J. G.B. A.D. 1997 No. 1703 J.C.S. IN THE QUEEN'S BENCH JUDICIAL CENTRE OF SASKATOON BETWEEN: LONG TRACTOR INC., DALCO ENTERPRISES LTD., MELGREEN EQUIPMENT LTD., DAVID LONG, LINDSAY LONG, PAT LONG, THELMA LONG, and DEPUTY ATTORNEY GENERAL OF CANADA RESPONDENT J.P. Flanagan and R.M. Verret for the applicants G. Berscheid for the respondent JUDGMENT SMITH J. December 24, 1997 This is an application pursuant to s. 232 (4)(c)of the Income Tax Act, R.S.C. 1985, c. 1 (5th Suppl.), forthe determination of whether the applicants have solicitor-client privilege in respect of 25 documents for which RevenueCanada has sought disclosure. An in-camera hearing was held on November 19, 1997. The individual applicants are husband, David Long, his wife, Thelma Long, and their two adult sons, Lindsay Long and Pat Long. The corporate applicants are companies in which various of the individual applicants are principal shareholders and/or directors. The documents at issue were originally in the possession of the Melfort office of the accounting firm Meyers Norris Penny Co. (hereafter "the accounting firm") which has acted as accountants for all of the applicants for all of the period at issue in this matter. On July 28, 1997, officials from the Department of National Revenue served Requirement to Provide Information and Documents upon the accounting firm, pursuant to s. 231.2 of the Income Tax Act, demanding the production of documents in the possession of the accounting firm described as follows: a) All documents relating to i) Transfer from David Long to Thelma Long and Lindsay Long of certain shares of Dalco Enterprises Ltd. on or about April 15, 1988. ii) The incorporation of Long Tractor Inc. on or about June iii) The incorporation of Tobin Tractor Inc. on or about September 11, 1991. iv) The gift of shares in Long Tractor Inc. from David Long to Pat Long on or about November 29, 1991. v) An agreement for sale of shares of Tobin Tractor Inc. by John Parbst to David Long. vi) An agreement of sale of shares in Tobin Tractor Inc. by David Long to Pat Long and Lindsay Long on or about November 30, 1992. b) All documents prepared in the tax planning and analysis that was used to determine that the corporations were or were not associated. The documents identified in the Requirement were forwarded by the accounting firm to the applicants' solicitor, who then forwarded those documents, other than ones for which solicitor-client privilege is claimed, to the Saskatoon office of the accounting firm for production to Revenue Canada. This application relates to the balance of the documents, for which privilege is claimed. These were placed under seal and were subsequently produced to me prior to the hearing. An inventory describing each of the 25 documents was filed with the applicants' brief of law as "Schedule `A' ". At issue is the extent to which solicitor-clientprivilege can be asserted in relation to communications withand documents prepared by the applicants\' accountants. At the outset of the hearing, the respondent conceded the validity of the privilege claimed in respect of documents identified as items number 14, 15, 23 and 24 in the inventory of documents. These documents are all letters or copies of letters from the applicants' solicitors addressed to some of the applicants which had been provided by the applicants' solicitors to the accounting firm. The applicant, in its turn, abandoned its claim for privilege in respect of items number 1, 2, and 18 and also enclosures included with the letters described in items number and 10. It is therefore ordered that the applicants' lawyer make these documents available for inspection or examination by the Department in accordance with sub-para. 232(5)(b)(ii) (B) of the Act. These documents were handwritten notes in the possession of the accounting firm summarizing the share value and fair market value of assets of Dalco Enterprises Ltd. as of November 30, 1997, and notes relating to Tobin Tractor Inc. dated June 21, 1991, all prepared by the accountants other than for the purpose of obtaining legal advice on behalf of the applicants, and copies of agreements and promissory notes executed by various of the applicants. Document 10, for which privilege is claimed, is letter from the solicitor of the applicants to member of the accounting firm dated February 4, 1992. The enclosures, for which the claim of privilege is abandoned, are declaration of gift dated November 29, 1991 and minutes of meeting of the directors of Long Tractor Inc. held November 29, 1991. Examination of these documents for which the claim for privilege is abandoned indicates that no claim is asserted in relation to agreements executed by the applicants, or to notes or memoranda of members of the accounting firm in relation to the applicants which the applicants concede were not prepared by the accountants for the purpose of seeking legal advice from solicitor. It is therefore clear that the applicants do not rely for their claim of privilege exclusively upon the confidentiality of the professional relationship between the accounting firm and its clients. They have taken the position that they are prepared to disclose those documents in the possession of the accounting firm, including those that were created in the context of professional relationship of confidence between accountant and client, which do not