Donald, J.:—The issue remaining for decision in this petition, brought under paragraph 232(4)(c) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act"), as amended, relates to the claim of litigation or "lawyer's brief" privilege over documents described in paragraph 31 of the affidavit supporting the petition sworn by Howard J. Kellough, barrister and solicitor, which states:
Since March 1992 Fraser & Beatty has acted for Mr. A.B. in connection with a personal tax matter that relates to Mr. A.B.’s shareholdings in the capital of client Y. Fraser & Beatty has in its possession three file folders belonging to client Y which were requested by Fraser & Beatty in order to assist Fraser & Beatty in the preparation of the representation of Mr. A.B. in his personal tax appeal and not in any way in connection with its services on behalf of client X or client Y. It is in that context that Mr. A.B. provided these materials to Fraser & Beatty. Solicitor-client privilege is claimed with respect to these files and all other materials contained in Fraser & Beatty files relating to the representation of Mr. A.B. on the basis that it is part of Counsel's brief or legal advice and related materials in providing legal advice and representation to Mr. A.B. personally. To the extent that these client Y file folders contain materials to which a solicitor-client privilege would not attach in the hands of client Y, copies of such materials have been made available.
The client, Mr. A.B., retained the firm to appeal a tax assessment that disallowed certain deductions claimed by him in connection with the reorganization and recapitalization of Realwest Energy Corporation. By letter dated July 20, 1993, the Minister of National Revenue issued a "requirement" pursuant to paragraphs 231.2(1 )(a) and (b) of the Act requesting that the petitioner provide documents concerning this transaction.
The client was an officer of Realwest at the time of the transaction, as well as a partner in one of the law firms that worked on the transaction. Mr. Kellough of Mawhinney and Kellough (now the petitioner, Fraser & Beatty) had the overall supervision of the deal.
The respondent contests the claim for privilege on the ground that it is unsupported by evidence and because it rests upon the bare assertion of Mr. Kellough, in paragraph 31 of his affidavit, that the client gave the files to his firm for a litigation purpose. Counsel for the respondent argued that this leaves unanswered the question whether any of the documents in the files were irrelevant to the tax appeal. If those documents related to reorganization of Realwest, then they should be disclosed to the Minister.
On the day of the hearing of the petition, I adjourned following argument for several hours and inspected in my chambers six binders of documents over which the petitioner claimed "ordinary" solicitor-client privilege. Later that day, I ruled that each of the documents was privileged, and should be returned to the petitioner.
With respect to the documents for which litigation privilege is claimed, the petitioner took a different approach: instead of presenting the documents for inspection, it simply asserted that all of them must be privileged having been gathered in by the law firm for the purpose of acting for the client on the tax appeal. Therefore, no inspection was necessary.
Subsection 232(3.1) of the Act provides a protection for lawyers and their clients when the Minister issues a requirement, the fulfilment of which would involve disclosure of documents a client claims to be privileged. It allows the lawyer to organize, package and seal the documents for presentation to a judge under procedures set out in subsections (4) and (5) of section 232:
232(4) Application to judge. Where a document has been seized and placed in custody under subsection (3) or is being retained under subsection (3.1), the client, or the lawyer on behalf of the client, may
(a) within 14 days after the day the document was so placed in custody or commenced to be so retained apply, on three clear days’ notice of motion to the Deputy Attorney General of Canada, to a judge for an order
(i) fixing a day, not later than 21 days after the date of the order, and place for the determination of the question whether the client has a solicitor-client privilege in respect of the document, and
(ii) requiring the production of the document to the judge at that time and place;
(b) serve a copy of the order on the Deputy Attorney General of Canada and, where applicable, on the custodian within 6 days of the day on which it was made and, within the same time, pay to the custodian the estimated expenses of transporting the document to and from the place of hearing and of safeguarding it; and
(c) if he has proceeded as authorized by paragraph (b), apply at the appointed time and place for an order determining the question.
