Citation: 2005 FC 1538
Calgary, Alberta, November 15, 2005
PRESENT: THE HONOURABLE MR. JUSTICE MOSLEY
MINISTER OF NATIONAL REVENUE
Applicant
and
SINGH LYN RAGONETTI BINDAL LLP,
formerly known as SINGH WALTERS BINDAL
Respondents
REASONS FOR ORDER AND ORDER
[1] This is an application for a compliance order under section 231.7 of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) as amended (the "Act"), regarding a requirement for documents and information issued by the Minister of National Revenue (the "Minister") to the respondents on February 18, 2004 pursuant to section 231.2 of the Act (the "Requirement"). The respondents are a firm of barristers and solicitors practising in Calgary, Alberta. The issue in these proceedings is whether the records sought by the applicant are protected by solicitor-client privilege.
[2] The Minister's department, Canada Customs Revenue Agency ("CCRA") commenced an audit of 173 individual Registered Retirement Savings Plan ("RRSP") annuitants respecting transactions in 2001 and 2002. Funds totalling $8, 425, 330 were allegedly paid to the respondents, in trust, by trust companies administering the annuitants self-directed RRSP's. The funds are alleged to have been used to subscribe for common shares of a corporation called Asset Trax Inc., ("ATI"). Some of the shares were issued to the RRSP trusts indirectly through a Costa Rica based corporation called Transportes Castlewood S.A. ("Transportes").
[3] CCRA suspects that the RRSP annuitants were participating in a scheme designed to extract funds from their RRSPs without payment of income tax. It is alleged that ATI received $1.00 per share from the $10.00 per share paid into the respondents' trust account. CCRA wishes to audit the respondents' accounting records to determine who received the $9.00 per share balance allegedly disbursed from the respondent's trust account. Accordingly, CCRA requested documents and information related to ATI share purchases from the respondents, which requests were refused on the ground that the information was subject to solicitor-client privilege.
[4] On February 18, 2004, CCRA served a notice (the "requirement") in accordance with subsection 231.2(1) requiring the respondents' trust account records pertaining to transfers from nine trust companies for ATI share purchases.
[5] Subsequent to service of the requirement, an order was issued under the Legal Profession Act of Alberta by the Court of Queen's Bench appointing a Custodian for the practice of Mr. Manesh Bindal, a member of the respondent law firm during the material times. Counsel acting on behalf of the Custodian represented the respondents in these proceedings, effectively as a surrogate for the Law Society.
[6] The Custodian stands in the same place as Mr. Bindal with respect to any solicitor-client relationship he may have had at the relevant times and maintains the position that the information sought by the applicant is privileged. The respondents contend that Transportes and all 173 of the annuitants should be given notice of the application for a compliance order to allow them to assert their claim to privilege.
[7] An affidavit from Mr. Bindal was tendered in evidence on this application by the respondents and he was cross-examined on that affidavit.
[8] In his affidavit, Mr. Bindal states that in January 2001 he entered into a retainer arrangement with Transportes under which certain sums of money were deposited into and paid out of his trust account. In the course of his retainer, cheques were sent to him by trust companies, by Transportes or directly by investors for the purchase of shares in various companies. The cheques were usually designated "In Trust" for a particular investor.
[9] On cross-examination, Mr. Bindal stated that his arrangement with Transportes was very limited. No client was specified for the purchase and sale of shares. He would simply act on behalf of Transportes to deal with the funds that came into his trust account and which would be released at the direction of
Transportes. There were no specific trust conditions attached to these funds and he was not retained specifically in connection with the ATI share sale that is the subject matter of the requirement.
[10] The respondents submit that Bindal had a solicitor-client relationship with Transportes. While Transportes was undoubtedly a client of the law firm, there is nothing on the record before me to suggest that this relationship in any way entailed communications for the purpose of obtaining or providing legal advice. This was a straight commercial relationship using the law firm's trust accounts to receive and transfer funds.
