Court File and Parties

COURT FILE NO.: CR-22-90000092- 00MO DATE: 20230322 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: HIS MAJESTY THE KING v. KWANG WON LEE and SUNG OH CHUNG

BEFORE: The Hon. Justice Michael G. Quigley

COUNSEL: Marie Comiskey and Sharon Reynolds, for the Applicant/Crown James Bray, for the Respondent Kwang Won Lee Robert Yasskin, for the Respondent Sung Oh Chung

HEARD: March 6, 2023

Endorsement

[1] On June 14, 2022, fraud charges were laid against the defendants, Kwang Won Lee and Sung Oh Chung alleging that they committed fraud by failing to report the full corporate income and net GST of two personnel staffing companies they owned, Sovereign Staffing Incorporated (“SSI”) and Talent Savvies Incorporated (“TSI”), for the taxation years 2012 to 2016. The charges also allege that Lee and Chung committed fraud by failing to report income on their T1 personal tax returns of about $7.28 million, allegedly fraudulently appropriated from SSI and TSI over a five-year period from 2012-2016.

[2] In July 2021, during disclosure preparation and before charges were laid, a Canada Revenue Agency (“CRA”) investigator located three lawyers’ statements of account. Those accounts or invoices were separated from the disclosure and sealed. After providing initial disclosure in July 2022, the CRA further identified 35 cheques to or from a lawyer/law firm in the documents provided by financial institutions in response to production orders. At that time, the disclosure was recalled, and this application was brought out of an abundance of caution to obtain directions on two issues:

(i) Whether cheques to or from a lawyer/law firm are presumptively not privileged when obtained from a financial institution in response to a production order? and

(ii) What steps ought to be taken in relation to the three lawyers’ statements of account that have been sealed? Should they remain sealed until the conclusion of the proceedings or be destroyed?

[3] The central allegation in the fraud case is that Lee and Chung maintained secret bank accounts for SSI and TSI which were hidden from their accountants and the CRA, into which millions of dollars of income was deposited and thereafter personally appropriated by the respondents for their own use or benefit. However, while CRA’s case is built on tracking monies flowing in and out of corporate and personal bank accounts, there is no issue with respect to solicitor-client relationship that SSI, TSI, Chung, Lee or their spouses may have had with any lawyer. CRA accepted that all legal expenses claimed were legitimate. None were challenged.

[4] Lee and Chung were arrested on June 16, 2022, and released the same day on consent bails. Following their first appearance on July 12, 2022, counsel for CRA provided initial disclosure to defence counsel.

[5] As noted, in 2021 while the voluminous disclosure was being vetted and prepared by the CRA, Pierre Bernier, the lead investigator at the time, located the three lawyer/law firm statements of account among the electronic copies of the seized records. Since the CRA had already returned the original paper records it had seized, it maintained only an electronic certified copy of those seized records.

[6] The three accounts were removed from CRA’s disclosure management system and placed on an encrypted USB key in the CRA evidence storage room, called the “Bond Room.” The password for that encrypted key is known only to the team leader of the CRA Computer Forensics Analyst Team (“CFAT”) and is not known to individual investigators on this case.

[7] There is an additional copy of the three accounts on a USB key provided by the CRA Integrated Technology Centre (“ITC) in Prince Edward Island where the scanning of the seized records occurred. This USB is currently in a locked row in the Bond Room and is not accessible. The key to the locked row is kept in a safe which can only be opened by two managers who are both present at the same time.

[8] During this investigation, as in most similar investigations, CRA obtained extensive banking information from numerous financial institutions as a result of production orders issued under the authority of the Income Tax Act (the “Act”).

[9] On August 11, 2022, CRA investigator Bernier also identified that there were 35 cheques, relating to six lawyers or law firms contained within the documentation produced from financial institutions in response to those production orders, that had in turn been provided to the respondents.

[10] The 35 cheques identified come from seven different bank accounts in four different financial institutions (CIBC, TD Bank, Shinhan Bank Canada, and RBC Bank). The seven bank accounts include two of SSI’s corporate accounts, two of Lee’s personal accounts, one of Chung’s personal accounts, and two further personal accounts belonging to Young Hee Ha, Lee’s spouse, but who was not charged in this matter.

[11] Counsel for the CRA takes the position on this application that cheques to or from a lawyer/law firm are presumptively not privileged when produced by a financial institution in response to a production order. It seeks these orders confirming that position out of concern that there may be some doubt or uncertainty to the propositions advanced. Defence counsel takes no position on CRA’s request.

