Judgments

[1996] 1 F.C. 367

T-1229-95

Interprovincial Pipe Line Inc. and IPL Energy Inc. (Applicants)

v.

Minister of National Revenue (Respondent)

Indexed as: Interprovincial Pipe Line Inc. v. M.N.R. (T.D.)

Trial Division, Gibson J.—Calgary, September 5; Ottawa, October 13, 1995.

Income tax — Practice — Privilege — Application under Income Tax Act, s. 232 to determine whether solicitor-client privilege validly claimed for auditors’ notes, advice to applicants’ counsel for purpose of providing legal advice — Applicants voluntarily disclosing information to auditors, subject to oral limitations, as required by Canada Business Corporations Act, s. 170 — Waiver depending on intention — Applicants intending to disclose privileged information only to assist in conduct of audit — Waiver for that limited purpose — Auditors lacking authority to waive privilege on behalf of applicants — Written statement of intent, formal arrangement re: auditors’ notes advisable.

Corporations — Canada Business Corporations Act, s. 170 requiring corporation to furnish whatever documents auditor demands — Auditors not directly invoking s. 170, but applicants aware of its existence, auditors’ rights thereunder and voluntarily disclosing solicitor-client privileged information subject to oral limitations — S. 170 to be invoked only in manner limiting privilege to extent absolutely necessary — To be interpreted restrictively.

This was an application under Income Tax Act, section 232 to determine whether solicitor-client privilege was validly claimed in respect of two groups of documents: (1) auditors’ notes made in the course of an audit of the applicants, and (2) documents exchanged between the auditors’ Edmonton and Toronto offices concerning advice provided by the auditors to independent counsel retained to give legal advice to applicants. There was no evidence that the applicants were aware of the existence of the group (2) documents. In conducting the audit, the auditors were entitled to rely on Canada Business Corporations Act, subsection 170(1) (which requires a corporation to furnish whatever documents the auditor demands). Subsection 170(1) was not directly invoked, but the applicants knew of its existence and of the auditor’s rights thereunder, and voluntarily disclosed solicitor-client privileged information subject to strict oral limitations. The issues were: (1) whether solicitor-client privilege extended to the documents; and (2) if so, whether disclosure to auditors under section 170 constituted waiver of privilege, or waiver for a limited purpose only.

Held, solicitor-client privilege was validly claimed, subject to agreement to release privilege with respect to certain documents or portions of documents.

Subsection 170(1) gives an auditor the authority to demand access to documents which might interfere with solicitor-client confidentiality. It should be invoked only as necessary, and then in a manner that will limit the confidentiality or privilege only to the extent that is absolutely necessary. Subsection 170(1) must be interpreted restrictively. Since Parliament could easily have stated that any disclosure of a solicitor-client privileged document pursuant to subsection 170(1) amounted to a waiver of privilege for the purposes of tax investigations, but did not, it would be inappropriate to interpret subsection 170(1) more broadly than necessary to achieve the end clearly sought to be served.

Waiver depends on intention. The applicants intended to disclose the legal opinions only for the limited purpose of assisting in the conduct of the audit and examination of financial statements. The legal opinions were made available in accordance with the duty to assist under subsection 170(1). It would be contrary to public policy if making the legal opinions available for the audit automatically removed the cloak of privilege otherwise available. The disclosure of legal advice received by the applicants to its auditors was a waiver of solicitor-client privilege for a limited purpose and did not extend to a waiver for other purposes, such as disclosure by the auditors in response to the Minister’s requirements.

If the doctrine of limited waiver is to be relied on, it would be prudent to set forth in writing the client’s intent regarding limited waiver in any disclosure to its auditors of solicitor-client privileged information and in the formal arrangement between the client and its auditors. Further, there should be some more formal arrangement regarding the disposition of auditors’ notes of complex legal advice on complex transactions once those notes have served their purpose.

