Federal Court Decisions

     T-1071-96

Between:

     DELOITTE & TOUCHE INC.,

     The Trustee of the Estate of Vancouver

     Trade Mart Inc., a bankrupt,

     Applicant,

     - and -

     ATTORNEY GENERAL OF CANADA

     representing the MINISTER OF NATIONAL REVENUE,

     Respondents.

         REASONS FOR ORDER

NADON, J.

INTRODUCTION:

     The Applicant, a trustee in bankruptcy, seeks to set aside a decision of the Minister of National Revenue (the "Minister") requiring him to provide documents, pursuant to section 231.2 of the Income Tax Act (Canada) (the "Act").

     Specifically, the Applicant received a letter dated April 10, 1996 from the Director of Taxation, Vancouver Tax Services, requiring him to produce certain documents, namely his working papers and account analyses relating to a bankrupt company and its shareholders.

     The letter dated April 10, 1996 is as follows:

For purposes related to the administration or enforcement of the Income Tax Act, pursuant to the provisions of Section 231.2 of the said Act, I hereby require from you within thirty (30) days from the date of service hereof:

All your working papers and your account analyses relating to each of Vancouver Trade Mart Inc., Mr. George Lee (aka Heng-Loung George Lee), Mrs. Julie Lee, Mr. Edward J. Lee and Mr. Irwin J. Lee, for the period January 1, 1989 to December 31, 1995.

The required working papers and account analyses are to include:

1.      Shareholders" accounts.

2.      Accounts Payable including payables to sub-trades and related companies.

3.      Building construction cost.

4.      Intercompany accounts.

5.      Disbursement of loan proceeds.

6.      Disbursement analysis prior to bankruptcy.

To comply with this notice, you should provide the working papers and account analyses required to Peter Ling of this Department who may be contacted at 691-3666 to arrange for attendance at your office for that purpose.

FACTS:

     I begin with the relevant facts. The Applicant is the trustee of the estate of a bankrupt company, Vancouver Trade Mart Inc. ("VTM"). On December 1, 1994 a judgment creditor filed a petition before the Supreme Court of British Columbia seeking a Receiving Order against VTM. On January 13, 1995 VTM filed a Notice of Intention to make a proposal pursuant to Part III, Division 1 of the Bankruptcy and Insolvency Act (the "Bankruptcy Act"). The Applicant agreed to act as trustee under the proposal and appointed Mr. Colin Topley to act on its behalf in the matter. Mr. Topley, a senior vice-president of the Applicant, was, at all material times herein, a licensed trustee in bankruptcy, a certified general accountant and a certified fraud examiner.

     On March 13, 1995, VTM filed its proposal to creditors. The Applicant was named as trustee in the proposal. The first meeting of VTM"s creditors took place on April 3, 1995. The meeting was adjourned to April 19, 1995 at which time the creditors rejected VTM"s proposal. Thus, VTM"s assignment into bankruptcy was deemed effective as of December 1, 1994. Also on April 19, 1995 the Applicant was confirmed as trustee to the bankruptcy of VTM.

    

     At all material times herein, VTM had been controlled by George and Julie Lee and their children, Edward and Irwin Lee. As of April 19, 1995, the Department of National Revenue began a full audit of VTM, which included a review of VTM"s shareholders and related companies.

     The auditor assigned to this audit was Mr. Peter Ling. In the course of performing his audit, Mr. Ling contacted George Lee who informed him that all of VTM"s books and records were in the possession of the Applicant. Mr. Ling contacted the Applicant and, on May 10, 1995 he was allowed to review a certain number of VTM"s documents, namely bank statements, cancelled cheques, supplier"s invoices, financial statements, etc.

     During the course of reviewing the aforesaid documents, Mr. Ling was informed by representatives of the Applicant that they had conducted their own audit of VTM and that they had noticed "irregularities" between VTM and its shareholders. Mr. Ling stated in his affidavit that the Applicant "suspected that George Lee had appropriated VTM funds for his personal use".

     Mr. Ling, following the receipt of this information, requested that the Applicant provide him with its working papers "including year-end adjusting journal entries, working trial balances, shareholders" account analyses and other account analyses done by VTM"s previous accountants". In October 1995, Mr. Ling was permitted by the Applicant to review VTM"s former accountant"s working papers. On October 26, 1995, Mr. Ling was allowed to make photocopies of the accountant"s working papers, including the year-end adjusting journal entries, the journal ledger, general ledger listings and all trial balances pertaining to VTM.

