel article that CIP could not be reconciled (“was not coextensive”) with SCP, it did not rely on her thesis that this should be a ground to reject all forms of CIP. The Majority could not do so without undermining its conclusion that CIP applied to litigation-related circumstances, but not advisory CIP. Instead, Ambac recognized the theory relied upon by the Respondents according to which CIP acts as a defence or exemption to waiver of SCP. The Majority found that it was reasonable to exempt the waiver in the litigation CIP context, but not for commercial transactions based on its cost-benefit analysis of the two forms of CIP. This distinction and the soundness of its reasoning is a significant issue in this decision. The Court concludes that the proper distinction between these two forms of CIP should be based on the underlying differences between litigation privilege and SCP. The Court relies upon the Supreme Court decision of Blank v Canada (Minister of Justice), 2006 SCC 39 at para 7 [Blank] in which it declared them to be “distinct conceptual animals and not two branches of the same tree”.
[26] The Court provided the Giesel article and the Ambac decision to the parties and requested their comments on the issues they raised. The Respondents (which for most purposes hereafter when referring to submissions will include the Intervener) provided fulsome responses rejecting the Giesel thesis and the application of the Ambac decision on several grounds, which the Court attempts to respond to in its analysis.
[27] As a result of its analysis, the Court respectfully concludes that Pitney Bowes is not binding because it was a JCP case. The Court also disagrees with its conclusions that advisory CIP may be supported on the policy grounds of enhancing social and economic values in the commercial transactions it was said to enable, or by an “expectation interest” of confidentiality.
[28] The Court further rejects CIP as an acceptable form of SCP for a number of reasons. These include among others:
1) CIP entered the law of privilege under a cloud of confusion as being similar to JCP and an appropriate extension of litigation CIP.
2) Advisory CIP cannot be rationalized as an appropriate extension of litigation CIP. Litigation privilege and SCP are distinct conceptual animals having different doctrinal rationales. Litigation CIP is compatible with the strategic advisory foundation of litigation privilege, while advisory CIP is irreconcilable with and destructive of SCP founded on maintaining the solicitor-client relationship.
3) Accordingly, the Court respectfully concludes that Ambac was correctly decided but on the wrong legal principle for failing to reject advisory CIP because it cannot be reconciled with SCP doctrine. For the same reason, the Court concludes that the Giesel article was unsound in rejecting litigation CIP based upon its incompatibility with SCP doctrine, but correct in the rejection of advisory CIP on those grounds.
4) Advisory CIP is in an inherent conflict with and destructive of the rational underlying SCP such that rationalization of advisory CIP as a “defence” to waiver is unsustainable, as are its other rationales of being supported by expectation interests or the emerging doctrine of selective waiver. As advisory CIP is incompatible with SCP doctrine, there is no necessity to undertake a cost-benefit analysis of its effects.
5) Nevertheless, an analysis of advisory CIP with respect to factors relevant to the administration of justice demonstrates that the costs significantly outweigh the benefits. Indeed, advisory transactional CIP undermines the administration of justice in that it only enables transactions that anticipate litigation.
6) Policy issues relating to the social and economic values of commercial transactions said to be enabled by advisory CIP are irrelevant to SCP. In any event, those policy values allegedly said to be promoted by advisory CIP are speculative, unnecessary in relation to enabling most transactions, and otherwise limited to fostering transactions that anticipate litigation that undermine the administration of justice. As well, those commercial transactions appearing to constitute much of the jurisprudence relating to advisory CIP are of no, or questionable economic or social benefit to society.
II. Statement of Facts [29] IGGillis Holdings Inc. [IGHI] is validly incorporated under the laws of the province of Alberta. Ian Gillis is the sole director and one of the shareholders of the Corporation.
[30] The Respondents owned Two Bit Holdings Inc., which became one of the corporate partners in the United Diamond Partnership formed in 2006. Mr. Gillis was the Executive Director of the United Diamond Partnership, which owned assets in a business engaged in the manufacture, engineering and development of drill bits and related technologies, products, and processes.
