Thursday, 29 March 2012

Solicitor-Client Privilege: Lawyers' Trust Account Ledgers

In the previous post, I commented on a BCSC decision dealing with solicitor-client privilege attaching to records of lawyers' fees and disbursements.  The court confirmed that such records are presumptively privileged and that the presumption may be rebutted by showing that there is no "reasonable possibility" that disclosure of the records would lead to disclosure of privileged communications.  However, the court also took an expansive view of what can be possibly deduced from such records and, it appears, made rebutting the presumption significantly more difficult if not nearly impossible.

In a decision released two days later in Donell v. GJB Enterprises Inc., 2012 BCCA 135, the BCCA dealt with a similar issue: solicitor-client privilege attaching to lawyers' trust account ledgers.  Although the majority held that, unlike lawyers' fee accounts, such records are not presumed to be privileged, it also held that they are not automatically producible and the court must still apply the following test:
  1. consider whether, in the circumstances, they arise out of the solicitor-client relationship and what transpires within it, that is, communications to obtain legal advice; and
  2. if they arise out of the solicitor-client relationship, the records are presumed to be privileged, but the privilege can be rebutted by showing that there is no reasonable possibility that privileged information could be deduced from the records.
The majority also held that mere payment of funds in contravention of a foreign court order did not necessarily establish that a lawyer who made the payment was a co-conspirator or a dupe of the client if there were questions regarding extra-territorial enforceability of the order.  Accordingly, it was not sufficient to invoke the crime or public interest exception to solicitor-client privilege. 

In this case, a California court appointed a Receiver over the assets of the GJB Enterprises ("GJB") and its principals Gerald Berke ("Berke") and his wife.  By a stipulation in the Order, Berke did not dispute that he ran a Ponzi scheme through GJB.   Shortly after the Order, Berke moved to B.C. and was paid $524k by Farris, Vaughn, Wills & Murphy LLP from their trust account. 

After finding out about this payment, the Receiver demanded that Farris produce all of its files and records with respect to GJB and Berke, which Farris refused to do on the basis that the records were privileged.  The Receiver then brought an application for production of the records on the basis that solicitor-client privilege was displaced by GJB's and Berke's unlawful conduct, namely, breach of the Order and participation in the Ponzi scheme.  The chambers judge, after examining in camera an affidavit from a Farris lawyer who acted for Berke and attached trust account ledgers, dismissed the application on the basis that the crime and fraud exception to solicitor-client privilege did not apply because Farris was neither a co-conspirator nor duped by Berke.  The Receiver appealed, albeit no longer seeking access to the entire file, but limiting its request to just the trust account ledgers.


Trust Account Ledgers

The majority began by stating basic principles that "solicitor-client privilege has become a substantive rule of law" rather than "merely an evidentiary or procedural rule".  However, it also explained that it is well established that privilege applies only to "communications for the purpose of obtaining legal advice", and not to facts, such the movement of funds in and out of a trust account.  In particular, the majority cited Re Ontario Securities Commission and Greymac Credit Corp. (1983), 41 O.R. (2d) 328 (Div. Ct.), which was also cited with approval in Maranda:   
Evidence as to whether a solicitor holds or has paid or received moneys on behalf of a client is evidence of an act or transaction, whereas the privilege applies only to communications. Oral evidence regarding such matters, and the solicitor's books of account and other records pertaining thereto (with advice and communications from the client relating to advice expunged) are not privileged, and the solicitor may be compelled to answer the questions and produce the material.
... The fact that a client has paid to, received from, or left with his solicitor a sum of money involved in a transaction is not a matter as to which the client himself could claim the privilege, because it is not a communication at all. It is an act. The solicitor-and-client privilege does not enable a client to retain anonymity in transactions in which the identity of the participants has become relevant in properly constituted proceedings.
Considering Maranda in some detail, including its application outside of criminal law, and its application to trust account ledgers as opposed to lawyers' fee accounts, the majority summarized its views as follows:
  1. at a minimum, Maranda establishes that lawyers’ bills, in the criminal law context, are presumptively subject to solicitor-client privilege;
  2. this presumption flows from the connection between lawyers’ bills and the nature of the relationship between lawyers and clients; the account reflects work done on behalf of the client which involves communications that are privileged;
  3. the presumption may be rebutted if it is established that there is no reasonable possibility that disclosure will directly or indirectly reveal any communications protected by privilege;
  4. Maranda did not do away with the distinction between communications, which are privileged, and facts, which are not;
  5. other financial records of lawyers are not presumptively subject to solicitor-client privilege insofar as they merely represent records of actions or facts, but they should not be produced automatically solely for that reason;
  6. Maranda mandates that it is necessary to consider such records in order to determine whether they arise out of the solicitor-client relationship and what transpires within it, that is, communications to obtain legal advice;
  7. if it is concluded that the records do arise out of that relationship and what transpires within it, they are presumed to be privileged, but the privilege can be rebutted and the document produced if it is established that production will not permit the deduction or acquisition of communications protected by solicitor-client privilege.
Notably, the analysis in #7 of the summary is the same inquiry as for lawyers' fee accounts, namely, to determine whether there is a "reasonable possibility that an assiduous inquirer could deduce, infer or otherwise acquire communications that are protected by solicitor-client privilege".