[12] Over the past four decades, the law of solicitor client privilege in Canada has been consistently strengthened and elevated by the Supreme Court of Canada from an evidentiary or procedural rule into a general principle of substantive law. Notwithstanding those developments, the fact remains that not everything that happens in a solicitor-client relationship is privileged: see R. v. Li, 2013 ONCA 81, [2013] O.J. No. 564 at paras 59- 61, Maranda v. Richer 2003 SCC 67, [2003] S.C.J. No. 69 at para 12; Descôteaux v. Mierzwinski, [1982] 1 S.C.R. 860 at p. 873; R. v. Serfaty, 2004 ONSC 9060, [2004] O.J. No. 1952 (SCJ).

[13] In Maranda v. Richer, 2003 SCC 67, [2003] SCJ No. 69 at paras 30- 32, in the context of a search warrant obtained for a lawyer’s office, the Supreme Court moved away from the traditional distinction drawn between facts and communications because the distinction is difficult to draw and risks eroding the privilege. As such, the court directed that when a search warrant is sought for a lawyer’s office, the amount of the fees expressed in a lawyer’s statement of account, that is, the invoices sent to the client, must presumptively be considered to be subject to solicitor-client privilege for two reasons: (i) because of the difficulty inherent in determining the extent to which information in a lawyer’s bill of account is neutral, and (ii) because of the importance of the constitutional values that would be endangered if privileged information were revealed. One of the primary concerns of the Supreme Court was that lawyers’ offices should not be transformed into repositories of evidence available for and at the whim of the Crown.

[14] The court also directed in Maranda that financial information concerning the payment of legal fees is available and can be obtained from other sources, such as banks and financial institutions. It observed that the Crown had not argued before the trial judge that the amount of the billings was not privileged, and so, on the basis that they were presumptively privileged, the trial judge was compelled to rule that they were privileged, and that ruling was upheld on appeal, given the circumstances.

[15] More recently, however, in its 2016 decision in Quebec (A.G.) v. Chambre des notaires, 2016 SCC 20, [2016] S.C.J. No. 20, the Supreme Court again noted that the State is able to seek and obtain information about specific transactions between lawyers and clients from the financial institutions that complete those transactions on the customer’s behalf. The State can access information in this way because those institutions do not have as onerous an obligation as a lawyer to safeguard the confidentiality of these documents in their possession:

[59] We agree that the problem in this case is not as acute as in Lavallee or FLS, which involved physical searches of law offices. The mere service of a requirement to disclose certain information or documents is not on the same scale. Nevertheless, we find that it is not absolutely necessary here to rely on notaries or lawyers rather than on alternative sources in order to obtain the information or documents being sought. For example, where the Minister seeks information about specific transactions in which the client took part, the information would be available from alternative sources, such as financial institutions, that do not have as onerous an obligation to safeguard its confidentiality. In this regard, there is no evidence that the Minister even tried, albeit unsuccessfully, to obtain the information in question by alternative means before issuing a requirement to a legal adviser.

[16] Canada (M.N.R.) v. Ouellette, 2008 FC 594, 2008 F.C. 594 at paras 17-18 provides an even more vibrant example of the point in the context of information sought by CRA. In that case, the taxpayer was a lawyer. CCRA, as it then was, conducted a completely random innocent investigation of his financial records, but with no preconceptions regarding the validity of revenues and expenses claimed by the taxpayer. The lawyer was initially co-operative and provided documents requested by CCRA, but then refused to provide certain documents relating to financial transactions, such as bank deposits and checks, out of concern they would or could reveal the names of some of his clients. CCRA issued demands for production under ss. 231.2(1)(a) and (b) of the Act to two banks, with whom the taxpayer did his business, to provide CCRA with the information and documentation it sought. The taxpayer referred the matter to the Bar of Quebec and consulted independent legal counsel. CCRA referred the case to Minister of Justice.

[17] The financial institutions provided copies of the documents in question to the Court and the documents were sealed. When the Minister of National Revenue then applied for an order authorizing CCRA to examine the taxpayer's documents it was granted. Harrington J. of the Federal Court found that the information in question was not protected by solicitor-client privilege. The lawyer had not provided the court with any specific indication of how cheques and other documents in the case where privileged. Moreover, even if the documents in question were protected by solicitor-client privilege, it had been lost when the information was divulged to the taxpayer's third-party financial institutions.

