2016 FC 1352, 2016 FC 1352

[2017] 4 F.C.R. 80 T-126-15 2016 FC 1352 The Minister of National Revenue ( Applicant ) v. Iggillis Holdings Inc. and Ian Gillis ( Respondents ) and Abacus Capital Corporations Mergers and Acquisition ( Intervener ) Indexed as: Iggillis Holdings Inc. v. Canada (National Revenue) Federal Court, Annis J.—Edmonton, May 3; Ottawa, December 7, 2016.

Barristers and Solicitors — Common interest privilege — Application under Income Tax Act , s. 231.7(1) seeking to enforce requirement for information on respondents to produce document pursuant to Act, s. 231.2(1) — Respondents claiming common interest privilege (CIP) to protect solicitor-client privileged (SCP) communications disclosed during commercial transaction; arguing that CIP accepted doctrine applying in all areas of SCP — Scope of CIP restricted in some jurisdictions — American decision in Ambac Assurance Corp. v.

Countrywide Home Loans Inc. refusing to apply CIP outside of litigation-related circumstances — Respondents selling shares to intervener — Various tax memoranda, legal advice circulating between parties’ lawyers, including document at issue (Abacus memo) — Canada Revenue Agency (CRA) alleging transactions tax avoidance scheme, requesting Abacus memo — Applicant arguing, inter alia, Abacus memo “business document” thus not privileged, not subject to CIP — Main issues whether Abacus memo protected by SCP; whether Abacus memo protected by CIP in accordance with case law; whether CIP valid constituent of SCP — Abacus memo legal advice, protected from disclosure under SCP — Not business record because lawyers working out solutions therein based on legal conclusions — Parties’ actions consistent with basis of CIP — No waiver of privilege arising from parties’ lawyers —In Pitney Bowes of Canada Ltd. v.

Canada, involving joint client privilege (JCP) case, Federal Court determining that having transaction concluded constituting common interest essential to doctrine of CIP — Abacus memo reflecting intent to minimize tax exposure, relating only to that issue because legal opinions driving transaction — Legal issues motivating transaction raison d’être of Abacus memo — Advisory CIP not valid constituent form of SCP, having no application to facts herein — Litigation privilege, SCP distinct — Advisory CIP established by coat-tailing on litigation CIP while proper analysis of compatibility thereof with SCP doctrine never made — CIP principles not irreconcilable with litigation privilege doctrine — Common interest necessary to establish CIP, not JCP — Case law supporting advisory CIP established under cloak of confusion — SCP class privilege, not case-by-case privilege — Advisory CIP as exception to waiver of SCP irreconcilable with SCP doctrine — Striking down waiver principle emptying privilege of function, doctrinal rationale — Privilege properly claimed complying with doctrinal principles underlying SCP — Case law not suggesting that SCP must not be interpreted restrictively, not supporting liberal construction of SCP — No basis for recognition of legitimate expectation interest supporting advisory CIP — Selective waiver violating SCP fundamental precepts — Fundamental differences underlying litigation privilege, SCP; these differences legitimizing grounds for accepting litigation CIP to expand scope of privilege — Strategic purpose of legal advisory CIP anticipation of creating litigation, which purpose incompatible with SCP doctrine — SCP doctrine about maintaining solicitor-client relationship — Doctrine of litigation privilege ultimately favouring shared confidential communications — Advisory CIP rejected on ground not coextensive, reconcilable with SCP requirements — Finally, advisory CIP providing no benefit to administration of justice; claimed policy benefit therefore entirely speculative, representing cost to society — Therefore, respondents required to produce Abacus memo — Application allowed.

This was a

summary application under subsection 231.7(1) of the Income Tax Act to enforce a requirement for information on the respondents to produce a document pursuant to subsection 231.2(1) of the Act. The issue surrounding the application was whether the respondents were entitled to claim a common interest privilege (CIP) to protect solicitor-client privileged (SCP) communications disclosed during the negotiation of a commercial transaction. The respondents relied on American and Canadian case law to demonstrate that CIP is an accepted doctrine to be applied in all areas of SCP, including commercial transactions.

The scope of CIP has been restricted in some American States to litigation-related matters including situations of anticipated litigation. The New York Court of Appeals, in Ambac Assurance Corp. v. Countrywide Home Loans Inc. , made this distinction and refused to apply CIP outside of litigation-related circumstances. The respondent Iggillis Holdings Inc., validly incorporated under the laws of the province of Alberta, and the respondent Ian Gillis, a director and shareholder of the corporation, owned assets in a business partnership.

The respondents entered into a series of transactions that resulted in the sale to the intervener of shares of the partnership. Negotiations and discussions between the lawyer for the respondents (Mr. Kirby) and the lawyer for the intervener (Mr. Nitikman) relating to the transaction continued until and after the transaction closed. In the course of these negotiations and discussions, Mr. Nitikman drafted various tax memoranda and circulated them to the respondents’ advisors. The legal advice travelled in both directions.

It culminated in the document at issue in the application herein (the Abacus memo), which was primarily the work product of the intervener but with Mr. Kirby’s contribution. In December 2007, the Abacus memo was provided by Mr. Nitikman to Mr. Kirby. A few days later the intervener and the respondents completed the transaction. The Canada Revenue Agency (CRA) was of the view that the transactions entered into by the respondents may have been for the purpose of maximizing shareholder benefit by avoiding payment of the tax triggered by the sale of the corporate partners’ assets.

The CRA requested that the respondents provide it in particular with a copy of a letter of intent, or similar documentation, issued by the intervener to the respondents. In response thereto, Mr. Kirby stated that the transactions were described in the Abacus memo, which was subject to SCP. The respondents informed the CRA that they were claiming CIP over the Abacus memo to protect privileged communications.

The applicant argued that the Abacus memo is not privileged because it is primarily a “business document” wherein the legal advice is incidental to the true nature of the transaction. The applicant also claimed that the Abacus memo is not subject to CIP and, therefore, that the intervener lost or waived its privilege over the memo when Mr. Nitikman circulated the memo to Mr. Kirby. The issues were whether the Abacus memo was prima facie protected by SCP; whether the Abacus memo was protected by CIP in accordance with the Federal Court decision in Pitney Bowes of Canada Ltd. v.

Canada ( Pitney Bowes ) and its supporting case law; and whether CIP is a valid constituent of SCP. Held , the application should be allowed. The Abacus memo is legal advice provided by the lawyers to their clients in the strictest confidence and protected from disclosure under SCP subject to whether the privilege has been waived or is protected by CIP. The Abacus memo was the fruit of cooperative efforts of lawyers who were highly experienced in the legal considerations of income tax and related commercial law subjects.

However, this does not mean that a business plan cooperatively arrived at based upon the consequences of implementing counsels’ legal advice to achieve tax savings renders the memo a business record. Two parties mandating their lawyers to work together on behalf of both clients to find a “business solution” to their mutual advantage, but based upon the consequences of implementing their legal advice on the specific issue of tax savings, does not render the fruit of their labour a mere business record.

Furthermore, the Abacus memo is not a business record because the parties’ lawyers worked together at each step of the transaction to work out solutions based on legal conclusions. Whatever issues arose out of the two parties working jointly by means of bi-directional communication of legal advice was a matter for analysis under the doctrine of CIP. The parties’ actions were consistent with the basis of CIP relating to the creation of certain business partnerships as described in the reasoning in Pitney Bowes .

The intervener and the respondents clearly agreed that no waiver of privilege would arise from their lawyers. In Pitney Bowes , the Court found that the common interest essential to the doctrine of CIP in a commercial transactions context is in having the transaction concluded. Pitney Bowes was a joint client privilege (JCP) case although not recognized as such by the Court. In that decision, the parties retained the services of the same lawyer who delivered two opinions with the intent to share them.

It should be recognized however that the implications of common interests in JCP being distinguished from those in CIP were not recognized in the CIP case law. Here, the parties clearly agreed that no waiver of privilege would arise from their lawyers trading the legal opinions and views forming the Abacus memo. The Abacus memo reflected the work of the parties in arriving at a structure of the transaction intended to minimize tax exposure and was to the mutual benefit of both parties.

While it is true that the parties to a purchase and sale agreement are generally adverse in interest, when they are working cooperatively to reduce taxes payable on the sale of shares, the two parties share a common interest regarding that legal issue. The Abacus memo related only to that issue because legal opinions drove the transaction. American case law supports the application of the CIP doctrine in the matter herein.

It was clear in the present matter that the intervener and the respondents formulated a shared sale transaction based upon a joint legal strategy to complete the transaction and, to that end, carefully coordinated their lawyers’ legal efforts which ended up defining the nature of the commercial transactions that the parties concluded. While American case law has recognized CIP in circumstances almost identical to those in this matter, advisory CIP is not a valid constituent form of SCP and therefore has no application to the facts herein.