     At the end of October 1995, Mr. Ling wrote to the Applicant requesting that he be allowed to review its account analyses of the bankrupt company, including its analyses of the shareholder accounts. At the end of November 1995 the Applicant advised Mr. Ling that it would not comply with his request. For the present purposes, paragraphs 31, 32 and 33 of Mr. Ling"s affidavit dated June 1996 are relevant:

31.      Specifically, the purpose of examining that part of the Forensic Audit which includes an account analysis relating to VTM, George Lee, Julie Lee, Edward Lee and Irwin Lee for the period January 1, 1989 to December 31, 1995 is to determine whether any of those persons have misused or appropriated funds from VTM, directly or indirectly, and if so, to determine if assessments should be issued against them for example, but not restricted to the provisions of sections 15, 56 and 160 of the Income Tax Act.

32.      If I am provided with the required parts of the Forensic Audit as specified in the Requirement Notice dated April 10, 1996, then I will not have to duplicate the same audit exercise already performed by Colin Topley or Deloitte & Touche Inc. as trustee for VTM.

33.      I require those parts of the Forensic Audit of Colin Topley relating to VTM, George Lee, Julie Lee, Edward Lee and Irwin Lee, for the period January 1, 1989 to December 31, 1995 for purposes related to the administration and enforcement of the Income Tax Act and for no other purpose.

     As it appears from Mr. Ling"s statements, he seeks the Applicant"s papers for the purpose of completing his audit of George, Julie, Edward and Irwin Lee for the period of January 1, 1989 to December 31, 1995.

LEGISLATION:

     The Minister"s request for the Applicant"s working papers and account analyses stems from section 231.2(1) of the Act which provides:

231.2 (1) Notwithstanding any other provision of this Act, the Minister may, subject to subsection (2), for any purpose related to the administration or enforcement of this Act, by notice served personally or by registered or certified mail, require that any person provide, within such reasonable time as is stipulated in the notice,

(a)      any information or additional information, including a return of income or a supplementary return; or

(b)      any document.

     Also of relevance, is the definition of the word "documents" which appears in section 231 of the Act. "Documents", is defined as follows:

"documents" includes money, securities and any of the following, whether computerized or not: books, records, letters, telegrams, vouchers, invoices, accounts and statements (financial or otherwise);

ISSUES:

     The issues raised by the Applicant, as they appear from the grounds set forth in the Originating Notice of Motion, are:

1.      The correct construction of section 231.2 of the Income Tax Act does not entitle the Minister of National Revenue to require production of the work product including working papers and account analyses of a forensic accountant.

2.      Section 231.2 of the Income Tax Act does not entitle the Minister of National Revenue to require production from a Trustee in Bankruptcy of his working papers and account analyses generated as part of the Trustee"s administration of the bankrupt"s estate and with a view to obtaining legal advice with respect to the realization of the bankrupt"s assets.

3.      Section 231.2 of the Income Tax Act should not be interpreted so as to allow the Minister of National Revenue to obtain the working papers and accounts analyses of a Trustee in Bankruptcy when the Minister of National Revenue is in competition with the Trustee for monies in the hands of third parties.

4.      The Requirement names Vancouver Trade Mart Inc. the bankrupt and George Lee, Mrs. Julie Lee, Mr. Edward J. Lee and Mr. Irwin J. Lee. No bona fide investigation of the tax liability of these individuals is being carried out by the Minister of National Revenue.

5.      The interpretation of section 231.2 of the Income Tax Act argued by the Respondent would render section 231.2 to be of no force and effect because it justifies an unreasonable search contrary to section 8 of the Charter of Rights and Freedoms.

     By the time this matter came up for hearing, the Applicant had abandoned the fourth ground. Thus, only grounds 1, 2, 3 and 5 remain for adjudication.

ANALYSIS:

     I will begin my analysis with the fifth ground to the effect that the Minister"s interpretation of section 231.2(1) of the Act amounts to the justification of an unreasonable search, contrary to section 8 of the Charter of Rights and Freedoms (the "Charter"). I cannot agree.

     Both sides relied on the Supreme Court of Canada"s decision in McKinlay Transport Ltd. v. The Queen, [1990] 1 S.C.R. 627. On the one hand, the Applicant submits that, contrary to the taxpayer"s position in McKinlay , the Applicant herein has "high expectations of privacy". In the Applicant"s submission, this distinguishes the facts of the present case from those in McKinlay . Consequently, according to the Applicant, if the documents requested by the Minister have to be produced, this will constitute an unreasonable seizure, and thus a breach of section 8 of the Charter.

