Organic Research Inc. v. M.N.R ., [1991] 1 CTC 417 (Alta. Q.B.)

Egbert, J:—This is an application pursuant to subsection 232(4) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act"), to determine whether certain documents are protected from disclosure to the respondent on the basis of solicitor-client privilege.

On May 7, 1987, certain documents were seized from the Calgary law firm of Clark Dymond Crump pursuant to a search warrant which was issued under section 231.3 of the Income Tax Act. The validity of the search warrant was upheld by the Federal Court of Canada. The Supreme Court of Canada refused leave to appeal on November 23, 1989. The warrant provided for the seizure of documents from the law firm on the basis of reasonable and probable grounds that Organic Research Inc. and its Director, Dara Wilder, had committed an offence under paragraph 239(1)(a) of the Income Tax Act. As the applicant argues the specific limitations of the warrant, it is partially reproduced herein for convenience.

Prior to this application, counsel for the applicant and Mr. R.J. Crump, corporate counsel for the applicant, inspected the seized documents. Nu- merous documents were released to the respondent and the remaining documents were described and listed. This application deals with these listed documents. The other documents were released to the respondent on the understanding that the parties' rights to the documents still under seal were not affected by the release.

The warrant reads in part:

Whereas it appears, that there are reasonable grounds for believing that:

(a) Organic Research Inc. and its Director, Dara Wilder, have committed an offence as defined by paragraph 239(1)(a) of the Income Tax Act by making, or participating in, assenting to or acquiescing in the making of, false or deceptive statements in returns of income [on] Forms 1661 filed by the partners of Organic Research Limited Partnership for the taxation year ended December 31,1985;

(b) Organic Research Inc. and its Director, Dara Wilder, have committed an offence as defined by paragraph 239(1)(d) of the Income Tax Act by participating in a scheme to inflate expenditures incurred by Organic Research Limited Partnership for the 1985 taxation year thereby wilfully evading or attempting to evade compliance with this Act or payment of taxes imposed by this Act.

(c) the documents or things described in Appendix A to this Warrant To Enter And Search may afford evidence of the commission of the offences set out in paragraphs (a) and (b) above, and are likely to be found; and

(d) the building, receptacle or place that is likely to contain the said documents or things, or some part of them, is:

the offices of Clark Dymond Crump, . . . and any areas used, occupied or controlled by them.. . .

This Is Therefore to authorize and require you between the hours of 6:00 a.m. and 9:00 p.m. during the fifteen (15) day period from and including the 7th day of May, 1987, to and including the 21st day of May, 1987, to enter the said business premises and to search for the said documents or things, to seize them, and to bring them or a report in respect thereof, before me or some other Judge of this Court if I am unable to act.

Dated this 5th day of May, 1987, at the City of Vancouver, in the Province of British Columbia.

Appendix A

Books, records and documents or things belonging to or pertaining to Organic Research Limited Partnership or the general partner, Organic Research Inc. or research projects carried out by or for Organic Research Limited Partnership or Organic Research Inc. and pertaining to the period November 7, 1984 to May I, 1986, and more particularly:

(a) books of original entry or copies thereof, including general ledgers, subsidiary ledgers, sales journals, purchase journals, receipts journals, disbursements journals, and general journals;

(b) minute books, share registers, and register of limited partners;

(c) banking records or copies thereof, including trust accounts, cancelled cheques, deposit slips, memoranda, and monthly statements;

(d) accounting records or copies thereof, including sales invoices, purchase invoices, purchase orders, expense vouchers, customs documents, job cost summaries, work in progress summaries, and working papers;

(e) originals or copies of contracts, agreements, promissory notes, escrow agreements, proposals, and related documents;

(f) payroll records including time sheets, time code listings, journals, and working papers;

(g) originals or copies of correspondence, invoices, agreements, contracts, memoranda, and working papers pertaining to amounts claimed as scientific research expenditures;

(h) originals or copies of financial statements, accounting working papers and files, adjusting journal entries, and tax files;

