The focus of this article is to examine the entitlement of a client of a law firm that employs accountants to assist its lawyers in the provision of legal advice to assert solicitor-client privilege over such legal advice. Moodys Tax Law LLP believes that by providing its tax lawyers with ready access to its skilled tax accountants, its clients derive substantial benefits – namely, combining the two differing skill sets and perspectives to develop creative solutions to a client’s complex tax issues.
The Legal Meaning of Privilege in Canada
The Supreme Court stated as follows in Cunningham v. Lilles, 2010 SCC 10:
It need hardly be said that solicitor-client privilege is a fundamental tenet of our legal system. The solicitor-client relationship is integral to the administration of justice; privilege encourages the free and full disclosure by the client required to ensure effective legal representation.
More recently, in Thompson v. MNR, 2013 D.T.C. 5146 (FCA), the Federal Court of Appeal stated:
Solicitor-client privilege is one of the most revered doctrines under the common law, described by the Supreme Court of Canada as “one of the most ancient and powerful privileges known to our jurisprudence”.
Solicitor-client privilege applies only to a communication between a lawyer and client, which is of a confidential character, and is directly related to the seeking, formulating or giving of legal advice. The fundamental purpose of privilege is to ensure that clients will not fear that information given in confidence to their lawyers may later be disclosed and used against them.
In subsection 232(1) of the Income Tax Act, the term “solicitor-client privilege” is defined as “the right … that a person has in a superior court in the province where the matter arises to refuse to disclose an oral or documentary communication on the ground that the communication is one passing between the person and the person’s lawyer in professional confidence …”
The purpose of section 232 is to ensure that, in the face of the extensive powers of investigation and search provided to the CRA under the Income Tax Act, the traditional protection afforded communications between client and lawyer is preserved. This protection is achieved by ensuring that a client’s claim of solicitor-client privilege in respect of any information or document in the possession of the client or its lawyer that the CRA wishes to seize or otherwise require the client to produce will be protected from disclosure, if necessary, by a court.
Categories of Privilege in Canada
- Solicitor-Client Privilege – extends to any oral or written communication between a lawyer and client for the purpose of the client seeking, or the lawyer rendering to the client, legal advice that is intended by the parties to remain confidential between the lawyer and client (per the Supreme Court of Canada in Descôuteau.  1 S.C.R. 860; and Solosky, (1980) D.L.R. (3d) 745 (SCC)). The classical criteria for establishing solicitor-client privilege over communication are described by the Supreme Court in Solosky v R,  1 S.C.R. 821 (SCC) at 837: (i) a communication between solicitor and client; (ii) which entails the seeking or giving of legal advice; and (iii) which is intended to be confidential by the parties.
- Litigation Privilege – covers communications or documents prepared in contemplation of litigation. The privilege applies to communications between legal counsel and their client and to communications between a solicitor and third parties whom the solicitor retains to assist in the litigation.
- There are also other categories of privilege, including “Common Interest Privilege” (which applies to privileged documents that are shared with unrelated parties that have a sufficient common interest in the successful completion of a commercial transaction – see, for example, Pitney Bowes of Canada Ltd. v. R., 3 C.T.C. 98 (FCTD) and Iggillis Holdings Inc. v. Canada, 2018 D.T.C. 5027 FCA)); and “Limited Waiver Privilege” which entitles a taxpayer to provide to its auditor privileged legal advice for the purpose of enabling the auditor to complete its audit of the taxpayer’s financial statements – the leading case being Interprovincial Pipeline Inc. et al v. MNR, 95 D.T.C. 5642 (FCTD).
Where a Client’s Accountant and Lawyer Collaborate in Providing Legal Advice to the Client
The jurisprudence in Canada on privilege has considered instances where accountants are involved in assisting a client to obtain legal advice, including income tax advice. The leading case dealing with the scope of solicitor-client privilege in relation to its application to communications among a client, its lawyer and its accountant is Susan Hosiery Ltd. v. MNR,  C.T.C. 353 (Exch Ct). That case involved a demand made by the CRA under the Income Tax Act for the production of documents in the possession of a client’s accountant. The accountant had provided certain information to the client’s lawyer, sought the lawyer’s advice regarding certain planning of the client’s affairs and created a memorandum that recorded discussions between the accountant and the lawyer. Privilege over these documents was upheld by the Court on the ground that the accountant acted as a representative of the client for the purpose of obtaining legal advice and applying his expertise concerning the establishment of some arrangements that the client in fact later entered into. In that case, the Court made the following findings (underlining added by me):
- … [W]here an accountant is used as a representative, or one of a group of representatives, for the purpose of placing a factual situation or a problem before a lawyer to obtain legal advice or legal assistance, the fact that he is an accountant, or that he uses his knowledge and skill as an accountant in carrying out such task, does not make the communications that he makes, or participates in making, as such a representative, any the less communications from the principal, who is the client, to the lawyer; and similarly, communications received by such a representative from a lawyer whose advice has been so sought are none the less communications from the lawyer to the client.