The auditors’ advice to the applicants’ legal counsel was covered by solicitor-client privilege and the applicants were unaware of the disclosure of that advice to another office of the auditors, and therefore did not consent to its disclosure and waive privilege. Finally, the auditors had no authority to waive privilege on behalf of the applicants.

STATUTES AND REGULATIONS JUDICIALLY CONSIDERED

Canada Business Corporations Act, R.S.C., 1985, c. C-44, s. 170(1).

Income Tax Act, R.S.C., 1985 (5th Supp.), c. 1, ss. 231.2(1), 232(1) “judge”, “solicitor-client privilege”, (3.1)(b), (4)(a)(i),(ii), (5)(a), (b), (i),(ii)(A) (as am. by S.C. 1994, c. 13, s. 7), (B) (as am. idem), (9).

CASES JUDICIALLY CONSIDERED

APPLIED:

Descôteaux et al. v. Mierzwinski, [1982] 1 S.C.R. 860; (1982), 141 D.L.R. (3d) 590; 70 C.C.C. (2d) 385; 28 C.R. (3d) 289; 1 C.R.R. 318; 44 N.R. 462; Playfair Developments Ltd v D/MNR, [1985] 1 C.T.C. 302; (1985), 85 DTC 5155 (Ont. S.C.); Ed Miller Sales & Rentals Ltd. v. Caterpillar Tractor Co. (1988), 61 Alta. L.R. (2d) 319; 22 C.P.R. (3d) 290 (C.A.); British Coal Corp v Dennis Rye Ltd (No 2), [1988] 3 All ER 816 (C.A.).

CONSIDERED:

Air Canada v. McDonnell Douglas Corp. (1994), 19 O.R. (3d) 537 (Gen. Div.).

APPLICATION under Income Tax Act, section 232 to determine whether solicitor-client privilege was validly claimed for auditors’ notes and advice to the applicants’ counsel for the purpose of providing legal advice to the applicants. Solicitor-client privilege was validly claimed, subject to agreement to release privilege in respect of certain documents or portions of documents.

COUNSEL:

Mendy M. Chernos and Douglas S. Ewens, Q.C. for applicants.

Douglas B. Titosky for respondent.

SOLICITORS:

McCarthy Tétrault, Calgary, for applicants.

Deputy Attorney General of Canada for respondent.

The following are the reasons for order rendered in English by

Gibson J.: On May 8 and 15, 1995, requirements under subsection 231.2(1) of the Income Tax Act[1] were served on Dennis Blumenthal of Price Waterhouse, Edmonton, by the respondent, for document production relating to Price Waterhouse’s audit and examination of the 1993 consolidated financial statements of Interprovincial Pipe Line Inc. (the predecessor to IPL Energy Inc.) and for answers to certain questions. The applicants instructed their internal legal counsel to advance claims of solicitor-client privilege on behalf of the applicants with respect to certain of the documents and information in the possession of Price Waterhouse, Edmonton which allegedly evidenced legal advice obtained by the applicants. In the result, privilege was claimed in respect of 33 documents and with regard to information as to whether any officers, employees and representatives of the applicants had reviewed the relevant material in the hands of Price Waterhouse, Edmonton and, if so, who reviewed the material and when.

This application under section 232 [as am. by S.C. 1994, c. 13, s. 7] of the Income Tax Act resulted to determine the question of whether the claim to solicitor-client privilege is valid. The central provisions of section 232 of the Income Tax Act for the purpose of this application read as follows:

232. (1) In this section,

…

“judge” means a judge of a superior court having jurisdiction in the province where the matter arises or a judge of the Federal Court;

…

“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 the person and the person’s 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.

…

(3.1) Where, pursuant to sections 231.1 and 231.2, an officer is about to inspect or examine a document in the possession of a lawyer and the lawyer claims that a named client of the lawyer has a solicitor-client privilege in respect of that document, the officer shall not inspect or examine the document and the lawyer shall

(a) place the document, together with any other document in respect of which the lawyer at the same time makes the same claim on behalf of the same client, in a package and suitably seal and identify the package or, if the officer and the lawyer agree, allow the pages of the document to be initialed and numbered or otherwise suitably identified; and

(b) retain it and ensure that it is preserved until it is produced to a judge as required under this section and an order is issued under this section in respect of the document.

