B.C. Securities Commission v. BDS and CWM

2000 BCSC 1549 Citation B.C. Securities Commission v. BDS and CWM Date: 20001023 2000 BCSC 1549 Docket L001830 Registry: Vancouver IN THE SUPREME COURT OF BRITISH COLUMBIA BETWEEN: BRITISH COLUMBIA SECURITIES COMMISSION PETITIONER AND: BDS AND CWM RESPONDENTS REASONS FOR JUDGMENT OF THE HONOURABLE MR. JUSTICE MACAULAY Counsel for the Petitioner: K.M. Mactaggart Counsel for the Respondent CWM: No one appearing for BDS: D.H. Christie Date and Place of Hearing: September 25, 2000 Vancouver, BC I. INTRODUCTION [1] To protect the privacy of the individual respondents named in these unusual applications, I will refer to them by initials only and the style of cause is amended accordingly. The British Columbia Securities Commission (the "Commission") has wide ranging powers to demand the production of documents and to summons witnesses to testify under oath during the course of an investigation under the Securities Act, R.S.B.C. 1996, c. 418 (the "Act"). The Commission seeks orders requiring the two respondents to each comply with a demand and summons. II. ISSUES [2] The application respecting BDS, who is a lawyer, raises the important question of how solicitor-client privilege is to be protected when the Act is silent on the issue. The application respecting CWM, who is not a lawyer, raises different issues. These include the basis upon which a demand or summons may be issued, an alleged breach of mobility rights pursuant to the Canadian Charter of Rights and Freedoms, s. 6 and finally, the question of whether deference should be given to confidentiality provisions in a foreign statute. III. FACTUAL BACKGROUND [3] Some of the factual background is in issue. For reasons that I will come to, these disputes do not affect the outcome. None of these factual issues can be adequately resolved on the basis of conflicting affidavits and accordingly these reasons should not be viewed as expressing any opinion on the merits, or otherwise, of any of the allegations of misconduct under the Act. With that qualification, the factual background may be shortly stated. [4] BDS practices law in the Province of British Columbia. CWM is an agent for, and perhaps an officer of, Fortress International Ltd. ("Fortress"), a company incorporated in the Commonwealth of the Bahamas. From time to time, CWM instructed BDS to perform legal services in British Columbia on behalf of Fortress. The Commission believes that BDS also represents another company incorporated in the Bahamas, Great American Gold Ltd. ("GAG"). [5] The staff of the Commission is currently investigating Fortress, GAG, CWM, as well as other companies and individuals (collectively referred to as the "corporate entities" and the "individual parties"), for alleged breaches of the Act in regard to the trading and distribution of securities from January 1, 1998 forward. On December 7, 1999, the chairman of the Commission issued an investigation order under s. 142 respecting alleged violations of ss. 34, 50 and 61 of the Act. That order authorized the named investigators to: 3.1. Investigate, inquire into, inspect and examine any person, company, or other entity as they may reasonably relate to: 3.1.1 the Corporate Entities and the Individual Parties, including their inter-relationships; 3.1.2 the Corporate Entities and the Individual Parties and their participation in the trading of and distribution of securities in the Province of British Columbia; 3.1.3 the operations of the Corporate Entities; and 3.1.4 the proceeds obtained from the trading or distribution of securities by the Corporate Entities and/or the Individual Parties, the whereabouts of those proceeds, and the use which has been made of those proceeds; during the period from January 1, 1998 forward. [6] On December 10, 1999, one of the investigators, acting under the authority of s. 144 of the Act, served BDS with two documents relating to the corporate entities and individual persons. These were a demand for the production of records and things (the "demand") and a summons requiring him to attend before the investigator to give evidence under oath (the "summons"). [7] The demand required that BDS produce to the investigator "all records and things in [his] possession or power" relating to the matter during the relevant period and went on to specifically require that he produce copies of the following: 1. incorporation and corporate documents for the Corporate Entities, including but not limited to, originating incorporation or charter documents, registers of directors and officers, registers of shareholders or members and any other documents filed with the corporate registry in the jurisdictions in which the Corporate Entities are registered to carry on their respective corporate businesses; 2. registration documents filed with any regulator having jurisdiction over the business or corporate affairs of the Corporate Entities or their respective directors, officers, employees, agents or consultants; 3. copies of directors' minutes or resolutions and any other internal memoranda, notes or documents of each of the Corporate Entities or their respective directors in which any aspect of the trading, management, assets or business affairs of each of the Corporate Entities or any of their respective subsidiaries was discussed by the directors or officers; 4. the names and addresses of all employees, agents, consultants, directors, officers or principals of each of the Corporate Entities; 5. the address, business telephone and facsimile numbers for any offices of each of the Corporate Entities; 6. all documents, letters of intent, agreements, letters, memoranda, notes and computer records relating to the following: a) the inter-relationships of the