When is Communication Between a Client's Accountant and Lawyer Privileged?

Communications between lawyers and their clients' accountants or other non-legal professionals are not in themselves privileged but can be where the communication is in "furtherance of a function essential to the solicitor-client relationship or the continuum of legal advice provided by the solicitor", the Saskatchewan Court of Appeal recently held in Redhead Equipment v Canada (Attorney General), 2016 SKCA 115 [Redhead].

Documents that are privileged do not have to be disclosed, for example, in a lawsuit or to tax authorities. Legal advice privilege, a type of privilege in which legal advice is sought from a lawyer, is the form of privilege most often relied on in transactional settings, and protects communications between a client and a lawyer. Often, however, accountants and other non-legal professionals are involved in such transactions. Are communications between these other professionals and a lawyer privileged? If "it depends", are there ways of strengthening the potential for such communications to be privileged? In Redhead, the Saskatchewan Court of Appeal had an opportunity to address these questions.

In Redhead, a group of companies (Redhead) effected a restructuring which involved Redhead seeking legal advice on tax-related matters. The Canada Revenue Agency (CRA) later requested that certain information and documents related to the restructuring be provided to it pursuant to the Income Tax Act. In response, Redhead applied for an order that the documents in question were privileged.

In considering the decision of a chambers judge, the Saskatchewan Court of Appeal reviewed relevant principles of law concerning legal advice or solicitor-client privilege (litigation privilege was not at issue, since litigation was not existing or contemplated at the time). The Court noted that the "nature or content of the communication must involve legal advice" and the "lawyer must be acting as a lawyer giving legal advice rather than in some other non-legal capacity". Accounting documents, or documents of a "factual nature" are not privileged. Likewise, documents that the lawyer possesses unrelated to the giving of legal advice are not privileged. However, to attract the privilege, it is not necessary for the communication to "specifically request or offer advice as long as it can be placed within the 'continuum' of communication in which the solicitor tenders advice."

In applying these principles to situations in which a third party, such as an accountant, is interjected between the lawyer and the client, the Court reviewed previous case law and held that:

... the privilege extends to all situations in which the third party functions as an interpreter of information provided by the client for the solicitor or serves as a conduit of advice from the solicitor to the client or a conduit of instructions from the client to the solicitor, or employs expertise in assembling information provided by the client and in explaining it to the solicitor. ... 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.

Turning specifically to accountants, the Court noted that "[t]here is no such thing as accountant-client privilege" and "tax accountants do not give legal advice." Rather, information from accountants will be protected by privilege only where the accountant "was used as a representative of a client to obtain legal advice". Thus, the privilege does not attach to a communication to an accountant where his or her accounting opinion is sought and provided. In particular, communications are not privileged simply because a lawyer is "'driving the bus' and everyone is on board and travelling toward the same transactional destination."

Redhead thus confirms the unique and advantaged status afforded to lawyers, who alone are given the protection of legal advice privilege. Communications with other professionals, while transactionally important, must be treated carefully. The path to protecting such communications may be bolstered by positioning the adviser as "a channel of communication", "a messenger, translator or transcriber" or someone who "employ[s] expertise to assemble information provided by the client and explain[s] the information to the solicitor". In this way, with thoughtful preparation and implementation, the case for non-disclosure of sensitive or confidential material may in some cases be strengthened.

Download PDF