     On the other hand, the Respondent submits that there is nothing in the record to distinguish between this case and McKinlay. In the Respondent"s submission, the reasoning of Wilson J., who delivered the reasons of the majority of the Supreme Court in McKinlay , is applicable to the facts of the present case. As both sides refer essentially to the same passage from Wilson J."s reasons, I will quote these reasons. At page 642, Madam Justice Wilson states:

... First, s. 231(3), even construed narrowly in accordance with prior authority, envisages the compelled production of a wide array of documents and not simply those which the state requires the taxpayer to prepare and maintain under the legislation. Second, the legislation contemplates that parties who are not the subject of an investigation or audit can be compelled to produce documents relating to another taxpayer who is the subject of such investigation or audit. Thus, compelled production reaches beyond the strict filing and maintenance requirements of the Act and may well extend to information and documents in which the taxpayer has a privacy interest in need of protection under s. 8 of the Charter although it may not be as vital an interest as that obtaining in a criminal or a quasi-criminal context. I would therefore conclude that the application of s. 231(3) of the Income Tax Act to the appellants constitutes a "seizure" since it infringes on their expectations of privacy. It remains to be determined, however, whether the state"s intrusion on that privacy interest is unreasonable or, to put it another way, whether it violates the taxpayers" reasonable expectation of privacy.

And at pages 648, 649 and 650:

At the beginning of my analysis I noted that the Income Tax Act was based on the principle of self-reporting and self-assessment. The Act could have provided that each taxpayer submit all his or her records to the Minister and his officials so that they might make the calculations necessary for determining each person"s taxable income. The legislation does not so provide, no doubt because it would be extremely expensive and cumbersome to operate such a system. However, a self-reporting system has its drawbacks. Chief among these is that it depends for its success upon the taxpayers" honesty and integrity in preparing their returns. While most taxpayers undoubtedly respect and comply with the system, the facts of life are that certain persons will attempt to take advantage of the system and avoid their full tax liability.

Accordingly, the Minister of National Revenue must be given broad powers in supervising this regulatory scheme to audit taxpayers" returns and inspect all records which may be relevant to the preparation of these returns. The Minister must be capable of exercising these powers whether or not he has reasonable grounds for believing that a particular taxpayer has breached the Act. ... A spot check or a system of random monitoring may be the only way in which the integrity of the tax system can be maintained. If this is the case, and I believe that it is, then it is evident that the Hunter criteria are ill-suited to determine whether a seizure under s.231(3) of the Income Tax Act is reasonable. The regulatory nature of the legislation and the scheme enacted require otherwise. The need for random monitoring is incompatible with the requirement in Hunter that the person seeking authorization for a search or seizure have reasonable and probable grounds, established under oath, to believe that an offence has been committed. ...

This is not to say that any and all forms of search and seizure under the Income Tax Act are valid. The state interest in monitoring compliance with the legislation must be weighed against and individual"s privacy interest. The greater the intrusion into the privacy interests of an individual, the more likely it will be that safeguards akin to those in Hunter will be required. Thus, when the tax officials seek entry onto the private property of an individual to conduct a search or seizure, the intrusion is much greater than a mere demand for production of documents. The reason for this is that, while a taxpayer may have little expectation of privacy in relation to his business records relevant to the determination of his tax liability, he has a significant privacy interest in the inviolability of his home.

In my opinion, s. 231(3) provides the least intrusive means by which effective monitoring of compliance with the Income Tax Act can be effected. It involves no invasion of a taxpayer"s home or business premises. It simply calls for the production of records which may be relevant to the filing of an income tax return. A taxpayer"s privacy interest with regard to these documents vis-a-vis the Minister is relatively low. The Minister has no way of knowing whether certain records are relevant until he has had an opportunity to examine them. At the same time, the taxpayer"s privacy interest is protected as much as possible since s. 241 of the Act protects the taxpayer from disclosure of his records or the information contained therein to other persons or agencies.

     I agree with the Respondent that there is no distinction to be made. Consequently, the Minister"s request for documents under section 231.2(1) of the Act does not, in my view, constitute an unreasonable seizure. The Respondent submits that the Applicant"s "own reasonable expectation of privacy has not been infringed, and neither has the creditors". I agree. The purpose of section 8 of the Charter is to prevent the state from intruding "unwarrantedly" into the affairs of individuals. That is certainly not the case here.

     The Applicant argued that it had a very high expectation of privacy "respecting its work product, working papers and account analyses that are confidential documents to be used by the trustee in the administration of the bankrupt estate". Unfortunately, the Applicant has not been able to persuade me that there is such a "very high expectation of privacy" as concerns its work as trustee of a bankrupt estate.

     I am therefore of the view that the applicant cannot succeed on the fifth ground.

     With respect to the other grounds, counsel for the Applicant regrouped them into two issues:

1.      the correct construction of section 231.2(1) of the Income Tax Act does not require a Trustee in Bankruptcy to produce to the Department of National Revenue Taxation the work product including working papers and account analyses generated as part of the Trustees administration [sic] of the Bankrupt Estate pursuant to his appointment under the Bankruptcy and Insolvency Act.

2.      The working papers and account analyses generated as part of the Trustee"s administration of the Bankrupt Estate and with a view to obtaining legal advice with respect to the realization of the Bankrupt"s assets are all subject to solicitor/client privilege and as such not producible on service of a Requirement under section 231.2(1) of the Income Tax Act .

