COURT FILE NO.: CR-19-00000038-00MO
DATE: 20191107
ONTARIO
SUPERIOR COURT OF JUSTICE
IN THE MATTER OF A PRODUCTION ORDER SERVED ON PRICEWATERHOUSECOOPERS PURSUANT TO SECTION 487.014 OF THE CRIMINAL CODE
B E T W E E N:
HER MAJESTY THE QUEEN
Applicant
-and-
XIAO HUA GONG
Respondent
Davin M. Garg and Alex Hrybinsky, counsel for the Applicant
Scott C. Hutchison and Paul D. Stern, counsel for the Respondent
Mark Sandler and Wayne Cunningham, counsel for Intervener, Gowling WLG
HEARD: June 12-13, 2019
Justice J. Copeland
REASONS FOR DECISION ON SOLICITOR-CLIENT PRIVILEGE APPLICATION
Introduction
[1] In March 2018, investigators for the Ontario Securities Commission (the “OSC”) obtained a production order in relation to Mr. Xiao Hua Gong and several companies under his control. The production order relates to the file held by Price Waterhouse Coopers (“PWC”) in relation to accounting and taxation matters for Mr. Gong and his companies. Mr. Gong asserts a claim of solicitor-client privilege over the documents that are the subject of the production order. Mr. Gong claims that these documents are subject to solicitor-client privilege or litigation privilege, and that the PWC file is part of the lawyer’s brief of Gowling WLG (“Gowling”), the law firm he had retained to assist him and his corporations in gaining admittance to the Canada Revenue Agency’s (“CRA”) voluntary disclosure program (to amend previous tax filings).
[2] On consent, the documents which are the subject of the production order have been sealed and filed with the court pending the determination of this application. The provincial Crown has brought this application to determine the issue of Mr. Gong’s claims of solicitor-client and litigation privilege, and ultimately, to have the documents subject to the production order unsealed.
Background facts
[3] The basic background facts are not in dispute. Mr. Gong is charged with four fraud-related charges. He was arrested on these charges in December 2017. The fraud charges arise out of an investigation by the OSC. The charges involve allegations that Mr. Gong fraudulently distributed shares in various companies, and then converted investor funds to his personal use or benefit. The value of the alleged fraud is estimated to be in excess of $400 million.
[4] I was advised at the hearing of this application that the preliminary inquiry into the fraud charges was scheduled for September 2019. I was advised that this ruling was not required in advance of the preliminary inquiry, as it would be conducted by way of a discovery, and committal for trial was not in issue.
[5] In summary form, and I will go into more detail below, the genesis of the PWC file at issue is as follows. Mr. Gong and his companies underreported their income to the CRA for a number of tax years. In or around August 2016, Mr. Gong retained professional advisors to assist him and his companies, including Gowling, and PWC. Gowling’s legal brief involved assisting Mr. Gong and his companies to gain admittance to the CRA’s voluntary disclosure program. Mr. Gong and his companies were granted admittance to the program, and filed updated tax returns. This allowed them to avoid tax-related penalties and prosecution.
[6] PWC was retained in August 2016, in the same time period as Gowling was retained. I will discuss in more detail below the nature of the relationship between Mr. Gong, Gowling, and PWC. But it is not in dispute that at least part of PWC’s role in its relationship with Mr. Gong and his companies was to gather financial documents in relation to Mr. Gong and his companies, and to prepare new tax returns. The new tax returns would be used by Gowling in its legal work seeking admission for Mr. Gong and his companies into the CRA voluntary disclosure program.
[7] The criminal charges Mr. Gong currently faces were laid following an investigation by the OSC unrelated to the tax matters. However, the same companies that filed new tax returns under the CRA voluntary disclosure program are the companies whose activities are the subject of the fraud charges against Mr. Gong.
[8] The production order which was issued in March 2018 directs PWC to produce to the OSC for the period January 1, 2012 to January 31, 2018 the following documents:
(i) All working papers, financial statements and tax returns prepared for Mr. Gong, EEIG [Edward Enterprise International Group Inc.], Edward Village Inc., and related entities;
(ii) All correspondence (including emails) with Mr. Gong and related parties;
(iii) All meeting notes and minutes.
[9] Counsel for PWC responded to the production order in April 2018. At that time, PWC provided only three documents, each of which had already been shared with the CRA. The respondent claimed privilege over the balance of the PWC file.
[10] Gowling sought intervener status in this application. I granted Gowling intervener status on the basis that it had an interest in the issues in this application regarding solicitor-client privilege and litigation privilege. Based on its materials filed, I was satisfied it would make a useful contribution to the matter. Gowling’s intervention is limited to submissions on the law in relation to solicitor-client privilege and litigation privilege, and a discrete issue related to credibility assessment of a lawyer’s evidence when the lawyer refuses to answer questions in cross-examination based on asserting solicitor-client privilege on behalf of a client. Gowling took no position on the ultimate merits of the application.
The Legal framework and positions of the parties
[11] Historically, this application would fall to be determined under the provisions of s. 488.1 of the Criminal Code of Canada, R.S.C., 1985, c. C-46. However, those provisions were found to be unconstitutional in 2002 in the Supreme Court of Canada decision of Lavallee, Rackel & Heinz v. Canada (Attorney General), [2002] 3 S.C.R. 209, 2002 SCC 61. In the 17 years since that decision, no new legislative provisions have been enacted to govern the procedure for claims of solicitor-client privilege in relation to search warrants and production orders. Thus, this application falls to be determined under the common law guidance of the Supreme Court from Lavallee (in particular at para. 49).
[12] Both parties agree that the burden lies on the party claiming privilege, here Mr. Gong, to prove that the documents at issue are privileged. This burden can be met either by showing (as Mr. Gong seeks to do) that the documents as a class are privileged (the whole PWC file in this case), or failing that, by showing that individual documents are privileged.