Corporate Entities and the Individual Parties; b) the operations of each of the Corporate Entities; c) all issuances of securities (and proposed securities issuances) by each of the Corporate Entities; d) the proceeds obtained from the trading or distribution of securities by the Corporate Entities and Individual Parties, including the whereabouts of those proceeds and the use which has been made of those proceeds; e) any lists or records of each of the Corporate Entities or the Individual Parties relating to potential investors, members, and to persons who provided funds for any aspect of the 'Credit Enhancement Program' offered by the Corporate Entities through the Individual Parties; f) all receipts, deliveries, transfers, purchases or sales of securities by the Corporate Entities and Individual Parties, including copies of all brokerage account statements, account opening documents, letters of instruction, cheques, bank wire instructions, letters, memoranda and any other documents; g) all offshore transactions effected by, or on behalf of, the Corporate Entities and Individual Parties for members, investors or other persons; h) all dealings with the Corporate Entities, the Individual Parties ... and any other principal, associate, affiliate, agent or employee of the Corporate Entities and Individual Parties; 7. all financial statements and accounting records for each of the Corporate Entities, including, but not limited to, books of account, general ledgers, synoptic journals, etc.; 8. all Commission records for each of the Corporate Entities, the Individual Parties, and agents, employees, associates or consultants to the Corporate Entities or Individual Parties, relating to the trading or disposition of securities including, but not limited to, all aspects of the 'Credit Enhancement Program'; 9. all bank documents for the Corporate Entities, including but not limited to, all account opening documents, deposit books and receipts, monthly account statements, cancelled cheques, bank wires, correspondence and memoranda; 10. any corporate, financial, bank, promotional or other documents relating to the Corporate Entities and their respective operations; 11. all promotional literature, advertisements, corporate brochures and profiles relating to the Corporate Entities; 12. all trust account records and documents reflecting funds received and disbursed for or on behalf of any of the Corporate Entities and the Individual Parties; 13. any other document relating to these matters. [8] The summons broadly echoed the demand. It not only required BDS to attend to give evidence but also required him to bring with him "all records and things in [his] possession or power relating to the matter." [9] At the same time as the demand and summons were issued to BDS, the investigators issued an identical summons and demand to CWM. While it was unclear on the evidence whether CWM was personally served with these, he must have been aware of them as he instructed counsel to challenge them. CWM has not complied with either the demand or the summons and his counsel opposed the present applications. [10] BDS also did not comply with the demand. Instead, he wrote to the investigator on January 7, 2000 acknowledging service of the demand for production and the summons but refusing to comply with either on the basis of solicitor-client privilege unless "all of the parties concerned" waive the privilege or the court orders him to comply. BDS later attended before the investigator on January 27, 2000 but declined to answer any questions. [11] There is some other evidence that Fortress does not wish to waive solicitor-client privilege. In an affidavit filed September 11, 2000, CWM deposed that he retained and instructed BDS "to conduct business" on behalf of Fortress. [12] On its behalf, CWM then deposed: [A]ny information requested of [BDS] is subject to solicitor client privilege and ... I am instructed by [Fortress] to claim that privilege for all communications, transactions or names of [Fortress'] clients in regard to the alleged circumstances. ... CWM further deposed that he received a copy of a letter in which Fortress instructed BDS to "retain confidentially all information on behalf of [Fortress] and not to release any information." Leaving aside the inappropriate conclusions expressed about the existence of the privilege, it is nonetheless apparent that Fortress does not waive any privilege to which it is entitled. [13] CWM denied any personal knowledge of GAG or that he ever acted as its agent to instruct BDS. There is no conclusive evidence that GAG is, in fact, one of BDS' clients and no proof that, if so, it waives any solicitor-client privilege. [14] BDS did not instruct counsel to appear on the application and accordingly, I have not had the benefit of submissions on his behalf nor, except indirectly in the case of Fortress, on behalf of the companies identified as his clients. The Commission did not serve either Fortress or GAG with notice of these proceedings. In light of s. 148 of the Act, to which I will refer in greater detail later, there is a significant risk that GAG has not been informed of the demand and the summons or of the present applications. IV. RATIONALE FOR COURT DIRECTIONS [15] It is my view that legitimate solicitor-client privilege could well be lost if I make the orders sought without also making directions as to how the issue of privilege should be dealt with. In particular, I have regard to the classes of documents listed at numbers three and six of the demand for the production of documents which may well contain privileged documents based on the test referred to later in these reasons. [16] Counsel for CWM contended that the court should not make any directions