     With respect to the first issue, counsel for the Applicant advanced four reasons why section 231.2 of the Income Tax Act "should not be construed to include the trustee"s working papers and account analyses". The four reasons advanced by counsel are the following:

(a)      to construe it as including the work product of the Trustee developed during the administration of the Estate would authorize a warrantless search, contrary to Section 8 of the Charter of Rights and Freedoms;

(b)      the construction including a Requirement to produce the Trustee"s work product will produce a conflict between the provisions of two Federal statutes, namely the Bankruptcy and Insolvency Act and the Income Tax Act. There is a presumption of coherence and consistency between the entire body of statute law of the Parliament of Canada;

(c)      a construction that would include the Trustee"s work product would produce an absurd result, contrary to reasonableness, common sense and logic;

(d)      such a construction constitutes an expropriation without compensation and due process of the property of the Applicant, contrary to the presumption against this.

     I have already dealt with the first reason which is, in effect, the fifth ground of the Originating Notice of Motion.

     The second reason advanced by the Applicant is that the Minister"s interpretation of section 231.1(1) of the Act creates a conflict between the Act and the Bankruptcy Act . After due consideration of the Applicant"s written and oral arguments, I am at a loss to understand what conflict would be created by requiring the Applicant to produce the documents which the Minister requires. I agree entirely with the Respondent"s position on this issue. I adopt, for the present purposes, the statement which appears at paragraph 75 of the Respondent"s brief. It reads as follows:

No conflict is created between the Income Tax Act and the Bankruptcy and Insolvency Act by the application of Section 231.2(1). All that Section 231.2(1) does is oblige the Applicant to provide information for the enforcement of a regulatory Statute, it does not impair his ability to act as a trustee. Producing the documents in question in this case will not affect the creditors legal rights in any way. The trustee is still free to institute legal proceedings on behalf of the general creditors if that is in the best interests of the bankrupt estate. In short, the trustee can comply with the Income Tax Act in this case without breaching any portion of the Bankruptcy and Insolvency Act.

     Contrary to what the Applicant asserts, it does not necessarily follow that because the Minister will have access to Mr. Topley"s working papers and account analyses, the creditors of the bankrupt estate will be prejudiced. At the end of the day, the bankruptcy court will have to decide, if called upon, whether payments made by VTM to its shareholders are void. If void, the funds will revert to the bankrupt estate and thus, in all likelihood, no tax liability will have been created as far as the shareholders are concerned.

     As a last argument on this point, the Applicant submits that to allow the Minister to obtain the Applicant"s working papers "to defeat the claims of the trustee in bankruptcy would clearly produce an incoherence that the Parliament of Canada could never have intended". The fact that section 231.2(1) of the Act may allow the Minister to obtain Mr. Topley"s working papers does not, in my view, create the incoherence which, the Applicant submits, Parliament could not have intended.

     Section 231.2(1) of the Act simply allows the Minister, in proper circumstances, to obtain production of relevant information and documents so as to properly administer and enforce the provisions of the Income Tax Act. The Applicant fails on this point.

     The third reason advanced by the Applicant is that, should it be compelled to produce its work papers and account analyses, an absurd result would be reached "contrary to reasonableness, common sense and logic". I have not been persuaded that the interpretation which the Minister has adopted leads to either an absurd result or is contrary to reasonableness, common sense and logic.

     The next reason advanced by the Applicant is that the Minister"s interpretation of section 231.2(1) of the Act leads to "expropriation without compensation and due process" of his property. Relying on the Federal Court of Appeal"s decision in La Ferme Filiber Ltee. v. The Queen , [1980] 1 F.C. 128, the Respondent argues that the requirement under section 231.2(1) of the Act does not constitute and cannot constitute expropriation. At page 130 of the report of La Ferme, Marceau J. states:

An expropriation implies dispossession of the expropriated party and appropriation by the expropriating party; it necessarily requires a transfer of property or rights from one party to the other. There is nothing of that kind here. Defendant has not acquired anything belonging to plaintiff.

     ...

If the legal proposition on which this action is based were to be admitted, and the adoption or amendment of a regulation such as that in question here were to be regarded as constituting a disguised act of expropriation with respect to anyone whose commercial activities were interfered with thereby, it is easy to imagine the proliferation of claims that would follow. There is no doubt that the establishment or amendment of a regulation of this kind may create extremely unfortunate situations, and the action appears to provide a striking example of this. If however, in such special cases, the government has not made any exceptional provision for the payment of compensation, there is no legal principle I know of which can force it to do so.

     I agree with Marceau J., as I must, that, for there to be an expropriation, there necessarily must occur a transfer of property or rights from one party to the other. That is not the case in the present matter. I should mention that during the hearing counsel for the Applicant, rightly in my view, conceded that the expropriation point must fail.

