MILVAIN, C.J.T.D.:—This application comes before me under the apparent provisions contained in Section 126A of the Income Tax Act. I say ‘‘apparent provisions’’ of the above Act for reasons that will appear later.
The Income Tax Department, in the process of a routine check upon the income tax situation of the members of a practising firm of lawyers, demanded production of trust account ledgers, trust cancelled cheques, trust deposit books and trust bank statements, all for the year ending December 31, 1968.
A letter was written to each: member of the firm in the following terms :
Dear Sir:
Requirement for Information and Production of Documents
1. For purposes related to the administration or enforcement of the Income Tax Act, I require from you forthwith, information and production of documents as follows:
Trust Account Ledgers—Year ending December 31, 1968
Trust Cancelled Cheques—Year ending December 31, 1968
Trust Deposit Books—Year ending December 31, 1968
Trust Bank Statements—Year ending December 31, 1968
2. To comply with this requirement you should produce the information and documents hereby required to the officer of this Department presenting this requirement to you.
8. Your attention is directed to the penalty provided in subsection (2) of section 131 of the Income Tax Act for default in complying with this requirement.
Yours truly,
“T. H. J. Illsey”
Director—Taxation
The law firm replied by letter under date of March 24, 1970, as follows:
Dear Sirs:
Re: ; Helman, Fleming, Neve, Kambeitz & Pottinger, Barristers and Solicitors
We have your letters of 24th March addressed separately to Messrs. Fleming, Neve, Kambeitz & Pottinger demanding production of trust account ledgers, trust cancelled cheques, trust deposit books and trust bank statements maintained by the former firm of Helman, Fleming, Neve, Kambeitz & Pottinger for the year ended 31st December, 1968.
Since service of such demands you have advised us that you do not presently require to see the trust account ledgers.
We have refused to produce the trust cancelled cheques, trust deposit books and trust bank statements on the ground that they contain privileged communications between solicitors and clients. The solicitor-client privilege we are claiming is that privilege which attaches to such communications at common law. In our view Section 126A(l)(e) of the Income Tax Act does not take away such common law privilege and we are duty bound to claim it on behalf of our clients.
Following our refusal to produce such documents as aforesaid, you placed a seizure against them pursuant to Sections 126(1) (d) and 126A(3) of the Income Tax Act. The documents have been bundled up and are at present in the custody of the Sheriff of the Judicial District of Calgary.
We are also not willing to divulge the names of the clients affected by our claim to privilege as aforesaid until such time as it has been determined whether such privilege does or does not exist. If there is no privilege you will, of course, be given access to all of our trust accounting records and will then have access to our clients’ names and addresses as well.
We want to assure you that it is not our desire to be difficult about giving you access to the trust accounting records in question. If it were solely our decision to make, we would let you see all accounting records which the firm has, however, as we have pointed out to you, if a solicitor-client privilege exists with respect to trust accounting records, we have no alternative but to claim such privilege on behalf of our clients.
We would like to assure you of our co-operation in having this matter settled by a Supreme Court Judge at the earliest possible date.
Yours very truly,
R. Kambeitz
The parties appeared before me and on the 14th of April, 1970, I granted an Order in the following terms :
UPON THE APPLICATION of Helman, Fleming, Neve, Kambeitz & Pottinger, AND UPON HEARING read the Notice of Motion commencing these proceedings, the Affidavit of Linda D. Mack proving service of the Notice of Motion; AND UPON HEARING counsel for the Applicants and counsel for the Respondent:
1. I hereby fix Thursday the 30th day of April, A.D. 1970 at the hour of 10:00 o’clock in the forenoon at the Court House, in the City of Calgary, as the day and place for the determination of the question whether clients of the Applicants have a solicitorclient privilege in respect of the documents seized and placed in the custody of The Sheriff of the Judicial District of Calgary in these proceedings.
2. I direct The Sheriff of the Judicial District of Calgary to produce to me the said documents in his custody at the time and place of the aforesaid hearing.
