The Supreme Court of Canada Confirms the Primacy of the Professional Secrecy of Lawyers and Notaries Over Government Audits
On June 3, 2016, in the matter of Canada (Attorney General) v. Chambre des notaires du Québec, 2016 SCC 20, the Supreme Court of Canada rendered an important decision concerning the protection of the professional secrecy of lawyers and notaries.
The case involved the sending by the Minister of National Revenue of requirements to notaries to provide documents or information concerning their clients to the Minister for tax collection or audit purposes. The Court declared that certain sections of the Income Tax Act (the “ITA”) were unconstitutional and inapplicable to notaries and lawyers, as they could result in the disclosure of confidential information.
Over the last few years, the Canada Revenue Agency (the “CRA”) has routinely sent such requirements to notaries acting as legal advisors in Quebec in order to obtain documents or information concerning their clients for tax collection or audit purposes.
Following concerns raised by some notaries regarding the protection of their clients’ right to professional secrecy and the failure of negotiations between the Chambre des notaires du Québec (the “CNQ”) and the CRA to reach a compromise on a solution for protecting the interests of its members and the public, the CNQ instituted an action to have certain sections of the ITA declared unconstitutional.
Subsection 231.2(1) of the ITA authorizes the CRA to send notices to lawyers and notaries in Quebec requiring them to provide information or documents concerning their clients for audit purposes. Section 231.7 allows the CRA to ask a judge to order the provision of such information or documents if the notice is not complied with. Finally, section 232(1) of the ITA carves out an exception from the solicitor-client privilege for the accounting records of a lawyer.
In the view of the Supreme Court, a view it shares with those expressed in the decisions of the Quebec Superior Court1 and Court of Appeal2, these three provisions, not providing adequate protection for professional secrecy, infringe the rights guaranteed by sections 7 and 8 of the Canadian Charter of Rights and Freedoms (the “Charter”), and the fact that the requirements at issue are sent in an administrative and civil context does not attenuate the seriousness of the infringement.
“ … with certain rare exceptions, the general rule is that information protected by professional secrecy that is in the possession of a legal adviser is immune from disclosure.”
The Court pointed out that any legislative provision that interferes with professional secrecy more than is absolutely necessary will be found to be unreasonable. In this instance, the CRA’s requirements to provide information and documents were deemed to be excessive.
“The defects in question are that the client is given no notice of the requirement, that an inappropriate burden is placed solely on the notary or lawyer concerned, that compelling disclosure of the information being sought is not absolutely necessary and that no measures have been taken to help mitigate the impairment of professional secrecy.”
Only the client can waive professional secrecy, and that principle was not respected here, as there was no obligation to notify the client of the lawyer or notary who received the requirement. And the assumption that the professional in question would respect his or her deontological obligations and notify the client was not sufficient to ensure the constitutionality of the forced disclosure, which the Court characterized as a seizure.
As the lawyers and notaries were the only ones who could protect professional secrecy by objecting to the requirement to provide the information, an inappropriate burden was placed on them. Also, it must be borne in mind that the lawyer or notary concerned will not necessarily make the same choice as the client, particularly because of the possibility of being prosecuted for failing to provide the CRA with the information it seeks. The impugned provisions of the ITA further impaired the right to professional secrecy as the client had no possibility of remedying an inappropriate disclosure. While the requirement scheme may have had a legitimate purpose, it was defective in practice in that it was not absolutely necessary to rely on lawyers or notaries for the information being sought, as the information could have been obtained from alternative sources that do not have as onerous an obligation to safeguard confidentiality.
Finally, the constitutional defects in the CRA scheme are all the more unacceptable given that they could easily be mitigated and remedied, for example by acknowledging straight away that certain documents are protected by professional secrecy and requesting the desired information from a financial institution or an accountant instead. If that proved unsuccessful, the CRA could then request the lawyer or notary to ask if the client was willing to waive professional secrecy, but without the threat of prosecution for failing or refusing to cooperate or provide confidential documents.
The exception provided for in section 232(1) of the ITA renders the seizure of accounting records unreasonable, as they could well contain privileged information. A second difficulty is that the term “accounting records of a lawyer” is not defined in the ITA, potentially giving rise to an overly broad interpretation of the term and allowing the seizure of a wide variety of documents containing information protected by professional secrecy. It is also possible that information that is irrelevant or unconnected to the CRA’s recovery mandate would be obtained and used for other purposes.
“The abrogation of professional secrecy in respect of the accounting records of lawyers in a scheme that allows such documents to be seized gives the state access to a whole range of information that would otherwise be exempt from the duty to disclose and therefore exempt from seizure. … In our view, it would be unacceptable to allow the state to make use of an administrative procedure in order to obtain information that would otherwise be protected by professional secrecy, and then allow it to use that information for other purposes.”
While the purpose of the impugned provisions of the ITA may be legitimate, the CRA’s practices do not respect the proportionality principle. Under the circumstances, it is impossible to justify the infringements of section 8 of the Charter which guarantees protection against unreasonable search and seizure.
Having found the impugned provisions to be unconstitutional, the Court decided that the appropriate solution was not to invalidate the requirements scheme in its entirety, but to interpret it such that those provisions do not apply to lawyers and notaries.
Finally, the Court pointed out that the protection afforded by professional secrecy does not extend to just a limited category of documents, but to any document whose content could potentially reveal aspects of the relationship and communications between a client and his or her legal advisor.
Taxation authorities are now prohibited from sending requirements to provide information and documents to lawyers and notaries in Quebec, in their capacity as legal advisors, in connection with audits of their clients.
This decision of the Supreme Court reaffirms and confirms the importance of professional secrecy in our democratic society and the protections that individuals and corporations are entitled to expect, including that against unreasonable searches, seizures and audits of their financial affairs by the State.
Written in collaboration with student-at-law Bérénice Lemieux.
1 Chambre des notaires du Québec v. Canada (Procureur général), 2010 QCCS 4215
2 Canada (Procureur général) v. Chambre des notaires du Québec, 2014 QCCA 552