The essential error in advisory CIP’s history arose when it was thought to be supported by the same rationale that underlines litigation CIP. In failing to recognize that litigation privilege and SCP are “distinct conceptual animals”, advisory CIP was established by coat-tailing on litigation CIP. This allowed the doctrine to be established without a proper analysis of its compatibility with SCP doctrine. CIP principles are not irreconcilable with the litigation privilege doctrine. Allied lawyer situations are not analogous to JCP situations under the doctrine of SCP.

Sharing legal advice on a common interest in litigation may be consistent with the strategic adversarial nature of litigation. All communications in a JCP situation are within the solicitor-client relationship and the privilege is coherent with the SCP doctrine. Conversely, the communications in an allied lawyer CIP situation are not limited to those between a lawyer and his or her client seeing that the lawyer does not have a solicitor- client relationship with the other parties who have their own separate counsel.

The duty of loyalty owed by the lawyer to all joint clients informs the ethical limits of joint client representation. Joint client representation adheres to the rationale of SCP, while CIP does not. A common interest is necessary to establish CIP but not to establish JCP. The case law supporting advisory CIP was established under a cloak of confusion with common interests in JCP and litigation privilege and with very little analysis of the factors and considerations relating to the legitimacy of advisory CIP.

SCP is a class privilege, not a case-by-case privilege, which means that any communications between a client and his or her lawyer relating to the provision of legal services that are made in confidence are prima facie protected. Advisory CIP, as an exception or defence to waiver of SCP, is irreconcilable with and eviscerates the SCP doctrine of any meaning. This is because the components and the logic of SCP are interconnected and interdependent. Striking down the waiver principle empties the privilege of all of its function and doctrinal rationale.

In recognizing advisory CIP, an existing speculative benefit to the administration of justice has been leveraged and turned into an expanded benefit for two or more parties in future litigation, at a cost to the opposing party, contrary to the requirements that underpin the rationale for SCP. This is so, particularly with regard to the requirement that SCP be restrictively limited to its principles to prevent undue obstruction to justice and unfairness to opposing parties in future litigation.

A privilege that is properly claimed is one that is within its proper limits, meaning that the privilege claimed must comply with the doctrinal principles underlying SCP. Nowhere does the case law suggest that SCP is not to be interpreted restrictively. The case law does not support a liberal construction of SCP to expand its scope beyond what can properly be claimed. There is no basis for the recognition of a legitimate expectation interest supporting advisory CIP in either theory or practice.

Selective waiver can no more be reconciled with the rationale of SCP than CIP, and makes even less sense as it strays completely from any connection with the principle of confidentiality at the heart of SCP. It too violates its fundamental precepts and is equally unfair to someone harmed by the results of the protected communications but does so without any reference to any aspect of the rationale underlying SCP. Although the case law regarding CIP does not distinguish between litigation privilege and SCP, there are nonetheless fundamental differences in the rationales underlying the two forms of privilege.

One is to protect the adversarial process, the other to protect the solicitor-client relationship. SCP is all about the relationship. These differences legitimize the grounds for accepting litigation CIP to

expand the scope of the privilege as a strategic adversarial consideration in the litigation context by providing an exception to waiver, arationale that does not apply to advisory CIP. The principal raison d’être of legal advisory CIP is in the anticipation of creating litigationbecause of the nature of the transaction that the privilege really protects, i.e. transactions of questionable legality. The real advantage ofCIP occurs when it is applied at trial — when the parties anticipate litigation occurring as a result of the transaction that they arenegotiating.

This purpose is purely strategic, to keep the evidence of their privileged communications out of the anticipated trial so as toimprove their chance of success, a purpose incompatible with SCP doctrine. The rationale of litigation privilege, which extends to the anticipation of litigation, serves the purpose of upholding the strategicadversarial trial process, while the rationale of litigation CIP serves that same purpose. There is no rational basis in SCP doctrine thatpertains to any outcome from the lawyer-client relationship that it upholds. SCP doctrine is about maintaining the solicitor-clientrelationship.

There is no similarity whatsoever in the rational basis of SCP and that of advisory CIP based on outcomes. The rationale anddoctrine of litigation privilege ultimately favours shared confidential communications with parties of a common strategic interest becauseit is seen as enhancing the strategic adversarial process as a whole. The American decision in Ambac was examined and it wasdetermined that Ambac was correctly decided but on the wrong legal principle for failing to reject advisory CIP because it cannot bereconciled with SCP doctrine.

Therefore, the correct ground for rejecting advisory CIP is that it is not coextensive and reconcilable withSCP requirements. Despite this conclusion, a cost benefit analysis of advisory CIP was made. Advisory CIP provides no benefit to the administration of justice in either enhancing compliance or maintaining the solicitor-clientrelationship while significantly adding to its costs.

The claimed policy benefit of advisory CIP of enabling commercial transactions isentirely speculative and more likely represents a cost to society by the fact that advisory CIP mostly enables transactions that anticipatelitigation, which undermine the administration of justice or are of no value to society or are harmful thereto. In conclusion, the respondents were required to produce the Abacus memo pursuant to subsection 231.2(1) of the Act since advisory CIPis not a legitimate or acceptable application of solicitor-client privilege. STATUTES AND REGULATIONS CITED Federal Rules of Evidence (U.S.), Rule 503(b).

Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1, ss. 231.2, 231.7. CASES CITED NOT FOLLOWED: Pitney Bowes of Canada Ltd. v. Canada, 2003 FCT 214, 225 D.L.R. (4th) 747. APPLIED: Ambac Assurance Corp. v. Countrywide Home Loans Inc., 27 N.Y. 3d 616 (Ct. App. 2016); Blank v. Canada (Minister of Justice), 2006SCC 39, [2006] 2 S.C.R. 319; R. v. Gruenke, (SCC), [1991] 3 S.C.R. 263, [1991] 6 W.W.R. 673. DISTINGUISHED: Lipson v. Canada, 2009 SCC 1, [2009] 1 S.C.R. 3. CONSIDERED: Duplan Corporation v. Deering Milliken, Inc., 397 F. Supp. 1146 (D. South Carolina 1975); Bank Brussels Lambert v.

Credit Lyonnais(Suisse), 160 F.R.D. 437 (S.D. New York 1995); Balabel v. Air India, [1988] Ch. 317, [1988] 2 All E.R. 246 (C.A.); Blood Tribe v.Canada (Attorney General), 2010 ABCA 112 , 487 A.R. 71; Canada (Attorney General) v. Slansky, 2013 FCA 199, [2015] 1F.C.R. 81; Canada (National Revenue) v. Revcon Oilfield Constructors Incorporated, 2015 FC 524, [2015] 5 C.T.C. 1; BelgraviaInvestments Limited v. Canada, 2002 FCT 649, [2002] 3 C.T.C. 482; Thompson v. Canada (National Revenue), 2013 FCA 197, 366D.L.R. (4th) 169; Shipyard Associates, LP v. City of Hoboken, 2015 WL 4623470 (D.

New Jersey); In re Teleglobe CommunicationsCorp., 493 F. 3d 345 (3d Cir. 2007); Pritchard v. Ontario (Human Rights Commission), 2004 SCC 31, [2004] 1 S.C.R. 809; Chahoon v.The Commonwealth, 62 Va. App. 822 (1871); Rice v. Rice, 53 Ky. 335 (1854); United States v. Zolin, 809 F. 2d 1411 (9th Cir. 1987);Burlington Industries v. Exxon Corp. and Amtech, Inc., 65 F.R.D. 26, 379 F. Supp. 754 (Maryland Dist. Ct. 1974); United States v.McPartlin, 595 F. (2d) 1321 (7th Cir. 1979); Buttes Gas & Oil v. Hammer (No. 3), [1980] 3 All E.R. 475 (C.A.); Neuberger Berman RealEstate Income Fund, Inc. v.

Lola Brown Trust No. 1B2, 230 F.R.D. 398 (D. Maryland 2005); R. v. McClure, 2001 SCC 14, [2001] 1S.C.R. 445; Trillium Motor World v. General Motors, 2014 ONSC 4894 , 20 C.B.R. (6th) 332; Lavallee, Rackel & Heintz v.Canada (Attorney General); White, Ottenheimer & Baker v. Canada (Attorney General); R. v. Fink, 2002 SCC 61, [2002] 3 S.C.R. 209;Canada (Attorney General) v. Federation of Law Societies of Canada, 2015 SCC 7, [2015] 1 S.C.R. 401; Kaymar Rehabilitation v.Champlain CCAC, 2013 ONSC 1754 ; Louisiana Municipal Police Employee Retirement System v. Sealed Air Corp., 253F.R.D. 300 (D.