Basically the problem involved is as to whether amendments made to the Income Tax Act have met the problem created by the Judgment of Mr. Justice Sullivan of the Supreme Court of British Columbia, cited as Re Income Tax Act; Re Solicitor, 40 W.W.R. (N.S.) 270; [19638] C.T.C. I.
It was agreed before me on the hearing of argument, in the following terms:
Counsel for the Applicants and the Respondent have agreed on the following:
(a) there are no procedural irregularities;
(b) the officers of the Department of National Revenue were acting for purposes related to the administration or enforcement of the Income Tax Act;
(c) there is no suggestion of any wrong doing on the part of the Applicants;
(d) there are no waivers of claims of privilege by any clients of the Applicants;
(e) in the event that the Court should hold that the books and records are not privileged, they shall be delivered to G. V. Dahlberg, of the Department of National Revenue, Calgary, Alberta, as being the officer designated by the Deputy Minister of National Revenue for Taxation to take such delivery;
(f) the books and records in question are accounting records of the Applicants.
It seems to me at the outset that one must give consideration to the relevant sections of the Act. Naturally, the first of such sections are Sections 126 and 126A. They are in the following terms:
INVESTIGATIONS
126. (1) Any person thereunto authorized by the Minister for any purpose related to the administration or enforcement of this Act may, at all reasonable times, enter into any premises or place where any business is carried on or any property is kept or anything is done in connection with any business or any books or records are, or should be kept pursuant to this Act, and
(a) audit or examine the books and records and any account, voucher, letter, telegram or other document which relates or may relate to the information that is or should be in the books or records or the amount of tax payable under this Act,
(b) examine property described by an inventory or any property, process or matter an examination of which may, in his opinion, assist him in determining the accuracy of an inventory or in ascertaining the information that is or should be in the books or records or the amount of any tax payable under this Act,
(c) require the owner or manager of the property or business and any other person on the premises or place to give him all reasonable assistance with his audit or examination and to answer all proper questions relating to the audit or examination either orally or, if he so requires, in writing, on oath or by statutory declaration and, for that purpose, require the owner or manager to attend at the premises or place with him, and
(d) if, during the course of an audit or examination, it appears to him that there has been a violation of this Act or a regulation, seize and take away any of the records, books, accounts, vouchers, letters, telegrams and other documents and retain them until they are produced in any court proceedings.
(2) The Minister may, for any purpose related to the administration or enforcement of this Act, by registered letter or by a demand served personally, require from any person
(a) any information or additional information, including a return of income or a supplementary return, or
(b) production, or production on oath, of any books, letters, accounts, invoices, statements (financial or otherwise) or other documents,
within such reasonable time as may be stipulated therein. SEARCH
(3) The Minister may, for any purpose related to the administration or enforcement of this Act, with the approval of a judge of the Exchequer Court of Canada or of a superior or county court, which approval the judge is hereby empowered to give upon ex parte application, authorize in writing any officer of the Department of National Revenue, together with such members of the Royal Canadian Mounted Police or other peace officers as he calls on to assist him and such other persons as may be named therein, to enter and search, if necessary by force, any building, receptacle or place for documents, books, records, papers or things which may afford evidence as to the violation of any provision of this Act or a regulation and to seize and take away any such documents, books, records, papers or things and retain them until they are produced in any court proceedings.
INQUIRY
(4) The Minister may, for any purpose related to the administration or enforcement of this Act, authorize any person, whether or not he is an officer of the Department of National Revenue, to make such inquiry as he may deem necessary with reference to anything relating to the administration or enforcement of this Act.
COPIES
(5) Where any book, record or other document has been seized, examined or produced under this section, the person by whom it is seized or examined or to whom it is produced or any officer of the Department of National Revenue may make, or cause to be made, one or more copies thereof and a document purporting to be certified by the Minister or a person thereunto authorized by the Minister to be a copy made pursuant to this section is admissible in evidence and has the same probative force as the original document would have if it had been proven in the ordinary way.