respecting the determination of solicitor-client privilege and, instead, leave it to the legislature to fill any gaps in the existing legislation insofar as issues of privilege are concerned. Ordinarily, I would accede to this submission but I have decided that it is preferable that I make directions. Solicitor-client privilege is protected by the common-law and is more than just a rule of evidence. In the circumstances here, the determination of the privilege also engages Charter considerations. The courts are well suited to deal with these issues and there is no doubt that I have the authority to do so. [17] The present applications are brought pursuant to s. 157(1) of the Act. It permits the court to order compliance with the investigator's demand requiring production of documents and summons compelling testimony. Also, s. 157(2) permits the court to make any other order it considers appropriate. Finally, Supreme Court Rule 10(1)(h) permits originating applications for relief, advice or direction relating to the determination of a claim of solicitor-client privilege. [18] For these reasons, I have the authority and it is necessary for me to make the directions that will be set out later in these reasons. These directions will preserve the opportunity for the clients, or lawyers on their behalf, to properly assert solicitor-client privilege when necessary to do so. The directions will also provide the means for judicial determination of that issue on application by the client, the lawyer or the Commission. While the directions will necessarily be tailored to the specific circumstances before me, I am hopeful that they will provide an approach, informed by Charter values, which will assist in other cases, subject to further refinement, as necessary. [19] I note that courts have made directions many times in the past respecting procedures to be followed in addressing issues of solicitor-client privilege. For example, in circumstances somewhat analogous to the present, the Supreme Court of Canada addressed the role of a Justice of the Peace when issuing a search warrant under the Criminal Code. The court concluded that the justice could make directions to address privilege issues even though the Code was silent on the issue: see Descoteaux et al. v. Mierzwinski, [1982] 1 S.C.R. 860. [20] Communications between lawyer and client may all be confidential but not all will necessarily be privileged. Subject to complying with the directions as they relate to notice and the judicial determination of the validity of any assertion of privilege, the Commission will otherwise be able to proceed with its investigative steps. Those steps cannot be frustrated simply by raising a blanket claim of privilege as both BDS and CWM have here attempted to do on behalf of Fortress. It follows that, also subject to the directions as they relate to the assertion of privilege over documents or as a basis for refusing to answer a specific question, clients and their lawyers will otherwise be subject to lawful demands made in the course of an investigation under the Act. Before addressing this issue in detail, I will deal first with the other issues raised on behalf of CWM who, as I have said, is not a lawyer. V. BASIS ON WHICH A DEMAND OR SUMMONS MAY BE ISSUED [21] CWM currently resides and works under a visa in Arizona in the United States of America. Much of his affidavit is concerned with an attack on the basis for the allegations raised against him and Fortress. He denies any involvement in the distribution or trading of securities in British Columbia as alleged and specifically denies any allegations of breach of the Act. In his affidavit, CWM also accuses the investigator of conducting a "malicious and defamatory prosecution." [22] Earlier, CWM failed to persuade a Master to adjourn the hearing before me and to permit cross-examination of the investigator on her affidavit filed in support of the petition. An appeal was filed from the orders of the Master but has not been heard. Although referred to in his Outline, CWM did not renew the application to cross-examine before me, nor did he seek an opportunity to have the appeal heard. Accordingly, the appeal must now be considered moot. [23] Counsel for CWM did contend before me that the lack of cross-examination rendered the Commission's application at best premature in that the material facts giving rise to it have not been proven. This is particularly so, according to counsel, because CWM materially contradicts the evidence of the investigator. In essence, the argument is that the investigator can only conduct an inquiry if certain foundation facts are not disputed. In my view, this argument overlooks the nature of the inquiry by the investigator. It is an investigation; all investigations must start with allegations and, by their very nature, rarely start with incontrovertible fact. The Act provides the answer as to the lawful starting point of the present investigation. [24] Section 142 of the Act permits the Commission to order any investigation considered expedient by it. An appointed person carries out the investigation. The authorized purposes of the investigation are enumerated in the section. These include the administration of the Act and trading in securities in British Columbia. Finally, the Commission must specify the scope of the investigation. [25] In addition, s. 143 of the Act sets out the manner and the areas in which the investigator may investigate, inquire into, inspect or examine. These investigative powers are far-reaching and include the right to inspect and examine documents. Under s. 144, the investigator also has the power to hold hearings and summons witnesses. Witnesses can be compelled to produce certain types of