[18] On this application, Crown counsel takes the position that cheques to and from a lawyer (and the account statements that reflect these payments) are presumptively not privileged when they are obtained from a financial institution, since they simply reflect a transaction and not a communication. She relies upon the decision of this court in R. v. Serfaty, 2004 ONSC 9060 (ON SC), [2004] O.J. No. 1952 (S.C.J.) at para. 50, where Molloy J. pointed out that the trust account information that the Crown sought to adduce into evidence would have been compellable if routed through a bank.

[19] I agree and find that cheques to and from a lawyer (and the account statements that simply reflect these payments) are presumptively not privileged when they are obtained from a financial institution. As the Bills of Exchange Act, R.S.C. 1985, c. B-4, s. 165(1) makes clear, a cheque is simply a note drawn on a bank, payable on demand. This is unlike a lawyer’s statement of account, which may contain specific details about the legal advice sought and steps taken by the solicitor.

[20] In contrast, a cheque simply reflects a direction by the drawer to a financial institution that the payee receive a specified amount of funds to be drawn from a specific account payable at or after a specific time: see also Canadian Encyclopedic Digest, Bills of Exchange, XIII.1; Tournier v. National Provincial & Union Bank, [1924] 1 KB 461 at p. 473.

[21] A production order seeks merely to require the disclosure of the facts of one or more transactions. Unlike in the context of a lawyer’s office, the distinction can be easily drawn between facts and communications in the context of a bank or other financial institution, without the policy concerns that arise with executing search warrants on lawyers’ offices and using lawyers files as a potentially rich repository of evidence for a criminal investigation: Maranda v. Richer, above at para 37; Donell v. GJB Enterprises, 2012 BCCA 135, [2012] BCJ No. 589 at para 59.

[22] If I am mistaken or have erred in this finding, and an appellate court were to find that the cheques are presumptively solicitor-client privileged, then, in my view, the privilege can be rebutted in this case in any event because the cheques do not reveal a privileged communication between the account holders and their lawyers, and the CRA’s investigation did not seek to discover any information about the solicitor-client relationship. The tax evasion criminal investigation in this, and most other cases, focuses solely on unreported income. In an investigation into tax evasion, it will always be necessary to track the flow of monies in and out of accounts, including payments to or from a lawyer/law firm, as part of the evidence to put before the court in any preliminary hearing or at trial.

[23] It is true that financial information arising out of the solicitor-client relationship may and will be presumptively privileged, in particular circumstances. In Ontario (A.G.) v. Ontario (A.I.P.C.) (2005), 51 D.L.R. (4th) 65, [2005] O.J. No. 41 at paras. 11-12 (C.A.), the Court of Appeal held that even if there is a presumption of privilege relative to the amount of fees paid (when sought from a lawyer’s office or government department), the presumption will be rebutted if there is no reasonable possibility that the amount will directly or indirectly reveal any solicitor client communication protected by the privilege. However, the Court of Appeal noted that the context in which the information is sought may be relevant to whether it is protected by solicitor-client privilege at all, but was prepared to accept for the purposes of the appeal that the information as to the amount of the fees was presumptively privileged: see also Edmonton Police Service v. Alberta (I.P.C), 2020 ABQB 10, [2020] AJ No. 56 at paras 352-353.

[24] In another Ontario decision, Ontario (Ministry of the Attorney General) v. Ontario (Information and Privacy Commissioner), 2007 ONSCDC 65615 (ON SCDC), [2007] O.J. No. 2769, 227 O.A.C. 38 at paras. 21, 25-27 (Div. Ct.), the court dismissed two applications for judicial review of the decision of adjudicators ordering MAG to disclose the total amounts on individual legal invoices submitted by the Constitutional Law Branch to two government departments in relation to legal services concerning provision of services to autistic children. MAG was ordered to either provide redacted invoices or create a new record with the invoice totals. The Divisional Court found that the adjudicators had not erred in finding that the presumption of privilege had been rebutted, since only the total amount of the fees was sought, and the requesters had not sought account details that would permit any deduction of privileged information.