(i) originals or copies of documents pertaining to research projects and related structures, including engineers’ reports, schematics, drawings, opinion letters, blueprints, plans, building permits, invoices, correspondence, and mem- oranda;

(j) originals or copies of documents pertaining to transactions between any of Organic Research Limited Partnership, the limited partners, or the general partner, Organic Research Inc., including any offering memoranda, prospectus, memoranda, agreements, contracts, working papers and files, and correspondence; and

(k) originals or copies of computer or word processor storage media, which contain or have stored in them any type or kind of information or data, referred to in subparagraphs (a) to (j) above, including discs, diskettes, tapes or files, program and system documentation, manuals, operating instructions, software, including any system or application software and documentation required to access and reproduce any data contained in the foregoing storage media, and any related supporting documentation;

all or some part of which books, records, documents or things, as well as affording evidence of the said offences, are required for the determination of expenditures incurred by Organic Research Limited Partnership for the aforesaid period.

Before addressing the question of solicitor-client privilege, I must first determine the issue of jurisdiction. The applicants submit that certain of the seized documents should not be released to the respondent because they fall outside the temporal scope of the warrant. Furthermore, other documents should not be released, the applicant argues, because they are irrelevant. The respondent argues that these questions are not before this Court; the Court only has jurisdiction to determine privilege on an application under section 232. For the reasons stated below, I am of the opinion that the confines of the warrant is a matter that must be determined prior to any consideration of the question of solicitor-client privilege.

The applicants have submitted that documents referred to as Numbers 16, 22, and 42 are outside the temporal confines of the warrant and therefore should be excluded. Reliance is placed on Kelly Douglas & Co. v. The Queen, [1981] C.T.C. 457; 82 D.T.C. 6036 (B.C.S.C.) and In Re Romeo's Place Victoria Ltd., [1981] C.T.C. 380; 81 D.T.C. 5295 (F.C.T.D.).

Kelly Douglas, supra, at pages 461-62 (D.T.C. 6039) determined that "a wholesale seizure is not authorized. The scheme of the Act is not to seize, then search—but to search, and seize only documents that may afford evidence of violations.” In In Re Romeo's, supra, at page 385 (D.T.C. 5299), Collier, J. stated: “I see no reason why any documents, which may not be privileged, should be turned over to tax investigators if they predate the tax years in question and have no relevance to the tax matters under investigation."

I am in agreement that documents must fall within the temporal scope of the warrant to be legally seized. This is preliminary to a section 232 application.

The respondent argues that documents pertaining to, connected with, or relating to particulars covered by the Warrant to Enter and Search are relevant, regardless of the dates on the documents themselves. It is further submitted on behalf of the respondent that, provided the documents are sufficiently connected with the period in question, they need not be contemporaneous with that period to be relevant—Re Kourtessis and M.N.R., [1987] 2 C.T.C. 36; 87 D.T.C. 5299; 36 C.C.C. (3d) 304—and where the necessary conjunctive link between the documents and the offence is not specifically stated in the warrant, this can be overcome where reasonable and probable grounds exist.

The warrant is temporally restricted as "pertaining to the period Nov. 7, 1984 to May I, 1986”. The Shorter Oxford English Dictionary defines pertain as "to belong, to concern, or to be appropriate to”. Therefore, I accept the respondent's position that where the documents show a connection to the tax period under investigation, they are within the temporal restriction.

The documents referred to above, i.e., Numbers 16, 22 and 42, are described in the applicants’ brief as follows:

16. Letter dated January 21, 1987, from the Manitoba Department of Consumer and Corporate Affairs to Clark Dymond Crump re Securities Commission Order No. 393/85 dated November 25, 1985, and eight pages of various attachments (all dated subsequent to December 28, 1986).

22. A Statement of Account from Clark Dymond Crump to Vardax dated May 26, 1986, referencing services performed both inside and outside the time period of the warrant, and attached trust receipt dated May 26, 1986.

42. Bundle of documents not relating to the business of the company prior to May 2, 1986, the earliest of which is dated July 9, 1986, including, inter alia, solicitor’s notes, trust receipts, correspondence, Health & Education Tax Returns, time slips and phone messages (52 pages).

