Federal Court Decisions

 

Date: 20080512

Dockets: T-1075-07

T-1076-07

 

Citation: 2008 FC 594

 

Docket: T-1075-07

[ENGLISH TRANSLATION]

BETWEEN:

MINISTER OF NATIONAL REVENUE

Applicant

and

 

NATIONAL BANK OF CANADA

Respondent

and

 

LUC OUELLETTE

Intervener

 

 

 

Docket: T-1076-07

 

AND BETWEEN:

 

MINISTER OF NATIONAL REVENUE

Applicant

and

 

CAISSE POPULAIRE DE THETFORD MINES

Respondent

and

 

LUC OUELLETTE

Intervener

 

 

 

REASONS FOR ORDER

HARRINGTON J.

 

[1]               Mr. Luc Ouellette is a lawyer at a general partnership named Ouellette, Larouche, Gagné, s.e.n.c., in Thetford Mines. The Canada Customs and Revenue Agency proceeded with a random tax audit of this individual. The Agency states that the selection of this individual for an audit was absolutely by a random choice and that it had no preconceived ideas as to the validity of the income and expenses claimed by him.

 

[2]               At the beginning, Mr. Ouellette was cooperative with the audit process. He provided the documents that the Agency was seeking. However, when he was asked to provide the documents on which his tax transactions were based, deposit slips and cheques drawn from his accounts, he balked. He was of the view that those documents would or could reveal the names of a few clients and cases before him. For him, that information had to be protected by solicitor-client privilege and he therefore refused to disclose it.

 

[3]               In reply, the Agency ordered the two financial institutions with whom Mr. Ouellette does business, the National Bank of Canada and the Caisse Populaire de Thetford Mines, to reply to a requirement to provide information and produce documents. The Agency cited section 231.2(1)(a) and (b) of the Income Tax Act:

[4]               In reply, Mr. Ouellette referred the matter to the Syndic of the Barreau du Québec and consulted a solicitor who offered independent legal advice. In turn, the Agency referred the matter to the Minister of Justice of Canada. An excerpt from a letter written on behalf of the Agency to counsel for Mr. Ouellette clearly indicates the Agency’s position:

[translation]

 

You must know that Mr. Luc Ouellette is currently subject to a tax audit by the CRA. In that matter, like any Canadian taxpayer, Mr. Ouellette has the obligation to keep books and records that allow the Minister of National Revenue (“the Minister”) to establish his income, expenses, and taxes payable. The Minister must also be able to consult them during a tax audit and that is what Ms. Cantin of the CRA is attempting to do in the file for your client

 

 

[5]               In addition, the Agency claims that the affected documents do not receive the protection afforded by solicitor-client privilege in light of the principle stated in subsection 232(1) of the Act:

[6]               Whatever the case may be, the Agency claims that even if those documents were protected while in Mr. Ouellette’s hands, there is no privilege that extends to documents once financial institutions are in possession of them.

 

[7]               The issue was resolved in two steps. First, the National Bank and the Caisse Populaire made copies of the documents in question and delivered them to the Court, and they were sealed. The Court authorized Mr. Ouellette to intervene in the cases in order to present his arguments for solicitor-client privilege and against allowing the Agency to review that information.

 

[8]               Mr. Ouellette also claims that the Agency has no need of those documents in particular to complete a tax audit. The Minster submits that this claim exceeds the basis on which Mr. Ouellette was authorized to intervene in the cases in this matter. On that point, the auditors are entitled to consult the supporting documents. It is not the role of the Court to dictate to the Agency how to manage its affairs.

 

[9]               During debates, it became clear that even though in letters addressed to the Minister the financial institutions had described the contents of the sealed envelopes in general terms, such as, for example, “deposit slips and drawn cheques”, Mr. Ouellette never received copies of those letters or copies of documents filed with the Court. When Mr. Ouellette took a look at said envelopes, he was of the view that some of the documents could be submitted to the Agency. Nevertheless, he maintained his objection to other documents. At that stage of the matter, Mr. Ouellette conceded that he no longer objects to the productions of the following documents:

a.       Documents provided by the National Bank of Canada:

                                                               i.      Mr. Luc Ouellette’s credit file

                                                             ii.      Mr. Luc Ouellette’s financial profile

b.      Documents provided by the Caisse Populaire de Thetford Mines

                                                               i.      Mr. Luc Ouellette’s credit file

                                                             ii.      The statements of all of Mr. Luc Ouellette’s personal bank accounts

                                                            iii.      Mr. Luc Ouellette’s financial profile

[10]           The Court preferred to hear the parties’ submissions at the hearing before opening the sealed envelopes. After the hearing, I indeed opened the envelopes. Among the documents, some of them do not identify the clients of Mr. Ouellette when they were examined independently. However, when those documents are paired with other information or documents, there may be a risk of such an identification. By examining the drawn cheques, there may be the possibility of figuring out the identity of clients. Some cheques do not in any way indicate the reason for their existence, while others refer to a matter, possibly identifying Mr. Ouellette’s cases or even his invoicing. A more detailed description of the disputed documents is in Appendix 1 of these reasons.