[31] The Respondents were also direct and beneficial shareholders of United Diamond Ltd., another partner corporation in the United Diamond Partnership. Mr. Gillis was also a Director of United Diamond Ltd.
[32] In 2007, the Respondents entered into a series of transactions ultimately resulting in a sale of the assets of the United Diamond Partnership and the concurrent sale of the shares of the corporate partners in the Partnership. Abacus was the purchaser of the shares through a nominee corporation.
[33] Abacus structured the purchase of the shares of the corporate partners of the United Diamond Partnership through the transactions. Between January and December 2007, Abacus presented the shareholders of the partners of the United Diamond Partnership with information and documents describing the transactions to be entered into for the sale of the issued and outstanding shares of the partners of the Partnership.
[34] Abacus is composed of a large group of corporations, partnerships and trusts. Abacus’s website describes itself as follows:
Abacus Private Equity, for over fifteen years, has focused on maximizing cash proceeds to vendors that are selling their assets or shares. Abacus acts as a principal in its transactions, using its time tested principal approach to delivering additional value for vendors. Abacus places a special emphasis on the taxation elements of its transactions, seeking to provide additional value for vendors through efficient transaction structures. Abacus employs some of the leading Canadian tax practitioners in its acquisition operations and enjoys close, long-term relationships with the top tax advisors in the largest Canadian accounting and legal firms. Abacus is owned by the Hillcore Group (www.HillcoreGroup.com). Since 2005, the Hillcore Group, directly or indirectly through its investments funds, has closed transactions with an aggregate asset value in excess of $6.5 billion with $670 million in 2014 alone. Entities under the Hillcore Group management have an asset value in excess of$3.2 billion, as of December 31, 2014. The Hillcore Group has offices in Toronto, Vancouver, Calgary and Montreal, and, in its various groups and portfolio companies, employs approximately 2,500 people through Canada.
[emphasis added]
[35] Abacus’ business model is to buy shares of target corporations from their shareholders and sell the corporations’ assets to third parties (or operate the target corporations as an ongoing business) in a tax-effective manner.
[36] On December 20, 2007, Abacus, through a directly or indirectly wholly-owned subsidiary named UDL Acquisitions Ltd., acquired the shares of United Diamond Ltd. and Two Bit Holdings Inc. from their shareholders.
[37] In the Transaction, Abacus was represented by the law firm of Fraser Milner Casgrain LLP [FMC] (now called Dentons Canada LLP) and particularly by Mr. Nitikman, a partner in FMC’s Vancouver Tax Group. Mr. Nitikman had represented Abacus on many previous deals.
[38] The vendors, including IGHI, which was owned by Ian Gillis, were represented by Mr. Kirby, a tax partner in the Edmonton office of the law firm Felesky Flynn LLP, and by Ogilvie LLP, a national law firm with an office in Edmonton, Alberta that acted as corporate Counsel, and by Kingston Ross Pasnak LLP, a firm of chartered accountants in Edmonton, Alberta [collectively, the Respondents’ Advisors].
[39] Negotiations and discussions between Mr. Kirby and Mr. Nitikman relating to the Transaction commenced in late November 2007 and continued until and after the Transaction closed.
[40] In the course of these negotiations and discussions, Mr. Nitikman drafted various tax memoranda (including the Abacus Memo) and circulated them to Abacus and to the Respondents’ Advisors, particularly with respect to the taxation elements of the Transaction for the purpose of obtaining additional value for vendors through efficient transaction structures.
[41] The Respondents’ Advisors, particularly Mr. Kirby, commented on and discussed these memoranda extensively with Mr. Nitikman. Notably, Mr. Kirby contributed through emails and telephone calls with respect to the taxation elements of the Transaction.