[13] Before getting into the substance of the application, I want to flag one issue agreed to by both parties. It was agreed during the pre-hearing discussions when this application was scheduled that it was premature to argue whether the crime/fraud exception to solicitor-client privilege would apply in this case to defeat a claim of privilege in relation to the PWC documents. As I understand it, counsel agree that it would be procedurally more efficient to wait to argue the crime/fraud exception issue (if it is to be argued at all). For this reason, no argument was made before me about the crime/fraud exception to solicitor-client privilege. My ruling on the application is made without prejudice to Crown’s right to raise the crime/fraud exception at a later date in an appropriate forum.
[14] I also note that the respondent had filed a Notice of Constitutional Question challenging the validity of s. 241(3) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Suppl.), and written argument on that issue. By the end of the hearing of the application, the parties agreed that that issue became moot. As I result, and I make no ruling on that issue.
[15] There was some argument about whether PWC could be categorized as a “law office” (in effect, as an extension of the Gowling law firm). In my view, based on the jurisprudence, I do not need to answer this question. The issue at the stage of reviewing the file for a claim of privilege is not whether PWC is a law office. The issue is whether there is now a reasonable basis to expect that at least some documents subject to solicitor-client privilege are among the documents sought from PWC. In this regard, I agree with the analysis of the British Columbia Court of Appeal in Festing v. Canada (Attorney General) (2003), 11 B.C.L.R. (4th) 83, 2003 BCCA 112 at paras. 5, and 13-24. If PWC potentially holds privileged documents, then the files at issue should be sealed (as has been done on consent), and reviewed to assess the privilege claim (the purpose of the hearing before me). In my view, although I ultimately reject the submission that the entire PWC file is subject to solicitor-client privilege, there is a reasonable basis to believe that the file may hold some documents subject to solicitor-client privilege to warrant the file being sealed (as was already done), and subject to this hearing to assess privilege claims. I note that I make no finding as to whether, at the time they applied for the production order, the OSC investigators had information that the PWC file may reasonably contain some documents subject to solicitor-client privilege.
[16] Crown counsel accepts the importance of solicitor-client and litigation privilege. But the Crown takes the position that solicitor-client privilege (or litigation privilege) either does not apply to the documents at issue, or at least it has not been shown that it applies to all of the documents at issue (and thus the documents would need to be inspected and considered for claims of privilege one by one).
[17] The Crown accepts that on the record before the court PWC had some relationship with Gowling. But the Crown argues that it is also clear on the record that PWC performed some services for Mr. Gong and his corporations that were not within the scope of the work done by Gowling. Just because there was some relationship between PWC and Gowling in terms of the nature of work done for Mr. Gong and his corporations, this does not make the entire PWC file privileged.
[18] According to the Crown, the position advanced on behalf of Mr. Gong overreaches the scope of solicitor-client privilege, by in effect claiming that everything with some relation to a law firm is privileged. There may be privilege over some documents in the PWC file, but the position of the Crown is that this must be assessed document by document. The Crown further takes the position that if there was privilege over the documents at issue, it has been waived. For sake of clarity, I note that in my view the Crown submissions made to me in oral argument significantly softened the Crown position on a number of issues, compared to the position the Crown had taken in its written submissions. That said, the result the Crown was seeking did not change.
[19] The respondent argues that Mr. Gong and his corporations retained Gowling to seek legal advice in relation to tax issues. The respondent argues that PWC was for all meaningful purposes an extension of Gowling. For this reason, the respondent argues that PWC’s entire file is subject to solicitor-client privilege and/or litigation privilege. The respondent argues that the PWC file must be covered by solicitor-client privilege because, according to the affidavit of Mr. Novoselac, one of the Gowling’s lawyers working on Mr. Gong’s files, lawyers can only do the job of providing legal advice on tax matters if they can freely share information back and forth with accountants.
[20] Both parties made the submission that if the court concludes that the entire PWC file is not privileged, but that a showing has been made that portions of it may be privileged, then the court should appoint referees to assist with document by document review of the PWC file for claims of privilege.
[21] The intervener’s submissions focused on two issues. First, it argues that what constitutes a waiver of solicitor-client privilege should be narrowly construed. Second, it argues that no adverse inference should be drawn against the credibility of Mr. Novoselac, whose affidavit was filed on behalf of Mr. Gong, because he refused to answer some questions in cross-examination on the basis of solicitor-client privilege. In addition, the intervener adopts the submissions of the respondent regarding the scope of privilege.
Law in relation to solicitor-client privilege and litigation privilege
[22] In order to consider Mr. Gong’s claim of privilege over the whole PWC file, it is useful to begin with the basics of the scope and purpose of solicitor-client privilege and litigation privilege.
(i) Solicitor-client privilege
[23] Historically, solicitor-client privilege was a rule of evidence. However, over time it has evolved into a substantive legal principle that protects against state (or other) intrusions into the privilege, quite apart from the possibility of admission of evidence: R. v. Solosky, [1980] 1 S.C.R. 821, 1979 CanLII 9; Descoteaux v. Mierzwinski, [1982] 1 S.C.R. 860, 1982 CanLII 22.
[24] The purpose and importance of the substantive principle protecting solicitor-client privilege have been reiterated in numerous decisions of the Supreme Court subsequent to Solosky and Descoteaux: Lavallee at paras. 16-21; R. v. McClure, [2001] 1 S.C.R. 445, 2001 SCC 14 at paras. 17-24; Smith v. Jones, [1999] 1 S.C.R. 455, 1999 CanLII 674 at paras. 45-50; Blank v. (Canada), [2006] 2 S.C.R. 319, 2006 SCC 39 at paras. 24-27.
[25] I will not summarize all of the principles in these cases. They are well-established. But, hitting the high points, I note the following. The purpose of solicitor-client privilege is to protect the relationship between the solicitor and the client because that relationship is essential to the operation of the legal system. Given the importance of this purpose to the administration of justice as a whole, where documents or information are found to be cloaked with solicitor-client privilege, exceptions to the privilege are very limited and narrowly interpreted: Lavallee at paras. 16-21 and 36-37; Maranda v. Richer, [2003] 3 S.C.R. 193, 2003 SCC 67 at paras. 12; McClure at paras. 31-35; Smith v. Jones at para. 74.
