Iggillis Holdings Inc v Canada (National Revenue): What Secrets Can Corporate Lawyers and Their Clients Keep?

When corporate lawyers choose to exchange information with opposing counsel, they do so with a view towards a smooth and confidential closing of their client’s transaction. In particular, the promise of confidentiality is granted by the doctrine of “common interest privilege”.

Privilege protects all communications between a professional legal adviser and their clients from being disclosed without the permission of the client. When parties willingly share otherwise privileged communication with a third party however, they are said to be waiving their right to privilege to the “whole world”. Common interest privilege acts as an exception to this rule. The idea is that parties who have a common interest in a legal matter (as when two opposing lawyers act on a beneficial deal for their clients) should nonetheless be afforded the protection of privilege so that they can continue to share information between them, but not with other parties.

Recently, the decision Iggillis Holdings Inc. v Canada (National Revenue), 2016 FC 1352 [Iggillis FC] raised considerable alarm amongst the corporate law bar when it held that common interest privilege is valid only in litigation settings—not transactional ones. Such a ruling would have forced counsel to revisit the collaborative nature of their deal-work, adding potential costs and delays to the process. The fate of common interest privilege was left to the closely watched appeal in Iggillis Holdings Inc. v Canada (National Revenue), 2018 FCA 51 [Iggillis FCA].

Below, I discuss the case, its findings and whether lawyers are now free to breathe a sigh-of-relief.

Background – Show Me Your Money

Iggillis Holdings was a company that held a number of shares, which it sought to sell to a company called Abacus Capital. To facilitate this deal, each party retained its own legal counsel.

Typical of such a deal, counsel for Abacus produced a step memorandum (the “Abacus Memo”), a type of document that outlines the steps of the contemplated transaction and provides a legal analysis of the tax consequences of each step for both parties. Importantly, the 18-page document created by Abacus’ counsel was completed with collaborative input from Iggillis Holdings’ counsel.

The case arose when the Canadian Revenue Agency (the “CRA”) sought review of the transaction and required Iggillis Holdings to produce the Abacus Memo. Iggilis Holdings refused and claimed common-interest privilege over the memo. The matter was brought before the Federal Court.

The Lower Court Decision – Time for a New Normal?

While the Federal Court accepted that common interest privilege was strongly implanted in Canadian law, it held that common interest privilege in a transactional setting was not a “legitimate or acceptable” application of solicitor-client privilege doctrine.

In particular, the Federal Court concluded that the policy rationale behind common interest privilege in a transaction setting—that it facilitates parties’ common interests in concluding transactions efficiently—was speculative, while the costs associated with shielding evidence at trial was certain and obvious.

As explained,

“Courts are not prepared to fetter their truth-seeking legal process, unless it is clearly demonstrated that it is essential to do so. Only something as essential as the need for confidentiality in maintaining the solicitor-client relationship—without which the administration of justice cannot function—will do. The administration of justice has and will function quite nicely without advisory CIP (common interest privilege).” (Iggillis FC, para 223, emphasis my own)

In a ruling largely driven by policy considerations, the Federal Court ruled that common interest privilege encouraged transactions with a view towards excluding large amounts of relevant evidence from any resulting litigation.

At the Federal Court of Appeal – Let’s Slow Down a Bit

The Federal Court of Appeal (the “FCA”) rejected the lower court’s conclusions and reinforced common interest privilege as a legitimate doctrine at law in commercial settings—and an audible sigh-of-relief was heard from the commercial bar.

First, the FCA rejected the notion that common interest privilege prevented courts from having all relevant evidence available to it. Since issues of taxation are fundamentally questions of law rather than questions of opinion evidence, the absence of documents such as the Abacus Memo would not affect a Court ruling. Indeed, each party would be called upon to argue at a hearing how the applicable sections of a taxing statute would apply (e.g. if something should be characterized as income or capital gains).

Turning to the statutory language of the Income Tax Act, RSC, 1985, c 1, the FCA noted that the Act defines “solicitor-client” privilege as the right a person has in a superior court to refuse to disclose evidence in the province where the matter arises. As the Iggillis deal was made in Alberta and British Columbia, the FCA held that the proper question was whether the Abacus Memo was privileged under the laws of those provinces, rather than what the law should be based on the policy concerns of the Federal Court judge. Indeed, the FCA found that the concept of common interest privilege was deeply entrenched in the common law of both provinces.

Lastly, while the analysis was driven by statutory interpretation and case law, the FCA nonetheless tip-toed into a thicket of policy considerations. The FCA upheld the efficiency argument of the common interest privilege, noting,

“In my view, the result should not be different because a single opinion was prepared based on input from the two lawyers. When dealing with a statute as complex as the Income Tax Act, it may well be more efficient and the interests of the respective clients may well be better served if the lawyers collaborate on the opinion that is to be provided in relation to the application of that statute to the series of transactions to be completed by the parties.” (Iggillis FCA, para 19)

As such, the FCA allowed the appeal.

Significance and Final Thoughts

At face value, the ruling signals that a “business as usual” approach to transactional law has prevailed. As the Canadian Bar Association noted as an intervener in the FCA case, it’s an established practice that “Canadian lawyers operate in transactional fields where multiple clients benefit from a common understanding of the law governing their transaction.”

In the broader picture, however, I think this case deals a blow to the CRA and its recent tax evasion crackdown on companies such as Loblaws, Cameco, Silver Wheaton as well high-net worth individuals. Indeed, internal tax memorandum and other correspondence would undoubtedly have provided the CRA with additional context and evidence with which to prosecute instances of tax evasion, including those through the CRA’s Criminal Investigations Program. For the foreseeable future, however, such correspondence will continue to enjoy the protection of privilege.


Scott Lin

Scott is currently a JD/MBA student at Osgoode Hall Law School and the Schulich School of Business. Prior to law school, he worked a lecturer at the University of Western Ontario, where he taught first-year Introduction to Business. He will be completing his articles at a firm in Toronto, with interests in the areas of corporate/commercial and competition law.

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