 

MR. OUELLETTE’S SUBMISSIONS

[11]           No one can dispute Mr. Ouellette’s argument that communication through solicitor-client privilege has a fundamental role in Canadian society. As highlighted by Deschamps J. at paragraph 40 of Maranda v. Richer, 2003 SCC 67, [2003] 3 S.C.R. 193:

[…] The ultimate purpose of this privilege is to enable every individual to exercise his or her rights in an informed manner. The protection extends to advice given in both criminal and civil cases, without distinction. The privilege performs the social function of preserving the quality, freedom and confidentiality of information exchanged between a client and his or her lawyer in the context of a legal consultation. It enables all individuals to participate in society with the benefit of the information and advice needed in order to exercise their rights. It is closely associated with access to justice. Accordingly, regardless of the historical origin of the privilege, contemporary imperatives dictate that the same generous approach be taken which led to the recognition of this privilege as a principle of fundamental justice.

 

[12]           Mr. Ouellette cited case law, establishing that a client’s expectation of confidentiality is determined according to the very nature of the consultation with a solicitor and not only according to the contents (Thorson v. Jones, [1973] B.C.J. No. 489, 38 D.L.R. (3d) 312), and even if the warrant is well-known, the invoicing may be protected (Maranda, above).

 

[13]           Although the concept of solicitor-client privilege developed from the law of evidence in common law, Mr. Ouellette claims that the definition found in the Income Tax Act itself incorporates provincial law, and more specifically in this case, Quebec law. In Quebec, article 9 of the Charter of Human Rights and Freedoms specifies that:

Every person has a right to non-disclosure of confidential information.

 

Disclosure of confidential information.

 

No person bound to professional secrecy by law and no priest or other minister of religion may, even in judicial proceedings, disclose confidential information revealed to him by reason of his position or profession, unless he is authorized to do so by the person who confided such information to him or by an express provision of law.

 

Duties of the tribunal

 

The tribunal must, exofficio, ensure that professional secrecy is respected.

 

I must highlight that this article is compatible with the concept put forward by Mr. Ouellette, but the article does not allow us to stray from the connotation that is well developed and recognized across the country. Undergoing a tax audit by the Agency is without a doubt an unpleasant experience, but such audits are necessary.

 

ANALYSIS

[14]           Although I can understand the position of Mr. Ouellette, and that possibly a certain portion of the information may be confidential, that information is not protected by solicitor-client privilege.

 

[15]           As affirmed in R. v. McKinlay Transport Ltd., [1990] 1 S.C.R. 627, [1990] S.C.J. no. 25, everyone has the right to be secure against unreasonable search or seizure as guaranteed by section 8 of the Canadian Charter of Rights and Freedoms. In those reasons, Wilson J. states that the Act is based on the principle of self-reporting and self-assessment. To ensure compliance with the Act, the Minister of National Revenue must be given broad powers to audit taxpayers’ returns and inspect all relevant records whether or not he has reasonable grounds for believing that a particular taxpayer has breached the Act. The integrity of the tax system can be maintained only by a system of random monitoring. Another important decision on which Mr. Ouellette relied, like Maranda, above, is Lavallee Rackel & Heintz v. Canada (Attorney General), 2002 SCC 61, [2002] 3 S.C.R. 209, but both of those are cited out of context. Those cases involve criminal investigations of solicitors’ clients and searches of law offices were authorized by search warrants. In this case, it is Mr. Ouellette himself who is subject to a random tax audit. Whether there are circumstances according to which the identity of a client or the information linked to the invoicing of legal services may be protected by solicitor-client privilege, there is nothing in the record before the Court affirming such a claim.

 

[16]           Among the decisions that are recognized in this filed, we find Ontario (Securities Commission) v. Greymac Credit Corp., 41 O.R. (2d) 328, [1983] O.J. No. 2986. This Court recently had the opportunity to examine Greymac, although in a context in which the Agency was asking a lawyer to provide his client’s tax information (Canada (Minister of National Revenue – MNR) v. Singh Lyn Ragonetti Bindal LLP, 2005 FC 1538, [2005] F.C.J. no. 1907 and Canada (Minister of National Revenue – MNR) v. Reddy, 2006 FC 277, [2006] F.C.J. no. 348).

 

[17]           As noted by Shore J. in Reddy, above, at paragraph 14:

Solicitor-client privilege attaches only to communications between a solicitor and a client and not to actions by the solicitor. For that reason, courts have consistently held that solicitor-client privilege does not apply to documents relating to monies flowing through a solicitor’s accounts to or from a client or to documents relating to real estate transactions. In Ontario (Securities Commission) v. Greymac Credit Corp. (1983) 41 O.R. (2d) 328 (Ont. Div. Ct.), the Court stated:

Evidence as to whether a solicitor holds or has paid or received moneys on behalf of a client is evidence of an act or transaction, whereas the privilege applies only to communications. Oral evidence regarding such matters, and the solicitor’s books of account and other records pertaining thereto (with advice and communications from the client relating to advice expunged) are not privileged, and the solicitor may be compelled to answer the questions and produce the material.