New Jersey 2008); Canmore Mountain Villas Inc. v. Alberta (Minister of Seniors and Community Supports), 2009 ABQB348 , 484 A.R. 34; Milner et al. v. The Minister of National Revenue, 2002 BCSC 1344, [2002] 1 W.W.R. 682. REFERRED TO: R. v. Henry, 2005 SCC 76, [2005] 3 S.C.R. 609; Apotex Inc. v. Pfizer Canada Inc., 2014 FCA 250, 125 C.P.R. (4th) 81; North RiverInsurance Co v. Philadelphia Reinsurance Corp., 797 F. Supp. 363 (D. New Jersey 1992); Canada (National Revenue) v. Lee, 2015 FC634, [2016] 1 C.T.C. 10; Canada (National Revenue) v. Thornton, 2012 FC 1313, [2013] 1 C.T.C. 165; R. v.

Campbell, (SCC), [1999] 1 S.C.R. 565, (1999), 171 D.L.R. (4th) 193; Superior Plus Corp. v. The Queen, 2015 TCC 132, [2015] 5 C.T.C. 2094,affd 2015 FCA 241, [2016] 2 C.T.C. 64; Three Rivers District Council & Ors v. Bank of England, [2004] UKHL 48 (BAILII), [2005] 1A.C. 610; Edward C Behague v. Revenue & Customs, [2013] UKFTT 596 (T.C.); Canada (Privacy Commissioner) v. Blood Tribe

Department of Health, 2008 SCC 44, [2008] 2 S.C.R. 574; Sable Offshore Energy Project v. Ameron International Corporation, 2015NSCA 8, 354 N.S.R. (2d) 333; Canada (Minister of National Revenue) v. Welton Parent Inc., 2006 FC 67, [2006] 2 C.T.C. 177; Schmittv. Emery, 2 N.W. (2d) 413 (Minn. Sup. Ct.); Continental Oil Company v. United States, 330 F. 2d 347 (9th Cir. 1964); Hunydee v.United States, 335 F. 2d 183 (9th Cir. 1965); Transmirra Products Corp. v. Monsanto Chemical Company, 26 F.R.D. 572 (S.D. NewYork 1960); Vilastor-Kent Theatre Corp. v. Brandt, 19 F.R.D. 522 (S.D. New York 1956); Stix Products, Inc. v.

United Merchants &Manufacturers, Inc., 47 F.R.D. 334 (S.D. New York 1969); R. v. Dunbar (1982), 138 D.L.R. (3d) 221, (Ont. C.A.); S.& K. Processors Ltd. v. Campbell Ave. Herring Producers Ltd., , [1983] 4 W.W.R. 762 (B.C.S.C.). AUTHORS CITED ABA Comm. on Ethics and Prof’l Responsibility, Formal Op. 95-395. Capra, Daniel J. “The Attorney-Client Privilege in Common Representations: Information-Pooling and Problems of ProfessionalResponsibility” (1989), 33 Trial Lawyers Guide 20. Dodek, Adam M. Solicitor-Client Privilege. Toronto: LexisNexis, 2014. Epstein, Edna S.

The Attorney-Client Privilege and the Work-Product Doctrine, 5th ed. American Bar Association, 2007. Fischer, James M. “The Attorney-Client Privilege Meets the Common Interest Arrangement: Protecting Confidences While ExchangingInformation for Mutual Gain” (1997), 16 Rev. Litig. 631. Giesel, Grace M. “End the Experiment: The Attorney-Client Privilege Should Not Protect Communications in the Allied LawyerSetting” (2011-2012), 95 Marq. L. Rev. 475. Hubbard, Robert W. et al. The Law of Privilege in Canada, Vol. 2, loose-leaf. Toronto: Thomson Reuters, 2006. Kahneman, Daniel. Thinking Fast and Slow.

Toronto: Anchor Canada, 2011. Leslie, Melanie B. “The Costs of Confidentiality and the Purpose of Privilege” (2000), 1 Wis. L. Rev. 31. Wigmore, John Henry. A Treatise on the Anglo-American System of Evidence in Trials at Common Law, 2nd ed. Vols. IV-V, Boston:Little, Brown and company, 1923. Wigmore, John Henry. Evidence in Trials at Common Law, McNaughton Revision, Vol. 8. Boston: Little Brown & Co., 1961. APPLICATION under subsection 231.7(1) of the Income Tax Act to enforce a requirement for information on the respondents to producea document pursuant to subsection 231.2(1) of the Act. Application allowed.

APPEARANCES Margaret McCabe for applicant. Jon Gilbert for respondents. Joel A. Nitikman for intervener. SOLICITORS OF RECORD Deputy Attorney General of Canada for applicant. Felesky Flynn LLP, Edmonton, for respondents. Dentons Canada LLP, Vancouver, for intervener. Table of Contents Paragraph I. Overview 1 II. Statement of Facts 29 III. Legislative Framework 58 IV. Issues 59 V. Analysis 60 A. Is the Abacus Memo Prima Facie Protected by Solicitor-client Privilege? 60

(1) The Law of SCP 60

(2) The Abacus Memo is prima facie protected by SCP 63 B. Is the Abacus Memo Protected by Common Interest Privilege? 73

(1) The Law of CIP 73

(2) The Abacus Memo is protected by CIP in accordance with Pitney Bowes 81 C. Is CIP a Valid Component of the Doctrine of Solicitor-client Privilege? 93

(1) Introduction 93

(2) The Establishment and Recent Expansion of Legal Advisory CIP 96

(3) Advisory CIP as an Exception to Waiver is Irreconcilable with and Eviscerates SCP Doctrine of any Meaning 137

(4) SCP Must Be Construed Narrowly 157

(5) Emerging Rationales for CIP Have No Basis 164 D. Maintaining Litigation CIP while Rejecting Advisory CIP 174

(1) Introduction 174

(2) Should the Court consider whether CIP be confined to the litigation context? 177

(3) The Rationale and Purposes of Litigation Privilege and Advisory SCP are Fundamentally Different 182

(4) Communications in Anticipation of Litigation Are Distinct from Those that Anticipate Creating Litigation 190

(5) The Different Rationales of Litigation Privilege and SCP Result in Different Rationales for Whether to Recognize a CIP 198

(6) Revisiting Ambac and Professor Giesel’s

Article 201 VI. A Cost/Benefit Analysis of CIP 206 A. Cost Benefit Analysis Cannot be Applied to Graft Advisory CIP onto the Class Privilege of SCP 206 B. The Benefits of CIP to the Administration of Justice 210

(1) The benefits to the administration of justice described in Ambac 211

(2) Encouraging quality disclosure for more effective representation leading to more compliant behaviour 213

(3) CIP Assists in Avoiding Litigation and Liability 225

(4) Systemic Benefits of CIP 231 C. Costs of CIP to the Administration of Justice 233

(1) An Expansion of the Quantity of Privileged Communications 233

(2) CIP Denies the Courts Important Relevant Substantive Evidence 239

(3) Advisory CIP Provides a Privilege Not Available to Most Users of Advisory Legal Services 243

(4) Potential for Abuse of CIP 246

(5) Advisory CIP is a Cost to the Administration of Justice By Enabling Commercial Transactions that Anticipate Litigation 263 D. External Social Policies 264

(1) Policy Factors are Irrelevant to CIP 266

(2) The social policy benefits of CIP must be proven on a balance of probabilities 272

(3) The evidence supporting that CIP is necessary to foster commercial transactions is speculative at best 277

(4) Advisory CIP Undermines the Administration of Justice by Enabling Commercial Transactions that Anticipate Litigation 285

(5) Many commercial transactions said to be enabled by CIP provide no value but contribute to the challenges facing societies 291 VII. Conclusion 298 The following are the reasons for judgment and judgment rendered in English by Annis J.: I. Overview [ 1 ] This application concerns whether the respondents are entitled to claim a common interest privilege (CIP) to protect solicitor- client privileged communications disclosed during the negotiation of a commercial transaction for the sale of the shares of corporations of the respondents to the intervener.

The communications are alleged to pertain to a common legal interest of the contracting parties to enable the completion of the sale. [ 2 ] Given the somewhat unorthodox evolution of the disposition of this matter, the Court provides a brief description of the process followed to reach its conclusions.

This also serves as a roadmap of the decision. [ 3 ] The applicant served an identical requirement for information (the requirements) on the respondents to produce a document (the Abacus memo or the memo) pursuant to subsection 231.2(1) of the Income Tax Act , R.S.C., 1985, (5th Supp.), c. 1, as amended (the ITA or the Act). [ 4 ] The two respondents refused to produce the memo. The applicant now brings this

summary application under subsection 231.7(1) of the Act to enforce the requirements. Abacus Capital Corporations Mergers and Acquisitions (Abacus or the intervenor) has intervened in this matter, filing evidence and advancing arguments in support of its claim of solicitor-client privilege (SCP) over the Abacus memo. [ 5 ] The Abacus memo is authored by Joel Nitikman (Mr. Nitikman), legal counsel for the intervener, Abacus, and was disclosed to Richard Kirby (Mr.