fall into one of the following categories: (1) Correspondence from the applicants' solicitors to the applicants. (This category is no longer at issue, for the respondent has conceded that privilege attaches to the documents which fall into this category.) (2) Correspondence between the applicants' accountants and the applicants' solicitors. (3) Notes and memoranda prepared by the applicants' accountants which record and report meetings in which some of the applicants, their solicitors and the accountants were all present. (4) Correspondence from the applicants' accountants to the applicants which relate directly to legal advice that was being sought by the applicants from their solicitor. LAW The central issue in this application is whether and to what extent solicitor-client privilege applies to documents prepared by third parties in this case, the clients' accountants. It is common ground between the parties in this case that while an accountant may, as matter of professional ethics, be required to keep communications and other information concerning clients confidential, no legal privilege attaches to such communications or information solely on the basis of this relationship. Thus, in order to sustain the claim of privilege, the applicants must show that the documents at issue are protected by solicitor-client and not merely accountant-client privilege. This appears to be clearly established in the cases, even though it has been acknowledged that client may, in many cases, look to his or her accountant rather than to solicitor for advice in relation to the law of taxation. See Baron et al. v. The Queen (1990), 91 D.T.C. 5055 (F.C.A.), appeal dismissed on other grounds, 1993 CanLII 154 (SCC), 93 D.T.C. 5018 (S.C.C.). The respondent takes the position that solicitor- client privilege does not extend to communications to or documents prepared by third parties unless the documents at issue were prepared in the context and for the purpose of anticipated litigation. It is common ground that no litigation was contemplated in this case. Although solicitor-client privilege is defined in s. 232(1)(e) of the Income Tax Act, it is clear that this section leaves the issue before me to be resolved in light of the common law test for privilege: (e) "Solicitor client privilege" means the right, if any, that person has in 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, except that for the purposes of this section an accounting record of lawyer, including any supporting voucher or cheque, shall be deemed not to be such communication. The distinction between the "litigation" or "lawyer's brief" privilege and the privilege which applies to communications between solicitor and client for the purpose of obtaining legal advice other than in the context of litigation is clearly established in the cases. In International Minerals Chemical Corp. (Canada) Ltd. v. Commonwealth Insurance Co. (1990), 1990 CanLII 7315 (SK QB), 84 Sask. R. 117 (Q.B.), Halvorson J. explained the distinction as follows: Legal privilege in this context is of two varieties. Firstly, communications between solicitor and client concerning legal advice are privileged even though litigation may not be contemplated. The rationale for this solicitor-client privilege is to ensure full and confidential disclosure. The privilege extends to communications by agents of the client to the solicitor. Secondly, communications between solicitor and third parties are privileged but only if made for the purpose of prospective litigation. The rationale for this litigation privilege is protection of trial preparation. The privilege extends to like communications between the client, his agent and third parties if made to obtain information for the solicitor. (at p. 118) Some cases have refused to extend solicitor- client privilege to communications between accountant and client or between accountant and solicitor on the basis that solicitor-client privilege never protects third party communications except in the context of anticipated litigation. See Goodman Carr v. Minister of National Revenue, 1968 CanLII 340 (ON SC), [1968] O.R. 814, 70 D.L.R. (2d) 670 (H.C.), relying on principles set out in Wheeler v. Le Marchant (1881), 17 Ch.D. 675. The respondent also relied upon Re Missiaen (1967), 68 D.T.C. 5039 (Alta. S.C.), where the court ruled that solicitor-client privilege (as opposed to the litigation privilege) does not extend to communications by third parties ("e.g. an accountant to solicitor in answer to an inquiry") (at 5040). The better view, however, is that the privilege may extend to accountant communications where the accountant is acting as agent or representative of the client for the purpose of seeking, receiving or implementing legal advice from solicitor, even absent the context of anticipated litigation. In the passage quoted above, Halvorson J. noted this extension of the privilege. In neither Goodman Carr nor Re Missiaen was the possibility that the third parties were communicating as agents for the clients considered. Where more recent cases appear to diverge is on the question of the circumstances necessary to found the requisite relationship of agency for this purpose. In Re Sokolov, 1968 CanLII 713 (MB QB), [1968] C.T.C. 414, 68 D.T.C. 5266, 70 D.L.R. (2d) 325, for example, the Manitoba Court of Queen's Bench extended the privilege to memoranda