     I will now address the second issue raised by the Applicant. The Applicant submits that its working papers and account analyses are subject to a solicitor/client privilege and that, consequently, it cannot be compelled to produce what the Minister has required it to produce under section 231.2(1) of the Act.

     The Applicant"s submission is that Mr. Topley"s review of VTM"s pre-proposal transactions was commenced in order to submit the work to legal counsel for the purpose of an opinion regarding the advisability of legal proceedings. Consequently, the Applicant argues that all of the work performed in relation to pre-proposal transactions is subject to a solicitor/client privilege and thus that the Minister cannot compel the production of these documents. Once again, I cannot agree with the position taken by the Applicant.

     In Susan Hosiery Ltd. v. Minister of National Revenue, (1969) 69 D.T.C. 5278 (ex. ct.), Jackett P. (later Chief Justice Jackett of the Federal Court of Canada) at 5281-5283, explained the solicitor/client privilege as follows:

In an attempt to avoid misunderstanding as to the effect of the decision that I propose to deliver, it may be well for me to attempt to put in my own words the law, as I understand it, on the understanding that, except in so far as is necessary for the decision of this case, I reserve the right to reconsider the precise extent of the doctrines that I am attempting to describe.

As it seems to me, there are really two quite different principles usually referred to as solicitor and client privilege, viz:

(a)      all communications, verbal or written, of a confidential character, between a client and a legal adviser directly related to the seeking, formulating or giving of legal advice or legal assistance (including the legal adviser"s working papers, directly related thereto) are privileged; and

(b)      all papers and materials created or obtained specially for the lawyer"s "brief" for litigation, whether existing or contemplated, are privileged.

In considering the ambit of these principles, it is well to bear in mind the reasons for them.

In so far as the solicitor-client communications are concerned, the reason for the rule, as I understand it, is that, if a member of the public is to receive the real benefit of legal assistance that the law contemplates that he should, he and his legal adviser must be able to communicate quite freely without the inhibiting influence that would exist if what they said could be used in evidence against him so that bits and pieces of their communications could be taken out of context and used unfairly to his detriment unless their communications were at all times framed so as not only to convey their thoughts to each other but so as not to be capable of being misconstrued by others. The reason for the rule, and the rule itself, extends to the communications for the purpose of getting legal advice, to incidental materials that would tend to reveal such communications, and to the legal advice itself. It is immaterial whether they are verbal or in writing.

Turning to the "lawyer"s brief" rule, the reason for the rule is, obviously, that, under our adversary system of litigation, a lawyer"s preparation of his client"s case must not be inhibited by the possibility that the materials that he prepares can be taken out of his file and presented to the Court in a manner other than that contemplated when they were prepared. What would aid in determining the truth when presented in the manner contemplated by the solicitor who directed its preparation might well be used to create a distortion of the truth to the prejudice of the client when presented by someone adverse in interest who did not understand what gave rise to its preparation. If lawyers were entitled to dip into each other"s briefs by means of the discovery process, the straightforward preparation of cases for trial would develop into a most unsatisfactory travesty of our present system.

What is important to note about both of these rules is that they do not afford a privilege against the discovery of facts that are or may be relevant to the determination of the facts in issue. What is privileged is the communications or working papers that came into existence by reason of the desire to obtain a legal opinion or legal assistance in the one case and the materials created for the lawyer"s brief in the other case. The facts or documents that happen to be reflected in such communications or materials are not privileged from discovery if, otherwise, the party would be bound to give discovery of them...

In my view, it follows that, whether we are thinking of a letter to a lawyer for the purpose of obtaining a legal opinion or of a statement of facts in a particular form requested by a lawyer for use in litigation, the letter or statement itself is privileged but the facts contained therein or the documents from which those facts were drawn are not privileged from discovery if, apart from the facts having been reflected in the privileged documents, they would have been subject to discovery. For example, the financial facts of a business would not fall within the privilege merely because they had been set out in a particular way as requested by a solicitor for purposes of litigation, but the statement so prepared would be privileged.

     Jackett P. then went on to examine the application of the solicitor/client privilege to "accountant"s materials". At 5283, he put it as follows:

Applying these principles, as I understand them, to materials prepared by accountants, in a general way, it seems to me

(a) that no communication, statement or other material made or prepared by an accountant as such for a business man falls within the privilege unless it was prepared by the accountant as a result of a request by the business man"s lawyer to be used in connection with litigation, existing or apprehended; and

(b) that, where an accountant is used as a representative, or one of a group of representatives, for the purpose of placing a factual situation or a problem before a lawyer to obtain legal advice or legal assistance, the fact that he is an accountant, or that he uses his knowledge and skill as an accountant in carrying out such task, does not make the communications that he makes, or participates in making, as such a representative, any the less communications from the principal, who is the client, to the lawyer; and similarly, communications received by such a representative from a lawyer whose advice has been so sought are none the less communications from the lawyer to the client.