Kirby), legal counsel for the two respondents, in the course of a purchase by Abacus and sale by the two respondents of certain assets and shares (the shares). Mr. Kirby also participated in the formulation of the contents of the memo in exchanges with Mr. Nitikman prior to it being drafted. [ 6 ] Abacus is composed of a large group of corporations, partnerships and trusts. It assists in tax planning efforts, in particular by providing advice on corporate transaction structures. The benefits of this advice, in the form of reduced payable taxes, are shared with

the persons or entities using its services. In this case, there were 17 sub-transactions (the transactions) entered into (including pre-sale and post-sale transactions and the sale itself) for the purpose of finalizing what is described collectively as the “Transaction”, whereby an Abacus entity acquired the shares of the respondents’ corporations. [ 7 ] No formal letter of intent was entered into between the respondents and Abacus.

However, the transactions and their effect in terms of the Act ’s application to them were described in the memo over which the respondents now claim as protected by SCP. [ 8 ] More specifically, the respondents claim that the memo is subject to CIP. This is a legal doctrine that is an adjunct to standard SCP, whereby the disclosure of privileged communications made to parties sharing a common legal interest does not result in waiver of the privilege so as to terminate its protection from disclosure in truth-serving legal processes. [ 9 ] There remains some confusion concerning the application of CIP.

There is no controversy regarding the privileged nature of communications involving a common interest in situations where two or more clients are represented by the same lawyer. This is commonly described as joint client privilege (JCP). However, there is some controversy with regard to the doctrine of SCP where different clients are represented by different lawyers (allied lawyers) who share privileged information on a matter of common legal interest not related to actual or anticipated litigation. These most often pertain to commercial transactions, such as in this matter.

For the purposes of this case, and in most recent cases on this subject, CIP refers specifically to the allied lawyer situation, as distinct from the sharing of legal communications in a JCP context. [ 10 ] The respondents rely on copious American and Canadian case law, indeed on jurisprudence from around the common law world, to demonstrate that CIP is an accepted doctrine to be applied in all areas of SCP, including commercial transactions.

There remains, however, considerable controversy over the scope of CIP, as 13 American States have restricted it to litigation-related matters including situations of anticipated litigation. In particular, the Court will be referring to the very recent decision of June 9, 2016 by the New York Court of Appeals in the matter of Ambac Assurance Corp. v. Countrywide Home Loans Inc. , 27 N.Y. 3d 616 (Ct. App. 2016) ( Ambac ) that makes this distinction and refused to apply CIP outside of litigation-related circumstances.

For the purpose of analyzing this distinction, non-litigation CIP is referred to most often in this decision as “(legal) advisory CIP” to distinguish it from “litigation CIP”. Advisory CIP is also often referred to in the case law as “transactional CIP”, because most of the jurisprudence on the subject concerns commercial transactions. [ 11 ] It is not the applicant’s submission that advisory CIP should be distinguished from litigation CIP. Advisory CIP has broad acceptance across Canada, although only considered once in this Court in Pitney Bowes of Canada Ltd. v.

Canada , 2003 FCT 214 , 225 D.L.R. (4th) 747 ( Pitney Bowes ). The decision upheld the doctrine, but in what the Court determines were JCP circumstances. Neither CIP, nor any distinction in its application has been considered by the Federal Court of Appeal, the Supreme Court of Canada, or the Supreme Court of the United States. [ 12 ] The applicant argues that the memo is not privileged because it is primarily a “business document” wherein the legal advice is incidental to the true nature of the transaction.

The applicant also claims that the memo is not subject to CIP and, therefore, that Abacus lost or waived its privilege over the memo when Mr. Nitikman circulated the memo to Mr. Kirby. The Court rejects the applicant’s submissions. [ 13 ] Nevertheless, the consequences of CIP in this case caused the Court concerns in terms of fairness due to its impact if applied in a legal process challenging the transaction. The Court also had difficulties understanding the justification for the doctrine of CIP as articulated in the Canadian jurisprudence cited in Pitney Bowes .

The Court was not originally aware of the unsettled state of the law in the United States with respect to the limited application of CIP to litigation related matters, as this was not an issue raised by the applicant. [ 14 ] The Court’s first concern was the effect of CIP on the Court’s ability at trial to ultimately decide the substantive matter if the memo was found to be privileged. In this case, the only evidence before the Court describing how the transaction was concluded would have been the resulting transactions themselves, as described in public documents.

This was acknowledged by counsel for the respondents. This means that lawyer-to-lawyer legal communications and related information pertaining to how the agreement was negotiated would no longer be available to the courts. This struck the Court as a result that would not only deny the courts an extensive quantity of information on how transactions were formed, but also highly relevant substantive information that in many respects could determine the outcome of the litigation. [ 15 ] The Court’s second difficulty arose from the Pitney Bowes decision.

The respondents argue that it is binding on this Court based on the principles of “horizontal” stare decisis and judicial comity applying to decisions of the same court. As it turns out, I do not follow Pitney Bowes as it is distinguishable on the facts as a decision of joint representation. There are also “compelling reasons” that I provide not to apply it ( R. v. Henry , 2005 SCC 76 , [2005] 3 S.C.R. 609, at paragraph 44 ; Apotex Inc. v. Pfizer Canada Inc. , 2014 FCA 250 , 125 C.P.R. (4th) 81, at paragraph 115 ).

One of these was my initial concern about the Court’s conclusion that “‘economic and social values inherent in fostering commercial transactions’ … favoured the recognition of such a privilege” ( Pitney Bowes , at paragraph 17). [ 16 ] The Court did not understand how SCP, which has long been recognized as a class form of privilege not requiring substantiation, was being rationalized in a specific area of legal practice relating to commercial transactions, and moreover, that this was being done on the basis of “economic and social values”.

This appeared to be an application of the case-by-case evaluation required for the establishment of a new form of privilege. Upon further examination, the Court concludes that SCP issues are, in any event, limited to factors relating to the administration of justice, meaning that economic and social values are irrelevant to the discussion. [ 17 ] In terms of advancing the “economic and social values” of society, I also could not apply this reasoning to the 17 pro forma transactions in this case, which were undertaken for the sole purpose of tax avoidance on a commercial transaction.

Tax avoidance is permitted in view of the strict application of principles of

interpretation and the rule of law, but it is not conduct that should be encouraged and assisted by new privilege doctrines meant to keep relevant evidence challenging the legality of these schemes out of the courts. [ 18 ] Third, the Court also recognized a discrepancy between CIP and what could be described as the founding “Wigmorean

principles” of SCP raised in two American cases presented by the applicant. Among the passages from Wigmore that caught the Court’s eye, was the following citation reproduced in Duplan Corporation v. Deering Milliken, Inc. , 397 F. Supp. 1146 (D. South Carolina 1975) ( Duplan ), at page 1175: The privilege is designed to secure objective freedom of mind for the client in seeking legal advice (ante, sec. 2291). It has no concern with other persons’ freedom of mind , nor with the attorney’s own desire for secrecy in his conduct of a client’s case.

It is therefore not sufficient for the attorney, in invoking the privilege, to state that the information came somehow to him while acting for the client, nor that it came from some particular third person for the benefit of the client . [Italics in original; underlining added.] [ 19 ] The Court further understood that there was originally some controversy over whether CIP could apply beyond JCP circumstances. This raised the issue as to how Wigmorean principles on SCP were circumvented. In Bank Brussels Lambert v. Credit Lyonnais (Suisse) , 160 F.R.D. 437 (S.D.

New York 1995) ( Bank Brussels Lambert ), there were references to several cases, one being North River Insurance Co v. Philadelphia Reinsurance Corp , 797 F. Supp. 363 (D. New Jersey 1992).

The Court in that matter could not rationalize the inconsistency between the doctrine of CIP and SCP principles stating at page 367 that “the common interest doctrine is completely unleashed from its moorings in traditional privilege law when it is held broadly to apply in contexts other than when there is dual representation” [emphasis added]. [ 20 ] Because of the Court’s concerns described above, a direction was issued to counsel for the parties, requesting submissions on several matters, namely: the reliance in Pitney Bowes upon social and cultural values and other relevant factors of that nature; whether CIP was a class or case-by-case privilege; and assistance in understanding the apparent circumventing of Wigmorean SCP principles by the doctrine of CIP.

While the parties responded to the direction, the Court was not satisfied that its queries had been addressed. [ 21 ] It was at this point that the Court learned of a recent

article by Professor Grace M. Giesel of the University of Louisville’s Brandeis School of Law (“End the Experiment: The Attorney-Client Privilege Should Not Protect Communications in the Allied Lawyer Setting” (2011-2012), 95 Marq. L. Rev. 475 (the Giesel

article or Giesel)). As the title indicates, Professor Giesel “controversially” concludes that CIP, which she describes as “allied lawyer privilege”, should be discarded as a valid privilege principle in both litigation and advisory circumstances.