with plan of reorganization attached prepared on request by auditors for the clients to submit to their solicitor but denied privilege to suggestions volunteered by the auditors in relation to the same matter. With regard to the former, however, it is important to note that the court quoted with approval this passage from Phipson on Evidence, 10th ed. (London: Sweet Maxwell, 1963), p. 260, para. 604, giving an example of privileged communication: Oral or documentary information from third persons, which has been called into existence by the client for the purpose of submission to the solicitor, either for advice or for the conduct of litigation Although noting some conflict in the cases on this point, Matas J. concluded, "Confining the privilege to cases involving litigation is contrary to the trend of the development of the law of privilege." (at 330) Susan Hosiery Ltd. v. M.N.R., [1969] 69 D.T.C. 5278 (Exchequer Ct. of Can.) is the leading case that attempts to define the scope of solicitor-client privilege in relation to its application to communications between the client's solicitors and its accountants in the context of the provision of the Income Tax Act that is before me. Jackett, P. (as he then was) began by setting out the broad principles that define the scope of legal privilege in light of its perceived purpose: As it seems to me, there are really two quite different principles usually referred to as solicitor and client privilege, viz: (a) all communications, verbal or written, of confidential character, between client and legal adviser directly related to the seeking, formulating or giving of legal advice or legal assistance (including the legal adviser's working papers, directly related thereto) are privileged; and (b) all papers and materials created or obtained specially for the lawyer's "brief" for litigation, whether existing or contemplated, are privileged. In considering the ambit of these principles, it is well to bear in mind the reasons for them. In so far as the solicitor-client communications are concerned, the reason for the rule, as understand it, is that, if member of the public is to receive the real benefit of legal assistance that the law contemplates that he should, he and his legal adviser must be able to communicate quite freely without the inhibiting influence that would exist if what they said could be used in evidence against him so that bits and pieces of their communications could be taken out of context and used unfairly to his detriment unless their communications were at all times framed so as not only to convey their thoughts to each other but so as not to be capable of being misconstrued by others. The reason for the rule, and the rule itself, extends to the communications for the purpose of getting legal advice, to incidental materials that would tend to reveal such communications, and to the legal advice itself. Turning to the "lawyer's brief" rule, the reason for the rule is, obviously, that, under our adversary system of litigation, lawyer's preparation of his client's case must not be inhibited by the possibility that the materials that he prepares can be taken out of his file and presented to the Court in manner other than that contemplated when they were prepared. What is important to note about both of these rules is that they do not afford privilege against the discovery of facts that are or may be relevant to the determination of the facts in issue. What is privileged is the communications or working papers that came into existence by reason of the desire to obtain legal opinion or legal assistance in the one case and the materials created for the lawyerï¿½s brief in the other case. The facts or documents that happen to be reflected in such communications or materials are not privileged from discovery if, otherwise, the party would be bound to give discovery of them. Applying these principles, as understand them, to materials prepared by accountants, in general way, it seems to me (a) that no communication, statement or other material made or prepared by an accountant as such for business man falls within the privilege unless it was prepared by the accountant as result of request by the business man's lawyer to be used in connection with litigation, existing or apprehended; and (b) that, where an accountant is used as representative, or one of group of representatives, for the purpose of placing factual situation or problem before 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 representative, any the less communications from the principal, who is the client to the lawyer; and similarly, communications received by such representative from lawyer whose advice has been so sought are none the less communications from the lawyer to the client. (at 5281-3) (emphases added) Thus, Jackett, P., tying the scope of the privilege in each case to its rationale, clearly extended the solicitor and client privilege (as distinct from the litigation privilege) to communications to or from third party to the extent that the third party could be seen to be acting as the client's agent or representative for the purpose of seeking legal advice, and also extended the privilege to "incidental materials that would tend to reveal such communications" and "working papers that came into existence by reason of the desire to obtain legal opinion or legal assistance". The