[11] Further, the respondents submit that Mr. Bindal owed a duty of care to the investors to safeguard their investments giving rise to a reasonable inference that they were also "clients" entitled to assert privilege over their communications with the law firm. In support of the second proposition, respondents rely upon an excerpt from a text on Lawyers' Professional Liability, by Grant and Rothstein (Butterworths, 1998) which, at pages 89-90, addresses solicitors' liability to third parties. The learned authors cite Yang v. Overseas Investments (1986) Ltd., [1995] 4 W.W.R. 231 and TexasIndustries Ltd.v. Siewert (1996), 194 A.R. 303 (Q.B.) as providing examples of circumstances in which a duty of care to third parties by lawyers may arise.
[12] It may well be that the respondents owed a duty of care to the RRSP annuitants to safeguard their investments but that does not, in my view, establish a solicitor-client relationship between the respondents and the investors or dispose of this matter. Indeed, the cases cited by Grant and Rothstein are notable for concluding that a duty of care may arise notwithstanding the absence of any direct client relationship with the solicitor and do not directly address the question at issue.
[13] Counsel for the respondent candidly admits that he could find no authority which expressly states that a solicitor-client relationship may arise with respect to third parties but points to the broad principles set out by the Supreme Court of Canada in Lavallee, Rackel & Heintz v. Canada (Attorney General); White, Ottenheimer & Baker v. Canada (Attorney General); R.v. Fink, [2002] 3 S.C.R. 209 for determining questions of privilege in relation to the search for and seizure of records from lawyers' offices.
[14] The Lavallee principles, among other things, require that every effort should be made to contact potential clients and to give them a reasonable opportunity to assert a claim of privilege and, if contested, to have the issue judicially determined. Where notification of potential privilege holders is not possible, the lawyer who had custody of the documents seized or another lawyer appointed either by the Law Society or by the Court, should examine the documents to determine whether a claim of privilege should be asserted.
[15] I note that the trust account records in question here are currently in the possession of counsel for the respondents. In July 2005, respondents' counsel wrote to Transportes and to several of the trust companies that acted on behalf of the RRSP annuitants to inform them of the application before the court. There appears to have been no application to intervene in these proceedings. That, of course, would not be determinative of whether privilege attaches to the records but indicates, nonetheless, that some effort was expended to notify the "potential" clients, albeit by the respondents and not by the state.
[16] The applicant's position is that while the accounting records may be confidential records of the respondents' law practice, they are not privileged at common law or under subsection 232(1) of the Act. Subsection 232(1) excludes accounting records from the scope of oral or documentary communications
protected by solicitor-client privilege. The respondent suggests, without formally challenging the provision, that subsection 232(1) is constitutionally suspect in light of Lavallee, above, and the subsequent decision by the Supreme Court in Maranda v. Richer, 2003 SCC 67.
[17] Among other decisions, the applicant relies upon Re Ontario Securities Commission and Greymac Credit Corp., Re OntarioSecurities Commission and Prousky (1983), 146 D.L.R. (3d) 73 (Ont. Div. Ct.); Stevens v. Canada (Prime Minister), [1998] 4 F.C. 89 (F.C.A.) and R. v. Serfaty, [2004] O.J. No. 1952 (Sup. Ct.) (QL).
[18] Greymac, above, has long stood for the proposition that solicitor-client privilege does not extend to records of financial transactions directed through solicitor's trust accounts as such records are evidence of an act or transaction rather than communications. Hence, oral evidence regarding such matters and the solicitor's books of account and other records pertaining thereto, with advice and communications relating to advice expunged, are not privileged and the solicitor may be compelled to answer questions and produce the material.
[19] Contrary to the respondents' submission, in my view Greymac remains good law notwithstanding Lavallee and Maranda. In Maranda, Justice LeBel, for the majority (Justice Deschamps concurring in the result) held that the substantive rule of privilege cannot rely on the distinction between facts and communication and thus, in that case, defence counsel's fee records were protected. However, he expressly noted, at paragraph 30, that not everything that happens in the solicitor-client relationship falls within the scope of privilege "as has been held in cases where it was found that counsel was not acting in that capacity but simply as a conduit for transfers of funds" citing Greymac as authority.