Her thesis is that CIP is incompatible with the doctrine of SCP, while its alleged benefits are outweighed by its costs to truth-seeking legal processes. [ 22 ] Professor Giesel’s survey of the evolution of CIP law demonstrated to the Court’s satisfaction that its acceptance was “a bit stealthy” [at page 511], disguised as a close cousin of common interest situations in JCP. More importantly, Professor Giesel proved that because of the misapprehension of the relationship between CIP and JCP, at no time in its long history had any meaningful legal analysis been carried out on the doctrine of CIP.

She also appears to be the first jurist to conduct a cost-benefit analysis of the doctrine. [ 23 ] The Court next learned that the Giesel

article was quoted in Ambac . The New York Court of Appeals, by a majority of four to two, rejected the claim of CIP, restricting the doctrine’s application to the context of litigation, including circumstances of anticipated litigation. It is upon reading this decision that the Court understood that 13 American States have rejected CIP’s application to commercial transactions. [ 24 ] Ambac is relevant for a number of reasons. It appears to be the first time in 145 years of all forms of CIP application that a court has conducted a form of cost-benefit analysis.

The majority concentrated on the costs, while the dissent mostly considered the benefits, and also challenged the logic of a distinction in its application to litigation, but not advisory circumstances, when SCP applied across all fields of legal advice. The majority limited its analysis to the advisory context and found that the costs of CIP outweighed its benefits. [ 25 ] It is of some importance to this case that while the majority in Ambac agreed with the conclusion in the Giesel

article that CIP could not be reconciled (was not coextensive) with SCP, it did not rely on her thesis that this should be a ground to reject all forms of CIP. The majority could not do so without undermining its conclusion that CIP applied to litigation-related circumstances, but not advisory CIP. Instead, Ambac recognized the theory relied upon by the respondents according to which CIP acts as a defence or exemption to waiver of SCP.

The majority found that it was reasonable to exempt the waiver in the litigation CIP context, but not for commercial transactions based on its cost-benefit analysis of the two forms of CIP. This distinction and the soundness of its reasoning is a significant issue in this decision. The Court concludes that the proper distinction between these two forms of CIP should be based on the underlying differences between litigation privilege and SCP. The Court relies upon the Supreme Court decision of Blank v.

Canada (Minister of Justice) , 2006 SCC 39 , [2006] 2 S.C.R. 319 ( Blank ), at paragraph 7 in which it declared them to be “distinct conceptual animals and not with two branches of the same tree”. [ 26 ] The Court provided the Giesel

article and the Ambac decision to the parties and requested their comments on the issues they raised. The respondents (which for most purposes hereafter when referring to submissions will include the intervener) provided fulsome responses rejecting the Giesel thesis and the application of the Ambac decision on several grounds, which the Court attempts to respond to in its analysis. [ 27 ] As a result of its analysis, the Court respectfully concludes that Pitney Bowes is not binding because it was a JCP case.

The Court also disagrees with its conclusions that advisory CIP may be supported on the policy grounds of enhancing social and economic values in the commercial transactions it was said to enable, or by an “expectation interest” of confidentiality. [ 28 ] The Court further rejects CIP as an acceptable form of SCP for a number of reasons. These include among others:

(1) CIP entered the law of privilege under a cloud of confusion as being similar to JCP and an appropriate extension of litigation CIP.

(2) Advisory CIP cannot be rationalized as an appropriate extension of litigation CIP. Litigation privilege and SCP are distinct conceptual animals having different doctrinal rationales. Litigation CIP is compatible with the strategic advisory foundation of litigation privilege, while advisory CIP is irreconcilable with and destructive of SCP founded on maintaining the solicitor-client relationship.

(3) Accordingly, the Court respectfully concludes that Ambac was correctly decided but on the wrong legal principle for failing to reject advisory CIP because it cannot be reconciled with SCP doctrine. For the same reason, the Court concludes that the Giesel

article

was unsound in rejecting litigation CIP based upon its incompatibility with SCP doctrine, but correct in the rejection of advisory CIP on those grounds.

(4) Advisory CIP is in an inherent conflict with and destructive of the rational underlying SCP such that rationalization of advisory CIP as a “defence” to waiver is unsustainable, as are its other rationales of being supported by expectation interests or the emerging doctrine of selective waiver. As advisory CIP is incompatible with SCP doctrine, there is no necessity to undertake a cost-benefit analysis of its effects.

(5) Nevertheless, an analysis of advisory CIP with respect to factors relevant to the administration of justice demonstrates that the costs significantly outweigh the benefits. Indeed, advisory transactional CIP undermines the administration of justice in that it only enables transactions that anticipate litigation.

(6) Policy issues relating to the social and economic values of commercial transactions said to be enabled by advisory CIP are irrelevant to SCP. In any event, those policy values allegedly said to be promoted by advisory CIP are speculative, unnecessary in relation to enabling most transactions, and otherwise limited to fostering transactions that anticipate litigation that undermine the administration of justice. As well, those commercial transactions appearing to constitute much of the jurisprudence relating to advisory CIP are of no, or questionable economic or social benefit to society. II.

Statement of Facts [ 29 ] IGGillis Holdings Inc. (IGHI) is validly incorporated under the laws of the province of Alberta. Ian Gillis is the sole director and one of the shareholders of the Corporation. [ 30 ] The respondents owned Two Bit Holdings Inc., which became one of the corporate partners in the United Diamond Partnership formed in 2006. Mr.

Gillis was the Executive Director of the United Diamond Partnership, which owned assets in a business engaged in the manufacture, engineering and development of drill bits and related technologies, products, and processes. [ 31 ] The respondents were also direct and beneficial shareholders of United Diamond Ltd., another partner corporation in the United Diamond Partnership. Mr.

Gillis was also a Director of United Diamond Ltd. [ 32 ] In 2007, the respondents entered into a series of transactions ultimately resulting in a sale of the assets of the United Diamond Partnership and the concurrent sale of the shares of the corporate partners in the Partnership. Abacus was the purchaser of the shares through a nominee corporation. [ 33 ] Abacus structured the purchase of the shares of the corporate partners of the United Diamond Partnership through the transactions.

Between January and December 2007, Abacus presented the shareholders of the partners of the United Diamond Partnership with information and documents describing the transactions to be entered into for the sale of the issued and outstanding shares of the partners of the Partnership. [ 34 ] Abacus is composed of a large group of corporations, partnerships and trusts. Abacus’s website describes itself as follows: Abacus Private Equity, for over fifteen years, has focused on maximizing cash proceeds to vendors that are selling their assets or shares.

Abacus acts as a principal in its transactions, using its time tested principal approach to delivering additional value for vendors. Abacus places a special emphasis on the taxation elements of its transactions, seeking to provide additional value for vendors through efficient transaction structures. Abacus employs some of the leading Canadian tax practitioners in its acquisition operations and enjoys close, long-term relationships with the top tax advisors in the largest Canadian accounting and legal firms. Abacus is owned by the Hillcore Group (www.HillcoreGroup.com).

Since 2005, the Hillcore Group, directly or indirectly through its investments funds, has closed transactions with an aggregate asset value in excess of $6.5 billion with $670 million in 2014 alone. Entities under the Hillcore Group management have an asset value in excess of $3.2 billion, as of December 31, 2014.

The Hillcore Group has offices in Toronto, Vancouver, Calgary and Montreal, and, in its various groups and portfolio companies, employs approximately 2,500 people through Canada. [Emphasis added.] [ 35 ] Abacus’ business model is to buy shares of target corporations from their shareholders and sell the corporations’ assets to third parties (or operate the target corporations as an ongoing business) in a tax-effective manner. [ 36 ] On December 20, 2007, Abacus, through a directly or indirectly wholly-owned subsidiary named UDL Acquisitions Ltd., acquired the shares of United Diamond Ltd. and Two Bit Holdings Inc. from their shareholders. [ 37 ] In the transaction, Abacus was represented by the law firm of Fraser Milner Casgrain LLP (FMC) (now called Dentons Canada LLP) and particularly by Mr.

Nitikman, a partner in FMC’s Vancouver Tax Group. Mr. Nitikman had represented Abacus on many previous deals. [ 38 ] The vendors, including IGHI, which was owned by Ian Gillis, were represented by Mr. Kirby, a tax partner in the Edmonton office of the law firm Felesky Flynn LLP, and by Ogilvie LLP, a national law firm with an office in Edmonton, Alberta that acted as corporate counsel, and by Kingston Ross Pasnak LLP, a firm of chartered accountants in Edmonton, Alberta (collectively, the respondents’ advisors). [ 39 ] Negotiations and discussions between Mr. Kirby and Mr.