facts and issues in Susan Hosiery are closely analogous to those before me. As in the present case, that case arose in the context of demand pursuant to the Income Tax Act for productions of documents from the client's auditors. The documents sought included letter from an auditor to the solicitor, letter from the solicitor to the auditor, and the auditor's memorandum of discussions with the solicitor whereby the auditor provided certain information to the solicitor, sought the solicitor's advice regarding certain proposals for arranging the client's affairs, and recorded memoranda of discussions between himself and the client's solicitors. Privilege in these documents was upheld on the basis that the accountants were acting as representatives of the company for the purpose of obtaining legal advice "concerning the setting up of some arrangement such as that that the appellant in fact entered into." Counsel for the respondent in the matter before me argued that Susan Hosiery should be distinguished, however, because the auditor in that case was acting as representative, or agent, of the client claiming privilege in the sense of being conduit for information passing between solicitor and client. The auditor in that case communicated with the solicitor, on the client's instructions, in the absence of the client. In the case before me, some of the applicants were themselves in direct communication with the solicitor and the meetings between the solicitor and the accountants always included some of the applicants as well. The respondent argued that it followed that the accountants, in this case, were not acting as agents or representatives of the applicants for the purpose of communication with the solicitor. This argument, in my view, gives too narrow scope to the principle articulated in Susan Hosiery. In the passage quoted above the learned judge made the point that: where an accountant is used as representative for the purpose of placing factual situation or problem before lawyer to obtain legal advice the fact that he uses his knowledge and skill as an accountant in carrying out such task, does not make the communications any the less communications from the principal, who is the client, to the lawyer. It is clear that the role of "representative" described in that passage 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 relationship of confidence, vis-ï¿½-vis, the client, arising out of his professional relationship with the client. In this regard, it is useful to note these comments of Jackett P., explaining why the privilege should extend to communications to and from the auditor in that case: 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. (at 5283) This passage indicates that Jackett P. did not view the auditor as representative or agent merely for the purpose of communication, i.e., as 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 mere messenger. He was 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 confidential relationship with the client in relation to this role. It is to be noted that Jackett P. also extended privilege in Susan Hosiery to memorandum prepared by the accountants of their meeting with the solicitor and to 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 privilege against producing 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, letter written by [the accountant] as part of the process of obtaining such advice. (at 5286) (emphasis added) Susan Hosiery was followed in Southern Railway of British Columbia Ltd, Itel Corp. and Itel Rail Holdings Corp. v. Deputy Minister of National Revenue, Taxation, and Deputy Attorney General of Canada (1990), 91 D.T.C. 5081 (B.C.S.C.) 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 (1994), 1994 CanLII 8935 (AB QB), 24 C.B.R. (3d) 268, [1994] W.W.R. 173 (Alta. Q.B.,in Bankruptcy) 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 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]. 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]. (at 277) The Registrar also upheld privilege in this case in relation to letter from the solicitor to the accountants "concerning the very matters upon which the bankrupt had sought legal advice." Similarly, in Re Alcan-Colony Contracting Ltd. and M.N.R. (1971), 1971 CanLII 405 (ON SC), 18 D.L.R. (3d) 32 (Ont H. C.), the Court commented: The fact that the communication is directed to an officer or agent of the clients by way of instruction to prepare documents or take certain course of action on behalf of the clients does not bring the matter within the category of communications to third party so as to void the privilege. (at 35) APPLICATION TO THE FACTS IN THIS CASE The documents for which disclosure is sought in this case relate to three separate occasions upon which the applicants sought the advice or assistance of lawyer in relation to proposed transactions. Items #3-8 and 12, relate to advice sought from Melfort solicitor, Mel Annand, in relation to transaction considered and executed in 1988. Items #10 and 11 relate to advice sought from the same solicitor in relation to another transaction considered or executed in 1991. Items #13, 16, 17, 19, 20, 21, 22, and 25 relate to advice sought from Saskatoon solicitor, Nancy Hopkins, Q.C., from early in 1995 through 1996 in relation to some proposed transactions as well as other taxation issues relating to the