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Calgary lawyer suggests federal income tax compliance order exposes him to liability for violating solicitor-client privilege


March 14, 2014   by Canadian Underwriter


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A lawyer who suggests that Canada Revenue Agency is potentially exposing him to “penal and civil consequences,” in ordering him to disclose his accounts receivable records, will have his case heard before the Supreme Court of Canada.

The highest court in the land announced Thursday it is allowing an application, by the federal government, for leave to appeal an Aug. 29 Federal Court of Appeal ruling.

Calgary lawyer Duncan Thompson had been ordered by CRA to disclose several pieces of information, including his income, expenses, assets, liabilities, credit card records, vehicle information and accounts receivable. Thompson then went to Federal Court, arguing that by ordering him to disclose how much each client owes him, CRA is actually compelling him to violate solicitor-client privilege.

Lawyer argues Canada Revenue Agency forcing him to violate solicitor-client privilege

But the Federal Court had earlier ruled against Thompson, granting CRA’s application for a compliance order against Thompson under the Income Tax Act. Thompson appealed the Federal Court decision, with partial success.

In its Aug. 29 ruling, the Federal Court of Appeal rejected most of Thompson’s arguments, including Thompson’s contention that CRA was violating his right, under the Charter of Rights and Freedoms, to protection from unreasonable search and seizure. But the Federal Court of Appeal also proposed to “return the file to the Federal Court for a new hearing, on the question of the accounts receivable listing.”

The federal Minister of Revenue applied Oct. 25, 2013 for leave to appeal that ruling. On March 13, 2014 the Supreme Court of Canada granted the federal government leave to appeal, but dismissed Thompson’s application for leave to cross appeal.

In proposing last August to return the file to Federal Court, Madam Justice Johanne Trudel of the Federal Court of Appeal explained that Thompson would “have the opportunity to get his clients’ instructions and, on the basis of these reasons, may file new sworn affidavits explaining why individual clients’ names are privileged, if in fact this continues to be the case.”

Thompson had argued that the Alberta Legal Profession Act and the Rules and the Code of Conduct of the Law Society of Alberta “take precedence over” the federal Income Tax Act “as matters of property and civil rights in the province.” Court records indicate that Thompson had suggested that if the Income Tax Act were to take precedence over the regulations governing lawyers in Alberta, that he could be “liable for serious penal and civil consequences” because CRA would be forcing him to violate solicitor-client privilege.

Thompson had contended that “the names, addresses, phone numbers of clients and the amount that they owe their lawyers for legal services rendered are always privileged.” However, the federal government specifically excludes “an accounting record of a lawyer, including any supporting voucher or cheque” from its definition, under Section 232(1) of the Income Tax Act, of communications protected by solicitor-client privilege.

“Statements of account are not the same as a lawyer’s accounting records,” Justice Trudel wrote Aug. 29, in rejecting Thompson’s arguments. Lawyers’ accounting records “essentially of statements of fact such as the name of the client, the amount billed for the professional services, the payments received and the amounts still owed. Statements of account, by contrast, may reveal a history of the file. They may contain information including the nature of the consultation, a summary of communications between solicitor and client, and so on, which may be covered by solicitor-client privilege.”

However, she added, CRA “is not seeking the information contained in statements of account” but rather “purely factual information consisting of the names of the clients and the amounts of money owed by these clients individually.”

Justice Trudel found that the Federal Court should have taken “appropriate steps to verify whether solicitor-client privilege protected any of Mr. Thompson’s clients individually.” However, the Federal Court of Appeal also found that Thompson “had built his case on an erroneous understanding of the law of solicitor-client privilege.”

The other two Federal Court of Appeal judges hearing Thompson’s case – Mr. Justice Denis Pelletier and Mr. Justice Robert Mainville – concurred.

Citing earlier court rulings, the Federal Court of Appeal noted that solicitor-client privilege “belongs to the client, not the lawyer,” that it does not apply to communications “in which legal advice is neither sought nor offered” and that it only protects clients’ names “in certain circumstances.”

Therefore, the court ruled, clients of Thompson whose records would be disclosed to CRA “ought to have the opportunity to assert this privilege, and Mr. Thompson should be given the chance to lay the proper evidentiary foundation on their behalf.”


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