I think it’s appropriate to start this article with a riddle: what do the Income Tax Act (Canada), labour organizations, and the concept of solicitor-client privilege have in common? Answer: very little prior to Bill C-377, a bill which may have serious ramifications with respect to solicitor-client privilege.
On March 13, 2012, private members Bill C-377 “An Act to amend the Income Tax Act (requirements for labour organizations)” passed Second Reading in the House of Commons and was referred to the Standing Committee on Finance for further study. As can be inferred from its title, Bill C-377 is a proposed amendment to the Income Tax Act (Canada).
Why use the Income Tax Act?
Astute readers familiar with the divide between federal and provincial powers under subsections 91(1) and (2) of the Constitution Act, 1867, will know that trade unions are generally regulated provincially (absent certain federal exceptions), a point that has been affirmed by the highest courts. The use of the Income Tax Act (Canada) is arguably a clever piece of political gamesmanship to federally regulate (or influence) something that is primarily within the provincial sphere of jurisdiction. By amending the Income Tax Act (Canada), Bill C-377 would require unions to comply with certain federal disclosure requirements, an outcome that Parliament would be otherwise unable to achieve.
What does the bill do?
In broad terms, Bill C-377 would require labour organizations to file regular and detailed statements of their finances which would be available to the general public. The central rationale underlying Bill C-377 is that unions receive generous tax treatment under the Income Tax Act (Canada), and as such, should account for their use of the funds they collect from their members. In response, critics of the bill have argued: (i) unions are democratic, self-regulating entities, who answer to their members; (ii) they currently comply with a host of reporting obligations to the Canada Revenue Agency (“CRA”) and provincial regulators, and, (iii) union members have access to audited statements, which is sufficient. Those are the battle lines that have been drawn to fight the policy war concerning the degree to which unions should disclose financial information.
It could be that the fate of Bill C-377 may be decided based on the above-noted arguments. However, I believe that Bill C-377 raises an additional issue which is more fundamental. I believe it would be a grave error to assess the potential impact of Bill C-377 without considering its potential impact on solicitor-client privilege, a fundamental pillar of our system of justice as will be seen below.
Bill C-377, as currently drafted, amends clause 149.01(3)(xix) of the Income Tax Act so as to require labour organizations to file “public information returns” including “a statement of disbursements on legal activities” for all amounts over $5,000. While the extent of the requirement to file public “statements of disbursements” has not yet been made clear, this requirement could potentially breach solicitor-client privilege.
An overview of solicitor-client privilege
There are two distinct branches of solicitor-client privilege: the legal advice privilege and the litigation privilege (often referred to as the lawyers' brief privilege). The legal advice privilege encompasses all communications (whether written or oral) between lawyer and client for the purpose of obtaining legal advice. Litigation privilege, by contrast, protects from disclosure communications between a lawyer and a client (and potentially communications with third parties in some instances) where the communications are made in the course of preparation for litigation.
Solicitor-client privilege is recognized as one of the cornerstones of an effective judicial system. To this end, Canadian courts have entrenched the importance of this principle. In 1979, Justice Dickson (as he then was) held that solicitor-client privilege is a “fundamental civil and legal right”. In R. v. McClure, the Court went even further, holding that solicitor-client privilege is a principle of fundamental justice and hinted that it might be protected under section 7 of the Canadian Charter of Rights and Freedoms (the “Charter”).
The connection between Bill C-377 and solicitor-client privilege
In light of the above, it’s clear that solicitor-client privilege is critically important to our judicial system and, arguably, a constitutionally protected right under the Charter. Absent the utilization of the notwithstanding clause (section 33 of the Charter which permits Parliament to pass legislation which overrides the Charter), Bill-C377 could be found to be unconstitutional if it infringed upon solicitor-client privilege.
Bill-C377 requires the filing of a public information return for all disbursements of legal activities. The question is whether a mere invoice from a lawyer is covered by solicitor-client privilege. Further, the more information the ‘public information return’ requires labour organizations to provide, the greater the potential breach of solicitor-client privilege.
Privacy commissioners have held that invoices and accounts from a lawyer to his or her client are entitled to solicitor-client privilege in certain instances (decisive rulings have been authored both for and against the proposition of solicitor-client privilege applying to an invoice). While there is a test that must be applied in every instance, for the purpose of this article it is sufficient to note that legal accounts relating in a tangible and direct way to the seeking, formulating or provision of legal advice may well be protected by way of solicitor-client privilege.
Bill C-377, as currently drafted, could potentially force unions to abandon solicitor-client privilege by disclosing invoices from legal counsel, and as such, may be attacked as being unconstitutional. While this issue is germane to labour organizations, it should also be appreciated in the wider context: solicitor-client privilege is a critical underpinning of our judicial system and should be properly protected as such. Any law that could weaken this concept should be carefully weighed and reviewed.
Colin Green is an Associate at BrazeauSeller.LLP. Colin specializes in Tax & Estate Planning, but also practices in the areas of Corporate & Commercial Law and Family Business. To learn more about Colin, visit www.brazeauseller.com. Colin can be reached at email@example.com or 613-237-4000 ext. 227.
 Solosky v. The Queen (1979),  1 S.C.R. 821 at 839.
  1 S.C.R. 445.