[42] An example of the joint effort of Counsel may be seen in the series of emails exchanged between them describing how they worked together in seeking a common solution to a problem concerning taxation on dividends. This refers to privileged emails which were inadvertently disclosed and contained in the Applicant’s affidavit, the advisory contents of which are not revealed in this example.
[43] In the emails, Mr. Kirby first raises a specific problem after reviewing a memo from Mr. Nitikman. It is followed by a reply email from Mr. Nitikman describing the solution in terms of the application of certain provisions of the ITA. Mr. Kirby thereafter responds by raising a further provision of the ITA, questioning whether the provision applies. After further back and forth, Mr. Nitikman acknowledges the nature of the problem raised by Mr. Kirby and provides an additional solution in relation to taxation law. This solution would affect the structure of the Transaction. The email chain concludes with Mr. Kirby offering “another option” and indicating that he is “crunching some numbers”. All of this correspondence is copied to Michael Doner, the instructing Abacus employee, on behalf of Abacus. It is presumed that the Respondents would similarly have been kept abreast of these discussions by Mr. Kirby.
[44] The legal advice also travelled in both directions, as Mr. Kirby’s opinions were simultaneously provided to his client and communicated to Abacus. All these communications were, to some extent, in the form of negotiations, in that the Respondents had to be satisfied with the “added value” achieved through tax reduction to arrive at the deal, including the risk of going forward on that basis. Mr. Nitikman represented to the Court that there were no negotiations on the price of the shares or other significant business issues in the deal.
[45] Thus, there exists no clear example of a client request for advice and the advice being provided and thereafter being disclosed to a third party, or the third party’s lawyer. The client is Abacus, but the advice is in the negotiations of the parties which consist of back-and-forth discussions in which Mr. Kirby is also providing taxation advice that is being communicated back to Abacus. The legal advice culminates in the Abacus Memo, which is primarily the work product of Abacus, based on its significant experience in similar transactions, but with the contribution of the Respondents’ lawyer, at least as depicted in the disclosed emails.
[46] The purpose of circulating such memoranda and diagrams was to ensure that Mr. Kirby (a) agreed on the steps in the Transaction that would be taken to purchase the shares, (b) understood the tax and legal risks involved in such steps, and (c) had the opportunity to discuss such risks and negotiate changes to the Transaction to minimize or allocate such risks.
[47] In many of Abacus’ transactions, it instructs its Counsel very early in the transaction to negotiate an agreement with the vendor’s Counsel that all communications between them and other parties involved that relate to the transaction will be on a CIP basis.
[48] Mr. Doner has sworn an affidavit and filed with the Court’s Registry a sealed envelope containing a series of emails between Mr. Nitikman and Mr. Kirby, the first of which Mr. Nitikman sent to Mr. Kirby on Mon 26/11/2007 6:55 AM and the last of which Mr. Kirby sent to Mr. Nitikman on Tue 18/12/2007 8:46AM, confirming that Mr. Kirby and Mr. Nitikman agreed that all communications relating to the Transaction were on a CIP basis. These emails were not the subject of any submissions at the hearing and have been returned in their sealed envelope along with other memoranda filed with the Court.
[49] On December 17, 2007, the Abacus Memo was provided, by Mr. Nitikman on behalf of Abacus, to Mr. Kirby on behalf of the Respondents.
[50] On December 20, 2007, Abacus, through a directly or indirectly wholly-owned subsidiary named UDL Acquisitions Ltd., acquired the shares of United Diamond Ltd. and Two Bit Holdings Inc. from their shareholders.
[51] As a result of the transactions, the Corporation and Mr. Gillis directly and beneficially received amounts not less than $26,928,326.82.
[52] The Canada Revenue Agency [CRA] is of the view that the transactions entered into in 2007 by the Respondents as corporate partners in the United Diamond Partnership may have been entered into for the purpose of maximizing shareholder benefit by avoiding payment of the tax triggered by the sale of the corporate partners’ assets.
