Some time ago, we wrote an article for The Bottom Line on accountants and client privilege (see the mid-September, 2003 issue). In the article, we noted that, in light of Tower v. M.N.R. and BDO Dunwoody LLP, [2002] D.T.C. 7315 (F.C.T.D.), rev’d 2003 FCA 307 on other grounds, most communications between an accountant and her client are not privileged. A recent case—M.N.R. v. Reddy, 2006 FC 277—shows that neither is some of the confidential information held by a lawyer about her client.
A taxpayer owed a tax debt of almost $800,000 in 2005. The CRA, however, was interested to learn that she sold some real property in late 2002 for $160,000. The CRA was even more interested to learn that the money was not deposited in the only bank account of the taxpayer known to it. Accordingly, the CRA approached the real estate lawyer who handled the transaction to find out where the lawyer had paid the funds. The lawyer refused to produce the information on the grounds that it was confidential and privileged.
The Court held that the information might be confidential but that did not mean it was privileged. Privilege attaches only if four conditions are met (ΒΆ12):
(a) there must be a communication, whether oral or written;
(b) the communication must be of a confidential character;
(c) the communication must be between a client or his agent and a legal advisor; and
(d) the communication must be directly related to the seeking, formulating or giving of legal advice.
The Court pointed out that a lawyer’s accounting records generally do not relate to seeking legal advice as such. The Court held
[18] In summary, the Information and Documents [relating to where amounts were paid] are not subject to solicitor-client privilege whether under subsection 232(1) of the Income Tax Act, or at common law. The Information and Documents are evidence of an “act or transaction”, not of a “communication” that attracts solicitor-client privilege, and fall within a class of documents that have not been held to be subject to solicitor-client privilege; nothing in the recent jurisprudence has changed this state of affairs.
The Court, therefore, ordered the real estate lawyer to produce to the CRA the information it had requested.