I should stop at this point to say that paragraph 232(5)(a) grants the Court the authority to inspect the documents in question in such an application if the Court considers it necessary to determine the question. I am of the opinion that it is indeed necessary for me to examine not only the documents described above but all documents in question in these proceedings to assist me in determining the issues of temporal limits, relevancy and solicitor-client privilege. I must also, pursuant to subsection 232(5), deliver concise reasons concerning my decision with respect to each document and I certainly cannot do so without examining the documents.

Returning to Numbers 16, 22 and 42, and dealing with them individually, I am of the following views:

Number 16:

The letter, although dated outside the temporal limits of the warrant, makes specific reference to a document dated within the period set forth in the warrant and that document, being the Securities Commission Order, is attached to the letter. Therefore, both documents are to be turned over to the respondent. As far as the attachments are concerned, none are dated within or make reference to anything that occurred within the temporal limits and the attachments are to be returned to Clark Dymond Crump.

Number 22:

Reference is made in the Statement of Account to a date within the temporal limits of the warrant. However, I will deal with this document when discussing the question of relevancy.

Number 42:

None of the documents included in the bundle are dated within the temporal limits of the warrant nor do they refer to any matter that occurred during the temporal limits. Therefore, I direct that they be returned to Clark Dymond Crump.

A second preliminary issue is whether the Court, on this application, has jurisdiction to determine questions of relevance. The applicants submit that irrelevant documents should be returned to them whether solicitor-client privilege attaches to them or not. The respondent, on the other hand, submits that this Court's jurisdiction on a section 232 application is restricted to questions of solicitor-client privilege.

The applicants cite Re Hoyle Industries Ltd., [1980] C.T.C. 501; 80 D.T.C. 6363 (F.C.T.D.) and In Re Romeo's, supra, as examples of courts determining issues of relevance on section 232 applications. The latter case involved facts similar in nature to the application at bar. In that case, Collier J. at page 385 (D.T.C. 5290) stated that:

Where solicitor-client privilege is claimed, the court must decide whether that privilege exists. But the question of that privilege must, in my opinion, be decided in respect of documents or records relevant to the affording of evidence as to the violation of any provision of the Income Tax Act. If the documents or records have no reasonable relevance as possible evidence in respect of a violation of the Act or a regulation, then, as I see it, the court need not, and should not, decide whether there is a solicitor-client privilege. The scheme of sections 231 and 232 indicates to me the legislators intended the court must determine, on a generous and reasonable basis, the relevance of the records to the investigation. If on inspection by the judge, they are absolutely irrelevant to any present or potential violation of the Income Tax Act, then they should be returned to the taxpayer without examination by any departmental officials.

The respondent, on the other hand, relies on Re Playfair Developments Ltd., [1985] 1 C.T.C. 302; 85 D.T.C. 5155 (Ont. S.C.) and Vespoli v. The Queen, [1982] C.T.C. 418; 83 D.T.C. 5001 (F.C.T.D.) in support of the proposition that a court lacks jurisdiction to determine issues other than solicitor-client privilege on a section 232 application. The facts leading to the application in the latter case are, once again, similar to the application at bar. However, Addy, J. respectfully declined to follow In Re Romeo's, supra, concluding instead, at pages 421-22 (D.T.C. 5003), that:

. . . the special procedures provided for in section 232 are enacted solely and exclusively for the purpose of dealing with the issue of possible solicitor-client privilege and for no other purpose. The judge has not on an application of this kind, the jurisdiction to deal with an issue of relevancy of the evidence or any other substantive issue whatsoever, for that matter.

Secondly, even if jurisdiction did exist to determine a question of relevancy, it could never be determined at this stage as there is no issue in dispute before the judge in light of which any such question must necessarily be decided.