records. At the conclusion of the investigation, the investigator must provide, pursuant to s. 146, upon the request of the Commission or one of its members, a complete report of the investigation. Otherwise, the investigation is conducted privately. [26] I referred earlier to s. 148; it preserves the privacy of investigations. It provides in subsection 1 that, unless the Commission consents, a person may not disclose, except to that person's counsel, any information or evidence obtained or sought to be obtained or the name of any witness examined or sought to be examined under section 143, 144 or 145. [27] The relevant portions of the other sections read: Investigation order by commission 142 (1) The commission may, by order, appoint a person to make an investigation the commission considers expedient (a) for the administration of this Act, ... (c) in respect of matters relating to trading in securities or exchange contracts in British Columbia, or ... (2) In its order, the commission must specify the scope of an investigation to be carried out under subsection (1). Power of investigator 143 (1) An investigator appointed under section 142 or 147 may, with respect to the person who is the subject of the investigation, investigate, inquire into, inspect and examine (a) the affairs of that person, (b) any records, negotiations, transactions, investigations, investments, loans, borrowings and payments to, by, on behalf of, in relation to or connected with that person, (c) any property, assets or things owned, acquired or disposed of in whole or in part by that person or by a person acting on behalf of or as agent for that person, (d) the assets at any time held by, the liabilities, debts, undertakings and obligations at any time existing and the financial or other conditions at any time prevailing in respect of that person, and (e) the relationship that may at any time exist or have existed between that person and any other person by reason of (i) investments made, (ii) commissions promised, secured or paid, (iii)interests held or acquired, (iv) the lending or borrowing of money, securities or other property, (v) the transfer, negotiation or holding of securities or exchange contracts, (vi) interlocking directorates, (vii) common control, (viii)undue influence or control, or (ix) any other relationship. ... (5) Inspection, examination or analysis under this section must be completed as soon as practical and the records, property, assets or things must be returned promptly to the person who produced them. (6) On an inspection, examination or analysis under this section, an investigator appointed under section 142 and authorized under subsection (2) of this section, a person named in an order under subsection (3) of this section or a person acting under the direction of either of them may (a) mark the records, property, assets or things for identification, or (b) use or alter the records, property, assets or things to the extent reasonably necessary to facilitate the inspection, examination or analysis, and does not incur any liability because of doing so. (7) A person must not (a) withhold, destroy, conceal or refuse to give any information, or (b) withhold, destroy, conceal or refuse to produce any record or thing reasonably required under subsection (2) or (3) by (c) an investigator appointed under section 142 and authorized under subsection (2) of this section, or (d) a person named in an order under subsection (3) of this section. Investigator's power at hearing 144 (1) An investigator appointed under section 142 or 147 has the same power (a) to summon and enforce the attendance of witnesses, (b) to compel witnesses to give evidence on oath or in any other manner, and (c) to compel witnesses to produce records and things and classes of records and things as the Supreme Court has for the trial of civil actions. (2) The failure or refusal of a witness (a) to attend, (b) to take an oath, (c) to answer questions, or (d) to produce the records and things or classes of records and things in the custody, possession or control of the witnesses makes the witness, on application to the Supreme Court, liable to be committed for contempt as if in breach of an order or judgment of the Supreme Court ... (4) A witness giving evidence at an investigation conducted under section 142 or 147 may be represented by counsel. Report to commission 146 A person appointed under section 142 or 145 must provide, at the request of the commission or a member of the commission involved in making the appointment, a complete report of the investigation, examination or analysis made, including any transcript of evidence and material in the person's possession relating to the investigation or examination. [28] In addition to the foregoing, the Commission has recourse to the court in various circumstances including as set out in s. 157 of the Act. This section provides: (1) In addition to any other powers it may have, if the commission considers that a person has contravened or is contravening a provision of this Act or of the regulations, or has failed to comply or is not complying with a decision, and the commission considers it in the public interest to do so, the commission may apply to the Supreme Court for one or more of the following: (a) an order that (i) the person comply with or cease contravening the provision or decision, and (ii) the directors and senior officers of the person cause the person to comply with or to cease contravening the provision or decision; ... [29] Earlier, I indicated that the Commission alleged breaches of ss. 34, 50 and 61 of the Act. Those sections relate to: unlawfully trading in securities and/or acting as an underwriter or advisor; engaging in investor relations activities