[26] This case does not involve a claim of an exception to solicitor-client privilege (for example, as I have noted, the parties have agreed not to argue the crime-fraud exception at this time). Rather, it has to do with the scope of solicitor-client privilege, and whether it applies to all of the documents sought in the production order, or may apply to some subset of documents (which would require a vetting process). A claim is also made for litigation privilege, which I address below.
[27] Not all communications between a lawyer and their client are privileged. In order for a communication between lawyer and client to be privileged, the communication must be: (i) a communication between the lawyer and the client[^1]; (ii) for the purpose of giving or seeking legal advice; and (iii) be intended by the parties to the communication to be confidential: Solosky at p. 837; Lavallee at para. 22; McClure at para. 36.
(ii) Litigation privilege
[28] The Supreme Court of Canada considered the issue of litigation privilege in Blank. The purpose of litigation privilege is distinct from the purpose of solicitor-client privilege. The purpose of litigation privilege is to ensure the efficacy of the adversarial process, not to promote the solicitor-client relationship. In order to achieve this purpose, litigation privilege creates a zone for parties to litigation to prepare their positions “without fear of premature disclosure”: Blank at paras. 27-30 and 34.
[29] As a result of this different purpose, litigation privilege has a different scope than solicitor-client privilege. Litigation privilege can apply to communications between a lawyer and third parties, including non-confidential communications. Litigation privilege can apply to material of a non-communicated nature such as some documents. Litigation privilege applies to litigants represented by a lawyer, but also to self-represented litigants. Litigation privilege only applies in the context of actual or apprehended litigation. And unlike solicitor-client privilege, litigation privilege is time-limited. It ends with the litigation: Blank at paras. 28-41.
[30] In order for litigation privilege to attach to documents created for litigation, the dominant purpose of their creation must be the litigation. The effect of the dominant purpose test is that the test is not so high that litigation must be the sole purpose of the creation of documents, but the test is higher than that a substantial purpose of the documents’ creation was the litigation: Blank at paras. 27-40 and 59-60.
[31] I think it is fair to say that the law in relation to litigation privilege is less developed and less certain than the law in relation to solicitor-client privilege (see Blank at paras. 23 and 64). In particular, I note that it is still an open question whether (and if so, when), in a situation where litigation privilege is generally found to exist, it applies to documents gathered by counsel (as opposed to created by counsel): Blank at paras. 62-64; General Accident Assurance Co. v. Chrusz (1999), 45 O.R. (3d) 321, 1999 CanLII 7320 (CA); and Ontario (Provincial Police) v. Assessment Direct Inc., 2016 ONSC 8138 at paras. 9-24.[^2] However, in my view, it is not necessary to work out the finer contours of litigation privilege to decide this application.
(iii) Third parties/experts and privilege
[32] In some circumstances, third parties, often experts in some field, may be brought within the scope of privilege. I note that the case law put before me by the parties in some cases treats this as an aspect of solicitor-client privilege, in some cases as a matter of litigation privilege, and in some cases the distinction is treated as immaterial (see for example Smith v. Jones at para. 44; Blank at para. 49).
[33] Without purporting to rationalize all of the law in this area, I observe that I am not sure the jurisprudence has worked out in a categorical way whether the application of privilege to third parties/experts is more appropriately viewed an issue of solicitor-client privilege or litigation privilege (or both). In my view, as a matter of principle, depending on the circumstances of a particular third party and their relationship with the lawyer, with the client, and (if present) with actual or apprehended litigation, a third party relationship may be captured by either solicitor-client privilege or litigation privilege, or by both.
[34] Not every third party or expert who works on a matter on which a lawyer is also retained comes within the scope of solicitor-client privilege or litigation privilege. Communications to or by a third party are not protected by solicitor-client privilege merely because the communications assist the solicitor in providing legal advice to the client. Nor are communications to or by a third party protected merely because the third party and a lawyer work on factually related issues.
[35] However, solicitor-client privilege may extend to communications with a third party where the third party serves as a line of communication between the client and the lawyer, or where the third party employs expertise in assembling information provided by the client and in explaining that information to the lawyer: Chrusz at paras. 104-117 and 121-126 per Doherty J.A. (for the court on this issue, as I read it); Redhead Equipment Ltd. v. Canada (Attorney General) (2016), 485 Sask. R. 108, 2016 SKCA 115 at paras. 28 and 31-49.
[36] It is important to bear in mind that if the third party is only gathering information or performing certain work for the client related to the legal work, but not acting as a conduit between the lawyer and the client for the purpose of the giving or receiving legal advice, then communications with the third party do not fall under the cloak of solicitor-client privilege. The nature of the third party’s role in relation to the solicitor-client relationship should be assessed functionally. I also underline that what is protected within the third party communications is the communications, not pre-existing documents.
[37] These principles were applied by the Saskatchewan Court of Appeal in Redhead Equipment to the context of a CRA request for production of documents from an accountant in a context where the accounting work bore some factual relationship to legal advice given regarding a corporate restructuring. I find the reasoning in Redhead persuasive, and for this reason include a fairly lengthy extract (in particular, at paras. 43-48). After reviewing in detail Justice Doherty’s reasons (for the court on this issue) in Chrusz, Justice Ottenbreit, writing for the court summarized the applicable principles as follows:
[43] On the basis of the foregoing, I conclude solicitor-client privilege extends only to third party communications that are in furtherance of a function essential to the existence or operation of the solicitor-client relationship. Therefore, determining whether the communication is privileged requires an analysis of the function of the third party vis-à-vis the client and the solicitor in respect of the communication.
[44] With respect to documents and communications created specifically by accountants, some principles emerge. There is no such thing as accountant-client privilege (Tower v M.N.R., 2003 FCA 307, [2004] 1 FCR 183 [Tower]). Accounting documents will be subject to solicitor-client privilege only if the accountant was used as a representative of a client to obtain legal advice (Gregory v Minister of National Revenue (1992), 1992 CanLII 15347 (FC), 56 FTR 285 (TD)). No privilege attaches where a communication is made to an accountant who must consider it and provide his or her own opinion (Belgravia at para 50). In such a situation the accountant is more than a conduit of information. In Tower, the Court determined that tax accountants do not give legal advice.