[20] In Kilbreath v. Saskatchewan (Attorney General), [2004] S.J. No. 770, 2004 SKQB 489, Wilkinson J., reviewing the cases prior to and after Lavallee and Maranda respecting the scope of the privilege for records in the possession of lawyers summarized the cases in which the privilege was found not to attach, as follows at paragraph 16:
Thus, as examples that are by no means exhaustive, the solicitor-client privilege does not attach to documents unrelated to the giving of proper advice, but stored with the solicitor to avoid seizure. (R. v. Colvin, Ex parte Merrick, [1970] 3 O.R. 612 (Ont. H.C.J.)). The privilege does not apply to documents merely held by the lawyer, including accounting records and trust reconciliations, conveyancing documents and documents relating to the sale of property where no advice was sought or given in respect of them: Kranz, supra. It does not apply to actual currency, which does not communicate any information other than the value of the individual bill: R. v. Law Office of Simon Rosenfield, [2003] O.J. No. 5821 (S.C.J.). It does not apply to deposits of funds into a lawyer's trust account unrelated to the giving or receiving of advice, but merely to protect the funds from seizure: R. v. Serfaty, [2004] O.J. No. 1952 (S.C.J.). It does not apply where the connection between the parties is more in the nature of a business or commercial relationship, or where the disclosure sought is of actions taken, rather than communications passing between solicitor and client, or where the communications are in furtherance of criminal or fraudulent activity. It does not apply to documents if the client possessing the privilege exercises the right to waive the privilege either expressly, or implicitly in a manner acceptable to the court: Rosenfeld, supra, and R. v. Serfaty, supra.
[21] In this case, there is no evidence in the record before me that the respondents were retained to provide legal advice to Transportes, or to any of the 173 individual annuitants on behalf of whom the trust companies forwarded funds to the respondents for the purchase of shares. At best, the respondents were merely "conduits for the transfer of funds" as described by LeBel J., in Maranda and there is no basis in the evidence to conclude that the records will disclose any privileged communication.
[22] At the conclusion of the hearing and after I had indicated the outcome of the application, counsel for the respondents' questioned whether the scope of my order should extend to the last item in the list of requirements sought in the February, 18, 2004 notice, that is: "[c]ontracts between Singh Walters Bindal and their client/s that determined the handling of any money/funds on behalf of any person, as defined by subsection 248(1) of the Income Tax Act..." Counsel submitted that this last requirement may be outside the scope of the non-privileged trust account records pertaining to funds transfers.
[23] Mr. Bindal's evidence was that he had a retainer solely with Transportes. As I have concluded that was simply a commercial arrangement for funds transfers, I see no reason why any contracts setting out the terms of that arrangement should not be disclosed, so long as they contain no privileged communications or facts. Counsel for the respondents should review any contracts in the records before they are released to the applicant and may seek direction from the Court if there are any communications or statements believed to be privileged.
[24] The applicant seeks costs in the amount of $1000.00. As the application arose over a question of privilege, I will exercise my discretion not to award costs to the successful party.
ORDER
THIS COURT ORDERS that the Respondents shall comply with the Requirement to Provide Documents and Information attached as Exhibit "D" to the September 9, 2004 affidavit of Margaret Nieboer, within 15 days of the date of this order. No costs are awarded.
"Richard Mosley"
JUDGE
Calgary, Alberta
November 15, 2005
FEDERAL COURT
NAME OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-12-05
STYLE OF CAUSE: MNR v. SINGH LYN RAGONETTI BINDAL
LLP FORMERLY KNOWN AS SINGH WALTERS
BINDAL
PLACE OF HEARING: Calgary, Alberta
DATE OF HEARING: November 14, 2005
APPEARANCES:
| Mr. Jon Gilbert
|
|
| Mr. Graham Price, Q.C.
|
SOLICITORS OF RECORD:
|
Mr. John H. Sims, Q.C. Deputy Attorney General of Canada Ottawa
|
|
| Mr. Graham Price, Q.C. Calgary, Alberta
|