or intending to effect a trade in a security; and, finally, distributing securities. [30] As counsel for the Commission submitted, the investigation order here covers activities that may be violations on the part of the individual parties and corporate entities identified in the order. The order encompasses an inquiry into actions in furtherance of trades and distribution of securities in this province and with respect to the movements of and location of the proceeds obtained from any such activities. The steps taken by the investigator to date are within the scope of the investigation ordered and authorized by the sections referred to above. I note as well that in spite of his accusation of a malicious and defamatory prosecution, CWM did not seek to set aside the investigation order. [31] In British Columbia Securities Commission v. Branch, [1995] 2 S.C.R. 3, the Supreme Court of Canada upheld the constitutionality of the investigative powers contained in the Act, including the powers to compel testimony and production of documents. While that decision concerned constitutional issues not raised before me, it is nonetheless instructive to note the comments of L'Heureux-Dubé J. respecting the nature of securities investigations. She described them as "administrative proceedings in a highly complex and tightly regulated field" (at p. 47). Later, at p. 50, she characterized the investigative powers as: Actions undertaken by a regulatory agency, legitimately within its powers and jurisdiction and in furtherance of important public purposes that cannot realistically be achieved in a less intrusive manner. [32] The reasons also illustrate that the furtherance of these important public purposes necessarily requires that investigators be able to compel production of private information. Such information is generally held "in the hands of private actors" (at p. 52) or "only in the possession of the private individuals whose activity is the focus of the regulation" (at p. 55). Only by these means can investigators address the "profound asymmetry of information" (at p. 51) facing them or "obtain evidence or gain a full appreciation of important information" (at p. 55). [33] In Branch, L'Heureux-Dubé J. also recognized that securities investigations are extremely time sensitive. In the present case, the matter has been delayed nearly a year and further delay should be avoided if possible. [34] From the foregoing, I conclude that the investigators are entitled to continue the present investigation and that CWM cannot lawfully refuse to comply with the demand and summons simply because the allegations are at issue. Edwards (E.R.A.) J. of this court reached a similar conclusion in British Columbia (Securities Commission) v. Imbeault, [1998] B.C.J. No. 1544 (Q.L.) (B.C.S.C.), (25 June 1998), Vancouver Registry, A973381 (B.C.S.C.) at para. 24. VI. MOBILITY RIGHTS [35] The second argument raised by CWM is that any order requiring compliance would unjustifiably restrict his mobility rights under the Charter. I fail to see how that could be so. CWM either left Canada after he was served with the documents or left and then found out about them. If I order that he comply with the demand and summons, those orders will not prevent his return. I cannot compel his return to Canada and, in any event, the Commission has not asked me to. [36] If CWM chooses not to return, the Commission may decide to apply for a letter of request pursuant to s. 175 of the Act. If it succeeds, the letter of request will be directed to the appropriate judicial authority in the United States with a view to requiring CWM to submit to the demand for production of documents and to compel his testimony in the jurisdiction where he presently resides. [37] The argument advanced respecting mobility rights was confusing and difficult to follow. As I understood counsel, the breach of rights would not flow from an order that CWM comply but rather from the imposition of a consequence for continuing non-compliance such as a finding that he is in contempt. I need not address that as counsel for the Commission did not seek any finding of contempt at this time. Accordingly, the underpinnings for the argument advanced on behalf of CWM respecting mobility rights do not presently exist. VII. IMPACT OF FOREIGN LAW CONFIDENTIALITY PROVISIONS [38] Finally, CWM deposed in his affidavit that he may be subject to financial and penal sanctions for contravening the laws of the Bahamas if he discloses information in response to the demands. Whatever the laws of the Bahamas may be, and there was no evidence of them before me, they do not entitle CWM to resist a lawful demand and summons in this jurisdiction. This issue has been conclusively dealt with by our Court of Appeal and the Supreme Court of Canada: see Exchange Bank & Trust Inc. v. British Columbia (Securities Commission), [2000] B.C.J. No. 1227 (Q.L.) (B.C.C.A.); 2000 B.C.C.A. 389 and Spencer v. The Queen, [1985] 2 S.C.R. 278. VIII. CONCLUSION RESPECTING COMPLIANCE ORDER [39] I order CWM to comply with the demand for production of records and things and the summons to attend before an investigator, both issued on December 10, 1999. The Commission will have liberty to apply in the event of non-compliance. To the extent that CWM, as agent for Fortress, raises solicitor-client privilege in respect of any document or information, that issue will be subject to the directions set out in the next part of these reasons. IX. STATUTORY AND COMMON LAW PROTECTION OF SOLICITOR-CLIENT PRIVILEGE [40] The Securities Act does not include any provisions respecting solicitor-client privilege. Some federal legislation, notably the Criminal Code, R.S.C. 1985, c. C-46, s. 488.1 and