Nitikman relating to the transaction commenced in late November 2007 and continued until and after the transaction closed. [ 40 ] In the course of these negotiations and discussions, Mr. Nitikman drafted various tax memoranda (including the Abacus memo) and circulated them to Abacus and to the respondents’ advisors, particularly with respect to the taxation elements of the transaction for the purpose of obtaining additional value for vendors through efficient transaction structures.

[ 41 ] The respondents’ advisors, particularly Mr. Kirby, commented on and discussed these memoranda extensively with Mr. Nitikman. Notably, Mr. Kirby contributed through emails and telephone calls with respect to the taxation elements of the transaction. [ 42 ] An example of the joint effort of counsel may be seen in the series of emails exchanged between them describing how they worked together in seeking a common solution to a problem concerning taxation on dividends.

This refers to privileged emails which were inadvertently disclosed and contained in the applicant’s affidavit, the advisory contents of which are not revealed in this example. [ 43 ] In the emails, Mr. Kirby first raises a specific problem after reviewing a memo from Mr. Nitikman. It is followed by a reply email from Mr. Nitikman describing the solution in terms of the application of certain provisions of the ITA . Mr. Kirby thereafter responds by raising a further provision of the ITA, questioning whether the provision applies. After further back and forth, Mr.

Nitikman acknowledges the nature of the problem raised by Mr. Kirby and provides an additional solution in relation to taxation law. This solution would affect the structure of the transaction. The email chain concludes with Mr. Kirby offering “another option” and indicating that he is “crunching some numbers”. All of this correspondence is copied to Michael Doner, the instructing Abacus employee, on behalf of Abacus. It is presumed that the respondents would similarly have been kept abreast of these discussions by Mr. Kirby. [ 44 ] The legal advice also travelled in both directions, as Mr.

Kirby’s opinions were simultaneously provided to his client and communicated to Abacus. All these communications were, to some extent, in the form of negotiations, in that the respondents had to be satisfied with the “added value” achieved through tax reduction to arrive at the deal, including the risk of going forward on that basis. Mr.

Nitikman represented to the Court that there were no negotiations on the price of the shares or other significant business issues in the deal. [ 45 ] Thus, there exists no clear example of a client request for advice and the advice being provided and thereafter being disclosed to a third party, or the third party’s lawyer. The client is Abacus, but the advice is in the negotiations of the parties which consist of back- and-forth discussions in which Mr. Kirby is also providing taxation advice that is being communicated back to Abacus.

The legal advice culminates in the Abacus memo, which is primarily the work product of Abacus, based on its significant experience in similar transactions, but with the contribution of the respondents’ lawyer, at least as depicted in the disclosed emails. [ 46 ] The purpose of circulating such memoranda and diagrams was to ensure that Mr. Kirby (

a) agreed on the steps in the transaction that would be taken to purchase the shares, (

b) understood the tax and legal risks involved in such steps, and (

c) had the opportunity to discuss such risks and negotiate changes to the transaction to minimize or allocate such risks. [ 47 ] In many of Abacus’ transactions, it instructs its counsel very early in the transaction to negotiate an agreement with the vendor’s counsel that all communications between them and other parties involved that relate to the transaction will be on a CIP basis. [ 48 ] Mr. Doner has sworn an affidavit and filed with the Court’s Registry a sealed envelope containing a series of emails between Mr. Nitikman and Mr. Kirby, the first of which Mr. Nitikman sent to Mr.

Kirby on Monday, November 26, 2007, 6:55 a.m. and the last of which Mr. Kirby sent to Mr. Nitikman on Tuesday, December 18, 2007, 8:46 a.m. confirming that Mr. Kirby and Mr. Nitikman agreed that all communications relating to the transaction were on a CIP basis. These emails were not the subject of any submissions at the hearing and have been returned in their sealed envelope along with other memoranda filed with the Court. [ 49 ] On December 17, 2007, the Abacus memo was provided, by Mr. Nitikman on behalf of Abacus, to Mr.

Kirby on behalf of the respondents. [ 50 ] On December 20, 2007, Abacus, through a directly or indirectly wholly-owned subsidiary named UDL Acquisitions Ltd., acquired the shares of United Diamond Ltd. and Two Bit Holdings Inc. from their shareholders. [ 51 ] As a result of the transactions, the Corporation and Mr.

Gillis directly and beneficially received amounts not less than $26 928 326.82. [ 52 ] The Canada Revenue Agency (CRA) is of the view that the transactions entered into in 2007 by the respondents as corporate partners in the United Diamond Partnership may have been entered into for the purpose of maximizing shareholder benefit by avoiding payment of the tax triggered by the sale of the corporate partners’ assets. [ 53 ] By the requirements, each dated August 7, 2013, the respondents were asked to provide, among other things, a copy of a letter of intent, or similar documentation, issued by Abacus between the dates of January 1, 2007 and December 20, 2007 to the respondents. [ 54 ] On October 10, 2013, the CRA received a package from Mr.

Kirby with a letter dated October 9, 2013. In the letter, counsel representing the respondents stated that no formal letter of intent was entered into between the Corporation and Abacus but that the transactions were described in a memorandum and diagrams provided by Abacus to the Corporation through their counsel in the Abacus memo. In his letter, Mr. Kirby stated that the Abacus memo was subject to SCP. [ 55 ] On December 17, 2013, an officer of the CRA attended at the offices of Felesky Flynn LLP to review documentation relating to the transactions.

During that meeting, further documents were provided to the CRA. The CRA was not, however, provided access to the Abacus memo. The CRA was advised that the respondents were claiming privilege over the Abacus memo. [ 56 ] During the course of the collections activity in respect of the respondents, the CRA also issued, on October 8, 2014, a requirement for information and documents pursuant to

section 231.2 of the Act to Abacus (the Abacus requirement). The Abacus memo has not been provided to the CRA. [ 57 ] In accordance with a direction of the Court dated May 27, 2016, the respondents filed with the Court the Abacus memo in a sealed envelope. The respondents have not waived CIP over the Abacus memo and do not consent to its disclosure to the applicant. III. Legislative Framework

[58] The legislative framework consisting of sections 231.2 and 231.7 of the Act is included as an Annex. IV. Issues [59] This application raises the following issues: 1. Is the Abacus memo prima facie, protected by SCP? 2. Was the Abacus memo protected by CIP in accordance with Pitney Bowes and its supporting jurisprudence? 3. Is CIP a valid constituent of SCP? V. Analysis A. Is the Abacus Memo Prima Facie Protected by Solicitor-client Privilege?

(1) The Law of SCP (

a) Onus of proof [60] In an application under

section 231.7 of the Act, once the applicant proves proper service of the requirements in compliance withsubsection 231.2(1), the onus shifts to the respondents to prove that the documents withheld are covered by privilege (Canada (NationalRevenue) v. Lee, 2015 FC 634, [2016] 1 C.T.C. 10, at paragraph 44). If satisfied, the onus then shifts to the applicant to prove thatprivilege has been waived or otherwise lost (Canada (National Revenue) v. Thornton, 2012 FC 1313, [2013] 1 C.T.C. 165, at paragraph26). (

b) Privilege only applies to legal advice, broadly understood [61] Legal advice (as opposed to business advice) provided orally or in writing by a lawyer to his or her client is privileged (R. v.Campbell, (SCC), [1999] 1 S.C.R. 565, at paragraph 50; Superior Plus Corp. v. The Queen, 2015 TCC 132, [2015] 5C.T.C. 2094, at paragraphs 38 and 46, affd 2015 FCA 241, [2016] 2 C.T.C. 64). In relation to the legal advice privilege (as opposed tobusiness advice), what matters is whether the lawyers are being asked qua lawyers to provide legal advice: Three Rivers District Council& Ors v.

Bank of England, [2004] UKHL 48 (BAILII), [2005] 1 A.C. 610, at paragraph 58 cited in Edward C Behague v. Revenue &Customs, [2013] UKFTT 596 (T.C.), at paragraph 21. [62] Moreover, “legal advice is not confined to telling the client the law; it must include advice as to what should prudently andsensibly be done in the relevant legal context” (Balabel v. Air India, [1988] Ch. 317 (C.A.), at page 330, cited with approval in BloodTribe v. Canada (Attorney General), 2010 ABCA 112 , 487 A.R. 71, at paragraph 26, itself cited with approval in Canada(Attorney General) v.

Slansky, 2013 FCA 199, [2015] 1 F.C.R. 81 (Slansky), at paragraph 77).

