Lawyers to consider privilege when Canada Revenue Agency seeks client documents
BC lawyers should be aware that section 231.2 of the Income Tax Act authorizes the Minister of National Revenue (MNR) to require a person to provide information or documents for any purpose related to the administration or enforcement of the Income Tax Act. These are usually referred to as requirements for information (RFIs). In practical terms, RFIs are usually issued through a Canada Revenue Agency (CRA) auditor or collections officer.
Lawyers may receive an RFI for documents in their possession relating to a former client. Often, the RFI asks a lawyer to produce a trust cheque relating to the payout from the lawyer’s trust account of the proceeds of a sale of an item or piece of property.
A lawyer’s obligation to protect privilege
Lawyers owe a duty of loyalty to a client and a duty to protect a client’s confidences and privilege — even when a transaction is complete and the file is closed. Chapter 5, Rule 14 of the Professional Conduct Handbook states:
“A lawyer who is required, under the Criminal Code, the Income Tax Act, or any other federal or provincial legislation, to produce or surrender a document or provide information which is or may be privileged shall, unless the client waives the privilege, claim a solicitor-client privilege in respect to the document.”
Steps to take on receiving a requirement for information
The Law Society generally advises a lawyer who receives an RFI to do the following:
1. Contact the client and seek instructions with respect to privilege. The Law Society suggests that the client may want to obtain independent legal advice on the question of whether any privilege exists;
2. If the client waives privilege and instructs the lawyer to produce the document(s) in question, the lawyer may do so;
3. If the client claims privilege, or if the lawyer no longer knows the whereabouts of the client and cannot obtain instructions, the lawyer should make a claim of privilege if the document is or may be privileged.
If MNR seeks a compliance order
If a lawyer does not produce documents under an RFI because the client has either claimed privilege or cannot be located, the MNR may apply to the Federal Court pursuant to s. 231.7 of the Income Tax Act for a compliance order. The lawyer is named as the respondent in that case. If that occurs, the Law Society generally advises the lawyer to consider the following:
1. If the client has instructed the lawyer to claim privilege over the documents sought under an RFI, the lawyer should file an affidavit in the proceeding advising of these instructions; or
2. If the lawyer has been unable to contact the client, he or she should file an affidavit stating that:
(a) the lawyer has been unable to contact the client (it may be prudent to describe what efforts have been made to do so) and therefore has no instructions with respect to a waiver of any privilege that may attach to the document(s);
(b) the lawyer does not know if the client is aware of the demand or of the application for a compliance order to produce the document(s) in the possession of the lawyer; and
(c) to the best of the lawyer’s knowledge, the client has not had an opportunity to consider whether or not to make a claim of privilege.
3. In each case, the document(s) should be attached to the affidavit in a sealed envelope to present to the court on the application. The sealed envelope must be given to the Court, not the CRA.
A lawyer’s obligations when in receipt of an RFI
The Law Society considers that a BC lawyer has a duty of loyalty to clients first and foremost, which includes protecting a client’s right to claim privilege. This duty survives the conclusion of the retainer. It extends to ensuring that a client has a practical ability to make a decision about whether he or she wishes to make a claim of privilege, and to argue that issue before a court if the claim is contested.
The client may disagree with the CRA’s assertion of privilege and wish to present arguments to the court about why, in the particular circumstances of the case, privilege attaches. Alternatively, the client may wish to challenge the constitutional validity of any statutory provision that defines solicitor-client privilege. The privilege is the right of the client, not the lawyer. Without instructions, the lawyer must not waive the client’s right, nor should the lawyer compromise the client’s ability to argue whether that right applies if the claim is contested.
A lawyer who receives an RFI to produce a document may also be placed in a conflict between his or her own interests (to avoid penalty for non-production) and the interests of any client who wishes to argue privilege or may wish to do so. It is not in the public interest for a lawyer to be in such a position.
By acting on a client’s instructions to claim privilege, or by asserting a claim of privilege in the absence of instructions, a lawyer is discharging his or her professional obligations as set out in Chapter 5, Rule 14 of the Handbook.
When an application is made for a compliance order, the Law Society is of the view that the court also needs to be satisfied the client has received sufficient notice of the application from the Minister of National Revenue. If the whereabouts of the client are known, this ought to be a relatively easy task. Indeed, the client will likely wish to appear at the hearing once advised. If the client’s whereabouts are not known, the task may be more difficult. The Law Society considers that it is the obligation of the MNR to notify the client, and that the lawyer has no responsibility to assist since the Minister is potentially adverse in interest to the client, although the law may be unclear on this point. If you are facing a compliance order and have any questions on this point, contact the Law Society.
Please review the article in the March-April 2003 Benchers’ Bulletin , “Demands that lawyer produce documents under the Income Tax Act,” for further information on a lawyer’s professional obligations when in receipt of an RFI.
Proceedings in Quebec
The Chambre des Notaires in Quebec has commenced a proceeding in the Quebec Superior Court seeking a declaration that sections 231.2, 231.7 and 232 of the Income Tax Act are unconstitutional on the grounds that they are in contravention of sections 7 and 8 of the Charter of Rights and Freedoms. No hearing date for this proceeding has yet been set.
If you face an RFI or compliance order, contact the Law Society
Lawyers who have questions about their professional obligations when in receipt of an RFI should contact the Law Society.
The Society would also like to hear from any BC lawyer who is faced with an application for a compliance order after having made a claim of privilege, especially if costs are being sought against the lawyer in the application.
Please contact Michael Lucas, Staff Lawyer, Policy and Legal Services (Tel.: 604 443-5777) or Kensi Gounden, Practice Standards Counsel (Tel.: 604 605-5321) at the Law Society office.