     The first principle stated by Jackett P. in Susan Hosiery encompasses all communications, whether verbal or written, between a client and his legal adviser pertaining to the legal advice sought by that client. The second principle stated by Jackett P., is the "brief" privilege. This privilege, according to a well known author¹, covers the following:

It is pointed out in para 17 of the 16th Report of the Law Reform Committee that the privilege covers three kinds of communication:

(a)      communications between the client or his agents and the client"s professional legal advisers;

(b)      communications between the client"s professional legal advisers and third parties, if made for the purpose of pending or contemplated litigation;

(c)      communications between the client or his agent and third parties, if made for the purpose of obtaining information to be submitted to the client"s professional legal advisers for the purpose of obtaining advice upon pending or contemplated litigation.

     Thus, communications between a client and third parties will be privileged if they came into existence for the purpose of obtaining information for submission to the client"s legal advisers in order to obtain legal advice concerning pending or contemplated litigation.

     Before turning to the facts of this case, reference should be had to the decision of the House of Lords in Waugh v. British Railways Board, (1979) 2 All ER 1169 where the House of Lords formulated the "dominant purpose" test in regard to the solicitor"s "brief" privilege. This is how Lord Edmund-Davies formulated the test at 1182 and 1183:

... And in my judgment we should start from the basis that the public interest is, on balance, best served by rigidly confining within narrow limits the cases where material relevant to litigation may be lawfully withheld. Justice is better served by candour than by suppression. For, as it was put in the Grant v. Downs majority judgment, "privilege...detracts from the fairness of the trial by denying a party access to relevant documents or at least subjecting him to surprise".

Adopting that approach, I would certainly deny a claim to privilege when litigation was merely one of several purposes of equal or similar importance intended to be served by the material sought to be withheld from disclosure, and a fortiori where it was merely a minor purpose. On the other hand, I consider that it would be going too far to adopt the "sole purpose" test applied by the majority in Grant v. Downs , which has been adopted in no United Kingdom decision nor, as far as we are aware, elsewhere in the Commonwealth. Its adoption would deny privilege even to material whose outstanding purpose is to serve litigation, simply because another and very minor purpose was also being served. But, inasmuch as the only basis of the claim to privilege in such cases as the present one is that the material in question was brought into existence for use in legal proceedings, it is surely right to insist that, before the claim is conceded or upheld, such a purpose must be shown to have played a paramount part. Which phrase or epithet should be selected to designate this is a matter of individual judgment. Lord Denning MR, as we have seen, favoured adoption of the phrase employed in the Law Reform Committee"s report, viz "material which came into existence...wholly or mainly" for the purpose of litigation. "Wholly" I personally would reject for the same reason as I dislike "solely", but "mainly" is nearer what I regard as the preferable test. Even so, it lacks the element of clear paramountcy which should, as I think, be the touchstone. After considerable deliberation, I have finally come down in favour of the test propounded by Barwick CJ in Grant v. Downs in the following words:

"Having considered the decisions, the writings and the various aspects of the public interest which claim attention, I have come to the conclusion that the Court should state the relevant principle as follows: a document which was produced or brought into existence either with the dominant purpose of its author, or of the person or authority under whose direction, whether particular or general, it was produced or brought into existence, of using it or its contents in order to obtain legal advice or to conduct or aid in the conduct of litigation, at the time of its production in reasonable prospect, should be privileged and excluded from inspection."

Dominant purpose, then, in my judgment, should now be declared by this House to be the touchstone. It is less stringent a test than "sole" purpose, for, as Barwick CJ added -

"...the fact that the person...had in mind other uses of the document will not preclude that document being accorded privilege, if it were produced with the requisite dominant purpose".

     The "dominant purpose" test was recently adopted by the British Columbia Court of Appeal in Shaughnessy Golf & Country Club v. Uniguard Services Ltd. and Chahal , (1986) 1 B.C.L.R. (2d) 309. I see no reason why I should not follow this test.

     I now turn to the facts relevant to this issue. The Applicant"s position is summarized at p. 20 of its memorandum of fact and of law:

Mr. Topley, an accountant and partner in Deloitte & Touche Inc. and representing Deloitte & Touche Inc., the client, prepared the working papers and analysis for the purpose of obtaining legal opinion and legal advice and to facilitate legal action on behalf of the client, Deloitte & Touche Inc., the Trustee of the Bankrupt Vancouver Trade Mart Inc. It is therefore respectfully submitted that this Court should order that all of the working papers and analyses enumerated in Exhibit "F" of the Affidavit of Colin Topley, sworn and filed herein, are subject to solicitor/client privilege and accordingly are not producible pursuant to the Notice of Requirement issued by the Respondent to the Applicant.