COMPLIANCE
(6) No person shall hinder or molest or interfere with any person doing anything that he is authorized by or pursuant to this section to do or prevent or attempt to prevent any person doing any such thing and, notwithstanding any other law to the contrary, every person shall, unless he is unable to do so, do everything he is required by or pursuant to this section to do.
ADMINISTRATION OF OATHS
(7) Every person thereunto authorized by the Minister may administer or receive an oath, affirmation or statutory declaration required to be given by or pursuant to this section. POWERS
(8) For the purpose of an inquiry authorized under subsection (4), the person authorized to make the inquiry has all the powers and authorities conferred on a commissioner by sections 4 and 5 of the Inquiries Act or which may be conferred on a commissioner under section 11 thereof.
126A. (1) In this section
“JUDGE”
(a) “judge” means a judge of a superior court having jurisdiction in the province where the matter arises or a judge of the Exchequer Court of Canada;
“CUSTODIAN”
(b) “custodian” means a person in whose custody a package is placed pursuant to subsection (3) ;
“LAWYER”
(c) “lawyer” means, in the province of Quebec, an advocate, lawyer or notary and, in any other province of Canada, a barrister or solicitor;
“OFFICER”
(d) “officer” means a person acting under authority conferred by or under section 126; and
“SOLICITOR-CLIENT PRIVILEGE”
(e) “solicitor-client privilege” means the right, if any, that a person has in a 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 him and his lawyer in professional confidence, except that for the purposes of this section an accounting record of a lawyer, including any supporting voucher or cheque, shall be deemed not to be such a communication.
SOLICITOR-CLIENT PRIVILEGE AS DEFENCE
(2) Where a lawyer is prosecuted for failure to comply with a requirement under section 126 to give information or to produce a document, he shall be acquitted if he establishes to the satisfaction of the court
(a) that he, on reasonable grounds, believed that a client of his has a solicitor-client privilege in respect of the information or document; and
(b) that the lawyer communicated to the Minister, or some person duly authorized to act for the Minister, his refusal to comply with the requirement together with a claim that a named client of the lawyer has a solicitor-client privilege in respect of the information or document.
EXAMINATION OR SEIZURE OF CERTAIN
DOCUMENTS WHERE PRIVILEGE CLAIMED
(3) Where an officer is about to examine or seize a document in the possession of a lawyer and the lawyer claims that a named client of his has a solicitor-client privilege in respect of that document, the officer shall, without examining or making copies of the document,
(a) seize the document and place it, together with any other document in respect of which the lawyer at the same time makes the same claim on behalf of the same client, in a package and suitably seal and identify the package; and
(b) place the package in the custody of the sheriff of the district or county in which the seizure was made or, if the officer and the lawyer agree in writing upon a person to act as custodian, in the custody of such person.
APPLICATION TO JUDGE
(4) Where a document has been seized and placed in custody under subsection (3), the client, or the lawyer on behalf of the client, may
(a) within 14 days from the day the document was so placed in custody, apply, upon 3 days’ notice of motion to the Deputy Attorney General of Canada, to a judge for an order
(i) fixing the 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 custodian to produce 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 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.
DISPOSITION OF APPLICATION
(5) An application under paragraph (c) of subsection (4) 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 solicitorclient privilege in respect of the document, and shall order the custodian to deliver 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 the custodian to deliver the document to the officer or some other person designated by the Deputy Minister of National Revenue for Taxation, and he shall, at the same time, deliver. concise reasons in which he shall describe the nature of the document without divulging the details thereof.
ORDER TO CUSTODIAN TO DELIVER
(6) Where a document has been seized and placed in custody under subsection (3) and a judge, on the application of the Attorney General of Canada, is satisfied that neither the client nor the lawyer has made an application under paragraph. (a) of subsection (4), or, having made that application, neither the client nor the lawyer has made an application under paragraph (c) thereof, he shall order the custodian to deliver the document to the officer or some other person designated by the Deputy Minister of National Revenue for Taxation.