[45] From the foregoing jurisprudence, some principles regarding communications with and of third parties such as accountants can be extracted:
(a) communications of accountants are not in themselves privileged;
(b) facts and figures are not in themselves privileged but may be if they are part of a communication which is privileged;
(c) whether a communication is privileged depends on the function served by the third party in relation to the communication;
(d) the privilege extends only to communications in furtherance of a function essential to the solicitor-client relationship or the continuum of legal advice provided by the solicitor, for example:
(i) a channel of communication between solicitor and client;
(ii) a messenger, translator or transcriber of communications to or from the third party by the solicitor or client;
(iii) employing expertise to assemble information provided by the client and explaining the information to the solicitor; and
(e) no privilege attaches to a communication to an accountant who must consider it and provide his or her own accounting opinion.
[46] I return to the crux of Redhead’s argument. Redhead submits that what constitutes communications “essential to the existence or operations of the solicitor-client relationship” should be interpreted expansively (Bank of Montreal v Tortora, 2010 BCSC 1430, 14 BCLR (5th) 386) and that the jurisprudence properly interpreted allows most communications between solicitor and third party, and client and third party, to be privileged because the lawyer is “driving the bus” and everyone is on board and travelling toward the same transactional destination.
[47] I do not find that the jurisprudence indicates such a broad approach to privilege as advocated by Redhead. This approach stretches beyond the breaking point the terms “continuum of communication between solicitor and client” and “essential to the maintenance of the solicitor-client relationship”. It also dilutes the functional approach because it will always be argued that the function of the third party in regard to all the communications is to assist and facilitate the solicitor’s legal advice to the client and help to successfully complete the transaction which depends on that legal advice.
[48] There is nothing in either Susan Hosiery or Chrusz that would protect as privileged in a transaction the original tax work of the accountant provided to the lawyer on the client’s behalf. In situations where the accountant gives original and independent tax advice to either the lawyer or the client, this will not be privileged just because the lawyer has overall responsibility. The accountant’s advice would not otherwise be privileged. The client cannot do indirectly what they could not do directly.
Application of the law in relation to privilege to this case
[38] For reasons I will explain, I reject Mr. Gong’s claim that all of the documents and information in the PWC file is subject to either solicitor-client privilege or litigation privilege (or both). In my view, Mr. Gong has not discharged his onus to show that all of the documents and information in the PWC file are communications for the purpose of giving or receiving legal advice. Some of the documents and information in the file may be subject to solicitor-client privilege, but this will require a document by document review. I also find that the documents and information in the PWC file are not subject to litigation privilege.
[39] My reasons for reaching these conclusions in relation to solicitor-client privilege and litigation privilege rest essentially on the same factual foundation. In my view, the work done by PWC in gathering, reviewing, and preparing financial documents and income tax returns was independent accounting work in preparing new tax returns for Mr. Gong’s corporations. Although some of the work done by PWC was used as the factual basis on which Gowling provided legal advice and sought admittance to the CRA voluntary disclosure program, the fundamental nature of the work done by PWC of preparing new tax returns is, in my view, simply preparing tax returns. This is an accounting function. An accountant collecting financial documents and preparing tax returns is not, in that function, doing legal work, or acting as a conduit between the lawyer and the client for the purpose of giving or receiving legal advice. The accountant’s work does not become privileged because Mr. Gong had lawyers involved in seeking to admittance into the voluntary disclosure program for him. In the language of the test for solicitor-client privilege, the financial work done by the accountants cannot, in my view, generally be said to be “for the purpose of giving or receiving legal advice”. In the language of litigation privilege, I am not satisfied that the dominant purpose of the work done, and documents and information prepared by PWC was for anticipated or actual litigation.
[40] In explaining my conclusion, I will address in greater detail the evidence filed before me regarding the retainers of Gowling and PWC, and the evidence of Mr. Novoselac, one of the Gowling lawyers, which was filed on behalf of Mr. Gong on this application.
[41] Gowling was retained by Mr. Gong and his corporations in or around August 2016 to provide legal advice on tax issues, in particular, in relation to seeking admittance into the CRA voluntary disclosure program for several tax years. PWC was retained in relation to the tax filings of Mr. Gong and his corporations in August 2016. According to the documentary record filed before me, PWC was retained by Gowling. Mr. Novoselac asserts in his affidavit that Gowling required the assistance of PWC as accountants in order to provide legal advice to Mr. Gong and his corporations. He asserts that in his experience, it would be “almost impossible to provide legal advice in a substantial tax case like this without involving accounting experts.” Mr. Novoselac asserts in his affidavit that in order for Mr. Gong and his corporations to receive legal advice from Gowling, they had to provide Gowling with information, both directly and through PWC “as a conduit”. Mr. Novoselac also asserts that it was the understanding between Gowling, PWC, and Mr. Gong and his corporations, that all communications amongst them would be treated as privileged, and this understanding was reduced to writing.
[42] On consent, during the argument of the application, unredacted copies of the engagement letter sent by Fred Cassano of PWC to Mr. Novoselac at Gowling, dated September 21, 2016, and a memorandum from Mr. Novoselac at Gowling to Mr. Cassano at PWC, dated August 22, 2016 were filed under seal. These documents are the same documents which were filed in redacted form as Exhibit #16 to the cross-examination of Mr. Novoselac, and Exhibit B to the affidavit of Mr. Novoselac, respectively.
[43] Without getting into the details of the retainers themselves, I note the following. First, based on my review of the letter and memorandum, they speak to PWC’s retainer as involving two functions, to do tax accounting work for Mr. Gong’s corporations, and also to assist Gowling in relation to the application to participate in the CRA voluntary disclosure program. In my view, these documents, when viewed in the context of the record as a whole, support the conclusion that PWC’s work for Mr. Gong and his corporations was not fully encompassed within the Gowling legal retainer. Put simply, part of PWC’s job was to prepare new tax returns and related financial records and filings. As elements of an accounting function, this work is not covered by solicitor-client privilege. Without getting into detail about the redacted portions of these documents, filed under seal, the letter and memorandum are also clear that PWC was likely, given the scope of its work, involved in some communications with Gowling that would involve solicitor-client privileged information.