(5) Disposition of application. An application under paragraph (4)(c) shall be heard in camera, and on the application
(a) the judge may, if he considers it necessary to determine the question, inspect the document and, if he does so, he shall ensure that it is repackaged and resealed; and
(b) the judge shall decide the matter summarily and,
(i) if he is of the opinion that the client has a solicitor-client privilege in respect of the document, shall order the release of the document to the lawyer, and
(ii) if he is of the opinion that the client does not have a solicitor-client privilege in respect of the document, shall order
(A) that the custodian deliver the document to the officer or some other person designated by the Deputy Minister of National Revenue for Taxation, in the case of a document that was seized and placed in custody under subsection (3), or
(B) that the lawyer make the document available for inspection or examination by the officer or other person designated by the Deputy Minister of National Revenue for Taxation, in the case of a document that was retained under subsection (3.1),
and he shall, at the same time, deliver concise reasons in which he shall identify the document without divulging the details thereof.
The petitioner contends that no useful purpose would be served by an inspection of the files given by the client in this case because the inspecting judge could reach no other conclusion than that the files are privileged. It says that such a conclusion is compelled by Hodgkinson v. Simms (1988), 55 D.L.R. (4th) 577, 33 B.C.L.R. (2d) 129 (C.A.) and Hunt v. T & N pic. (1993), 77 B.C.L.R. (2d) 391, [1993] 4 W.W.R. 709 (C.A.). At page 589 (B.C.L.R. 142) of Hodgkinson, supra, McEachern, C.J.B.C. said:
It is my conclusion that the law has always been, and in my view should continue to be, that in circumstances such as these, where a lawyer exercising legal knowledge, skill, judgment and industry has assembled a collection of relevant copy documents for his brief for the purpose of advising on or conducting anticipated or pending litigation he is entitled, indeed required, unless the client consents, to claim privilege for such collection and to refuse production.
The appellants in Hunt, supra, attempted unsuccessfully to distinguish Hodgkinson; the judges hearing that appeal applied the principles in Hodgkinson. As I understand the respondent's position, there is no quarrel over the legal principles governing litigation privilege; the point is simply that the questioned documents should be inspected to ensure that they fall within the protected category.
I cannot see why the two groups of documents, those relating to solicitor-client privilege and litigation privilege, should be treated differently. The Minister never gets to see the questioned documents before the Court makes a determination as to privilege. The scheme of the Act necessitates an examination of the documents by a judge unless the privileged nature of them is patently obvious. Unless they are inspected, there will be no independent assessment of the privilege claim and overbroad assertions, although made in perfectly good faith, will never be caught.
The mere statement that the litigation documents came to the firm as part of a brief for a tax appeal does not automatically cloak them with privilege. I find that they have to be examined for relevancy: if they do not bear upon the appeal and yet fall within the class of material described in the Minister’s requirement letter, they must be disclosed.
Paragraph 31 of Mr. Kellough’s affidavit, quoted at the beginning of these reasons, concludes with the statement that some of the documents from the client’s files have already been disclosed to the Minister. This shows that the petitioner had engaged in a sifting process and found documents in the files that did not attract litigation privilege. In my view, the Minister is entitled to a judicial inspection of the documents to ensure that the judgments made by the petitioner on privilege are correct.
The fact that the petitioner winnowed some unprivileged documents from the client's files tells strongly against its contention that the provenance of the documents determines litigation privilege, not the nature of the documents themselves. Simply because the documents came to the firm as part of a retainer to conduct litigation on behalf of a client cannot cloak all of the documents with privilege, irrespective of their individual character.
This is not a case like Hodgkinson, supra, or Hunt, supra, where the documents in question were obtained and assembled by the lawyer with regard to a specific direction or purpose in fulfilling the mandate from the client. Here, the client brought in everything in bulk form that may be helpful in prosecuting the tax appeal.
Accordingly, I find it necessary within the meaning of paragraph 232(5)(a) of the Act to inspect the documents in order to determine the question of litigation privilege. I direct the petitioner to package the documents and present them to me along with any explanatory material or argumentation it thinks necessary, after appropriate notice has been given to the respondent. The petitioner has reserved the right to argue that any document found not to be protected by litigation privilege is, nevertheless, covered by ordinary solicitor-client privilege.
Order accordingly.