(4) Where a document has been seized and placed in custody under subsection (3) or is being retained under subsection (3.1), the client, or the lawyer on behalf of the client, may

(a) within 14 days after the day the document was so placed in custody or commenced to be so retained apply, on three clear days notice of motion to the Deputy Attorney General of Canada, to a judge for an order

(i) fixing a day, not later than 21 days after the date of the order, and place for the determination of the question whether the client has a solicitor-client privilege in respect of the document, and

(ii) requiring the production of the document to the judge at that time and place;

(b) serve a copy of the order on the Deputy Attorney General of Canada and, where applicable, on the custodian within 6 days of the day on which it was made and, within the same time, pay to the custodian the estimated expenses of transporting the document to and from the place of hearing and of safeguarding it; and

(c) if the client or lawyer has proceeded as authorized by paragraph (b), apply at the appointed time and place for an order determining the question.

(5) An application under paragraph (4)(c) shall be heard in camera, and on the application

(a) the judge may, if the judge considers it necessary to determine the question, inspect the document and, if the judge does so, the judge shall ensure that it is repackaged and resealed; and

(b) the judge shall decide the matter summarily and,

(i) if the judge is of the opinion that the client has a solicitor-client privilege in respect of the document, shall order the release of the document to the lawyer, and

(ii) if the judge is of the opinion that the client does not have a solicitor-client privilege in respect of the document, shall order

(A) that the custodian deliver the document to the officer or some other person designated by the Deputy Minister of National Revenue, in the case of a document that was seized and placed in custody under subsection (3), or

(B) that the lawyer make the document available for inspection or examination by the officer or other person designated by the Deputy Minister of National Revenue, in the case of a document that was retained under subsection (3.1),

and the judge shall, at the same time, deliver concise reasons in which the judge shall identify the document without divulging the details thereof.

The documents in which solicitor-client privilege is claimed are generally of two types: first, notes apparently prepared by partners or employees of Price Waterhouse, Edmonton in the course of conduct of the audit and examination of the 1993 consolidated financial statements of Interprovincial Pipe Line Inc., and documents exchanged between Price Waterhouse, Edmonton and Price Waterhouse, Toronto concerning advice provided by Price Waterhouse, Toronto to independent counsel retained by the applicants to, in turn, provide legal advice to the applicants. In respect of documents in the first category, some of them on their face disclose that the applicants were aware of their existence prior to the service of the requirements on Price Waterhouse, Edmonton by the respondent. In respect of documents in the second category, the documents themselves provide no evidence, and there was no evidence before me, that the applicants were aware of their existence prior to the service of the requirements.

In the conduct of its audit and examination, Price Waterhouse, Edmonton was entitled to rely on subsection 170(1) of the Canada Business Corporations Act[2] which reads as follows:

170. (1) On the demand of an auditor of a corporation, the present or former directors, officers, employees or agents of the corporation shall furnish such

(a) information and explanations, and

(b) access to records, documents, books, accounts and vouchers of the corporation or any of its subsidiaries

as are, in the opinion of the auditor, necessary to enable him to make the examination and report required under section 169 and that the directors, officers, employees or agents are reasonably able to furnish.

In the cross-examination of James Andrew Telford on his affidavit filed on behalf of the applicants in this matter, the following exchanges took place relative to Price Waterhouse, Edmonton’s reliance on section 170 of the Canada Business Corporations Act and the applicants’ response in relation to legal opinions that they had received from outside counsel:

Q.  Did they (Price Waterhouse, Edmonton) give you a reason for requesting those legal opinions?

A.   They said that they had—I mean, they had a statutory right under the Canada Business Corporations Act to ask for whatever they wanted, and they felt that in order to provide a clear audit opinion and not qualify as to generally accepted auditing standards that they needed to review those legal opinions.

