Court of Appeal Upholds Solicitor-Client Privilege and “Common Interest Privilege” in Tax Case

Mark Feigenbaum

The Supreme Court of Canada recently refused to hear the appeal of a Federal Court of Appeal’s decision regarding lawyer-client confidentiality in a tax case. This means that the Federal Court of Appeal’s decision is final and has important implications for anyone seeking legal advice in tax matters in Canada.

The case raised the issue of whether solicitor-client privilege continues to apply to a legal opinion that was disclosed to a person who was not a client but who was involved in common transactions with the lawyer’s client.

The Facts

The case stems from a series of transactions between Abacus Capital Corporations Mergers and Acquisitions (“Abacus”) and IGGillis Holdings Inc. and Ian Gillis (together “Gillis”). Both parties sought legal and tax advice on the transactions and retained their own lawyers. Abacus’ lawyer produced a memorandum (the “Memo”) outlining each step in the series of transactions and the implications that would arise under the applicable taxing statutes. The Memo was sent to Abacus and Gillis and was marked as “PRIVILEGED & CONFIDENTIAL”.

Following the completion of the transactions, the Minister of National Revenue (the “Minister”) served two requirements to Gillis under s. 231.2(1) of the Income Tax Act (the “Act”) to produce this Memo. Subsection 231.2(1) of the Act allows the Minister to require that any person provide any information or document for the purposes of the administration or enforcement of the Act.

Gillis refused to disclose the Memo to the Minister and argued that it was clearly protected by solicitor-client privilege. The Minister argued that privilege had been waived because the Memo had been shared outside of the lawyer-client relationship. Gillis argued that, by sharing the Memo in the context of a common goal, the Memo was protected by “common interest privilege” and solicitor-client privilege had not been waived.

The Federal Court held that the Memo was subject to solicitor-client privilege, that Abacus and Gillis did share a common interest and noted that common interest privilege is well entrenched in Canadian law. However, it found that common interest privilege was not applicable in the context of solicitor-client privilege and did not apply to the Memo.

The Issue

The issue on appeal was whether the Federal Court judge was correct in finding that common interest privilege is not a valid principle of law that could be applied to the Memo.

The Appeal Decision

The Federal Court of Appeal began its analysis by setting out the general criteria that must be met for a document to be privileged:

(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.

The court found that the first two criteria had been met and the remaining issue was whether confidentiality had been waived when the Memo was shared outside of the solicitor-client relationship.

After reviewing the relevant case law, the court found that the disclosure of the Abacus Memo to the other parties to the proposed transaction did not result in a finding that privilege had been waived. It held that communication of the Abacus memo was strictly limited to the other parties to the transaction and their counsel and therefore remained confidential. The court concluded:

“solicitor-client privilege is not waived when an opinion provided by a lawyer to one party is disclosed, on a confidential basis, to other parties with sufficient common interest in the same transactions. This principle applies whether the opinion is first disclosed to the client of the particular lawyer and then to the other parties or simultaneously to the client and the other parties. In each case, the solicitor-client privilege that applies to the communication by the lawyer to his or her client of a legal opinion is not waived when that opinion is disclosed, on a confidential basis, to other parties with sufficient common interest in the same transactions.”

As a result, the appeal was allowed and the Memo remained confidential.

Get Advice

Contact Mark Feigenbaum to learn how he can assist you with your legal or tax matters and provide you with comfort in knowing that you are in highly experienced hands. Prior to forming his law firm, Mark worked in the cross-border tax department of an international Big 4 firm and held accounting management positions in a range of sectors in both Canada and the US. Mark combines this legal, tax, and business knowledge to provide thorough, multi-disciplinary advice and exceptional risk management for his clients. Mark offers services to clients in the U.S., Canada, and around the world. Contact Mark online, or at (416) 777-8433 or toll-free at (877) 275-4792 to book a meeting today.