     The Applicant"s working papers and analyses are listed in exhibit "F" to the affidavit of Colin Topley. The explanation offered by Mr. Topley concerning these documents appears at paragraph 31 of his affidavit:

... Most of those working papers and analyses are incomplete. All have been prepared by the Trustee since the outset of the Proposal process for presentation to legal counsel and the Inspectors with a view to the pursuit of realizations for the general benefit of Vancouver Trade Mart"s creditors.

     During his examination on discovery held on October 16, 1996, Mr. Topley explains, at page 13, the creation of his working papers as follows:

My ending product was created from a combination from documents from Vancouver Trade Mart and subsequent interviews with other parties and, ah, subsequent access pursuant to various court orders. We"ve got -- some of which I think we got the court orders earlier this year in the spring.

     The work done by Mr. Topley included examining VTM"s financial statements, memoranda, check stubs, ledger accounts, bank records, communication files, reports to shareholders and all other documents containing relevant information on the activities of the bankrupt company.

     The Applicant, through Colin Topley, originally retained the firm of Ladner Downs on January 13, 1995 to provide legal advice with respect to VTM"s proposal to creditors under Part III, Division of the Bankruptcy Act . The Applicant, with the help of legal counsel, examined VTM"s pre-proposal business transactions to determine if any of these transactions were voidable under federal or provincial law.

     It cannot be disputed, in my view, that the work done by the Applicant and legal counsel prior to the meeting of April 19, 1995, i.e. when the creditors rejected VTM"s proposal, was primarily done for the purpose of convincing the creditors that VTM"s proposal should be accepted.

     The object of the work undertaken by the trustee was to inform the inspectors to the bankruptcy in order to allow them to make proper decisions, initially with respect to VTM"s proposal and subsequently regarding the assets of the bankrupt estate.

     It appears from the evidence that it was only on April 19, 1995, i.e. at the first meeting of the bankruptcy inspectors, that the creditors tentatively authorized the Applicant to retain legal counsel "to recover property from the fraudulent preference payments and dividends paid". (see page 43 of the examination on discovery of Colin Topley)

     At the May 16, 1995 meeting of the inspectors the Applicant presented an invoice for its fees and those of legal counsel. At that meeting, the Applicant also sought the inspector"s consent to seek a legal opinion regarding possible litigation. The fees of both trustee and legal adviser were ratified by the inspectors but they informed the trustee that they were unwilling to incur any future risk and thus were not prepared to pay for the trustee"s work concerning "reviewable transactions". During his examination on discovery, at page 49, Mr. Topley made it clear that the creditors were not prepared to pay for legal bills nor were they prepared to "make any investment or funding of the ongoing administration of the estate". The creditors authorized the Applicant to carry on with its investigation but on the condition that its fees and those of legal counsel would only be paid if there was a recovery.

     Paragraphs 30.(1)(d) and (e) of the Bankruptcy Act the allow the trustee, with the approval of the inspectors of the bankrupt estate, to institute or defend legal proceedings in relation to the property of the bankrupt and, in that regard, to retain solicitors to conduct the litigation. The legislation provides:

30. (1)      The trustee may, with the permission of the inspectors, do all or any of the following things:

(d)      bring, institute or defend any action or other legal proceeding relating to the property of the bankrupt;

(e)      employ a solicitor or other agent to take any proceedings or do any business that may be sanctioned by the inspectors;.

     As I pointed out above, it was only on May 16, 1995 that the inspectors of the bankrupt estate authorized the Applicant to retain solicitors in respect of a number of matters. These matters, as they appear from the resolutions passed at the May 16, 1995 meeting are the following:

Resolution #18:

BE IT RESOLVED that the Trustee engage Harper Grey Easton to provide an opinion to the Trustee on the merits of any possible causes of action the Trustee may have against Mr. George Lee, and/or Mrs. Julie Lee and/or Mr. Edward Lee or any of their related companies in relation to any transaction(s) that may be attackable and voided for the benefit of the Estate.

Resolution #19:

BE IT RESOLVED that the Trustee engage Harper Grey Easton and initiate steps to void and recover payments to non related Creditors and others that are deemed fraudulent preferences and settlements within the meaning of the Bankruptcy and Insolvency Act and the provincial statutes including the Fraudulent Preferences Act, The Fraudulent Settlement Act or the Companies Act. For more certainty the payments identified are set out in pages five (5) to nine (9) of the Trustee"s Report to Inspectors dated 12 April 1995.

Resolution #19B:

BE IT RESOLVED that the Trustee be authorized to engage Harper Grey Easton to initiate proceedings to void and recover funds paid by Vancouver Trade Mart Inc. to any financial institution in addition to payments set out in Pages 5 to 9 of the Trustees Report to Inspectors dated 12 April 1995 that can be deemed a fraudulent preference or settlement within the meaning of the Bankruptcy and Insolvency Act and the provincial statutes of the Fraudulent Preferences Act, the Fraudulent Settlement Act or the Companies Act.