DELIVERY BY CUSTODIAN
(7) The custodian shall
(a) deliver the document to the lawyer
(i) in accordance with a consent executed by the officer or by or on behalf of the Deputy Attorney General of Canada or the Deputy Minister of National Revenue for Taxation, or
(ii) in accordance with an order of a judge under this section; or
(b) deliver the document to the officer or some other person designated by the Deputy Minister of National Revenue for Taxation
(i) in accordance with a consent executed by the lawyer or the client, or
(ii) in accordance with an order of a judge under this section.
APPLICATIONS TO ANOTHER JUDGE
(8) Where the judge to whom an application has been made under this section for any reason cannot act or continue to act under this section, subsequent applications under this section may be made to another judge.
COSTS
(9) No costs may be awarded upon the disposition of any application under this section.
DIRECTIONS
(10) Where any question arises as to the course to be followed in connection with anything done or being done under this section (other than subsection (2) or (3)) and there is no direction in this section with respect thereto, a judge may give such direction with regard thereto as, in his opinion, is most likely to carry out the object of this section of allowing solicitor-client privilege for proper purposes.
PROHIBITION
(11) The custodian shall not deliver a document to any person except in accordance with an order of a judge or a consent under this section or except to any officer or servant of the custodian for the purposes of safeguarding the document.
(12) No officer shall examine or seize a document in the possession of a lawyer without giving him a reasonable opportunity of making a claim under subsection (3).
AUTHORITY TO MAKE COPIES
(13) At any time while a document is in the custody of a custodian under this section, a judge may, upon an ex parte application of the lawyer, authorize the lawyer to examine or make a copy of the document in the presence of the custodian or the judge by an order that shall contain such provisions as may be necessary to ensure that the document is repackaged and that the package is resealed without alteration or damage.
WAIVER OF CLAIM OF PRIVILEGE
(14) Where a lawyer has, for the purposes of subsection (2) or (3), made a claim that a named client of his has a solicitorclient privilege in respect of information or a document, he shall at the same time communicate to the Minister or some person duly authorized to act for the Minister the address of the client last known to him so that the Minister may endeavour to advise the client of the claim of privilege that has been made on his behalf and may thereby afford him an opportunity, if it is practicable within the time limited by this section, of waiving the claim of privilege before the matter comes on to be decided by a judge or other tribunal.
In the first place it will be noted that Section 126 provides in subsection (1) that the books and records that are envisaged are those ‘‘kept pursuant to this Act’’. The section then generally proceeds to outline and define the powers of those authorized under the Act to scrutinize, and if necessary seize and take the documents and material referred to. It is further to be noticed that under the provisions of Section 126A there is a definition in subsection (1)(e) of solicitor-client privilege. It is also particularly to be noted that that definition carries with it the following words: ‘‘except that for the purposes of this section an accounting record of a lawyer, including any supporting voucher or cheque, shall be deemed not to be such a communication”. The quoted words were added, I am sure, in an endeavour to overcome the judgment of Sullivan, J. above referred to. In view of the fact that the exception is confined to ‘‘this section’’, namely Seetion 126A, it could not affect any basic common law right to a claim of privilege, whether in Court or otherwise. Such being the case, in my view the exception placed in the definition does not meet in any way the effect of Mr. Justice Sullivan’s decision. This appears to be particularly clear when one notes that Section 126A is procedural in its effect, rather than substantive. It is to be noted that under subsection (2), where a lawyer is prosecuted for failure to comply with the provisions of Section 126, he shall be acquitted if he establishes (a) that he, on reasonable grounds, believed that a client of his has a solicitor and client privilege in respect of the information or documents, and (b) that the lawyer communicated to the Minister or some person duly authorized to act for the Minister, his refusal to comply with the requirement together with a claim that a named client of the lawyer has a solicitor-client privilege in respect of the information or document. The section then proceeds, under subsection
(3) to provide that where an officer is about to examine or seize such a document in the possession of a lawyer and the lawyer claims that a named client has a privilege, the officer, without examining, may (a) seize the document, (b) place the document in custody of a Sheriff or other custodian. The section then proceeds to provide in subsection (4) that where a document has been seized and placed in custody under subsection (3), the client, or the lawyer on behalf of the client, may proceed with an application to a Court to determine whether or not the claim of privilege shall or shall not be sustained. At this stage I call attention to the fact that the statute appears to provide in express terms that it is only where privilege has been claimed on behalf of a named client that the whole mechanism envisaged for determination of the question can be put in motion. In the present instance the claim of privilege, as appears from the quoted letter, is not on behalf of any particular named client. It is for that reason that I intimated at the outset that this application is apparently under the provisions of Section 126A. Under the circumstances I have very grave doubt as to whether or not I have any jurisdiction at all. However, in view of the fact that all of the parties before me agreed that there were no procedural irregularities and appeared to be desirous of getting an expression of judicial opinion, I propose giving a judicial opinion.
