FCA To Hear Atlas Tube Appeal

The case of Canada (National Revenue) v. Atlas Tube Canada ULC (2018 FC 1086) involves a number of interesting issues surrounding a tax diligence report prepared by an accounting rm for a potential purchaser of a target corporation. The report contained information on the tax prole and attributes of the Canadian target entities and an evaluation of their tax exposures drawn from their four most recent tax returns. The FC determined, inter alia, that the report was not protected from disclosure under solicitor-client privilege. The court's ndings on the privilege issue in particular are open to question on a number of fronts, all of which one hopes will be considered by the Federal Court of Appeal.

First, the FC applied the wrong legal test as to when work product may come within the protection of solicitor-client privilege. The court stated that privilege applies to a document that is not itself legal advice only where the "principal purpose" of the document's creation was obtaining such legal advice; the FC cited as authority only a master's decision on an interlocutory motion involving litigation privilege. This is the wrong legal test: obtaining legal advice need only be one of the document's purposes. In Gower v. Tolko Manitoba Inc. (2001 MBCA 11, at paragraph 36), the Manitoba Court of Appeal considered and specically rejected the use of a "dominant purpose" test for solicitor-client privilege:

Legal advice privilege is not dependent upon there being litigation in progress or even in contemplation at the time the communication takes place. Nowhere in the denition of legal advice privilege is there any requirement that the communications between the lawyer and his/her client be for the dominant purpose of litigation. Rather, what must be present is the provision of legal advice as one of the purposes of the document, but that legal advice is not conned to a situation where litigation is contemplated.

For a more detailed discussion of this issue, see Steve Suarez, "Canadian Court Orders Disclosure of Accounting Firm Diligence Report in Atlas Tube," Tax Notes International, December 24, 2018, at 1283.

Second, the court's conclusion that the primary purpose of the report was to inform the buyer's business decision as to whether to buy the target (and at what price) seems questionable. It was the buyer's lawyers who recommended that the accounting rm perform the tax diligence investigative work, and who subsequently received and used a copy...