[44] I note as well that the record supports that after the initial retainer of PWC for the tax years relating to the voluntary disclosure application, Mr. Gong and his corporations retained PWC regarding ongoing tax compliance and preparation of tax returns (i.e. for current and future years not related to the voluntary disclosure program). This tax work for current and future tax years included time periods covered by the production order. Mr. Novoselac agreed in cross-examination that in this respect, Mr. Gong received professional advice directly from PWC, separate and apart from any advice Gowling provided (see Exhibit #5 to cross-examination of Mr. Novoselac at pp. 11-12; cross-examination of Mr. Novoselac at pp. 63-65). Thus, not all of the work done by PWC related to the tax years for which Gowling was seeking admittance to the CRA voluntary disclosure program for Mr. Gong and his corporations.
[45] Second, I accept that the letter and memorandum contain assertions between the parties that all communications between Gowling, PWC, and Mr. Gong and his corporations are subject to solicitor-client and litigation privilege, and that all communications between the parties are confidential. But the assertion of privilege in the letter and memorandum as between Gowling, PWC, and Mr. Gong’s corporations does not make it so. Rather, the case law is clear that I must assess the role of PWC functionally, in terms of what it was retained to do, and what its relationship was with Mr. Gong’s corporations, Gowling, and the legal work.
[46] I want to briefly address the issue of assessment of Mr. Novoselac’s evidence as a witness, and the impact of refusals during his cross-examination based on solicitor-client privilege. Crown counsel did not suggest that Mr. Novoselac was in any way attempting to mislead the court in his evidence in relation to the assertion that the PWC file was subject to solicitor-client privilege. Crown counsel accepted that Mr. Novoselac is an officer of the court, and gave his evidence in that context. Thus, the Crown is not directly arguing that Mr. Novoselac is not a credible witness. Rather, Crown counsel argues that the court must determine the legal and factual issue of whether privilege applies to the PWC file based on the record as a whole, and that the fact that Mr. Novoselac asserts that the intention was that the file be confidential, does not in itself make the file privileged. Further, the Crown notes that there were a number of refusals during the cross-examination of Mr. Novoselac, which were made on the basis of solicitor-client privilege. By the time of the hearing of the application, Crown counsel was not asking the court to draw an adverse inference regarding Mr. Novoselac’s credibility on the basis of the refusals (although that argument had been made in the Crown’s written submissions). However, Crown counsel makes the submission that Mr. Gong as the party claiming privilege has the burden to show that the privilege applies in the circumstances, and to the extent that the Crown was limited in its ability to test his claims by the refusals, the court should take this into account in assessing the record on the issue of privilege.
[47] I accept that it is not appropriate to draw an adverse inference against Mr. Novoselac’s credibility because he asserted solicitor-client privilege to refuse to answer some questions in cross-examination. As counsel, he was professionally obliged to assert privilege if he believed it applied (whether or not he was ultimately correct in his belief). It seems to me that it would be very problematic to draw an adverse inference against a lawyer’s credibility for doing something that he is required to do as a matter of professional duty.
[48] It is not necessary for me to decide the second issue of whether the refusals should lead me to assess the record before me differently because the respondent, who bears the burden, has made a choice to assert privilege over issues where the Crown sought to cross-examine.
[49] In general terms, I accept that Mr. Novoselac is a credible witness. I accept that Gowling, PWC, and Mr. Gong all intended to keep information within the PWC retainer confidential. I accept that working with accountants is important, even essential, in many cases for tax lawyers in giving legal advice. But I do not accept Mr. Novoselac’s conclusions about the scope of solicitor-client privilege – which is properly a legal issue I must decide.
[50] Put differently, Mr. Novoselac’s assertion that the parties to the retainers felt and intended that the relationships were confidential does not in itself determine if privilege applies and its scope. Nor does the fact that tax lawyers often need the assistance of accountants. The proposition that tax lawyers often need the assistance of accountants is not surprising, since the lawyer’s job is to do the legal work related to taxes, and the accountant’s job is to do the accounting work related to taxes. In this context, when working for the same client, a lawyer and an accountant may often be working on the same subject matter. But this reality does not lead to the conclusion that where an accountant is working with a lawyer, the entire accounting file is subject to solicitor-client privilege.
[51] The two functions of the work done by PWC worked in tandem. In the words of counsel for Mr. Gong, they were “inextricably linked”. While I accept that the two functions were inter-related, in my view that does not lead to the conclusion that everything in the PWC file is subject to solicitor-client privilege. Yes, the preparing of the tax returns that would be submitted to the CRA was factually related to the legal advice Gowling was giving, and to Gowling’s legal retainer in negotiating the voluntary disclosure agreement. They were factually linked because they concerned the same subject-matter (the taxes for the relevant companies for the particular tax years). But this factual link does not make the work by the accountant of reviewing financial documents and preparing tax returns itself privileged, even if the lawyer is then going to use the tax returns and supporting documents in seeking access to the voluntary disclosure program.
[52] On the record before me, it is a reasonable inference that the PWC file contains financial documents about the various corporations. Those documents would be required in order to prepare tax filings. But those underlying financial documents are not covered by either solicitor-client or litigation privilege. If, within the documents, there is communication for the purpose of giving or receiving legal advice about how to report to CRA particular items, that communication may be privileged. But that privilege claim would have to be reviewed document by document.
[53] In my view, the tax returns and underlying financial documents prepared by the accounting firm (or given to the accounting firm by Mr. Gong and his corporations for the purpose of preparing the tax returns) are not privileged. The only information that is privileged is information that is prepared primarily to assist the law firm in giving legal advice, or contains legal advice from the law firm, or contains questions law firm asked to get legal advice, or questions posed to the law firm, either by Mr. Gong or the accounting firm. That is, communications for the purpose of giving or receiving legal advice are covered by solicitor-client privilege. The underlying financial documents and tax returns are not.