Q.  Did they indicate that to you in writing or verbally?

A.   Verbally. Mr. Dennis Blumenthal, to me verbally.

Q.  Did Mr. Blumenthal make specific reference to the Canada Business Corporations Act and his rights under that Act?

A.   I don’t believe that Mr. Blumenthal specifically referred to the Canada Business Corporations Act.

Q.  Did Mr. Blumenthal specifically refer to a right to see the legal opinions?

A.   Yes, he did.

Q.  Did you agree with him?

…

A.   My understanding, in my position as Manager, Tax and Risk Management, and as a Chartered Accountant, was that Mr. Blumenthal was entitled to see those documents.

Q.  What did you do, given that understanding?

A.   I requested the legal opinions be couriered to me from the law firms. I had a meeting with Mr. Blumenthal where I told him that basically I believe its paragraph 9 of my affidavit where I say that I considered the documents to be subject to privilege, that I did not wish to release that privilege, and that I was only doing so because he had demanded them as an auditor, that he was not to make any copies or notes or extracts of the documents.

Q.  You specifically provided him not to make copies or notes of the “

A.   I specifically provided him not to.

Q.  Did you do this in writing or orally?

A.   Orally.

Q.  And do you recall what precisely you told Mr. Blumenthal during your meeting in mid-January, 1994?

A.   What I precisely told him is what is contained in paragraph 9 in my Affidavit. That’s to the best of my recollection.

Q.  And having communicated that to Mr. Blumenthal, did he respond?

A.   It’s my recollection that Mr. Blumenthal agreed with my terms.

Q.  And on that basis he was allowed to review the documents?

A.   That’s correct.[3]

POSITIONS OF THE PARTIES

The applicants assert that legal opinions provided to them by outside counsel are solicitor-client privileged and that that privilege extends to the notes produced by Price Waterhouse, Edmonton in the conduct of the audit and examination of the applicant’s financial statements in the circumstances before me. The applicants argued that disclosure of the legal opinions to Price Waterhouse, Edmonton did not amount to a waiver of privilege or, if it did, it amounted to a waiver for a limited purpose only, that is, for the purpose of Price Waterhouse, Edmonton’s audit and examination. In support of this position, the applicants argued that subsection 170(1) of the Canada Business Corporations Act should, in the absence of specific terminology to the contrary, be interpreted as interfering with solicitor-client privilege only to the extent absolutely necessary to achieve the ends of that provision and of provisions of the Canada Business Corporations Act related to it. They argued that any other interpretation of subsection 170(1) would be contrary to public policy since the result would be that compliance with the statutory duty would result in a waiver of a privilege that is seen to be in the public interest.

On behalf of the applicants, it was argued that the applicants did not intend to waive their privilege as evidenced by the exchange that apparently took place between James Andrew Telford on behalf of the applicants and Mr. Blumenthal on behalf of Price Waterhouse, Edmonton and that intent is the governing factor in the determination of whether or not there has been a waiver of privilege under the law of Alberta which, it was agreed, is the appropriate law on the facts before me. Finally, with regard to the documents produced by Price Waterhouse, Edmonton, the applicants argued that to determine that the disclosure of legal opinions that took place by the applicants amounted to a waiver of privilege, other than for a limited purpose, would undermine the common interest of corporations, their auditors and the shareholders of corporations in full and open disclosure to auditors that is intended to ensure production of accurate audited financial statements.

In relation to the notes of advice provided to the applicants’ outside counsel by Price Waterhouse, Toronto, the applicants argued that such notes were clearly subject to solicitor-client privilege as evidencing advice given in the course of development of legal advice and that there could not possibly be any waiver of that privilege by the applicants in circumstances where they were unaware of the provision of that information by Price Waterhouse, Toronto to Price Waterhouse, Edmonton.