One important fact, in my opinion, distinguishes Vespoli, supra, from the case at bar. In that case, by the time the application was heard, the applicant had agreed that there was no question of solicitor-client privilege remaining, but instead argued that the documents still subject to dispute were irrelevant. In other words, the court was being asked to determine, under the guise of a section 232 application and in the absence of any claim of solicitor-client privilege, whether certain documents were relevant. In the case at bar, the court is clearly being asked to determine whether certain documents are protected from disclosure by a solicitor-client privilege and the relevance issue is argued as preliminary to this determination. For these reasons I would follow the reasoning in In Re Romeo's, supra, and hold that this court does have jurisdiction to determine the issue of relevance.

The applicants raise the question of relevance with respect to five documents.

In order for each of the documents to be relevant to the matter in issue they must relate to paragraphs (a) and (b) of the warrant, that is, the document must contain information regarding Organic Research Inc. and its Director, Dara Wilder, specific to the alleged offences under paragraph 239(1)(a) and paragraph 239(1)(d) of the Income Tax Act.

The first of these documents, Number 40(h), is a carbon copy of a bank transfer of funds to a Seattle attorney. The second document, 40(i), is a handwritten message about confirmation of funds received by Beneficiary Bank. The third document, 40(j), is a carbon copy of a letter to The Royal Bank of Canada in Calgary enclosing a trust account cheque. The fourth, 40(v), is similar to the third—another transfer in U.S. funds—but the name of the payee differs. The fifth is a letter from Clark Dymond Crump to Hitec Research in Calgary, with respect to the transfer of certain interest money to the firm's trust account. To accept these documents as relevant would require further knowledge about the transaction between Organic Research Inc. and the recipients of funds and the reason for transfer of funds. Nowhere in the documents can be found the name of either applicant. I cannot speculate on questions of fact and I hold that these documents are not relevant and shall be returned to Clark Dymond Crump.

Returning to Document Number 22, the statement of account is addressed to another client of Clark Dymond Crump and makes no reference to the applicant. In my view, it is not relevant to these proceedings and is to be returned to Clark Dymond Crump.

Solicitor-Client Privilege

The applicants have submitted that the definition of solicitor-client privilege in paragraph 232(1)(e) does not do away with or narrow the common-law definition: the privilege is a fundamental right that ought not be frittered away. The applicants support this submission with /n re William W. Kask, [1966] C.T.C. 659; 66 D.T.C. 5374 (B.C.S.C.) and Brunner and Lay (Canada) Ltd. v. Deputy A.-G. Canada, [1984] C.T.C. 534; 84 D.T.C. 6514 (F.C.T.D.).

The definition of solicitor-client privilege is set out for convenience:

232. (1)(e) "Solicitor-client privilege"—"solicitor-client privilege" means the right, if any, that a person has in a superior court in the province where the matter arises to refuse to disclose an oral or documentary communication on the ground that the communication is one passing between him and his lawyer in professional confidence, except that for the purposes of this section an accounting record of a lawyer, including any supporting voucher or cheque, shall be deemed not to be such a communication.

Principles of interpretation indicate that where a definition within a statute begins with "means" rather than “includes”, it is meant to be exhaustive. Pierre-Andre Côté, The Interpretation of Legislation in Canada, 1984 at 43. Where there is ambiguity, resort must be had to the common law.

There are two concerns with the definition. First, the determination must be made as to the correct meaning of “communication”. Second, it is necessary to examine the meaning of an "accounting record”. The statutory definition, given above, has provided accounting records to be a specific exception to the solicitor-client privilege claim. This will be dealt with further below.

On the first, the applicants say that solicitor-client privilege is any communication made for any purpose where the roles are established as that of solicitor and client, or any communication made in contemplation of litigation; Susan Hosiery Ltd. v. M.N.R., [1969] C.T.C. 533; 69 D.T.C. 5278 (Ex. Ct.).

The question arises if this definition has been narrowed. In the Alberta Court of Appeal decision, Nova v. Guelph Engineering (1984), 30 Alta. L.R. (2d) 183 (Alta. C.A.), it was determined that legal professional privilege should be examined in the narrow scope rather than the broad scope. In that decision, communications made in contemplation of litigation were protected by privilege only if the dominant purpose of the communication was for the litigation. However, this case did not involve the Income Tax Act and it is questionable whether it can be extended to it.

