By Sean S. Carter and Heidi N. LeBlanc

In a recent decision by the Tax Court of Canada (the “TCC”), Coopers Park Real Estate Development Corporation v. His Majesty The King, the court was asked to consider the scope of documentary discovery and, specifically, the impact of solicitor-client privilege upon parties’ disclosure obligations regarding communications and materials provided by third party advisors. This decision provides practical insights on how to best assert and address claims of solicitor-client privilege in regards to communications with third party advisors.

The underlying appeal of the matter between Coopers Park Real Estate Development Corporation (the “Appellant”) and the Minister of National Revenue (the “Respondent”) relates to whether specific transactions in the 2004-2005 period were avoidance transactions within the meaning of the general anti-avoidance rule (“GAAR”), as set out in s 245(3) of the Income Tax Act. The Minister had disallowed losses, expenditures, and credits claimed by the Appellant in the 2007-2009 taxation years, on the grounds that the transactions involved primarily served to avoid tax obligations.

Significant challenges ensued between the parties on the appeal following oral discoveries, wherein both parties submitted further questions in writing and inquiries by way of undertaking. This decision specifically addresses the Respondent’s motion for further production from the Appellant. As part of its opposition to the Respondent’s motion, the Appellant asserted that a number of the documents requested for production were covered by solicitor-client privilege and therefore, could not be produced as part of the discovery process in the litigation.

In regards to the issue of solicitor-client privilege, the court was specifically asked to consider whether this privilege applied to a number of documents in the Appellant’s possession (the “Documents”) and was provided copies of same under seal for the purposes of its review and assessment on the motion. The Documents primarily contained the Appellant and its counsel’s communications with KPMG Accounting, who had been retained to provide accounting services in relation to the relevant tax law matters. In asserting that solicitor-client privilege applied to the Documents, the Appellants argued that the Documents formed part of the chain of their communications with counsel for the purposes of obtaining legal advice, and that when KPMG authored material or forwarded its communications, it was doing so while acting as agent for the Appellant in communications with counsel.

In reaching its decision, the court summarized the test for solicitor-client privilege, stating that the privilege applies to communications between a lawyer and client involving the seeking or giving of legal advice, which the parties intend to be confidential. The court further confirmed that solicitor-client privilege also applies to documents within the “continuum of communication in which the solicitor tenders advice”. While there is no such concept at law of accountant-client privilege, the court clarified that solicitor-client privilege can extend to circumstances where an accountant acts as a representative or agent for a client in regard to their obtaining of legal advice from their lawyer. There is no privilege, however, when an accountant simply gives its original and independent tax advice to either the lawyer or to the client, even if the lawyer has overall responsibility to provide advice for the transaction.

The court referred to Imperial Tobacco Canada Limited v HMTQ , wherein the TCC previously held that the application of solicitor-client privilege to third party communications would focus upon the true nature of the function that the third party was retained to perform and, when the party seeking to invoke the privilege’s protection failed to lead evidence in support of the claim for privilege, the court would have to make an assessment solely on the face of the document in question itself. In the present case, the Appellant had not provided any supporting evidence on this issue and thus, in this instance, the court was required to assess the claims of solicitor-client privilege on the basis of the Documents themselves.

In conducting this assessment, the court reviewed the nature of KPMG’s relationship in regards to what they had been retained to do, their relationship to the Appellant and related parties, and their actual conduct. Without the further evidence, the court found that there was not sufficient context provided to substantiate the Appellant’s assertions that the majority of the Documents were part of the continuum of communications in which the Appellant was obtaining legal advice. It was found that KPMG had, on numerous occasions, acted beyond the scope of a role as agent for the Appellant in communicating with the Appellant’s lawyer for the purposes of seeking and/or obtaining legal advice and, in fact, provided independent advice to the Appellant, falling outside of the scope of communications covered by solicitor-client privilege. 

The court did find that the portion of the engagement letter between the Appellant and its counsel which related to the scope of the legal advice to be provided was protected by solicitor-client privilege and ordered that the privileged portion of the letter be redacted for the purposes of production. The court further noted that while it accepted a second document as being covered by solicitor-client privilege—a legal agreement prepared in coordination with counsel, McCarthy Tétrault—it was only protected because the Appellant could substantiate that it involved legal advice under direct legal instruction.

This decision serves a helpful reminder to parties and practitioners to exercise caution when engaging the services of third-party advisors in conjunction with the provision of legal advice in order to best preserve any intended claims of solicitor-client privilege. Parties and practitioners should be urged to think proactively in these circumstances, particularly in regards to the nature and scope of the relationship with the third party, the content of the communications, and the impact that same may have upon a future claim of solicitor-client privilege. Lastly, litigants should be prepared to support any solicitor-client privilege claims with detailed evidence to demonstrate the nature and scope of the relationship with third party advisors who are not providing legal advice in order to avoid any unintended, and potentially prejudicial, disclosure.   

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