applicants that arose in the process of working on the proposed transactions. Because the circumstances of these occasions varied somewhat, it is useful to consider them separately. will begin with the most recent of these, those involving consultation with Nancy Hopkins in 1995-6. The affidavit evidence filed indicates that in late 1994 members of the accounting firm advised the applicants that it would be desirable to obtain legal advice in relation to some proposed transactions. Tony Smith, an accountant with the firm, was instructed by the applicants to arrange meeting with Nancy Hopkins. This first meeting took place on February 24, 1995, and second meeting occurred on August 10, 1995. Both included Nancy Hopkins, Tony Smith, and two of the individual applicants, Pat Long and Lindsay Long. The items #14 and #15, for which the respondent concedes solicitor- client privilege, are letter and copy of the same letter from Nancy Hopkins to Malgreen Equipment Ltd., to the attention of Pat and Lindsay Long, dated February 27, 1995, summarizing the first of these meetings. Similarly, items #23 and #24 are letter and copy of the same letter from the solicitor addressed to the attention of Lindsay Long, dated August 11, 1995, summarizing the second meeting. The respondent also concedes that these documents are privileged. Both letters were copied to the accounting firm to the attention of Tony Smith. Smith deposes that he prepared the handwritten notes dated February 24, 1995, and August 10, 1995, which are identified as items #13 and #22, respectively, in the inventory of documents, and that the matters discussed at the February 24 meeting and at the August 10 meeting are the subject of those notes. My review of those notes, in comparison with the solicitor's letters, confirms that they are notes of the matters discussed at the two meetings. Items #16 and #17 are two copies of draft letter from Smith to the solicitor dated March 2, 1995, summarizing the issues discussed at the February 24 meeting. Items 19 and #20 are letter and copy of the same letter from Nancy Hopkins to Tony Smith setting out the solicitor's interim conclusions in relation to legal advice sought from her in relation to taxation and corporate issues involving the applicants. Item #21 is fax transmission from Tony Smith to Rick Rumberger, Melfort member of the accounting firm, dated June 15, 1995. Smith deposes and my examination of this document confirms that the purpose of this letter is to advise Rumberger of the discussions between Smith and Nancy Hopkins involving the legal advice sought on behalf of the Long family. Item #25 consists of handwritten notes dated October 27, 1996, prepared by another Melfort member of the accounting firm, Brent Hoyseth. Hoyseth deposes that he was instructed by Pat and Lindsay Long to provide information and advice relating to the financial and tax position of the applicants to Nancy Hopkins in order to assist her in providing legal advice to the applicants with respect to certain corporate and taxation matters. Item #25 is page of handwritten notes prepared by Hoyseth containing information to be communicated to Nancy Hopkins. It is my conclusion that the accounting firm ingeneral and Tony Smith and Brent Hoyseth in particular, wereclearly acting as agents of the applicants for the purpose ofobtaining legal advice from Nancy Hopkins, in the sense thatthis concept is explained in Susan Hosiery. They were at alltimes acting in a confidential capacity on behalf of theapplicants and on the instructions of the applicants. Smith\'s presence at the meetings between Pat and Lindsay Longand Nancy Hopkins and, even more clearly, his and BrentHoyseth\'s role in relation to the subsequent communicationwith Nancy Hopkins (which did not directly involve theapplicants themselves) was clearly as a representative of theapplicants for the purpose of providing accounting informationpertaining to the applicants which was within theconfidential, special knowledge and expertise of theaccountants, and for the purpose of receiving legal advice onbehalf of the clients. Accordingly, solicitor-clientprivilege extends to the items #16, #17, #19 and #20. While in respect to the two meetings it is true, as the respondent says, that Smith was not acting as mere conduit for communication between solicitor and client, he was clearly providing information about the clients' affairs to the solicitor on behalf of the clients. His handwritten summaries of those meetings (items #13 and #22) are records of meetings which are themselves privileged and confidential. Disclosure of these notes would reveal the detailed substance of the advice sought from and given by the solicitor. Solicitor- client privilege extends to these items. It is my view that the notes prepared by Hoyseth(#25) and the interoffice communication summarizingdiscussions with the solicitor (#21) also fall within thescope of the privilege. In reviewing the variety of documents for which privilege is sought in relation to the consultations with Nancy Hopkins, it is useful to recall the scope of the privilege which Jackett P. was prepared to allow in Susan Hosiery: The reason for the rule, and the rule itself, extends to the communications for the purpose of getting legal advice, to incidental materials that would tend to reveal such communications, and to the legal advice