 

[18]           Mr. Ouellette’s argument only deals with general platitudes. He did not provide the Court with any specific considerations that would allow for the drawn cheques or other documents in this case to be protected by solicitor-client privilege. In addition, I am of the view that in any case, such a privilege, even if applicable to the documents in question, was lost when the information was disclosed to a third party, in this case, to the National Bank or the Caisse Populaire. That concept was selected by the Quebec Court of Appeal in Chevrier et al. v. Guimond et al., (1984) R.D.J. no. 240 (JE 84-188).

 

[19]           For those reasons, the Minister’s applications will be allowed and Mr. Ouellette’s interventions will be dismissed with costs (a fee based on Tariff B, item 6) against him.

 

 

 

 

 

Ottawa, Ontario

May 5, 2008

APPENDIX 1

DISPUTED DOCUMENTS

 

THE DOCUMENT WAS PROVIDED BY:	COURT FILE NUMBER	ENVELOPE CONTENTS:
Counsel for the respondent, the National Bank	T-1075-07	Photocopies of electronic hard copies of [translation] “statements of all of Mr. Luc Ouellette’s personal bank accounts” at the National Bank.   Dated January 2005 to October 2005, inclusively, and with a handwritten note that indicates [translation] “no transactions Nov. Dec. 2005” and for March 2006.   The documents indicate the amounts deposited and withdrawn and the final balance, but have no apparent reference to a cheque number, file, invoice or name.
Counsel for the respondent, the National Bank	T-1075-07	Photocopies of electronic hard copies of [translation] “statements of Mr. Luc Ouellette’s trust account” at the National Bank.   Dated from November 2002 with a handwritten note indicating [translation] “no transactions until June 2003” and from June until January 2004 inclusively.   The documents indicate the amounts deposited and withdrawn and the final balance, but have no apparent reference to a cheque number, file, invoice or name.
Counsel for the respondent, the National Bank	T-1075-07	Photocopies of [translation] “deposit slips and cheques drawn from Luc Ouellette’s personal accounts” at the National Bank, and also records of transactions showing deposit and withdrawal amounts, but with no apparent reference to any cheque numbers.   The drawn cheques and money orders clearly identify either the person who issued the cheque or to whom the cheque was endorsed. Sometimes there is a reference on the cheque in the section <for>: a name, number or other information.
Caisse Populaire de Thetford Mines	T-1076-07	Photocopies of the electronic hard copies of [translation] “statements for the trust account of Ouellet Larouche Gagné” at the Caisse Populaire for 2003, 2004, and 2005.   The documents are titled [translation] “Journal of operations by folio – annual” representing a simple list of digital information, but without any text, such as names of persons or of files, indicating deposited or withdrawn amounts. Examined independently, the documents do not appear to reveal a cheque number, file number or invoice number.
Caisse Populaire de Thetford Mines	T-1076-07	Photocopies of [translation] “deposit slips and cheques drawn from Luc Ouellette’s personal accounts” at the Caisse Populaire, and also records of transactions indicating the amounts deposited and withdrawn, but with no apparent cheque number reference.   The drawn cheques clearly identify either the person who issued the cheque or to whom the cheque was endorsed. Sometimes there is a reference on the cheque in the “For” section – a name, number or other information.

 

FEDERAL COURT

SOLICITORS OF RECORD

 

DOCKET:                                          T-1075-07

 

STYLE OF CAUSE:                          MINISTER OF NATIONAL REVENUE v.

                                                            CAISSE POPULAIRE DE THETFORD MINES AND

                                                            LUC OUELLETTE

 

AND DOCKET:                                T-1076-07

 

STYLE OF CAUSE:                          MINISTER OF NATIONAL REVENUE v.

                                                            NATIONAL BANK OF CANADA AND

                                                            LUC OUELLETTE

 

PLACE OF HEARING:                    Québec City, Quebec

 

DATE OF HEARING:                      April 18, 2008

 

REASONS FOR ORDER

AND ORDERS:                                HARRINGTON J.

 

DATED:                                             May 12, 2008

 

APPEARANCES:

 

Maria-Grazia Bittinusu	FOR THE APPLICANT
François Bélanger	FOR THE INTERVENER

SOLICITORS OF RECORD:

                                                                                                                                                                                                                 

John H. Sims, QC Deputy Attorney General of Canada Montréal, Quebec	FOR THE APPLICANT
Laframboise Gutkin Société en nom collective, Avocats Montréal, Quebec	FOR THE RESPONDENT NATIONAL BANK OF CANADA IN DOCKET T-1075-07
Charles Rondeau Fédération des Caisses Desjardins du Québec Lévis, Quebec	FOR THE RESPONDENT CAISSE POPULAIRE DE THETFORD MINES IN DOCKET T-1076-07
Joli-cœur, Lacasse, Geoffrion, Jeté, St-Pierre Avocats Québec City, Quebec	FOR THE INTERVENER