(2) The Abacus Memo is prima facie protected by SCP [63] The Minister advances two submissions that require consideration by the Court. The first is that tax planning communicationsare not privileged, including advice given by lawyers for accounting or tax planning purposes. On this point, the Minister cites thedecision of Mr. Justice Mosley in the matter of Canada (National Revenue) v. Revcon Oilfield Constructors Incorporated, 2015 FC 524,[2015] 5 C.T.C. 1 (Revcon), at paragraph 20.

Second, the applicant argues that the Abacus memo is not a legal communication becausethe lawyers involved were not engaged in providing legal advice or otherwise acting as lawyers, but rather negotiating a commercial deal.Thus, Mr. Nitikman was acting as a business counselor or in some non-legal capacity such that his advice was not protected by SCP:Canada (Privacy Commissioner) v.

Blood Tribe Department of Health, 2008 SCC 44, [2008] 2 S.C.R. 574 (Blood Tribe), at paragraph10. [64] With respect to the Revcon decision, in my view the passage referred to by the applicant for the notion that the tax planningadvice of lawyers is not privileged and does not represent Justice Mosley’s conclusion on the matter. This is clear at paragraphs 29–32 ofthe decision where the learned Judge concluded that a solicitor’s letter including “legal advice with regard to the income tax reportingrequirements and tax consequences of the transactions for named individuals” was privileged.

Moreover, in referring to tax planning,Justice Mosley was relying upon the decision of Madam Justice Heneghan in Belgravia Investments Limited v. Canada, 2002 FCT 649,[2002] 3 C.T.C. 482 (Belgravia). This decision concerned SCP for non-legal professional advisors. Also, paragraphs 45–48 in Belgraviareferred to in Revcon stand for the proposition that facts contained in a privileged document are not privileged from discovery. [65] I also cannot agree with the Minister’s submission that the Abacus memo prepared by Mr. Nitikman did not contain legal advicefor the parties to whom it was communicated.

Because of the nature of this issue, the Court exercised its discretion to review the memo.It had been provided in a sealed envelope in accordance with the Court’s direction. I concluded that it was necessary to review thedocument in order to adjudicate the existence of a privilege in accordance with the principles enunciated in Blood Tribe, at paragraph 17. [66] The memo described a number of discrete steps or transactions that would be necessary for the purchase and sale of IGHI sharesto Abacus. Each step comprised a diagram visually explaining the transaction.

Each diagram was accompanied by a detailed descriptionof the tax consequences in reference to relevant statutory and jurisprudential principles that were said to apply. While the diagramsdepicting the transactions might not be said to be privileged, I understand that this information is known to the Minister. I am satisfiedthat the essential nature of the memo is legal in nature. It describes the tax consequences based on an analysis of the applicable legalframework thought to apply resulting from the planned purchase and sale of the IGHI shares through each step of the transactionsmaking up the transaction.

There is no evidence that either lawyer is acting as a business counsellor or in some other non-legal capacity. [67] Of greater concern to the Court than the obvious legal nature of the Abacus memo is the manner by which the contents of thememo were compiled to form the legal opinions that it contains.

[68] In this sense, the facts of this case are distinguishable from the other cases in this area where the solicitor-client relationship wasclearly defined in the sense that the legal advice was sought by the client on a specific issue which ultimately was shared with the otherparties. In this case, the lawyers of both clients were working together to jointly arrive at an optimal tax reducing structure for thetransaction.

As such the Court concludes that the Abacus memo was the fruit of cooperative efforts of both lawyers who were highlyexperienced in the legal considerations of income tax and related commercial law subjects. The Court understands that it is in this sensethat the applicant argues that the circumstances are tantamount to the negotiation of a commercial contract, disguised as an exchange oflegal advice. [69] However, this does not mean that a business plan cooperatively arrived at based upon the consequences of implementingcounsels’ legal advice to achieve tax savings renders the memo a business record.

The content of the memo is almost exclusively advicedescribing the legal effects in terms of each step in the transaction. [70] I disagree that two parties mandating their lawyers to work together on behalf of both clients to find a “business solution” to theirmutual advantage, but based upon the consequences of implementing their legal advice on the specific issue of tax savings, renders thefruit of their labour a mere business record as argued by the applicant, given the almost exclusive legal content of the memo.

I also donot find that the memo is a business record because the parties’ lawyers worked together at each step of the transaction to work outsolutions based on legal conclusions. Similarly, the memo remains essentially legal advice for their respective clients even though theparties were required to cooperate to implement the overall tax plan to reduce taxes. [71] Whatever issues arise out of the two parties working jointly by means of bi-directional communication of legal advice is a matterfor analysis under the doctrine of CIP.

The respondents argue that courts place the doctrine of SCP on a pedestal, requiring an almostabsolute protection, as is most convincingly described by Madam Justice Trudel speaking for the Federal Court of Appeal in Thompsonv. Canada (National Revenue), 2013 FCA 197, 366 D.L.R. (4th) 169, at paragraphs 34–37: Solicitor-client privilege is one of the most revered doctrines under the common law, described by the Supreme Court of Canada as “oneof the most ancient and powerful privileges known to our jurisprudence”. It is generally seen as a “fundamental and substantive rule oflaw”: R. v.

National Post, 2010 SCC 16, [2010] 1 S.C.R. 477 at paragraph 39, quoting R. v. McClure, 2001 SCC 14 , [2001] 1 S.C.R. 445 [McClure] discussed by Professor Adam Dodek in “Solicitor-Client Privilege in Canada, Challenges for the 21st Century”(Discussion Paper for the Canadian Bar Association, February 2011). In McClure at paragraph 35, Major J. wrote: … solicitor-client privilege must be as close to absolute as possible to ensure public confidence and retain relevance. As such, it will onlyyield in certain clearly defined circumstances, and does not involve a balancing of interests on a case-by-case basis.

Court reiterated this position in Lavallee, adding: Accordingly, this Court is compelled in my view to adopt stringent norms to ensure its protection (at paragraph 36). More recently, the Supreme Court stated as follows in R. v. Cunningham, 2010 SCC 10, [2010] 1 S.C.R. 331 [Cunningham], atparagraph 26: … It need hardly be said that solicitor-client privilege is a fundamental tenet of our legal system.

The solicitor-client relationship isintegral to the administration of justice; privilege encourages the free and full disclosure by the client required to ensure effective legalrepresentation. [72] I conclude, therefore, that the memo is legal advice provided by the lawyers to their clients in the strictest confidence andprotected from disclosure under SCP subject to whether the privilege has been waived or is protected by CIP. B. Is the Abacus Memo Protected by Common Interest Privilege?

(1) The Law of CIP [73] A good description of the common interest doctrine is found in the decision of Shipyard Associates, LP v. City of Hoboken, 2015WL 4623470, at *6 (D. New Jersey) (Shipyard Associates) cited by the respondents where the Court described it as follows [at page 11]: The common-interest, or community-of-interest, doctrine allows “attorneys representing different clients with similar legal interests toshare information without having to disclose it to others.” In re Teleglobe Commc’ns Corp., 493 F. 3d 345, 364 (3d Cir. 2007) (emphasisadded).

If applicable, the doctrine protects communications “made between attorneys when all members of the community share a‘common legal interest’ in the shared communication.” Id. at 364 (emphasis added). [74] An important requirement in the application of CIP to transactional circumstances is its evolution from litigation-relatedsituations. The decision In re Teleglobe Communications Corp., 493 F. 3d 345 (3d Cir. 2007) (Teleglobe), at pages 363 and 364 is mostcommonly cited to describe the expansion from litigation circumstances to include commercial transactions as follows: 2.

The Community-of-Interest (or Common-Interest) Privilege Recognizing that it is often preferable for co-defendants represented by different attorneys in criminal proceedings to coordinate theirdefense, courts developed the joint-defense privilege. In its original form, it allowed the attorneys of criminal co-defendants to shareconfidential information about defense strategies without waiving the privilege as against third parties. Moreover, one co-defendantcould not waive the privilege that attached to the shared information without the consent of all others.

Later, courts replaced the joint-defense privilege, which only applied to criminal co-defendants, with a broader one that protects all communications shared within aproper “community of interest,” whether the context be criminal or civil…. Thus, the community-of-interest privilege allows attorneysrepresenting different clients with similar legal interests to share information without having to disclose it to others. It applies in civil and

criminal litigation, and even in purely transactional contexts. [Emphasis added; footnotes omitted.] (

a) Common legal interest [75] The common interest essential to the doctrine of CIP in a commercial transaction context is said to be that of having thetransaction concluded, which also is the foundation for the economic and social values said to rationalize its recognition. This can beseen in this more extensive quote from Pitney Bowes, at paragraphs 16 and 17: Other courts have addressed this issue and have concluded that Buttes applies when parties to a commercial transaction share legalopinions with one another. Of the cases cited to me, Fraser Milner Casgrain LLP v.