Finally, on the information that the applicants refused to produce, the applicants argued that any examinations conducted by them of the documentation in the possession of Price Waterhouse, Edmonton were conducted in contemplation of litigation and therefore the identity of those who conducted any such examinations and when they did so is privileged information.

On behalf of the respondent, it was argued that documentation produced by independent auditors for their own purposes in the course of an audit and examination does not benefit from the solicitor-client privilege of the auditor’s client in favour of the client. Further, the respondent argued that disclosure of documents subject to solicitor-client privilege, results in waiver whether or not the disclosure is under compulsion of law and that waiver for a limited purpose only is not recognized in Canadian law. With regard to the documentation evidencing advice provided by Price Waterhouse, Toronto, the respondent argued that there was no evidence before me that the applicants were unaware of this disclosure and that, if the applicants were aware, that awareness without objection amounted to a waiver of solicitor-client privilege.

ANALYSIS

In Descôteaux et al. v. Mierzwinski,[4] Lamer J., as he then was, speaking for the Supreme Court of Canada on the subject of solicitor-client privilege, stated at page 875:

It is quite apparent that the Court in that case [Solosky v. The Queen, [1980] 1 S.C.R. 821] applied a standard that has nothing to do with the rule of evidence, the privilege, since there was never any question of testimony before a tribunal or court. The Court in fact, in my view, applied a substantive rule, without actually formulating it, and, consequently, recognized implicitly that the right to confidentiality, which had long ago given rise to a rule of evidence, had also since given rise to a substantive rule.

It would, I think, be useful for us to formulate this substantive rule, as the judges formerly did with the rule of evidence; it could, in my view, be stated as follows:

1.   The confidentiality of communications between solicitor and client may be raised in any circumstances where such communications are likely to be disclosed without the client’s consent.

2.   Unless the law provides otherwise, when and to the extent that the legitimate exercise of a right would interfere with another person’s right to have his communications with his lawyer kept confidential, the resulting conflict should be resolved in favour of protecting the confidentiality.

3.   When the law gives someone the authority to do something which, in the circumstances of the case, might interfere with that confidentiality, the decision to do so and the choice of means of exercising that authority should be determined with a view to not interfering with it except to the extent absolutely necessary in order to achieve the ends sought by the enabling legislation.

4.   Acts providing otherwise in situations under paragraph 2 and enabling legislation referred to in paragraph 3 must be interpreted restrictively.

By reference to the facts here at issue, subsection 170(1) of the Canada Business Corporations Act clearly gives someone, an auditor, the authority to do something, demand access to records and documents, which, in the circumstances of the case, might interfere with solicitor-client confidentiality, as for example, when the respondent, as here, serves requirements for document production and information relating to the auditors’ audit and examination of the financial statements of a client. In accordance with proposition 3, subsection 170(1) should be invoked only as necessary and then only in a manner that will limit the interference with the confidentiality or privilege to only the extent that is absolutely necessary. Further, by virtue of proposition 4, provisions such as subsection 170(1) must be interpreted restrictively.

On the facts before me, subsection 170(1) was not directly invoked on behalf of Price Waterhouse, Edmonton, but the applicants’ knowledge of its existence and of the auditor’s rights under that provision led to the disclosure of solicitor-client privileged information on a voluntary basis and only under strict limitations, albeit limitations that were only imposed orally.

In Playfair Developments Ltd v D/MNR,[5] Mr. Justice Galligan, at pages 307 and 308, reiterated the importance attached to preservation of solicitor-client privilege in the following terms:

If I tend to lean in favour of finding privilege, it is because, as has often been said, the confidentiality of a solicitor/client communication is very important. If in doubt, I think it is appropriate to uphold the privilege.

I find this statement to be consistent with the principle of interpreting subsection 170(1) of Canada Business Corporations Act restrictively.

