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Canadian Court of Appeal rules that common interest with taxpayer does not waive legal professional privilege

Tuesday, 12 June, 2018

The Canadian Federal Court of Appeal has overturned a 2016 Federal Court decision in IGGillis Holdings v Minister of National Revenue 2018 FCA 51, in which a taxpayer, who copied his tax lawyer's opinion to a third party with whom he was doing business, was deemed to have forfeited solicitor-client privilege.

According to Canada’s Income Tax Act, the Canada Revenue Agency (CRA) cannot demand that a taxpayer turns over information if it benefits from solicitor-client privilege, in other words, a document that:

  • is a communication between lawyer and client;
  • entails the seeking or giving of legal advice; and
  • is intended to be confidential by the parties.

The privilege is waived if the recipient of the legal advice shows that a document was not intended to remain confidential, such as sharing the advice with a third party.  However, in instances where the third party has a common interest in the transaction that is the subject of the opinion, this may not constitute a waiver.

Ian Gillis’ holding corporation, IGGillis Holdings Inc., transferred shares to tax-planning advisor Abacus Capital Corporations Mergers and Acquisitions, with Gillis’ and Abacus’ lawyers (primarily the latter) preparing a tax-planning memorandum – which was then demanded by the CRA under Requirements for Information.

When the parties claimed solicitor-client privilege, the CRA took the matter to the Federal Court, citing US case law that indicated that the other party's common interest in the taxpayer's transaction waived privilege.

The judge in the Federal Court held that common-interest privilege should only apply to parties with common interests in litigation, rather than in a transaction, citing a New York Court of Appeals decision, which rejected the application of privilege in commercial transactions.

Ian Gillis appealed the decision to hand over the tax-planning memorandum to the CRA, a move upheld by the Federal Court of Appeal, on the basis of previous Canadian court decisions accepting common-interest privilege as an extension of solicitor-client privilege.

The appellate court decided the lower court should not have relied on American jurisprudence, and should have followed Canadian cases that accepted common-interest privilege as an extension of solicitor-client privilege.

Previous decisions in courts in Alberta and British Columbia have held that solicitor-client privilege is not waived when an opinion provided by a lawyer to one party is confidentially disclosed to other parties with common interest in the same transactions.