[25] Finally, I would note that the Supreme Court’s decision in R. v. Cunningham, 2010 SCC 10, [2010] S.C.J. No. 10, emphasizes that the context of a case is an important consideration in assessing whether solicitor-client privilege applies. In Cunningham, the fact of non-payment of fees did not require the protection of solicitor-client privilege because it was not related to the merits of the case and would not cause prejudice to the accused. As the court states at para. 31:

[31] Disclosure of non-payment of fees in cases where it is unrelated to the merits and will not cause prejudice to the accused is not an exception to privilege, such as the innocence at stake or public safety exceptions (see generally R. v. McClure, 2001 SCC 14, [2001] 1 S.C.R. 445, and Smith v. Jones, [1999] 1 S.C.R. 455). Rather, non-payment of legal fees in this context does not attract the protection of solicitor-client privilege in the first place. However, nothing in these reasons, which address the application, or non-application, of solicitor- client privilege in disclosures to a court, should be taken as affecting counsel's ethical duty of confidentiality with respect to payment or non- payment of fees in other contexts." [My emphasis]

[26] In any event, it is plain and relevant from a practical perspective that the quantum of a payment either to or from a lawyer/law firm can never truly be shielded from disclosure when provided by a financial institution, where all transactions within a particular time frame are ordered to be provided by the production order. A simple analysis of all debits and credits on an account statement, along with the opening balance and closing balance, will quickly reveal the amount of the payment even if the quantum is vetted on a cheque.

[27] In summary, I would again note that CRA’s fraud allegations are not concerned in any way with the substance of the solicitor-client relationship between SSI, TSI, Lee, Chung, Young Hee Ha (Lee’s spouse) and their lawyers. The CRA performed a bank analysis focused on the movement of monies in and out of the accounts. At the core of the case is an allegation that the respondents, as officers and directors of SSI and/or TSI (i) maintained hidden bank accounts into which a large portion of the corporate income and GST was deposited, and (ii) kept the existence of those accounts secret, deliberately failing to disclose them to their own accountants, and deliberately keeping them hidden from the CRA to enable themselves (iii) to appropriate large amounts of cash for their use or benefit.

[28] In conclusion, any presumption of solicitor-client privilege is rebutted in this case because the cheques reflect financial transactions and not communications. There is no reasonable possibility that the disclosure of the 35 cheques (and the accompanying bank statements) will reveal solicitor-client privileged communications in the context of a fraud case which is unconcerned with any of the details of the solicitor-client relationship, and simply seeks to accurately track the flow of monies in and out of accounts.

[29] Finally, I turn briefly to the applicant’s request for directions on the appropriate steps to take in relation to the three legal invoices/statements that were discovered in July 2021 and separated and isolated at that time. The procedure set out in Lavallee, Rackel & Heintz v. Canada (A.G.), 2002 SCC 61 at para. 49 for handling solicitor-client privilege issues, suggests that any documents found to be privileged are to be returned to the holder of the privilege or to a person designated by the court.

[30] In this case, the three originals have already been returned by the CRA, although it continues to retain one set of copies of the three electronic invoices/statements on an encrypted USB key in the CRA Bond Room. Two alternatives are proposed, one that the encrypted and protected USB be retained within its present safe keeping arrangements until the conclusion of the proceedings, or alternatively, that the copies be destroyed. Further, in order to permit the Crown to be able to seek to introduce a USB with a copy of the scanned seized records at any preliminary hearing or trial, the applicant seeks an order permitting the CRA to make a copy of the USB prepared by the CRA Integrated Technology Centre in which the three invoices/statements are fully vetted, and to retain it within the present secure arrangements pending further orders of any court having jurisdiction at that time.

[31] Based upon the foregoing reasons and having considered the submissions of counsel, counsel for the respondents taking no position on the application, the following orders will go:

Re the 35 Cheques Identified:

(i) That cheques to or from a lawyer or law firm are presumptively not privileged when they are produced by a financial institution in response to a production order issued under ss. 231.2(1)(a) and (b) of the Act; and

(ii) Even if cheques to or from a lawyer or law firm are presumptively privileged when they are produced by a financial institution in response to a production order under ss. 231.2(1)(a) and (b) of the Act, I find and order that the presumption is rebutted in this case in relation to the 35 cheques identified.

Re the 3 Legal Invoice/Statements:

(iii) That the copies of the 3 legal invoices/statements be maintained on an encrypted USB in the CRA bond Room until the conclusion of this case, or alternatively, that they be ordered destroyed; and

(iv) That a duplicate copy of the USB containing a scanned copy of all seized records which was provided by the CRA Imaging Technology Centre be made in which the copies of the 3 legal invoices be vetted out, and that the new USB be accompanied by an affidavit attesting to the steps taken. The original copy of the USB is from the CRA Imaging Technology Centre is to be destroyed.

Justice Michael G. Quigley Date: March 22, 2023