In Ed Miller Sales & Rentals Ltd. v. Caterpillar Tractor Co.,[6] Chief Justice Laycraft held at pages 326 and 327:

It must first be noted that the director’s inquiry is not a public proceeding. The director hears witnesses in private and even in the absence of other subjects of the inquiry and their solicitors. Secondly, to hand a privileged document to one party to litigation for the purpose of settlement or any other purpose, does not, in my opinion, show any intention that the privilege is thereby to terminate as to other parties or in related litigation.

The respondent also argued that the Caterpillar companies waived any privilege which existed by failing to object when the officer of [the other defendant] produced [the accountant’s] report on his examination for discovery. The simple answer is that, even if one litigant has the status to interject on the examination for discovery of another, the objection is pointless if his co-defendant is resolved to produce the document. Waiver depends on intention. Failure to make a pointless objection does not, in my opinion, demonstrate that intention. [Underlining added by me for emphasis.]

This case is of particular importance in the context of this application for at least three reasons: first, it is a decision of the Alberta Court of Appeal and, under the definition “solicitor-client privilege” in subsection 232(1) of the Income Tax Act, it is the law of the province where the matter arises that is to be turned to, to determine the existence of solicitor-client privilege. It was not disputed before me that this matter arose in the province of Alberta. Second, Chief Justice Laycraft emphasizes in the underlined words that waiver depends on intention and the evidence before me discloses that the applicants’ intention was to do all in their power to protect their solicitor-client privilege while complying with the demands of their auditors under the potential sanction of a qualified auditor’s certificate and, ultimately, subsection 170(1) of Canada Business Corporations Act. Finally, in the first paragraph quoted above, Chief Justice Laycraft can be seen to imply approval of the doctrine of a limited waiver of solicitor-client privilege. If the doctrine of limited waiver is adopted, then, even if the disclosure of legal advice received by the applicants to its auditors amounted to a waiver of solicitor-client privilege, and I am satisfied that it did, then, consistent with the intent of the applicants, it can be found that that waiver was for a limited purpose and did not extend to a waiver for other purposes such as disclosure by the auditors in response to the requirements of the respondent.

The doctrine of limited waiver is clearly enunciated in British Coal Corp v Dennis Rye Ltd (No 2).[7] Neill L.J. stated at pages 821-822:

Has anything happened which has caused that privilege to be waived or otherwise lost?

In my judgment the answer to this question is plainly No. Let it be assumed that all the documents have come into the possession of the defendants with the implied consent of the plaintiff and that it could be established that it would have supplied the ... documents even without an order of the court. Nevertheless, it is clear that the plaintiff made the documents available for a limited purpose only, namely to assist in the conduct first of a criminal investigation and then of a criminal trial. This action by the plaintiff, looked at objectively as it must be, cannot be construed as a waiver of any rights available to it in the present civil action for the purpose of which the privilege exists.

…

In my judgment the action of the plaintiff in making documents available for the purpose of the criminal trial did not constitute a waiver of the privilege to which it was entitled in the present civil proceedings. Its action in regard to ... the ... documents was in accordance with its duty to assist in the conduct of the criminal proceedings, and could not properly be construed as an express or implied waiver of its rights in its own civil litigation. Indeed, it would in my view be contrary to public policy if the plaintiff’s action in making the documents available in the criminal proceedings had the effect of automatically removing the cloak of privilege which would otherwise be available to them in the civil litigation for which the cloak was designed.

