Maintaining Privilege For Cross-Disciplinary Tax Advising

Redhead Equipment Ltd et al v. AG (Canada) (2016 SKCA 115) ("Redhead") provides a helpful summary of key principles governing solicitor-client privilege when lawyers and accountants are involved in transactional work and tax planning.

The background facts are as follows:

Ownership and management: Gary Redhead was the president of Redhead Equipment Ltd. ("REL") and president and director of the sole shareholder of REL, GLR Enterprises Inc. ("GLR"); GLR Consulting Ltd. ("GLR Consulting") was the sole shareholder of GLR; and Mr. Redhead was a shareholder, director and officer of related companies within the "Redhead Group". Subject transactions: REL restructured its business in 2009 and 2010 involving the creation of Redhead Equipment Partnership; REL, GLR and LCMR Enterprises Ltd. ("LCMR") commenced carrying on business in partnership as of January 1, 2010. Tax advising: MacPherson, Leslie & Tyerman LLP ("law firm") provided tax advice for the restructuring; Mr. Redhead instructed the CFO/COO for REL and the Redhead Group to engage REL's accountants at MNP LLP ("accounting firm") as agents to provide necessary facts and information to allow the law firm to provide legal advice; Mr. Redhead also instructed the CFO/COO to instruct and obtain advice from the law firm, either directly or indirectly through the accounting firm. CRA audit and privilege claim: in August 2012, the CRA made an audit request of Mr. Redhead, REL and GLR Consulting, including un-redacted legal invoices and all planning documents; 662 documents were provided to the Sheriff at the Saskatoon Judicial Centre on the basis that they were privileged; the Chambers judge made various determinations concerning whether the 662 documents were privileged (2014 SKQB 172); the appeal to the Saskatchewan Court of Appeal ("SKCA") concerned 32 documents which the Chambers judge held were not privileged. While Redhead provided a helpful summary of the relevant principles, which are set out below, perhaps the unique aspects of the case concerned the standard of review and the Court's rejection of a broad "transactional umbrella" sheltering communications involving accountants.

With respect to the standard of review, the SKCA noted there was little authority concerning standard of review in cases where the argument deals with whether discrete documents are privileged. It is trite to say that an appellate Court reviews questions of law by a standard of correctness and will readily overturn...