[54] In particular, I want to make a few comments about PWC’s fact-finding role. In cross-examination, Mr. Novoselac agreed that PWC engaged in its own fact-finding and analysis of the financial affairs of Mr. Gong and the corporations. This included collecting financial documents from multiple jurisdictions, and PWC preparing its own analysis of the financial records. Mr. Novoselac testified that this fact-finding role of PWC could not be extricated from Gowling’s provision of legal advice. In one portion of his cross-examination, Mr. Novoselac explained this as follows: “Those facts are going to form the matrix upon which the legal advice is going to be based” (see cross-examination of Mr. Novoselac at pp. 82-90). I pause to note that on the record before me, given the timing of the retainer of Gowling and PWC, and the tax years at issue in the voluntary disclosure, one would expect that many of these financial records would pre-date the retainers of Gowling and PWC (cross-examination of Mr. Novoselac at pp. 119-120).
[55] In my view, the claim that because Gowling based its legal advice on financial documents and analysis which PWC collected in order to prepare the amended tax returns, all of the underlying work done by PWC and financial documents collected are subject to solicitor-client privilege overshoots the scope and purpose of solicitor-client privilege. Gowling was providing legal advice related to filing new tax returns and seeking admittance into the voluntary disclosure program. The fact that this legal advice was being provided, and that in giving it Gowling was working with PWC and relying on documents gathered and prepared by PWC, does not cloak all of the underlying financial documentation and analysis by PWC with privilege.
[56] In my view, the position put forward on behalf of Mr. Gong and his corporations simply casts the net too wide in terms of the scope of solicitor-client privilege as it relates to the functional role of PWC as accountants on the record before me.
[57] However, I accept that there is a reasonable possibility that during the course of its retainer, PWC may have come into possession of information that is subject to solicitor-client privilege. I reiterate that at this stage I have not reviewed the sealed documents subject to the production order. But just by way of example, one can reasonably imagine that the following possibilities may exist within the PWC file. It may be that for some aspects of certain activities of the corporations there are different possible tax treatments that were at least arguably supportable as a matter of law. It seems to me that there is a reasonable possibility that such issues may have been the subject of discussion between Gowling and PWC, or PWC and Mr. Gong (or all three), and ended up in the PWC file. Thus, there may be some documentation of communications relating to the giving or receiving of legal advice in the PWC file. Another example is that at some point either Mr. Gong or Gowling may have conveyed some aspect of Gowling’s legal advice to PWC, either orally or in writing, and the PWC file may contain a record of that legal advice. These are only two examples. But certainly, I accept that it is a reasonable possibility that among the documents in the PWC file there is some information that is subject to solicitor-client privilege. What I reject is the respondent’s assertion that the whole PWC file is subject to privilege.
[58] Some time was spent in written and oral submission by the Crown on the fact that some of PWC’s invoices were paid by Gowling, and some were paid by Mr. Gong or one of his corporations. In my view, if PWC was retained at least in part to assist in within Gowlings legal retainer, it does not matter if Mr. Gong, as the client of both Gowlings and PWC, paid PWC directly, rather than Gowlings paying PWC (and billing Mr. Gong for the PWC fees as a disbursement).
[59] There are various reasons a law firm may have a client pay disbursements for expert assistance directly to the retained expert. One reason for such an arrangement is that it means the law firm is not responsible for paying the fees to the expert, and for collecting that money from the client. That is, it makes the client responsible to pay the account of the retained expert. Indeed, Mr. Novoselac in his cross-examination gave exactly this as the reason that the retainer with PWC was set up with Mr. Gong paying PWC directly. I accept that allowing Gowling not to be involved in ensuring PWC was paid was at least part of reason that the retainer of PWC was set up to have Mr. Gong pay PWC directly.
[60] I note that another reason that a client may be asked to pay a third party expert directly is because the work done by the expert has more than one purpose, and is not solely in support of the legal work. In my view the record here taken as a whole supports that conclusion as well. However, I do not rely on the payment arrangements for PWC in coming to that conclusion. The payment arrangements are a neutral factor in my analysis.
[61] Before turning to litigation privilege, I want to address two other related issues concerning solicitor-client privilege. The applicant argued that another reason that solicitor-client privilege did not attach to the PWC file is that either the information in the PWC file was not intended to be confidential (and thus failed to meet one of the criteria for privilege), or that privilege was waived when the corporations sought and were accepted into the voluntary disclosure program.
[62] The applicant bases this argument on the fact that the policies for the CRA voluntary disclosure program require that disclosure be complete, and provide that CRA may request additional information and the taxpayer must comply with information requests, and because in its correspondence with CRA, Gowling offered on behalf of Mr. Gong and his corporations to provide further documentation if requested (see CRA Information Circulars re Voluntary Disclosure Program at Exhibits #9 at pp. 29-31, #10 at pp. 36-38; Exhibit #5 to the cross-examination of Mr. Novoselac at pp. 13-14).
[63] There is some force to these arguments, but I have reservations about them that lead me not to decide the solicitor-client privilege issue on these bases. There is some basis on the record before me to think that Mr. Gong and his corporations did not intend the financial work done by PWC to be confidential, since it was intended ultimately to be provided to CRA as part of the voluntary disclosure program. However, in my view the intention of Mr. Gong and the corporations to disclose the financial information to CRA was contingent on receiving legal advice from Gowling and deciding to pursue the voluntary disclosure program. Although the corporations were ultimately accepted into the program, this was not a done deal at the start of the process. Hypothetically, Mr. Gong could have received legal advice from Gowling and decided not to pursue the voluntary disclosure program. While this may have left him and the corporations not in compliance with their tax obligations, and subject to potential enforcement action, it was a course open to him at the outset. Thus, in my view although there was a likelihood at the outset that Mr. Gong would choose to disclose the financial documentation in relation to new tax filings, it was a decision contingent on the legal advice from Gowling. Thus, my finding that solicitor-client privilege does not apply to the whole PWC file does not rest on a finding of a lack of intention on the part of Mr. Gong or his corporations, or Gowling or PWC to keep the PWC work confidential.