A further issue is where there is illegal or fraudulent or criminal activity in which case the solicitor-client privilege does not apply: Missiaen v. M.N.R., [1967] C.T.C. 579; 68 D.T.C. 5039 at 581 (D.T.C. 5040). If it were otherwise, the office of solicitors could be used as a gateway for tax avoidance or evasion. However, as noted by Primrose, J., at page 581 (D.T.C. 5041), ” in order to get rid of the privilege there must be something to give colour to the charge and there must be some foundation in fact to the claim”. It is my opinion that the amendments to the Income Tax Act were designed to prevent this occurrence. The protection for the taxpayer is the proven existence of reasonable and probable grounds in order to obtain the warrant.

It seems clear the law on solicitor-client privilege within the Income Tax Act has been narrowed. It is noteworthy that the claim only arises because of the alleged criminal activity of the taxpayer. The protection of the common law privilege is to allow open discourse in meetings between the client and his lawyer. Notes written by the lawyer about the meeting would then be privileged but positive acts or transactions and records about these transactions would not. Communications are not acts and the privilege does not extend to positive acts that result from solicitor-client communications and instructions.

The following documents are claimed by the applicants to fall within solicitor-client privilege protection: 17(d), 17(aa), 40(2) and 43.

—Document 17(d) is an undated print-out which appears to be the lawyer's analysis of the respondent's assessment. Solicitor-client privilege covers this document.

—Document 17(aa) contains two pages of lawyer's handwritten notes which are privileged. However, the remaining pages include a letter to Thorne Riddell and invoices from National Trust. These latter documents are third party documents and, as such, not protected by privilege.

—Document 40(2) concerns a billing from a U.S. solicitor. The document is related to the investigation and from that perspective is allowed the privilege claim.

—Document 43 is a reminder note to the lawyer regarding communications with Dara Wilder, and privilege attaches.

All of these documents with the exception of the documents referred to above re: Document 17(aa) are to be returned to Clark Dymond Crump. The latter documents are to be turned over to the respondent.

The applicants also submit that certain of the documents in dispute do not fall within the exception in the definition of solicitor-client privilege in paragraph 232(1)(e) and as such are subject to the protection of solicitor-client privilege. The respondent argues that the disputed documents fall clearly within the exception and as such the solicitor-client privilege cannot attach. In short, the resolution of this issue turns on the correct interpretation of the words "an accounting record of a lawyer" in the subsection. Coultas, J. in Heath v. Canada, [1990] 2 C.T.C. 28; 90 D.T.C. 6009 (B.C.S.C.) at 33 (D.T.C. 6012) framed the issue this way: "does the exception apply only to accounting records of a lawyer relating to his own business, or to accounting records relating to his client's business?” Once again, the case law cited by both sides to the application at bar appears to be irreconcilable. An historic perspective is perhaps necessary for the correct determination of this issue.

The investigation and search powers of the present Act were enacted as part of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act") (originally enacted S.C. 1948, c. 52 section 115). The availability of a solicitorclient defence to solicitors refusing to disclose documents, and the corresponding procedure on an application to determine the existence of solicitorclient privilege, were added by S.C. 1956, c. 39 section 126A. Paragraph 126A(1)(e) defined solicitor-client privilege as:

. . . the right, if any, that a person has in a superior court in the province where the matter arises to refuse to disclose an oral or documentary communication on the ground that the communication is one passing between him and his lawyer in professional confidence.