[53] By the Requirements, each dated August 7, 2013, the Respondents were asked to provide, among other things, a copy of a letter of intent, or similar documentation, issued by Abacus between the dates of January 1, 2007 and December 20, 2007 to the Respondents.
[54] On October 10, 2013, the CRA received a package from Mr. Kirby with a letter dated October 9, 2013. In the letter, Counsel representing the Respondents stated that no formal letter of intent was entered into between the Corporation and Abacus but that the transactions were described in a memorandum and diagrams provided by Abacus to the Corporation through their Counsel in the Abacus Memo. In his letter, Mr. Kirby stated that the Abacus Memo was subject to SCP.
[55] On December 17, 2013, an officer of the CRA attended at the offices of Felesky Flynn LLP to review documentation relating to the transactions. During that meeting, further documents were provided to the CRA. The CRA was not, however, provided access to the Abacus Memo. The CRA was advised that the Respondents were claiming privilege over the Abacus Memo.
[56] During the course of the collections activity in respect of the Respondents, the CRA also issued, on October 8, 2014, a Requirement for Information and Documents pursuant to section 231.2 of the Act to Abacus [the Abacus requirement]. The Abacus Memo has not been provided to the CRA.
[57] In accordance with a direction of the Court dated May 27, 2016, the Respondents filed with the Court the Abacus Memo in a sealed envelope. The Respondents have not waived CIP over the Abacus Memo and do not consent to its disclosure to the Applicant.
III. Legislative Framework [58] The legislative framework consisting of sections 231.2 and 231.7 of the Act is included as an Annex.
IV. Issues [59] This application raises the following issues:
1. Is the Abacus memo prima facie, protected by SCP?
2. Was the Abacus memo protected by CIP in accordance with Pitney Bowes and its supporting jurisprudence?
3. Is CIP a valid constituent of SCP?
V. Analysis A. Is the Abacus Memo Prima Facie Protected by Solicitor-client Privilege? (1) The Law of SCP (a) Onus of proof [60] In an application under section 231.7 of the Act, once the Applicant proves proper service of the Requirements in compliance with subsection 231.2(1), the onus shifts to the Respondents to prove that the documents withheld are covered by privilege (Canada (National Revenue) v Lee, 2015 FC 634 at para 44). If satisfied, the onus then shifts to the Applicant to prove that privilege has been waived or otherwise lost (Canada (National Revenue) v Thornton, 2012 FC 1313 at para 26).
(b) Privilege only applies to legal advice, broadly understood [61] Legal advice (as opposed to business advice) provided orally or in writing by a lawyer to his or her client is privileged (R v Campbell, [1999] 1 SCR 565 at para 50; Superior Plus Corp v R, 2015 TCC 132 at paras 38, 46, aff’d 2015 FCA 241). In relation to the legal advice privilege (as opposed to business advice), what matters is whether the lawyers are being asked qua lawyers to provide legal advice: Three Rivers DC v Governor and Company of the Bank of England (no 6), [2004] UKHL 48 at para 58 cited in Behague v Revenue & Customs, [2013] UKFTT 596 at para 21 (TC)).
[62] Moreover, “legal advice is not confined to telling the client the law; it must include advice as to what should prudently and sensibly be done in the relevant legal context.” (Balabel v Air India, [1988] Ch 317 at 330 (Eng CA), cited with approval in Blood Tribe v Canada (Attorney General), 2010 ABCA 112 at para 26, itself cited with approval in Slansky v Canada (AG), 2013 FCA 199 at para 77 [Slansky])
(2) The Abacus Memo is prima facie protected by SCP [63] The Minister advances two submissions that require consideration by the Court. The first is that tax planning communications are not privileged, including advice given by lawyers for accounting or tax planning purposes. On this point, the Minister cites the decision of Mr. Justice Mosley in the matter of Canada (National Revenue) v Revcon Oilfield Constructors Inc, 2015 FC 524 at para 20 [Revcon]). Second, the Applicant argues that the Abacus memo is not a legal communication because the lawyers involved were not engaged in providing legal advice or otherwise acting as lawyers, but rather negotiating a commercial deal. Thus, Mr. Nitikman was acting as a business counselor or in some non-legal capacity such that his advice was not protected by SCP: Canada (Privacy Commissioner) v Blood Tribe Department of Health, 2008 SCC 44 at para 10 [Blood Tribe].