The foregoing passages can be adopted here by analogy. It was clearly the applicants’ intent to disclose the legal opinions that it had received for a limited purpose only, namely to assist in the conduct of the audit and examination of its financial statements. It made the legal opinions available in accordance with its duty to assist that can be drawn from subsection 170(1) of the Canada Business Corporations Act. It would, in my view, be contrary to public policy if the applicants’ action in making the legal opinions available for audit purposes “had the effect of automatically removing the cloak of privilege which would otherwise be available to them” on an audit by the respondent. This conclusion is, I am satisfied, consistent with the propositions quoted above that have been enunciated by the Supreme Court of Canada and consistent with a strict interpretation of the impact on solicitor-client privilege of subsection 170(1) of the Canada Business Corporations Act . If Parliament had intended there to be a secondary purpose in subsection 170(1) of the Canada Business Corporations Act beyond the primary purpose of accuracy in financial reporting, it was open to it to enunciate that purpose by clear direct or indirect amendment to the Income Tax Act stating that any disclosure of a solicitor-client privileged document pursuant to subsection 170(1) amounted to a waiver of privilege for the purposes of tax investigations. Since Parliament did not do so, it would be inappropriate and, indeed, contrary to the principles enunciated in Descôteaux, to interpret subsection 170(1) more broadly than necessary to achieve the end clearly sought to be served.

Counsel drew my attention to the decision of Master Peppiatt of the Ontario Court (General Division) in Air Canada v. McDonnell Douglas Corp.[8] where the learned Master, at page 545, referred to the statement of Chief Justice Laycraft in Ed Miller Sales, supra, to the effect that “to hand a privileged document to one party to litigation for the purpose of settlement or any other purpose, does not, in my opinion, show any intention that the privilege is thereby to terminate as to other parties or in related litigation". The learned Master commented:

His Lordship cited no authority for this statement. While the judgment of an appellate court in another province is entitled to great respect, in this case it is contrary to authority in this province.

Counsel for the respondent cited authority from Ontario courts and from courts in the United States that the learned Master might have relied upon. With great respect, on the facts before me, and on the basis of the foregoing analysis, I prefer to adopt the doctrine of limited waiver that, as I stated earlier, I find implicit in the earlier-quoted statement of Chief Justice Laycraft. Once again, I find it particularly appropriate to adopt this position since it is acknowledged by the parties that this matter arose in the province of Alberta.

A final cautionary note before I leave this aspect of this matter. The evidence before me relating to the intent of the applicants to limit any waiver arising from the disclosure to their auditors was entirely based on recollection of oral discussion between James Andrew Telford on behalf of the applicants and Mr. Blumenthal on behalf of Price Waterhouse, Edmonton. If the doctrine of limited waiver is to be relied on in future in similar circumstances, it would appear to me to be the prudent course of action to set forth in writing the client’s intent regarding limited waiver in any disclosure to its auditors of solicitor-client privileged information and in the formal arrangement between the client and its auditors. Further, it would appear to me to be the height of unreasonable expectation to expect auditors, in the course of a highly complex audit and examination, to refrain from making notes of complex legal advice on complex transactions provided, as was here apparently the case, in response to a demand of the auditors, a stipulation with which the auditors here obviously did not comply. Some more formal arrangement regarding the disposition of such notes as between the client and the auditors, once those notes have served their purpose for the auditor, would appear to be desirable.

I turn then to the documents purportedly disclosing advice provided by Price Waterhouse, Toronto to outside counsel for the applicants in the course of preparation by counsel of legal advice for the applicants. That disclosure apparently took place in exchanges between Price Waterhouse, Toronto and Price Waterhouse, Edmonton. As indicated earlier, counsel for the respondent indicated that there was no evidence before me that the applicants were unaware of these exchanges. Unlike counsel for the respondent, I have now had the advantage of reviewing the documents in question. They bear no indication whatsoever that the applicants were provided with copies of these documents. I am prepared on this basis to assume that the applicants were unaware of these documents. Since it was not disputed before me that solicitor-client privilege extends to advice provided by professionals retained by outside counsel in the course of preparation of legal advice to the counsel’s client, I am satisfied that, first, the advice of Price Waterhouse, Toronto to outside legal counsel was covered by solicitor-client privilege, second, that the applicants were unaware of the disclosure of that advice by Price Waterhouse, Toronto to Price Waterhouse, Edmonton and therefore did not consent to its disclosure and thus waive privilege, and finally, that Price Waterhouse, Toronto had no authority to waive privilege on behalf of the applicants. My review of the documents in this category has been conducted in accordance with these principles.