the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), as amended, s. 232, does contain such provisions but the constitutional validity of the Code section, which came into effect in June of 1985 (see R.S.C. 1985, c. 27 (1st Supp.), s. 71), has recently been successfully challenged: see Lavallee, Rackel and Heintz v. Canada (Attorney General) (2000), 184 D.L.R. (4th) 25 (Alta. C.A.), Festing v. Canada (Attorney General) (2000), 73 B.C.L.R. (3d) 313; 2000 B.C.S.C. 439, Canada (Attorney General) v. Several Clients, [2000] N.S.J. No. 236 (Q.L.) (N.S.S.C.), and White, Ottenheimer & Baker v. Canada (Attorney General) (2000), 187 D.L.R. (4th) 581 (Nfld. C.A.). There is also dicta in White to suggest that s. 232 of the Income Tax Act, which was found to be "essentially similar" to s. 488.1 of the Code (at para. 15) is also constitutionally flawed for similar reasons. [41] It is necessary to consider these decisions and the impugned legislative provisions with care so that the directions made here conform to Charter requirements. Before doing so, I must consider the nature of solicitor-client privilege and whether the legislature intended to abrogate the privilege in the Securities Act. [42] Thackray J. conveniently summarized the pre-conditions to establishing solicitor-client privilege in R. v. B. (1995), 3 B.C.L.R. (3d) 363 (B.C.S.C) at para. 22, citing the Report of the Special Committee of the Canadian Bar Association - Ontario, Regarding Solicitor-Client Privilege (1985): 1. there must be a communication, whether oral or written; 2. the communication must be of a confidential character; 3. the communication must be between a client (or his agent) and a legal advisor; and 4. the communication must be directly related to the seeking, formulating, or giving of legal advice. [43] Did the legislature intend to abrogate this important common law privilege? The answer is found, in my view, by referring back to Descoteaux. In that case, the Supreme Court of Canada considered the scope of the power to issue search warrants respecting a lawyer's office pursuant to the Criminal Code (then s. 443). At the time, the Code did not contain any provisions governing the determination of solicitor-client privilege. [44] In Descoteaux, an officer of the Quebec bar intervened when a warrant was being executed and, as a result, the police officers did not search the premises but agreed to receive documents in sealed envelopes that they were told contained the documents they sought. After the seizure of the documents, a motion for issuance of certiorari requesting that the seizure be quashed was made. Mr. Justice Lamer (as he then was) commented at p. 895: I do not know whether the justice of the peace was the originator of the procedure followed for the search and seizure or whether there was an agreement between counsel. In any event, the manner of proceeding in the case at bar was, again having regard to the substantive rule, proper and acceptable and the justice of the peace was or would have been by law empowered to and justified in making it a condition of granting the warrant. The substantive rule relates, of course, to solicitor-client privilege. [45] Lamer J. described (at p. 892) the substantive rule, as well as the exceptions, this way: In summary, a lawyer's client is entitled to have all communications made with a view to obtaining legal advice kept confidential. Whether communications are made to the lawyer himself or to employees, and whether they deal with matters of an administrative nature such as financial means or with the actual nature of the legal problem, all information which a person must provide in order to obtain legal advice and which is given in confidence for that purpose enjoys the privileges attached to confidentiality. This confidentiality attaches to all communications made within the framework of the solicitor-client relationship, which arises as soon as the potential client takes the first steps, and consequently even before the formal retainer is established. There are certain exceptions to the principle of the confidentiality of solicitor-client communications, however. Thus communications that are in themselves criminal or that are made with a view to obtaining legal advice to facilitate the commission of a crime will not be privileged, inter alia. The fundamental right to communicate with one's legal adviser in confidence has given rise to a rule of evidence and a substantive rule. Whether through the rule of evidence or the substantive rule, the client's right to have his communications to his lawyer kept confidential will have an effect when the search warrant provided for in s. 443 Cr.C. is being issued and executed. Thus the justice of the peace has no jurisdiction to order the seizure of documents that would not be admissible in evidence in court on the ground that they are privileged (the rule of evidence). [46] Lamer J. also suggested (at pp. 891-892) that, to protect this substantive right, the justice should, normally be more easily able to decide with the police on search procedures acceptable to everyone that respect the law firm's clients' right to confidentiality without depriving the police of their right to search for evidence of the alleged crime. In this respect he could take guidance from the provisions of the Income Tax Act... s. 232, adapting them to fit the particular case, of course. [47] In my view, the substantive right of solicitor-client privilege could only be removed, if at all, by express legislation. Here, like the Criminal Code at the time Descoteaux was decided, the Act does not refer to the privilege. I did not understand counsel for the Commission to suggest that the drafters of the Securities Act intended to abrogate the privilege; instead, she