The section first fell to be interpreted in Re A Solicitor, [1963] C.T.C. 1; 62 D.T.C. 1331; 36 D.L.R. (2d) 594 (B.C.S.C.). There the solicitor/taxpayer under investigation claimed solicitor-client privilege on his own behalf against production of his trust account books and records, maintaining that the clients named in his defence to the Minister possessed a solicitor-client privilege in respect of the records. Sullivan, J. noted that paragraph 126A(1)(e) of the Act recognizes solicitor-client privilege, but in a whittled down form; the solicitor must disclose the names of the clients as a prerequisite to any claim of privilege for the client. However, he continued, this is where the intrusion on solicitor-client privilege should end. Solicitor-client privilege would be completely destroyed, he reasoned, if the Act were interpreted to allow access to the financial affairs of clients as recorded in the trust accounts of lawyers on the "specious excuse that such is necessary for purpose of verifying the solicitor's own return of income . . ." (at page 5 (D.T.C. 1334; D.L.R. 598)). Access to such records should hinge on receipt of waiver of privilege from the clients. The court concluded that the solicitor's trust account records were not liable to production or inspection as incidental to a check on the solicitor's own tax affairs as named clients of the applicant possessed a solicitor-client privilege in respect of the solicitor's trust account records. In the words of Sullivan, J., ibid: ” If it were the intention of Parliament to make all records of a solicitor available to inspection by taxation people then it would be a simple matter to so provide by appropriate legislation.”

In 1965, the definition of solicitor-client privilege was amended to its present form, S.C. 1965, c. 18 section 26. This new definition was before the court in Re Helman (1970), 15 D.L.R. (3d) 753 (Alta. S.C.). In that case, solicitors under investigation by the Minister of National Revenue refused to produce trust account ledgers and other trust account records on the basis of a common law solicitor-client privilege. The documents were seized and sealed pursuant to subsection 126A(3) of the Act. The solicitors/applicants refused to reveal the names of the clients affected by the claim of privilege. Milvain, C.J. noted that the amended definition was confined to section 126A and as such held that it was not sufficient to affect any common law right to a claim for privilege. He went on to question his jurisdiction in the case, based on the fact that the "statute appears to provide in express terms that it is only where privilege has been claimed on behalf of a named client that the whole mechanism envisaged for determination of the question can be put in motion" (page 762). However, he proceeded to give two reasons why the records were not reachable. First, the records in question were required to be kept by the Legal Profession Act, S.A. 1966, c. 46 and not by the Income Tax Act and the latter Act could have no effect on the records. However, he continued at page 763:

I feel sure though, that if the department were investigating the tax situation of a particular individual who happened to be a client of a firm of solicitors, that then, under the general laws relating to such matters, the information in the hands of the lawyer might become producible in a Court, and perhaps even under the provisions of the Act.

Second, Milvain, C.J. held that it would take far more definite wording than was to be found in the Act to [inveigh] the common law principle that a solicitor shall not disclose the affairs or even the names of clients.

The next significant case to interpret paragraph 232(1)(e) is /n Re Romeo's, supra. This case involved a taxpayer under investigation. Officials of the M.N.R. seized documents from the taxpayers" solicitors who, in turn, claimed solicitor-client privilege on behalf of the taxpayer. On the section 232 application, trust account ledgers were in issue. The taxpayer relied on Helman and Re A Solicitor for the proposition that the trust account ledgers were not producible. Collier, J. distinguished both of these cases on the basis, inter alia, that the tax affairs of clients were under investigation. Following this distinction, he concluded that "the statute specifically provides the solicitor's trust account records of those clients are not privileged." (page 389 (D.T.C. 5301)). In Collier, J.'s words at page 388 (D.T.C. 5300):

A solicitor’s trust account record of a client’s transactions, is, in ordinary circumstances, fraud absent, privileged. It is not a record required, by the Income Tax Act, to be kept by lawyers.

Nevertheless, it is my view the particular trust account records in this case are excluded from the normal solicitor-client privilege: this by the specific exception in paragraph 232(1)(e):

. . . except that for the purposes of this section an accounting record of a lawyer, including any supporting voucher or cheque, shall be deemed not to be such a communication.

Trust account records are, undoubtedly, accounting records of a lawyer.