With respect to trust account ledgers, the majority concluded that they "involve money management" and would only be privileged "[i]nsofar as this management reflects the solicitor-client relationship and what transpires within it".  In particular:
Although the entries ... merely record payments into and out of the trust account and prima facie are not privileged, they must be considered in light of the analysis in Maranda. Do they arise out of the solicitor-client relationship and what transpires within it, that is, do they relate to communications to obtain legal advice?
Reviewing the ledgers in camera, the majority identified a number of entries which it considered were not privileged because they did not arise out of a solicitor-client relationship:
[65] As to the other entries prior to July 19, 2010, I identify those which, in my view, should be produced and state why. First, I see no reason why the “matter” to which the ledgers refer - a real estate transaction - should not be produced, as it reflects a fact that is known to others. Second, the entries dated 06/06/2007, 07/06/2007, 03/12/2008 and 08/06/2009 should be produced.
[66] These particular four entries merely relate to money management and record the movement of funds held in trust into and out of investment vehicles. They do not arise out of the solicitor-client relationship and what transpires within it; in other words, they do not relate to communications to obtain legal advice. They are not subject to solicitor-client privilege.
Crime or Public Interest Exception

Appealing the chambers judge's decision, the Receiver argued that “[t]he requirement to show wrong doing on Farris Vaughn’s part or that it was ‘duped’ was an error of law”.   The majority dismissed this argument, finding that the co-conspirator or dupe requirement was essential for the operation of this exception.  In particular, the majority relied on R. v. Campbell, [1999] 1 S.C.R. 565, summarizing it as follows:
The crime exception applies when a person seeks legal advice with the intention of facilitating the commission of a crime. In that case, the involvement of the lawyer does not attract protection. It has been said that the advice obtained is obtained by fraud. Solicitor-client privilege also may be lost if the lawyer is duped or becomes a conspirator.
The majority also found that the facts did not establish that Farris was a dupe in any unlawful activity because:
  1. payment of money in contravention of the California Order was not sufficient since "it was argued [on Appeal] that the California order did not have extra-territorial effect" and, in any event, because this was not suggested to the chambers judge; and
  2. upon an in camera examination of the lawyer's affidavit and complete ledger, the majority was satisfied "that any communications that might be revealed by the ledger do not involve facilitating the commission of a crime."
Conclusion


Three conclusions seem to be most apparent from this case.

First, it further confirms the sentiment recently repeated by Master Baker in Brown v. Wilkinson (see post) that a lawyer is not a safety deposit box and information or records will not be confidential and solicitor-client privilege will not attach "simply by [the lawyer's] general or background presence".  The fact that a transaction occurs via a lawyer's trust account does not guarantee that information about the transaction, such as the amount, who the money came from, and where the money went, will be confidential.

Second, although the court held that trust account ledgers are not presumptively privileged, this appears to make little practical difference as the party seeking their production will still need to obtain a court order.  Thus, even if they are not presumptively privileged, they are at least presumptively not producible.

Third, it casts some doubts on the application of the Maranda presumption of solicitor-client privilege for lawyers' fee accounts outside of criminal context.  Thus, it also casts doubts on the the decision in School District No. 49 (Central Coast) v. British Columbia (Information and Privacy Commissioner), where the court had no doubts that this presumption applied to such records when requested in a purely civil context.  Perhaps a decision on this issue will be rendered next.