Canada (Minister of National Revenue), 2002BCSC 1344 , [2002] B.C.J No. 2146, is closest to the circumstances before me. There, the respondent sought production of anumber of documents relating to the creation of certain business partnerships. The documents in issue included legal advice that wasprepared for one group of companies and then shared with other corporate parties to the proposed transaction. In the course of hisreasons, Lowry J. summarized in the following terms the other recent cases in the area, all of which were cited to me (Archean EnergyLtd. v.

Canada (Minister of National Revenue) (1997), 98 D.T.C. 6456 (Alta. Q.B.), [1997] A.J. No. 347 (QL); Anderson ExplorationLtd. v. Pan Alberta Gas Ltd., [1988] 10 W.W.R. 633 (Alta. Q.B.) and St. Joseph Corp. v. Canada (Public Works and GovernmentServices), 2002 FCT 274, [2002] F.C.J. No. 361 (QL) (T.D.): In Archean Energy, legal opinions concerning the tax consequences of a number of share purchases were developed for one companywhich subsequently provided them to a second company, the purchaser in the transactions.

The opinions were held, on application by thepurchaser under the Income Tax Act, to be privileged because they had been provided to further the common interest of having thetransaction concluded and not with the intent of waiving the privilege attached. In Anderson Exploration, two corporations exchangedconfidential documents of a proprietary nature in negotiating a merger. A legal opinion obtained by one was also given to the other.Later, in unrelated litigation involving a subsidiary of one of the corporations, the plaintiff sought access to the documents arising fromthe merger negotiations.

The court held that the disclosure of the documents to third parties did not waive the privilege that attached toall of the documentation because of the common interest associated with their disclosure. And in St. Joseph, legal opinions exchanged inthe course of a commercial transaction were held to be privileged given that the parties had a joint interest in ensuring its completion (atpara. 8).

In the result, Lowry J. held that besides the common interest litigation privilege recognized in Buttes, the courts should also recognizeanother kind of common interest privilege: one based on “the parties’ common interest in the successful completion of a transaction” at(para. 12). He found that “economic and social values inherent in fostering commercial transactions” favoured the recognition of such aprivilege.

It is that kind of privilege that he applied to the circumstances before him. [Emphasis added.] [76] At this point, it is important to understand that Pitney Bowes was a JCP case, although not recognized as such by the Court.

Allthe parties had decided to retain the services of the same lawyer, who however delivered two opinions, as set out at paragraph 4 of thedecision, as follows: The parties to the leasing transaction agreed that, where multiple parties needed legal advice in areas where their interests were notadverse, they would all obtain advice from one legal counsel, regardless of the general legal representation in the transaction. Inparticular, Clifford Chance of the UK provided two opinions on United Kingdom law, both dated December 12, 1997: one addressedsolely to Pitney Bowes, and the other addressed jointly to N.S.

Group and Royal Bank. It is these two opinions that are the subject of thisapplication. [Emphasis added.] [77] Although two separate opinions were delivered to different clients, the facts indicate that this was a joint retainer of one lawyer toprovide opinions that it was understood would be shared amongst them. If this was not a joint retainer, Mr. Chance could not ethicallyhave represented all the parties in providing the opinion. The Court finds this case to be one pertaining to a joint client privilege, asopposed to a SCP, with the difference not apparently recognized by the Court.

Although the opinions were prepared for different clients,they were done so with the intention of being shared. As the court stated at paragraph 22, “[t]he opinions were prepared with distributionin mind.” The joint client relationship has always been considered to comply with SCP doctrine, as shall be discussed below. It should berecognized however, that prior to Professor Giesel’s

article the implications of common interests in JCP being distinguished from thosein CIP were not recognized in the CIP jurisprudence. This conclusion is similarly apparent from the respondents’ initial reliance on JCPcases to support CIP. (

b) Expectation Interest as a Rationale for CIP [78] Another rationale advanced to support advisory CIP is that of an “expectation interest”. It too was relied upon in Pitney Bowes, asis evident from paragraphs 18 and 20: As mentioned above, in these kinds of cases the real issue is whether the privilege that would originally apply to the documents indispute has somehow been lost - through waiver, disclosure or otherwise.

This is a question of fact that will turn on a number of factors,including the expectations of the parties and the nature of the disclosure…. … Still, in many commercial transactions, the parties will want to negotiate on the footing of a shared understanding of each other’s legalposition. They will seek legal advice from reputable solicitors whose opinions will be respected by the other parties. Indeed, thesolicitors may represent more than one party to the deal.

The sharing of legal opinions will ensure that each party has an appreciation ofthe legal position of the others and negotiations can proceed in an informed and open way. The advice may be provided for one or moreparty on the understanding that others should be provided copies. The expectation, whether express or implied, will be that the opinionsare in aid of the completion of the transaction and, in that sense, are for the benefit of all parties to it.

Such circumstances, in my view,create a presumption that the privilege attaching to the solicitor-client communications remains intact notwithstanding that they havebeen disclosed to other parties. [Emphasis added.]

[ 79 ] Again, the distinguishing facts are important in supporting Justice O’Reilly’s reasoning. If all the parties hired the same lawyer creating a joint solicitor-client relationship, the expectation interest is most certainly that of sharing the opinions amongst the allied lawyers. I expect it was likely required in the lawyer’s retainer, or that he would have been aware of the parties’ intentions to do so. This is an expectation that was likely a duty therefore, as a term of the parties’ agreement to “all obtain advice from one legal counsel” [at paragraph 4]. (

c) Other Facets of Advisory CIP Doctrine [ 80 ] Advisory CIP does not require that there be an agreement in writing to create it ( Sable Offshore Energy Project v. Ameron International Corporation , 2015 NSCA 8 , 354 N.S.R. (2d) 333, at paragraph 68 ). Considering its scope of application, CIP will extend protection to all parties, including accountants and other professionals, who were within the umbrella of the confidentiality that the parties intended to create as against third parties ( Canada (Minister of National Revenue) v. Welton Parent Inc. , 2006 FC 67 , [2006] 2 C.T.C. 177, at paragraph 67 ).

This is an important consideration when assessing the scope of the communications that advisory CIP protects.

(2) The Abacus Memo is protected by CIP in accordance with Pitney Bowes [ 81 ] The parties’ actions are consistent with the basis of CIP relating to the creation of certain business partnerships as described in the reasoning in Pitney Bowes . Abacus and IGHI clearly agreed that no waiver of privilege would arise from their lawyers trading the legal opinions and views forming the memo. The memo reflected the work of the parties in arriving at a structure of the transaction intended to minimize tax exposure and was obviously to the mutual benefit of both parties.

The respondents argue that this in fact was the basis for their business deal, as there was no negotiation on the price or number of shares etc. As well, the memo contained a statement that the CRA might seek disclosure of the memo, but that its protection by CIP was a condition of its exchange between the parties. (

a) The parties are not adverse in interest regarding the common interest [ 82 ] The Minister argued that the parties were adverse in their legal interests, each being on the other side of a purchase and sale arrangement. For that reason, a common interest of the parties in the negotiation and closing of the commercial transaction would not provide a common legal interest as a basis for sharing privileged information without being seen as waiving the privilege. [ 83 ] I do not agree with this submission.

While it is true that the parties to a purchase and sale agreement are generally adverse in interest, when they are working cooperatively to reduce taxes payable on the sale of shares, the two parties share a common interest with regard to that legal issue. The Abacus memo related only to that issue because legal opinions drove the transaction. This is similar to the facts in Pitney Bowes , where at paragraph 4 it was noted that “multiple parties needed legal advice in areas where their interests were not adverse” and for the goal of “[h]aving the transaction concluded” [at paragraph 16]. (

b) The common interest is a “legal concern” [ 84 ] The applicant argued that the Court should adopt the American approach, by which the common interest must be a “legal concern”. The Minister submitted that Abacus and IGHI essentially share only “common commercial interest in closing the deal” and that the interest is not therefore essentially legal. [ 85 ] Given my preceding remarks, I disagree with the factual foundation for this argument.

But even so, I am satisfied that the American case law cited by the applicant supports the application of the CIP doctrine in this matter. [ 86 ] In the decision of Bank Brussels Lambert , the United States District Court for the Southern District of New York concluded at pages 446 and 447 that the doctrine applied to situations where parties are represented by separate counsel but engage in a common legal enterprise.

The Court [in Bank Brussels Lambert ] used the example of a situation “‘where a joint defense effort or strategy has been decided upon and undertaken by the parties and their respective counsel’”, but distinguished the situation because litigation was not anticipated. Given that the applicant accepted that Teleglobe appears to represent the law in Canada, that applied CIP beyond litigation- related contexts, the ratio of the Bank Brussels Lambert is not applicable in Canada.

This is the first Canadian decision that concludes that CIP should be limited to litigation-related matters. [ 87 ] In any event, the Court [in Bank Brussels Lambert ] discussed what it considered the more “troublesom

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