The next case is Cox v. A.-G. Canada, [1988] 2 C.T.C. 365; 88 D.T.C. 6494 (B.C.S.C.). This case involved an investigation into the tax affairs of lawyers. When officials of the M.N.R. attended at the offices of the solicitors/applicants, the applicants claimed solicitor-client privilege with respect to the firm's trust account ledger in respect of clients' moneys and applied under section 232 for a determination of whether solicitor-client privilege attached. Tyrwhitt-Drake J., cited In Re Romeo's, supra, but found himself unable to agree with the conclusion Collier, J. had made in that case. He agreed that trust account records are indeed "accounting records of a lawyer". However, he continued, at pages 367-68 (D.T.C. 6496), they are also much more than that; they are the accounting records of the lawyer's client; it is the client's account that the lawyer records; the lawyer has no interest, other than accuracy and confidentiality, in the records. Applying a restrictive interpretation to paragraph 232(1)(e), the court concluded at page 368 (D.T.C. 6496) that "accounting records of a lawyer" means the accounting records of a lawyer relating only to the lawyer's own business.

The final case is Heath v. Canada, supra. Once again, the case involved an investigation into the tax affairs of lawyers and once again the lawyers/ applicants claimed solicitor-client privilege in regard to trust account records kept for clients. Coultas, J. noted that In Re Romeo's, supra, and Cox, supra, could not be reconciled. In deciding in favour of the reasoning in In Re Romeo's, the court pointed out a number of reasons for not following Cox. First, the Law Society of B.C. considers a law firm's trust ledgers to be part of the accounting records of the lawyer. Second, if “accounting records of a lawyer" means only those records that related to the lawyer's own business, this would disregard the fact that the application under section 232 is made by the client or the lawyer on behalf of the client. Related to this, the court had difficulty with the proposition that the accounting records that the lawyer keeps with respect to clients’ funds somehow become the property of the client. And finally, at page 37 (D.T.C. 6016), the court noted the shift, affirmed by the Supreme Court of Canada, away from a restrictive interpretation of the Income Tax Act. In concluding that the trust account ledgers were excluded from privilege by paragraph 232(1)(e), Coultas, J. noted that this conclusion was consistent with an interpretation of the Act as attempting to balance the information gathering needs of the tax department against the right of solicitor-client privilege.

I have concluded from this summary of the case law that some form of reconciliation is perhaps possible. In my opinion, it would appear that at least five possible meanings can be given to “accounting records of a lawyer”, depending on who is being investigated (i.e., lawyers or clients) and whose records are being sought (i.e., lawyer's or client's). First, where a lawyer is being personally investigated by the tax department and the lawyer's personal accounting records are being sought, these are clearly "accounting records of a lawyer.” As such, the exception applies, solicitor-client privilege does not attach and the documents/records should be given to the Minister of National Revenue. Second, where a lawyer is being personally investigated and the lawyer's accounting records of clients not under investigation are being sought, these are not''accounting records of a lawyer” as contemplated by the Income Tax Act. The exception does not apply and the records become subject to a determination of solicitor-client privilege. A third possibility occurs where a client is being investigated and the lawyer's accounting records with respect to the lawyer's own business are sought. Once again, it would appear that these are not the type of "accounting records of a lawyer" to which the Act applies: the exception does not apply and a determination of solicitor-client privilege should be made. Fourth, where a client is being personally investigated by the tax department and a lawyer's accounting records of a client other than the client under investigation are sought, the privilege attaches and is to be determined. Finally, where a client is being personally investigated and the lawyer's accounting records with respect to that client only are being sought, then the exception applies, subject to a determination of ordinary solicitorclient privilege.

It remains then to apply this analysis and the question of relevance to the remaining documents in question.

(a) Document Number 6—a statement of receipt and disbursement of trust funds dated August 1, 1985, not relating or referring to the applicants. It was seized from a folder located in the office of Clark Dymond Crump which bore a title which in no way refers to the applicants. I am of the view that it is an accounting record of the lawyers to which the solicitor-client privilege of another client may attach. In any event, as no connection can be made on the face of the document to the applicants, it is not relevant to these proceedings. It is to be returned to Clark Dymond Crump.

(b) Document Number 7—it is similar in nature to Document Number 6 but bears a date of June 11, 1985. For the same reasons it is to be returned to Clark Dymond Crump.

(c) Document Number 8—this is a receipt for trust funds issued by Clark Dymond Crump on May 7, 1985. The payor is neither of the applicants and it was located in a file bearing the name of the payor. The reasoning set forth in (a) above applies and it is to be returned to Clark Dymond Crump.