invited me to make appropriate directions to protect the privilege. [48] To what extent can I find the basis for directions in the federal legislation? Section 232 of the Income Tax Act and s. 488.1 of the Code (the latter was enacted since Descoteaux) are very similar. Each provide for the sealing in a package and retention by a sheriff, or custodian, of any document in respect of which privilege is claimed. [49] Section 232 of the Income Tax Act then provides that the lawyer or client may apply to the court for a summary determination of solicitor-client privilege within fourteen days of the date that the package was sealed and retained. Under subsection (4)(a), the application must be made "on three clear days notice of motion to the Deputy Attorney General of Canada...." Failing such an application, the court, on application by the Attorney-General of Canada, may order that the sealed document be delivered to or inspected by a representative of the Crown. Under subsection 10, with some limitation, where any questions arise in application of the provisions, a judge may give such direction with regard thereto as, in the judge's opinion, is most likely to carry out the object of this section of allowing solicitor-client privilege for proper purposes. The section further includes provisions respecting waiver of privilege in subsection 14. These provisions outline the procedure in which a lawyer who has made a claim in respect of a named client provides the last known address of the client to the Crown. The Crown may then contact the client so as to afford an opportunity for the client to waive the claim of privilege prior to judicial determination of the issue. [50] Section 488.1 of the Criminal Code reduced the foregoing to a procedure whereby the Attorney-General, the client, or the lawyer acting on behalf of the client, could apply for the summary determination within fourteen days of the date of seizure of the sealed documents. Under subsection (3)(a), the application must be made "on two days notice of motion to all other persons entitled to make application...." The Code is silent with respect to the issues of waiver and ongoing judicial discretion to deal with questions that arise. [51] In Descoteaux, Lamer J. suggested that a justice could impose a procedure analogous to s. 232 of the Income Tax Act to address solicitor-client privilege. Section 488.1 appears to be the legislative response to that suggestion. The suggestion must now be reconsidered in light of the recent successful Charter challenges to s. 488.1 of the Code referred to earlier in these reasons. I turn next to those decisions. X. CHARTER CHALLENGES OF STATUTORY PROVISIONS [52] Like Descoteaux, Lavallee, supra, concerned a search of the offices of a law firm. The firm claimed privilege and so the documents were sealed before being taken by the police. The firm then successfully applied before a lower court to have s. 488.1 struck down as unconstitutional on the basis that the section infringed s. 8 of the Charter (the right to be free of unreasonable search and seizure). [53] The Crown argued unsuccessfully on appeal that the court could read down the provision so as to make it constitutional. In dismissing the appeal, the court found that the section was vague and did not enable the lawyer to give notice of the seizure to the client, due to inflexible time limits. The Court reasoned that a search for or seizure of privileged documents in a law firm prima facie violated s. 8 of the Charter and that the Crown failed to justify the legislation under s. 1. The court declined to second-guess the avenue that Parliament would choose to take in the future despite the fact that "it should be fairly easy to craft valid legislation for sealing disputed documents and holding them until a court rules on privilege" (at para. 102). An application for leave to appeal to the Supreme Court of Canada was filed by the Attorney General of Canada on April 13, 2000 and is still pending. [54] The next case to deal with the issue was Festing, supra. On similar facts to those in Lavallee, Romilly J. struck down s. 488.1 as an infringement of both ss. 7 and 8 of the Charter. He stated (at para. 84) particular offending features of the provision, including: 1. the absence of any notice provisions for clients, and the prospect that privilege can therefore be effectively lost or waived without notice to the client by operation of s.488.1(6); 2. the above problem is exacerbated by the strict time limits contained in s.488.1(3), particularly in light of the practical difficulties of notifying clients when multiple files of a lawyer are searched and seized. In the result, privileged documents may "fall through the cracks"; 3. privilege may be potentially lost to the prosecuting authority by virtue of s.488.1(4)(b); 4. the requirement to name clients under s.488.1(2) may result in a loss of privilege. [55] Section 487 (previously 443) was upheld in Festing as it was found not to preclude the protection of solicitor and client privilege. This is because the justice is given the latitude necessary to deal with any privacy rights or solicitor-client privilege by subjecting the warrant to appropriate conditions. Romilly J. also stated (at para. 105): In issuing terms and conditions of a search warrant, a justice may be guided by the common law, and in particular Descoteaux and subsequent cases which recognize the jurisdiction to exercise the discretion and the manner in which the discretion may be properly exercised. I am also confident that guidelines can be gleaned from those cases that looked at s.488.1 with a critical eye.... [56] Both Lavallee and Festing were followed by the Nova Scotia Supreme Court in Canada (Attorney General) v. Several Clients, supra, and by the Newfoundland Court of Appeal in White, supra. The White decision is of particular interest because the court elected to sever and read into the existing provisions in order to "cure" them (at paras. 