itself. (at 5282) (emphasis added) And: What is privileged is the communications or working papers that came into existence by reason of the desire to obtain legal opinion or legal assistance (at 5282) (emphasis added) These principles clearly support extension of the privilege from disclosure to documents prepared by the client, or by an agent on behalf of the client, in preparation for communication with solicitor, that set out or summarize the very matters upon which legal advice is to be sought. Disclosure of these documents would be tantamount to disclosure of the communication by the client to the solicitor itself, for they would reveal the substance of that communication. It should be noted that while the respondent initially took the position that any privilege attaching to document #21 had been waived because that document was actually disclosed to Revenue Canada by the accounting firm on the instructions of the applicants' solicitor, the respondent subsequently conceded that there was no waiver if that disclosure was inadvertent and asked only for an affidavit setting out the circumstances of inadvertence. Accordingly, this argument was not pursued by the respondent. The documents relating to advice sought from Melfort solicitor Mel Annand in 1988 and 1991 raise some additional complexities. The affidavit evidence filed indicates that Annand's associate was telephoned in January 1988 by Pat Parkinson, then member of the accounting firm, to discuss aspects of the proposed 1988 transaction. Annand then received item #5, letter from Pat Parkinson dated March 30, 1988 and item #6, letter from Ole Ramstead, another member of the accounting firm, dated April 11, 1988. Both letters were written on the instruction of David Long to the accounting firm, to provide information to Annand and to instruct Annand on behalf of Long to proceed with the preparation of documents required to implement the proposed transaction. Items #7 and #8 are letters from Annand to Ramstead in May of 1988 and January of 1989, in confirmation of certain aspects of this transaction. Item #12, letter from Annand to the accounting firm dated January 12, 1995, seeks factual confirmation in relation to the 1988 transaction. In respect of each of these communications, find that the accounting firm was acting as agent for some of the applicants, including David Long, for the purpose of communicating with the solicitor of the applicants for the purpose of obtaining legal advice. Items #10 and #11 are letters from Annand to Ramstead dated February 4, 1992 and July 5, 1994, respectively, both relating to the 1991 transaction. Annand's affidavit deposes that prior to the dates of these letters he had discussions with Dave Long with respect to this transaction and prepared the documentation required to implement the transaction pursuant to his instructions. These letters, he further deposes, like items #7, and 12, were written to the accountants "to ensure that the documentation that had prepared in relation to implement [sic] the said transactions was consistent with the information of [the accounting firm]." The claim for extending the privilege to these letters is less strong than the others, for there is no specific statement that the accounting firm acted as agent for the applicants with respect to the 1991 transaction. The case law makes it clear that when lawyer whose advice is sought seeks factual information from third party, absent the context of litigation, communications of the third party are not protected by solicitor-client privilege unless the third party is acting as an agent of the client for the purpose of seeking legal advice. Nonetheless, it would in my view require an artificial distinction no to extend privilege to these documents. The entirety of the evidence filed establishes the relationship between the applicants and the accounting firm. This evidence easily supports the inference that the solicitor was in this case confirming factual information with the firm as surrogate for the clients. Privilege extends to these documents as well. Items #3 and #4 raise another issue. These are twocopies of the same letter, dated February 26, 1988, from theaccountant Pat Parkinson to Dave Long in which Parkinson setsout the proposal for the 1988 transaction in terms verysimilar to the instructions that were subsequently conveyed tothe solicitor in the accountant\'s letter to Annand of March30, 1988, item # 5. Items #3 and #4 clearly pre-date item #5. Moreover, the February 26 letter is not itself a communicationwith the solicitor and, indeed, appears in substance to beadvice offered by the accountants to the applicants. The respondent argues that this letter does not fall within the agency extension of solicitor-client privilege but is no more than communication between accountant and client for which there is no legal privilege. It argues that when these documents were prepared the authority of the accountants did not include disclosure of this advice to the applicants' solicitor. The applicants argue that Annand's affidavit shows that there had been discussions about the proposed transaction between his office and the accounting firm in January, 1988, before this letter was written. am asked, therefore, to infer that this letter did not arise out of merely accountant-client relationship, but that the accounting firm had