Finally, I turn to the information regarding examinations conducted by officers, employees or representatives of the applicants that the applicants’ claim is privileged. Examination of claims to privilege with respect to such information does not easily fit within the scheme of section 232 of the Income Tax Act. Indeed, I conclude it does not fit at all. For that reason, no order is made with respect to the claim to privilege regarding that information. That being said, it should be abundantly apparent that one or more officers, employees or representatives of the applicants examined documents in the possession of Price Waterhouse, Edmonton relating to the audit and examination of the 1993 consolidated financial statement of Interprovincial Pipe Line Inc. How else would the claim for privilege asserted in respect of certain of those documents have arisen? Having so concluded, I am not certain that the identity of the officers, employees or representatives who reviewed the files and the date or dates when the review was conducted is particularly relevant if the respondent has received assurances, as he has, that no information or documentation was removed, transferred, culled, destroyed or altered, except as disclosed, with respect to the documents on which privilege is claimed.

CONCLUSION

Against the foregoing analysis, with the assistance of counsel for the applicants, and in the absence of counsel for the respondent, I reviewed the documents in respect of which privilege is claimed. As I indicated early on in these reasons, there are 33 such documents. They were provided to me in two packages, the first containing 30 documents and the second 3 documents. Each package was covered by an index and a copy of each index was provided to the respondent. At the opening of the hearing before me, counsel for the applicants released the applicants’ claim to privilege in respect of documents 7, 8 and 26 in the first package and document 3 in the second package. Counsel also released the applicants’ claim to privilege in respect of portions of documents 4, 5, 6, 13, 15 and 23 in the first package. During my examination of the documents in the presence of counsel for the applicants, counsel further released the applicants’ claim to privilege in respect of a portion of document 25 in the first package. Also during my examination of the document in the presence of counsel for the applicants, I found myself to have a different view from counsel as to whether or not a document should be severed in order to provide as much information as possible to the respondent. If I do not do an injustice, the view of counsel was that the totality of the document should be protected unless a substantive portion of the document can be disclosed. With great respect, that would involve me in an attempt to exercise discretion as to what might or might not be of use to the defendant in his investigation and, inevitably, in the withholding of information, however innocuous, that is not subject to a valid claim of solicitor-client privilege. Accordingly, in my final examination of the documents, I have concluded in favour of releasing to the respondent all information, no matter how trivial I might consider it to be, that I do not regard, in itself, as being the subject of a valid claim to solicitor-client privilege. My conclusions in this regard are set out in my order.

TREATMENT OF COURT FILE

Paragraph 6 of the interim order in this matter provides as follows:

The existing court file in this proceeding, and any further materials filed in this proceeding, shall be sealed until further order of This Honourable Court.

Materials added to the file since the date of that order include the applicants’ record, the written submissions of the respondent, the book of authorities of the respondent, the packages of documents handed to me sealed and that are the subject of the application, the transcript of the hearing before me and a letter dated October 11, 1995 addressed to me from counsel for the applicants. I consulted with counsel on whether or not the file documentation other than the documents that are the subject of the application could be opened to the public on the principle that files of this Court are, in the absence of compelling reasons, open for public examination. Counsel agreed that all documentation on the file could be made open with the exception of the documents that are the subject-matter of the application and of certain references in the applicants’ record and in the transcript to third parties with whom the applicants are involved in confidential business relationships. On that basis, I invited counsel for the applicants to review the applicants’ record and the transcript and suggest to me appropriate deletions. Counsel’s letter of October 11 is a response to this invitation. Subject to my review of the recommended deletions and my final decision with respect to them, my order will provide for the treatment of this file, other than the documents that are the subject of the application, as any other file in the registry of this Court.

COSTS

Counsel drew to my attention the fact that subsection 232(9) of the Income Tax Act provides as follows:

232. ...

(9) No costs may be awarded on the disposition of any application under this section.

Accordingly, no costs will be awarded to either party.

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