[64] With respect to the Revcon decision, in my view the passage referred to by the Applicant for the notion that the tax planning advice of lawyers is not privileged and does not represent Justice Mosley’s conclusion on the matter. This is clear at paragraphs 29-32 of the decision where the learned Judge concluded that a solicitor’s letter including “legal advice with regard to the income tax reporting requirements and tax consequences of the transactions for named individuals” was privileged. Moreover, in referring to tax planning, Justice Mosley was relying upon the decision of Madam Justice Heneghan in Belgravia Investments Ltd v Canada, 2002 FCT 649 [Belgravia]. This decision concerned SCP for non-legal professional advisors. Also, paragraphs 45-48 in Belgravia referred to in Revcon stand for the proposition that facts contained in a privileged document are not privileged from discovery.
[65] I also cannot agree with the Minister’s submission that the Abacus memo prepared by Mr. Nitikman did not contain legal advice for the parties to whom it was communicated. Because of the nature of this issue, the Court exercised its discretion to review the Memo. It had been provided in a sealed envelope in accordance with the Court’s direction. I concluded that it was necessary to review the document in order to adjudicate the existence of a privilege in accordance with the principles enunciated in Blood Tribe at paragraph 17.
[66] The Memo described a number of discrete steps or transactions that would be necessary for the purchase and sale of IGHI shares to Abacus. Each step comprised a diagram visually explaining the transaction. Each diagram was accompanied by a detailed description of the tax consequences in reference to relevant statutory and jurisprudential principles that were said to apply. While the diagrams depicting the transactions might not be said to be privileged, I understand that this information is known to the Minister. I am satisfied that the essential nature of the Memo is legal in nature. It describes the tax consequences based on an analysis of the applicable legal framework thought to apply resulting from the planned purchase and sale of the IGHI shares through each step of the transactions making up the Transaction. There is no evidence that either lawyer is acting as a business counsellor or in some other non-legal capacity.
[67] Of greater concern to the Court than the obvious legal nature of the Abacus memo is the manner by which the contents of the memo were compiled to form the legal opinions that it contains.
[68] In this sense, the facts of this case are distinguishable from the other cases in this area where the solicitor-client relationship was clearly defined in the sense that the legal advice was sought by the client on a specific issue which ultimately was shared with the other parties. In this case, the lawyers of both clients were working together to jointly arrive at an optimal tax reducing structure for the Transaction. As such the Court concludes that the Abacus memo was the fruit of cooperative efforts of both lawyers who were highly experienced in the legal considerations of income tax and related commercial law subjects. The Court understands that it is in this sense that the Applicant argues that the circumstances are tantamount to the negotiation of a commercial contract, disguised as an exchange of legal advice.
[69] However, this does not mean that a business plan cooperatively arrived at based upon the consequences of implementing counsels’ legal advice to achieve tax savings renders the Memo a business record. The content of the Memo is almost exclusively advice describing the legal effects in terms of each step in the Transaction.
[70] I disagree that two parties mandating their lawyers to work together on behalf of both clients to find a “business solution” to their mutual advantage, but based upon the consequences of implementing their legal advice on the specific issue of tax savings, renders the fruit of their labour a mere business record as argued by the Applicant, given the almost exclusive legal content of the Memo. I also do not find that the Memo is a business record because the parties’ lawyers worked together at each step of the Transaction to work out solutions based on legal conclusions. Similarly, the Memo remains essentially legal advice for their respective clients even though the parties were required to cooper