(d) Document Number 10—this is a letter dated January 30, 1986, from Clark Dymond Crump to Canada Trust. It refers to trust funds and makes specific reference to several firms and companies, none of whom are the applicants. It is no doubt related to the accounting records of Clark Dymond Crump. The document was located in a file marked “Organic Research Inc. Re: Corporate Matters". Therefore, I am of the view that it falls within the paragraph 232(1)(e) exception and shall be turned over to the respondent.

(e) Documents Numbers 12 and 13—both documents are statements of receipt and disbursement of trust funds with the heading "Organic Research Inc.” and are dated January 31, 1986, and February 28, 1986, respectively. They form part of the trust account records of Clark Dymond Crump and fall within the paragraph 232(1)(e) exception. They shall be turned over to the respondent.

(f) Document Number 15(a)—a bundle of documents containing, inter alia, correspondence, lawyers' time slips, statements of account and trust re- ceipts. The applicants make no claim of privilege but all of the documents fall outside of the temporal limits of the warrant and they do not refer to matters that occurred within those limits. Thus, they are not relevant. Therefore, they shall be returned to Clark Dymond Crump.

(g) Document 17(a)—a bundle of documents similar in nature to those within Document Number 15(a). They are to be returned to Clark Dymond Crump for the same reason.

(h) Document Number 40(a)—a further bundle of Documents similar to Documents Numbers 15(a) and 17(a). Once again, no claim of privilege is advanced but all of the documents fall outside of the temporal limits of the warrant. Furthermore, very few of them involve the applicants with most of them referring to another client of Clark Dymond Crump. They are to be returned to Clark Dymond Crump.

(i) Document Number 40(c)—handwritten notes to file from Mr. Crump's secretary dated November 25, 1986, respecting telephone calls concerning the transfer of funds. This is clearly connected to the accounting records of Clark Dymond Crump and falls within the paragraph 232(1)(e) exception. However, once again the document falls outside the temporal limits of the warrant and is, therefore, not relevant. It is to be returned to Clark Dymond Crump.

(j) Documents Numbers 44, 45, 47, 48, 49, 50, 51, 52, 53, 54, 55, 57 and 58— these documents are all trust account ledgers and trust cheques of the lawyers. If any of them made reference to the applicants they would fall within the paragraph 232(1)(e) exception but they do not. All are in reference to other clients of Clark Dymond Crump and are, therefore, to be returned to Clark Dymond Crump.

(k) Documents Numbers 46 and 56—these documents are trust ledgers and cheques of Clark Dymond Crump specifically relating to the applicant Organic Research Inc. and fall within the paragraph 232(1)(e) exception. They also refer to matters that occurred for the most part during the temporal limits of the warrant. They shall be turned over to the respondent.

I have now completed my review of the documents and there is only one further matter with which I must deal. The respondent submits that I have authority to refuse to order the return of any of the documents which have not been validly seized under the terms of the warrant. It bases its submission on a judgment of Esson, J.A. (as he then was) of the British Columbia Court of Appeal in Re Dobney Foundry Ltd. v. Canada (A.-G.), [1985] 3 W.W.R. 626; 19 C.C.C. (3d) 465. In that case the court was dealing with the return of items seized under a warrant that had been quashed. Esson, J.A. stated the court has the power to refuse to order the return of things seized under an invalid warrant if the Crown shows that they are required to be retained for the purpose of a prosecution either under a charge already laid or one intended to be laid in respect of a specified offence. The learned judge ordered the items seized to be held for a period of seven days to allow the Crown time to obtain a new warrant.

In this case, there is no question about the validity of the warrant. Therefore, on that ground alone, I would distinguish Dobney, supra. Even if I were not to do so, I am of the opinion that the respondent has not shown that there is any connection between the applicants and the documents or persons or companies referred to therein and, as a result, has not shown any requirement for retention of the documents. Therefore, I respectfully reject the submission of the respondent.

I am indebted to counsel for their excellent written briefs.

Motion granted for the most part.