Coopers Park Real Estate Development Corporation v. The King, 2024 TCC 122
Accountant-Client privilege does not exist. However, under what circumstances could information or documents from an accountant or third-party be considered privileged and confidential in a legal proceeding? Also, what is the proper scope of discovery pursuant to rules 81 and 82 of the Tax Court of Canada Rules (General Procedure), SOR/90-688a (the “Rules”)?
These primary questions were considered by the Tax Court of Canada (“TCC”) in the decision of Coopers Park Real Estate Development Corporation v. The King, 2024 TCC 122 [Coopers]. Coopers involves a TTC appeal challenging the application of the general anti-avoidance rule (GARR). The GARR is described as a “catch-all” provision used to counter “abusive” tax avoidance transactions.
In September of this year, the TCC released reasons in Coopers which involved a motion by Canada Revenue Agency (“CRA”) to compel the Appellant to answer certain discovery questions as well as to provide unredacted copies of documents. In addition, and of particular interest, is the fact that the Appellant claimed solicitor-client privilege for copies of and questions related to documents from third-party advisors such as accountants.
Tax disputes invariably involve accountants. CRA sought copies of documents provided by the Appellant’s former advisors, including accounting and financial services firms. Some of the documents at issue are no longer in the possession of the Appellant but were transferred to a since dissolved third-party corporation.
To begin, the TCC examined a limitation to its ability to compel the Appellant to request documents from third parties. The constraint resulted from the application of the Rules. Discovery can occur though partial or full disclosure. Partial disclosure, pursuant to subrule 81(1), states that a party must provide the opposing party with a list of documents “which the party has knowledge at that time that might be used in evidence” to establish or rebut an allegation of fact. In contrast, full disclosure pursuant to subrule 82(1) states that a party shall “list all the documents that are or have been in that party’s possession, control or power relevant to any matter in question between or among them in the appeal”.
The latter refers to documents that have been in the “party’s possession, control or power.” As per subrule 78(2) a “document shall be deemed to be in a party’s power if that party is entitled to obtain the original document or a copy of it and the party seeking it is not so entitled…” The Respondent relied upon subrule 78(2) when attempting to compel the Appellant to seek copies of the respective documents. However, the TCC noted that subrule 78(2) does not apply to 81(1) as it does to 82(1). Accordingly, for the Respondent to compel the Appellant to request copies of third-party documents it was necessary that the parties had agreed to full disclosure under subrule 82(1) at the outset of the appeal.
Further arguments by the Respondent to compel broader disclosure pursuant to rule 81 failed. This included reference to the decisions in Eli Lilly and Co. v Apotex Inc., [2000] FCJ No 154 and HSBC Bank Canada v HMTQ, 2010 TCC 462. The TCC concluded that those decisions were not applicable to either rule 81 or 82.
In addition to an examination of the Rules, the TCC considered whether or not certain documents and information were privileged. Communications between lawyers and their clients are privileged. Solicitor-client privilege means that all communications will remain confidential and encompasses communications intended to be confidential occurring between a solicitor and client involving legal advice. Privilege extends to related documents.
Privilege does not exist between an accountant and client. However, the Appellant argued that the accountant was acting as its agent when communicating with a lawyer. In fact, privilege may extend where an accountant is acting as an agent of the taxpayer when seeking advice from a lawyer. This also encompasses the documents included in the respective communications. The Respondent countered that the Appellant could not prove the agency relationship. In part, the Tax Court agreed with the Appellant’s position.
However, privilege does not extend to, as outlined at paragraph 48 of Redhead Equipment Ltd. v Canada (Attorney General), [2016] SJ No 471 (SKCA) [Redhead] in “situations where the accountant gives original and independent tax advice to either the lawyer or the client, this will not be privileged just because the lawyer has overall responsibility…” Furthermore, according to the TCC at paragraphs 50 and 51 of Coopers:
[t]here is no accountant-client privilege…Documents containing accounting, business, or policy advice are not privileged…However, solicitor-client privilege applies where an accountant acts as a representative or agent for a client in obtaining legal advice from a solicitor… There is no privilege where the accountant gives original and independent tax advice to either the lawyer or the client, even if the lawyer has overall responsibility in providing advice for a transaction…
As outlined at paragraph 52 of Coopers, referencing the decision in Redhead, privilege may exist when the accountant is “employing expertise to assemble information provided by the client and explaining the information to the solicitor…[but] no privilege attaches to a communication to an accountant who must consider it and provide his or her own accounting opinion…”
The Appellant claimed nineteen documents from an accounting firm were privileged because the accountants were acting as an agent of the Appellant in communications with the lawyer. The Respondent maintained that the Appellant failed to provide sufficient evidence to support the existence of an agency relationship. And when sufficient evidence is not provided the question of privilege is based on a direct examination of the document itself.