[64] Waiver is slightly more complicated. For reasons similar to the ones I have explained in the previous paragraph, I am unable to find that had privilege existed, Mr. Gong and his corporations waived privilege on the whole PWC file by participating in the voluntary disclosure program. Although the CRA policy regarding the voluntary disclosure requires that disclosure be complete, and that a taxpayer provide additional documentation if requested (see CRA Information Circulars re Voluntary Disclosure Program at Exhibits #9 at pp. 29-31, #10 at pp. 36-38), the existence of this policy does not absolutely compel a party to produce documents. If a party was accepted into the CRA voluntary disclosure program (as were Mr. Gong’s corporations), if a document request was subsequently made by CRA, the party could still refuse the request. The consequence would presumably be to be kicked out of the voluntary disclosure program (see re-examination of Mr. Novoselac at pp. 162-166). Thus, I am unable to find an express waiver of privilege (subject to my discussion of implicit waiver below).
[65] However, the law in relation solicitor-client privilege does to some extent allow for waiver by implication, where a party discloses a document, or information, or part of a document, and as a matter of fairness, the impact of that disclosure requires that related documents be found to be subject to a waiver of privilege. It may be that when the sealed PWC file is reviewed, there may be a basis to find that because certain documents have already been provided to CRA, privilege was waived on related documents. Thus, I flag the waiver issue as one to be addressed by counsel with the referees on the review of the file (and if necessary, before me at a later date).
[66] Turning to litigation privilege, I find that it does not apply to the work done by PWC because I am not satisfied that the dominant purpose of PWC’s work was in support of litigation (i.e., the legal work by Gowling seeking admittance to the CRA voluntary disclosure program, assuming that seeking admittance to the program is properly considered “anticipated or actual litigation” – as I note below, I also have some concerns in this regard). In my view, supporting the work of Gowlings in seeking acceptance into the voluntary disclosure program was a purpose of the work done by PWC, but it was not the dominant purpose.
[67] My reasoning is similar to my reasoning with respect to solicitor-client privilege. In my view, on the record before me, viewed functionally, PWC’s work involved two things. The first function was to gather, review and prepare financial documents in order to prepare new tax returns for Mr. Gong’s corporations. This was an accounting function. The second function was to provide advice and information to Gowling in order for the Gowling to provide legal advice to Mr. Gong in relation to the application to enter the CRA voluntary disclosure program. Both of these functions were important. In my view, the purpose of assisting Gowling regarding the voluntary disclosure cannot be said to have been the “dominant” purpose, as is required for litigation privilege to attach. Gathering documents in order to prepare tax returns, something all taxpayers are required to do, is not a litigation function.
[68] I want to address one further issue in relation to litigation privilege. I have some concerns about whether the legal work by Gowling to assist Mr. Gong and his corporations in gaining admittance into the CRA voluntary disclosure program is legal work involving “anticipated or actual litigation”. I do not rule conclusively on this issue, because, although it was argued in the Crown’s written materials, Mr. Garg did not pursue in oral argument the argument that seeking entry into the voluntary disclosure program could not be considered litigation. Thus, in my view it would not be fair to decide the litigation privilege on this basis when it was not fully argued.
[69] However, my reservation about it arises from the fact that on the case law it is clear that litigation privilege has developed in the context of the needs of adversarial proceedings. It is not clear to me that in seeking admittance into the CRA voluntary disclosure program, Mr. Gong and his corporations were in an adversarial relationship with CRA. However, it also may be that the courts should allow some flexibility in defining “anticipated or actual litigation”, both because of the development of new means of resolving disputes besides traditional adversarial processes, and because the context of administrative proceedings may call for a more flexible approach, given the spectrum of different types of administrative bodies and decision-makers. As I say, I do not decide the litigation privilege issue on this basis.
[70] For these reasons, I find that the PWC file is not subject to litigation privilege. I further find that I am not persuaded that the entire PWC file is subject to solicitor-client privilege. It will be necessary for the sealed PWC file to be reviewed, document by document, to determine if individual documents contain communications for the purpose of giving or receiving legal advice. I will appoint referees to carry out the review of the sealed file, in accordance with the direction below.
[71] I have not reviewed the sealed documents subject to the production order in making this ruling (other than the unredacted letter and memo referred to above that were filed under seal at the hearing and were marked at the hearing as Exhibits #2 and #3). Given the volume of documents at issue, I will appoint referees to review the documents and report back to me regarding the claims of privilege. I address the terms of the appointment of the referees below.
[72] In order to give as much clarity as possible to the referees about what is and is not privileged, I give the following direction. However, I want to make clear that that as I have not at this stage reviewed the sealed PWC file, this direction is not exhaustive. It is possible that there are documents for which this direction does not give sufficient clarity, and the parties and the referees may need to appear before me to make further submissions or seek further direction:
(i) Pre-existing financial documents of Mr. Gong or the corporations in the hands of PWC are not subject to solicitor-client privilege.
(ii) Documents created by PWC outside of being a conduit for legal advice are not privileged. This category is in reference to my holding that PWC in effect performed two functions, one of which was to independently gather and prepare financial documents, and the other of which I am prepared to accept may have at times been to act as a conduit between Mr. Gong and his corporations and Gowling for the purpose of giving or seeking legal advice. In the category of documents where PWC was not acting as a conduit for legal advice, I refer, primarily to financial documents such as balance sheets and other financial data used to prepare the tax returns. But as I have indicated, I have not reviewed the sealed documents. It may be that once the referees are appointed and have reviewed the documents, I will need to provide further direction. This category is subject to the exception for interviews with Mr. Gong, which I address below at point (v).
(iii) In between category (ii) above and category (iv) below, are fact documents prepared by PWC to assist Gowling. These will have to be subject to a document by document review, but these documents may be privileged if a review leads to the conclusion that they were prepared for the purpose of the giving or receiving of legal advice between Mr. Gong and his companies and Gowling.