- … I think the Court may take judicial knowledge of the fact that corporations of all kinds are continuously faced with problems as to what arrangements are advisable or expedient having regard to the intricacies of the tax laws and that, while huge corporations have staffs of lawyers and accountants of their own through whom they seek advice of counsel learned in such special areas of practice, smaller corporations employ lawyers and accountants in general practice to act for them in obtaining special advice in connection with such matters.I have no doubt as to the inherent probability of [the lawyer’s] statements that [the accountants] were so acting for the appellant in obtaining [the lawyer’s] advice.
It would have been far easier for the Court to have reached the conclusion that the documents in the possession of the accountant should be privileged if the accountant had been employed by the law firm that rendered the legal advice to the client. Under that structure, the documents would never have left the law firm. Rather, the client would have engaged only the law firm to render legal advice to the client, and all documents that were in the possession of the client would have been delivered by the client exclusively to the law firm. Little or no attention would need to have been paid by the Court to principles of agency.
In Long Tractor Inc. v. Canada,  3 C.T.C. 1 (Sask. Q.B.), the Court stated:
- … It is clear that the role of “representative” described in [the first above-quoted passage from Susan Hosiery] is not merely that of conduit of information from client to solicitor. It is clearly recognized that in communicating with the solicitor for the purpose of obtaining legal advice in such contexts as this, the client must of necessity rely upon the expertise of his accountants to explain to the solicitor intricacies of his situation which he may not himself be competent to explain. The accountant therefore speaks as agent or representative of the client because, (a) he is exercising his expertise on behalf of the client to communicate the complexities of the client’s factual situation to the solicitor for the purpose of obtaining legal advice for the client, and (b) in so doing, he is acting in a relationship of confidence vis-à-vis the client, arising out of his professional relationship with the client. …. This passage indicates that Jackett P. did not view the auditor as a representative or agent merely for the purpose of communication, ie, as a mere conduit, or messenger, as the respondent argues. Clearly the auditor was conveying and receiving information and advice on behalf of the client in relation to matters that were within the auditor’s and not the client’s expertise. He was not a mere messenger. He was a representative speaking for the client with regard to aspects of the client’s affairs which were within his professional responsibility to the client. This role is not inconsistent with the client’s personal presence or involvement in these communications. Whether or not he is personally present, the client relies upon the accountant to accurately convey certain information within his expertise about the client’s affairs to the solicitor and to receive and implement the solicitor’s advice on behalf of the client. Further, the accountant is clearly in a confidential relationship with the client in relation to this role.
- It is to be noted that Jackett P. also extended privilege in Susan Hosieryto a memorandum prepared by the accountants of their meeting with the solicitor and to a letter written by the accountant:
… Having come to the conclusion that … the meeting between [the accountants and the solicitor] was part of the process whereby [the accountants], as representatives of the appellant, were obtaining legal advice for the appellant from [the solicitor], and that the appellant is therefore entitled to a privilege against producing a memorandum of what occurred at that meeting, it seems clear to me that the same privilege extends to answering any questions as to what was or is contained in that memorandum.
Finally … it follows from my conclusion that [the accountant] was one of the representatives of the appellant for obtaining legal advice that the appellant is privileged from production, or giving evidence as to the contents of, a letter written by [the accountant] as part of the process of obtaining such advice. (at 5286).
- Susan Hosierywas also followed in Southern Railway of British Columbia Ltd. v. Deputy MNR, 91 D.T.C. 5081 (BCSC), which also upheld the privilege claimed in relation to communications between the client’s lawyers and its accountants.