Resolution #20:

BE IT RESOLVED that the Trustee engage Harper Grey Easton to assist the Trustee with the examination of the Directors of Vancouver Trade Mart including George Lee, Julie Lee, Edward Lee, Victor Elias and John Gorman.

Resolution #21:

BE IT RESOLVED that, the Trustee engage Harper Grey Easton to obtain appropriate Court Orders for the Trustee to obtain the books and records from various financial institutions, law firms, officers and directors of Vancouver Trade Mart where such books and records reflect transactions with Vancouver Trade Mart and will assist in identifying and recovering the property of Vancouver Trade Mart.

     I should point out that the documents which the Minister seeks to obtain, and which the Applicant refuses to provide, have not been filed in the record so that I have not had the opportunity of examining them. Thus, contrary to what went on before Mr. Justice Teitelbaum in Gregory v. Canada (Minister of National Revenue), (1992) D.T.C. 6518, I have not been provided with a proper explanation regarding the contents of the documents sought by the Minister. In this regard, I have already referred to paragraph 31 of Mr. Topley"s affidavit and to page 13 of his examination on discovery.

     Mr. Topley"s position, and thus the Applicant"s position, is that his working papers and account analyses were all prepared for the purpose of obtaining legal advice regarding possible litigation. Whether or not counsel requested this work to be done appears to be of no relevance.

     In his written and oral arguments, counsel for the Applicant submitted that the evidence was clear, and not contradicted, that the working papers and analyses, were prepared for the purpose of seeking advice from legal counsel, Ladner Downs and Harper Grey Easton. I cannot agree with that submission. That is certainly the opinion of Mr. Topley but the evidence does not support his opinion. What the evidence shows is that the Applicant, through Mr. Topley, complied with the duties imposed upon it by the Bankruptcy Act. As Mr. Topley stated during his examination on discovery, at page 21:

It was my mandate as a trustee to do a review of the transactions, and because of the nature of the transactions I engaged Mr. Geoffrey Thompson2 to assist me to evaluate and guide me in the process.

     Later on Mr. Topley was asked whether he needed a lawyer "to tell you how to do your job as a trustee?". He answered that he did not need a lawyer.

     There is no evidence before me that either Ladner Downs or Harper Grey Easton requested Mr. Topley to prepare any report for their possible use in legal proceedings. In Gregory, supra, many of the documents in respect of which privilege was sought, were reports and opinions obtained by the solicitors from experts who had been retained in order to enable the solicitors to provide legal advice to their clients. That is certainly not the case in the present instance. The evidence does not satisfy me that the work was undertaken so as to enable counsel to give legal advice.

     I am not satisfied that the documents which the Minister seeks to obtain were prepared for the "dominant purpose" of obtaining legal advice. In my view, the evidence does not come close to supporting that position.

     Before concluding, I wish to say that there cannot be much doubt that the Applicant"s working papers and accounts analyses are "documents" within the meaning of section 231.2(1) of the Act. I have already referred to the definition of "documents" which appears in section 231. The definition is a broad one and, in my view, is broad enough to include the documents sought herein by the Minister. There can also not be much doubt that the Applicant is a "person" within the meaning of section 231.2(1).

     Counsel for the Applicant argued that "documents" in section 231.2(1) was meant to include source documents only and not documents such as those created by a trustee in bankruptcy. In view of the wording of the section, I cannot see how I can so restrict the meaning of the word "document". I would have to disregard the plain meaning of the words in the section to agree with the Applicant.

     In Gregory, supra, no issue appears to have arisen with respect to the nature of the documents sought by the Minister. In that case, many of the documents sought by the Minister from the Applicant, a lawyer, were not "source documents" but rather opinions received by the applicant from lawyers and accountants. Teitelbaum J. refused to order the Applicant to produce the documents solely on the ground that they were privileged.

CONCLUSION:

     For these reasons, this application shall be dismissed.

    

         "MARC NADON"

     JUDGE

Ottawa, Ontario

October 31, 1997

     T-1071-96

OTTAWA, ONTARIO, the 31st day of October 1997

PRESENT: THE HONOURABLE MR. JUSTICE MARC NADON

Between:

     DELOITTE & TOUCHE INC.,

     The Trustee of the Estate of Vancouver

     Trade Mart Inc., a bankrupt,

     Applicant,

     - and -

     ATTORNEY GENERAL OF CANADA

     representing the MINISTER OF NATIONAL REVENUE,

     Respondents.

         ORDER

     The application is dismissed.

                         "MARC NADON"

     Judge

__________________

¹      Cross on Evidence, 6th ed. (London: Butterworths, 1985) at 388-389.

² Mr. Thompson was a partner with Ladner Downs.