been instructed to prepare information and advice needed by the solicitor to prepare documents for the proposed transaction. The letter represented in items #3 and #4, the applicants argue, should be treated as part of the process of obtaining legal advice from the solicitor. The letter at issue, it is said, should be seen as "perfecting" the legal advice given by the solicitor to the client. This argument asks me to draw inferences about the purpose of the February 26 letter that the material filed is not sufficient to support. find that documents #3 and #4 are not protected by solicitor-client privilege. In addition to these considerations regarding items #3-8 and #10-12, the respondent also argues that the material filed is insufficient to indicate which of the applicants claims privilege with respect to these documents. Mel Annand's affidavit deposes that he received instructions in relation to transactions that "involved several of the Applicants". The solicitor-client privilege recognized in s. 232(1), it is argued, is in relation to communication between "the person" and "the person's lawyer". Paragraph 10 of the affidavit of Dave Smith describes the 1988 transaction as involving "several of the Applicants." Therefore, the respondent says, it is not possible for determination to be made about which of the applicants is claiming solicitor- client privilege in relation to particular transaction. do not find this objection to be fatal. The affidavit evidence filed clearly establishes that the accounting firm and each of the solicitors acted for all of the individual and corporate clients. The individual applicants are all members of family. Various of the individual applicants are the directors and/or principal shareholders of the corporate applicants. It is reasonable to infer from the affidavit evidence filed together with the documents at issue themselves, that each of the transactions at issue had the potential to affect the legal situation of all of the individual applicants and all of the corporate applicants in existence at the relevant time. In conclusion, then, I uphold the privilege claimedin relation to all of the documents relating to the legaladvice sought from Nancy Hopkins after January, 1995. This includes items #13, 16, 17, 19, 20, 21, 22, and 25. also uphold the privilege claimed in respect of items #5-8 and #10-12. I do not uphold the claim in relation to items #3 and4. These documents, together with items #1, 2, and 18 and the enclosures included in items #7 and 10, for which the claim for privilege was abandoned, are to be made available for inspection or examination by the Department in accordance with sub-para. 232 (5)(b)(ii)(B) of the Act.
An application pursuant to s232(4)(c) of the Income Tax Act for a determination of whether the applicants have solicitor-client privilege in respect of 25 documents for which Revenue Canada had sought disclosure. The applicants were husband and wife, their two sons and the companies in which they were principal shareholders and/or directors. The documents related to three separate occasions upon which the applicants sought the advice or assistance of a lawyer in relation to proposed transactions. The documents in issue were originally in the possession of their accounting firm. At issue was the extent to which solicitor-client privilege could be asserted in relation to communications with and documents prepared by third parties. HELD: 1)The privilege claimed in relation to all of the documents relating to the legal advice sought after January 1995 was upheld. 2)The claim was not upheld for copies of a letter setting out the proposal for the 1988 transaction. One letter appeared to be advice offered by the accountants to the applicants.  3)The applicants abandoned their claim for privilege with respect to handwritten notes summarizing share value and fair market value of assets which had been prepared by the accountants other than for the purpose of obtaining legal advice. The claim of privilege was abandoned for a declaration of gift and minutes of a director's meeting in 1991. 4)It has been clearly established in case law that even though a client may look to his/her accountant rather than a solicitor for advice in relation to the law of taxation, the applicants must show the documents were protected by solicitor-client privilege and not merely accountant-client privilege. 5)Although solicitor-client privilege is defined in s232(1)(e) of the ITA, the issue had to be resolved in light of the common law test for privilege. 6)Privilege may extend to accountant communications where the accountant is acting as agent or representative of the client for the purpose of seeking legal advice from a solicitor. Recent cases appear to diverge on the question of the circumstances necessary to found the requisite relationship of agency. 7)The accountants were clearly acting as agents for the applicants for the purpose of obtaining legal advice, as was found in Susan Hosiery. They were at all times acting in a confidential capacity on behalf of and on instructions of the applicants. 8)Solicitor-client privilege extended to items of accounting information obtained for the purpose of receiving legal advice. Notes prepared by the accountant and the interoffice communications summarizing discussions with the solicitor also fell within the scope of privilege.