Donald, J.:—The petitioners claim solicitor-client privilege for documents relating to a tax investigation. The in camera procedure under section 232 of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") involves the packaging of the subject papers by the lawyers claiming privilege. They are then presented to a judge who makes a ruling in concise terms which identifies the documents without divulging their contents. If the claim ts upheld, then the documents are returned to the lawyers without allowing the Crown an opportunity to inspect them.
When in October 1990, Revenue Canada began to audit the acquisition of the Rail Division of B.C. Hydro and Power Authority by the petitioners, lawyers from Ladner Downs, the petitioners’ solicitors, went to Southern Railway's office and to the offices of the petitioners’ accountants, Ernst & Young, and set aside the documents for which privilege is asserted. Additional documents were then sent by the clients and accountants to the solicitors. Those taken from the petitioners' offices were placed in two sealed envelopes and marked A and B to the affidavit of Edward Grant Kroft. Those taken from Ernst & Young were sealed in an envelope and marked Exhibit C to his affidavit.
The parties agree on the principles which govern the determination of the issues. The Act defines solicitor-client privilege in paragraph 232(1)(e):
(e) “Solicitor-client privilege'—'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.
In Descoteaux v. Mierzwinski, [1982] 1 S.C.R. 860; 141 D.L.R. (3d) 590 (S.C.C.), Lamer, J. (as he then was) said at D.L.R. page 603:
The following statement by Wigmore (8 Wigmore, Evidence, $52992, p. 554 (McNaughton Rev. 1961)), of the rule of evidence is a good summary, in my view, of the substantive conditions precedent to the existence of the right of the lawyer's client to confidentiality:
Where legal advice of any kind is sought from a professional legal adviser in his capacity as such, the communications relating to that purpose, made in confidence by the client, are at his instance permanently protected from disclosure by himself or by the legal adviser, except the protection be waived.
The documents can be divided into four categories:
1. Communications between the petitioners and Ladner Downs;
2. Communications between Ladner Downs and Clarkson Gordon (now Ernst & Young) concerning the petitioners' legal affairs;
3. Lawyers' bills; and,
4. Working papers including draft documents containing handwritten notes on them and other notes recording discussions with lawyers, legal advice or research.
The first category embraces advice and opinions, requests for instructions, submission of draft documents for instructions and general supervision on confidential legal matters. Their privileged status cannot be questioned. The following documents fall into the first category and are privileged:
Exhibit "B": 15, 22, 32, 35;
Exhibit"C": 2, 3, 4, 6, 7, 8, 9, 11, 40, 44, 52, 66.
The second category, communications between lawyers and accountants, is more controversial. Mr. Carruthers submits that the court should recognize that chartered accountants often give tax advice independently. He argues that only those documents which arise from the interaction of the accountants and lawyers with the former acting as agents in the course of obtaining legal advice for the client should be protected. Jackett, P. (as he then was) in Susan Hosiery Ltd. v. M.N.R., [1969] 2 Ex. C.R. 408; [1969] C.T.C. 353; 69 D.T.C. 5278 at 361 (D.T.C. 5283) analyzed the question this way:
Applying these principles, as I understand them, to materials prepared by accountants, in a general way, it seems to me
(a) that no communication, statement or other material made or prepared by an accountant as such for a business man falls within the privilege unless it was prepared by the accountant as a result of a request by the business man's lawyer to be used in connection with litigation, existing or apprehended; and
(b) that, where an accountant is used as a representative, or one of a group of representatives, for the purpose of placing a factual situation or a problem before a lawyer to obtain legal advice or legal assistance, the fact that he is an accountant, or that he uses his knowledge and skill as an accountant in carrying out such task, does not make the communications that he makes, or participates in making, as such a representative, any the less communications from the principal, who is the client, to the lawyer; and similarly, communications received by such a representative from a lawyer whose advice has been so sought are none the less communications from the lawyer to the client.
My examination of the relevant papers satisfies me that all the documents in Exhibit C conform to the second part of the above analysis by Jackett, P. These documents are thus privileged.
As to the third category, it is well settled that if the lawyers' bills contain a description of the services rendered, they are protected. Therefore, they do not fall within the exception in the definition of solicitor-client privilege in paragraph 232(1)(e), namely “an accounting record of a lawyer": Mutual Life Assurance Co. of Canada^. Deputy A.-G. Canada, [1984] C.T.C. 155; 84 D.T.C. 6177 (Ont. H.C.). Billing instructions are to be treated similarly. The following documents, consisting of the accounts from several law firms and related correspondence, are privileged:
Exhibit" B": 1-14, 16-26, 28-31, 33-34, 36-62;
Exhibit"C": 45-51, 53, 55-61, 67.
The petitioners have waived privilege to the front page of those Ladner Downs' accounts which disclose only the amount of the bill. They have not waived the remaining billing information in the body of the account.
Finally, I turn to the group of documents generally labelled "working papers" and these are described as copies of non-privileged documents with lawyers' notes on them, notes of discussions with lawyers and others relating to advice given by the lawyers, notes on legal issues, research and draft documents. They were taken from the offices of the clients and the accountants. I am satisfied that they are all privileged in their present form save for those which are capable of redaction, that is, revision by deleting or excising notes or other markings from otherwise non-privileged material, mostly draft documents:
Exhibit"A", 1-9; except that in document No. 2 the interoffice memo dated October 30, 1984 should be disclosed with handwriting removed on the front page.
Exhibit " B", 1-10, 15, 18, 20, 21, 22, 27, 51-52, 61;
Exhibit" C", 1-2, 4-5, 7-39, 41-43, 62-66.
Redactions: 11-13, 18, 20, 23, 25, 29, 43, 62-64 are capable of redaction. They are mostly draft documents, many originating from B.C. Hydro's solicitors, on which handwritten notes have been made. The notes should be excised from the documents and released to the respondents. No. 21 is a document of the same type but the handwritten notes are so extensive that redaction may be practically impossible. I leave it to Ladner Downs to substitute for this document, and any other similar document for which redaction is impractical, a clean copy of the unmarked document for disclosure to the respondent. If this direction is unclear or gives rise to difficulties in implementation, the parties have liberty to apply for further directions.
All the documents in their present form are privileged. I order that the three packages of documents, which I have resealed, be returned to Ladner Downs with a direction for redaction of the documents indicated and release to the respondents.
Motion granted.