(iv) Communications for the purpose of giving or receiving legal advice between PWC and Gowling (or between Mr. Gong and Gowling) are subject to solicitor-client privilege. For the sake of clarity, this includes legal advice provided by Gowling, questions posed by Gowling to PWC in the context of Gowling formulating legal advice, and PWC’s responses. To the extent that information in this category may be extracted in subsidiary documents, it is still subject to privilege (unless there is evidence to support a waiver for a particular document). So, for example, if an internal PWC document quotes or summarizes legal advice given by Gowlings, that portion of the internal PWC document would be covered by privilege.
(v) Any interviews of Mr. Gong, whether done by Gowlings or by PWC are subject to solicitor-client privilege. In my view, in the limited context of interviews of Mr. Gong, it is likely to be difficult to separate out the two streams PWC’s functions. I am concerned to protect Mr. Gong’s right against self-incrimination. But I want to be clear that this applies to statements by Mr. Gong. It does not apply to financial documents he may have provided to PWC.
[73] Both parties suggested Mr. Ian Scott and Mr. Ian Smith be appointed as referees because they have already been appointed as referees in in dealing with other potentially privileged materials involving Mr. Gong and his companies. If Mr. Scott and Mr. Smith are available and able to accept the appointment, I agree that it makes sense that they be appointed as referees.
[74] I did not hear submissions as to the terms of the order appointing the referees when I heard this application. If counsel are able to agree on terms for the appointment, and if Mr. Scott and Mr. Smith are able to accept the appointment, a draft order can be submitted for my review via my assistant. If counsel are not able to agree on terms, or if different names are proposed for the referees, counsel may arrange a brief appearance before me through the Trial Coordinator’s office in order to finalize the terms of the appointment of the referees.
[75] Subject to counsel agreeing on the terms of the order appointing the referees, or appearing before me to settle the terms of the order, I provide the following guidance as to how I foresee the referee procedure working. In general terms, what I envisage as the process is that once the referees are appointed, they will review the sealed file in accordance with the direction I have given in this ruling. Based on this ruling, the referees can work with counsel, and I hope reach agreement regarding what is and is not subject to solicitor-client privilege on as much of the sealed file as possible.
[76] In accordance with Lavallee, counsel for the Crown/OSC may make submissions on the issue of privilege (as may counsel for Mr. Gong), but counsel for the Crown/OSC is not permitted to inspect the documents before making submissions. The prosecuting authority may only inspect the documents if and when it is determined by a judge that the documents are not privileged (or if Mr. Gong agrees, based on these reasons that particular documents are not privileged). Unless there is disagreement between the parties, I would leave in the referees’ hands the level of formality for submissions by the parties to the referees.
[77] To the extent that agreement cannot be reached, the referees can bring the matter back before me, for further direction, and/or for argument regarding specific documents or information. Without in any way suggesting Mr. Gong should give up whatever claims of privilege he is entitled to, I am hopeful that counsel can work collegially to minimize the number of documents that will need to be brought back before me (i.e., to allow the referees to carry out their function).
[78] As Mr. Gong and his corporations are the ones claiming privilege, they will bear the onus of showing that particular documents are subject to solicitor-client privilege. However, as I have indicated, I am hopeful that working with the referees, much of this may be worked out by agreement, and only a limited number of documents will need to be brought back before me for further submissions and decision if necessary.
[79] Before closing, I want to flag two issues raised in Mr. Gong’s written materials, which in my view are not before me in this application, and are appropriately raised in a different forum.
[80] There was some argument in Mr. Gong’s written materials and in oral submissions that as part of the privilege application before me, the Crown was required to show that there were other means to obtain the documents it is seeking besides by way of the search of a “law office” (meaning PWC). This argument is based on the case law in relation to law office searches that a warrant or production order should not issue for a law office unless there are no reasonable alternate sources for the state to seek the information at issue.
[81] In my view this privilege application is not the appropriate forum to make that argument. As noted above, for purposes of this application, it is not necessary for me to decide if PWC is a “law office”. The only issue is whether documents it holds are subject to solicitor-client privilege. Assuming, for the sake of argument, that PWC could be labelled a law office (or that at the time the production order was sought, there was enough information in the hands of the OSC investigators that they ought to have followed principles applicable to searches of law offices), the obligation on the police/Crown to show that there are no reasonable means of seeking the information sought for the investigation other than a search of a law office is a condition precedent to the issuing of a warrant or production order: Descoteaux at pp. 889-91, 893; Lavallee at para. 49; and Maranda at paras. 14-16. The appropriate place to challenge an alleged failure to meet that condition precedent is in a pre-trial or trial application challenging the issuing of the production order. No challenge to the issuing of the production order is before me.
[82] Similarly, Mr. Gong made some argument that the production order at issue was overly broad. Again, the validity of the production order is not before me. The only issue before me is the solicitor-client privilege application. If the respondent wishes to challenge the production order as being too broad, that is an issue for a pre-trial or trial application challenging the validity of the production order.
Justice J. Copeland
Released: November 7, 2019
COURT FILE NO.: CR-19-00000038-00MO
DATE: 20191107
ONTARIO
SUPERIOR COURT OF JUSTICE
IN THE MATTER OF A PRODUCTION ORDER SERVED ON PRICEWATERHOUSECOOPERS PURSUANT TO SECTION 487.014 OF THE CRIMINAL CODE
BETWEEN:
HER MAJESTY THE QUEEN
Applicant
– and –
XIAO HUA GONG
Respondent
REASONS FOR DECISION ON SOLICITOR-CLIENT PRIVILEGE APPLICATION
Justice J. Copeland
Released: November 7, 2019
[^1]: Subject to the inclusion of third parties/experts in certain situations, which I discuss below.
[^2]: This issue was expressly left undecided by the Supreme Court in Blank at paras. 62-64. I agree with the analysis of Nordheimer J., as he then was, in Ontario (Provincial Police) v. Assessment Direct Inc., 2016 ONSC 8138 at paras. 9-24, that this issue was not, in fact, settled in Ontario in Chrusz, given the terms of Mr. Justice Rosenberg’s reasons in that case on the gathered documents issue.