- In Wolch’s Guaranteed Foods Ltd (Trustee of) v Wolch, 24 C.B.R. (3d) 268,  6 W.W.R. 173 (Alta QB), the Registrar, citing Susan Hosiery, extended solicitor-client privilege to communications to or from the client’s accountant which were said to “complement” or “perfect” the legal advice sought and given. Specifically, privilege was granted in that case to two letters from the accountant to the solicitor written at the request of the client and containing accounting advice in relation to the matters upon which the client sought legal advice. The court commented, regarding the first letter:
… The letter was not only a request that documents be prepared, but it also contains accounting advice as to various aspects of the course of action decided upon by the [client]. I consider input from the accountant to be accounting information given to [the solicitor] to complement the legal advice given to the [client]. In my view it falls within the scope of communications between solicitor and client, and is protected by privilege.
Regarding the second letter the Registrar said:
… This letter contains accounting advice relative to the matter upon which the [client] sought legal advice from [the solicitor]. In my view it is accounting information required to perfect the legal advice given by [the solicitor to the client].
- The Registrar also upheld privilege in this case in relation to a letter from the solicitor to the accountants “concerning the very matters upon which the bankrupt had sought legal advice.”
In Redhead Equipment Ltd. v. Canada (Attorney General), 2016 D.T.C. 5098 (Sask CA), after reviewing the relevant jurisprudence, the Court stated the following with respect to when privilege may attach to communications emanating from accountants:
- Based on the foregoing, the privilege extends to all situations in which the third-party [accountant] functions as an interpreter of information provided by the client for the solicitor or serves as a conduit of advice from the solicitor to the client or a conduit of instructions from the client to the solicitor, or employs expertise in assembling information provided by the client and in explaining it to the solicitor…
The Redhead Equipment case went on to hold that while there is no such thing as accountant-client privilege, solicitor-client privilege does extend to communications in furtherance of a function essential to the solicitor-client relationship or the continuum of legal advice provided by the solicitor, including where an accountant provides the client’s lawyer with information pertaining to the client and its business, records what occurs at meetings among the client, accountant and lawyer and employs the accountant’s expertise to assemble information provided by the client to the lawyer.
Once again, if the accountant had been employed by the law firm that was engaged by the client, and it was exclusively members of the law firm that rendered the advice to the client, it would have been exclusively the law firm that exchanged communications internally and with the client.
The case discussed next illustrates this point. In The Mutual Life Assurance Company of Canada v. The Deputy Attorney General of Canada,  C.T.C. 155 (SCO), a memorandum prepared jointly by a law firm (Lang, Michener, Cranston, Farquharson & Wright) and a separate firm of chartered accountants respecting tax advice was sent under the letterhead of the law firm to its client. The memorandum was held to be protected by solicitor-client privilege. The Court held as follows (underlining added by me):
- The memorandum appears to me to be full of legal advice respecting the tax liability of participants in the project. It is common knowledge that chartered accountants and lawyers frequently must work together in advising clients as to the effect on particular projects of the extremely complex provisions of our Income Tax Act. It is impossible for me to tell in reading the memorandum what portion of it is attributable to the chartered accountants and what portion is attributable to the solicitors.
- I am satisfied, however, that the solicitors by sending the memorandum with the covering letter have accepted responsibility for the very considerable amount of legal advice contained in it. For that reason, and because it appears from a quick reading that all the advice could be described as legal in that it involves advice as to the impact of the income tax laws, I think that Lang, Michener is responsible for the entire document even though it acknowledges the input of a firm of chartered accountants. It appears to me to be clearly a communication that is protected by the solicitor-client privilege referred to in section 232.
In that case, if the accountants had been employed by the law firm, the Court’s analysis would have been straightforward in that the client would have engaged only the law firm and the advice provided to the client would have been rendered only by the law firm. All communications among the lawyers and accountants would have been made within the law firm.
Based on the foregoing jurisprudence, it is clear that in Canada solicitor-client privilege will protect from disclosure to the Canada Revenue Agency and other third parties all communications passing among a client, a law firm and an accounting firm for the purpose of enabling the client to obtain legal advice. That conclusion should be even more certain where the legal advice is rendered to the client exclusively by a law firm – including a law firm such as Moodys Tax Law LLP, that employs accountants to collaborate with its lawyers in the provision of that legal advice.