Section 231.2: Requirement to provide documents or information to the CRA is unconstitutional and without effect – In Quebec at least: Chambre des notaries du Quebec c. Canada

Most tax practitioners are familiar with CRA’s attempts to obtain their clients information by way of sections 231.2 of the Income Tax Act (the “Act”).  This provision allows the CRA to require that any person provide any information or any documents for the purpose of administering or enforcing the Act.  What practitioners may not be familiar with is a recent Quebec Superior Court decision which declares this provision (and connected provisions) unconstitutional and without effect by virtue of sections 52 of the Canadian Charter of Rights and Freedoms!  This decision is Chambre des Notaires du Quebec c. Canada [2010] R.J.Q. 2069.  So, why have you not heard of this decision?  Most likely because it has only been released in French – the English translation is no doubt pending.

Notaries in Quebec are required to go through law school like lawyers.  They also have the same obligations to maintain solicitor-client privilege as lawyers.  As such, consider notaries and lawyers to be the same for the purposes of this decision – lawyers, please do not take offense.  In this decision, a number of notaries were required, pursuant to section 231.2, to provide information and documents regarding their clients.  In addition to the request for documents or information, the CRA would usually remind the notaries of the possibility of a fine and imprisonment if the request was not complied with.1  Needless to say, the notaries were placed in a somewhat uncomfortable position of either complying with the order and compromising the solicitor-client relationship or ignoring the order and exposing themselves to potential fines and imprisonment!  Following further CRA requests under section 231.2 to the notaries, the Chambre des notaries du Quebec decided to obtain a declaratory judgment declaring that section 231.2 was an unconstitutional violation of the solicitor-client relationship.  The Quebec Superior Court agreed!

Following an extensive review of Supreme Court’s jurisprudence on solicitor-client privilege, the Court summarizes solicitor-client principals as follows:

  1. With respect to the privilege, there is no reason to make a distinction between a criminal law matter and a civil law matter;
  2. As soon as there is a legitimate professional relationship between a lawyer and a client, all actions, documents and all information are, prima facie, covered by the solicitor-client privilege;
  3. The party challenging the existence of the privilege has the burden of proving that the privilege does not exist;
  4. The exceptions to solicitor-client privilege should be extremely rare and should be used only as a last measure, once all other possibilities have been exhausted;
  5. Legislation (such as the Act) must make sure that they scrupulously respect the existence of the privilege to prevent untimely divulgation of protected information; and
  6. Any legislation that is susceptible to impair the privilege should be interpreted restrictively and cannot require the divulgation of protected documents.

The Court notes the Supreme Court’s statement in Lavallee v. R [2002] 3 S.C.R. 209 that the legislator should strive to take all necessary steps to assure that solicitor-client privilege is respected to the fullest extent.  The Court also notes the Supreme Court’s statement that any legislative regime which does not directly allow a client, who is the holder of the privilege, to know that his privilege is threatened and therefore protect his rights under the privilege, is constitutionally unreasonable.

Based on the foregoing, the Court identifies three fatal lacunas in section 231.2 and 231.7.  Firstly, these sections are not drafted in such a way that the client, holder of the privilege, can learn of the threat to his rights and thus protect it.  Indeed, requests under section 231.2 were sent directly to the notaries without warning to the client.  Secondly, the Court found the five day delay under section 231.7 to be unreasonably short.  Finally, the Act did not impose as a condition that it is demonstrated that the violation of the solicitor-client privilege was a last resort solution.  As such, the Court found that section 231.2 was not a minimal infringement of the solicitor-client privilege and declared it to be unconstitutional and without effect.

The Attorney General of Canada had requested a stay of the decision for a period of one year, so as to allow for potential legislative changes.  The Chambre des Notaires du Quebec did not object to this stay.  However, the Court refused this request on the basis that the rights under the solicitor-client privilege trumped administrative considerations!  Strangely enough, the Court also declared section 231.2 and 231.7 to be unconstitutional and without effect – but only with respect to Quebec lawyers and notaries!!  Quite odd considering the Act is a Federal statute.  Furthermore, it is odd that Quebec residents should arguably be afforded better constitutional protection than residents elsewhere in Canada.  Do not all Canadian residents benefit from the same principals of fundamental justice?

In any event, this decision is very important for any tax lawyers facing a CRA request under section 231.2, especially in light of CRA’s recent aggressive attempts to obtain privileged information.  Unsurprisingly, this decision is under appeal to the Quebec Court of Appeal.  It also has Supreme Court written all over it.

1. Section 238 of the Act.