In my opinion all of the documents are not subject to production and search by the Income Tax Department under the circumstances extant in this instance. I will give my reasons for that opinion immediately. In the first place I think it neces- sary to look at the provisions of Section 125 of the Income Tax Act. It is in these terms :
125. (1) Every person carrying on business and every person who is required, by or pursuant to this Act, to pay or collect taxes or other amounts shall keep records and books of account (including an annual inventory kept in prescribed manner) at his place of business or residence in Canada or at such other place as may be designated by the Minister, in such form and containing such information as will enable the taxes payable under this Act or the taxes or other amounts that should have been deducted, withheld or collected to be determined.
(2) Where a person has failed to keep adequate records and books. of account for the purposes of this Act, the Minister may require him to keep such records and books of account as he may specify and that person shall thereafter keep records and books of account as so required.
(3) Every person required by this section to keep records and books of account shall, until written permission for their disposal is obtained from the Minister, retain every such record or book of account and every account or voucher necessary to verify the information in any such record or books of account.
From the above-quoted section it appears that the type of books and records that are required to be kept under the terms of the Act are those that deal with the operation of a business or profession in so far as those records touch upon the income and consequently the tax payable by the person or persons operating the business or profession. I can see no reason why lawyers in the practice of their profession would be required to keep a trust account at all under the provisions of the Income Tax Act. In this province it is by virtue of the impact of the Legal Professions Act that a trust account must be kept. It would seem to me therefore, that trust records not being records kept for the purposes of the Income Tax Act, are not affected in any fashion by the terms of the Income Tax Act as a general proposition. I feel sure though, that if the Department were investigating the tax situation of a particular individual who happened to be a client of a firm of solicitors, that then, under the general laws relating to such matters, the information in the hands of the lawyer might become produceable in a Court, and perhaps even under the provisions of the Act. f I am right in this conclusion the matter would be entirely ended, because the Income Tax Department not seeking information with respect to a particular client, has no right to look into the trust records, which are not records kept pursuant to the Income Tax Act.
I am further of the view that the records are not. reachable for the following reason., At common law, and entirely apart from any question of privilege as we consider that term in connection with the production of evidence at a trial, a solicitor shall not disclose the affairs or even the names of his clients to any one. In fact the prohibition against such disclosure is so firmly embedded that lawyers have been enjoined by way of injunction from making such disclosures. See such cases as Snell v. Haywood, [1947] C.T.C. 401, 406; [1947] 1 W.W.R. 790; Beer v. Ward, 37 E.R. 779; and Lewis v. Smith, 41 E.R. 1526.
Kerr on Injunctions, page 490, carries the following statement :
In the exercise of its jurisdiction by injunction the Court draws a distinction between cases where a solicitor voluntarily makes a communication of what has come to his knowledge in the course of his professional employment and cases where he is required to disclose what he knows by giving evidence before a Court of justice. In the one case the Court will interfere by injunction. In the other case it will not interfere..
In my view it would take far more definite wording in a statute to permit invasion of such profound common law principles than can be found in any of the provisions of the Income Tax Act in so far as the same are relevant to the problem before me. Clearly, those definite words of invasion do not appear and not appearing there is no right to invade the common law principles. For the reasons expressed I am of the view that the documents referred to cannot be looked at and that the Sheriff shall return them to the law firm.