34 - 38). Section 488.1, as modified (in bold/italics or by showing deletions), reads: SECTION 488.1 488.1 (1) In this section, "custodian" means a person in whose custody a package is placed pursuant to subsection (2); "document", for the purposes of this section, has the same meaning as in section 321; "judge" means a judge of a superior court of criminal jurisdiction of the province where the seizure was made; "lawyer" means, in the Province of Quebec, an advocate, lawyer or notary and, in any other province, a barrister or solicitor; "officer" means a peace officer or public officer. (2) Where an officer acting under the authority of this or any other Act of Parliament is about to examine, copy or seize a document in the possession of a lawyer who claims that a named client of his has a solicitor-client privilege in respect of that document, the officer shall, without examining or making copies of the document, (a) seize the document and place it in a package and suitably seal and identify the package; and (b) place the package in the custody of the sheriff of the district or county in which the seizure was made or, if there is agreement in writing that a specified person act as custodian, in the custody of that person. (3) Where a document has been seized and placed in custody under subsection (2), the Attorney General shall or the client or the lawyer on behalf of the client, may (a) within fourteen days from the day the document was so placed in custody, apply, on two days notice of motion to all other persons entitled to make application, to a judge for an order (i) appointing a place and a day, not later than twenty-one days after the date of the order, for the determination of the question whether the document should be disclosed, and (ii) requiring the custodian to produce the document to the judge at that time and place; (b) serve a copy of the order on all other persons entitled to make application and on the custodian within six days of the date on which it was made; and (c) if he has proceeded as authorized by paragraph (b), apply, at the appointed time and place, for an order determining the question. (4) On an application under paragraph (3)(c), the judge (a) may, if the judge considers it necessary to determine the question whether the document should be disclosed, inspect the document; (b) where the judge is of the opinion that it would materially assist him in deciding whether or not the document is privileged, may allow the Attorney General to inspect the document; (c) shall allow the Attorney General and the person who objects to the disclosure of the document to make representations; and (d) shall determine the question summarily and, (i) if the judge is of the opinion that the document should not be disclosed, ensure that it is repackaged and resealed and order the custodian to deliver the document to the lawyer who claimed the solicitor-client privilege or to the client, or (ii) if the judge is of the opinion that the document should be disclosed, order the custodian to deliver the document to the officer who seized the document or some other person designated by the Attorney General, subject to such restrictions or conditions as the judge deems appropriate, and shall, at the same time, deliver concise reasons for the determination in which the nature of the document is described without divulging the details thereof. (5) Where the judge determines pursuant to paragraph (4)(d) that a solicitor-client privilege exists in respect of a document, whether or not the judge has, pursuant to paragraph (4)(b), allowed the Attorney General to inspect the document, the document remains privileged and inadmissible as evidence unless the client consents to its admission in evidence or the privilege is otherwise lost. (6) Where a document has been seized and placed in custody under subsection (2) and a judge, on the application of the Attorney General, is satisfied that no application has been made under paragraph (3)(a) or that following such an application no further application has been made under paragraph (3)(c), the judge shall order the custodian to deliver the document to the officer who seized the document or to some other person designated by the Attorney General. (6) A judge may extend the time limits specified in subsection (3) where circumstances warrant. (7) Where the judge to whom an application has been made under paragraph (3)(c) cannot act or continue to act under this section for any reason, subsequent applications under that paragraph may be made to another judge. (8) No officer shall examine, make copies of or seize any document without affording a reasonable opportunity for a claim of solicitor-client privilege to be made under subsection (2). [Note: although not deleted, Roberts JA noted at paragraph 35 that this subsection would be rendered redundant as a result of changes made to subsection 2.] (9) At any time while a document is in the custody of a custodian under this section, a judge may, on an ex parte application of a person claiming a solicitor-client privilege under this section, authorize that person to examine the document or make a copy of it in the presence of the custodian or the judge, but any such authorization shall contain provisions to ensure that the document is repackaged and that the package is resealed without alteration or damage. (10) An application under paragraph (3)(c) shall be heard in private. (11) This section does not apply in circumstances where a claim of solicitor-client privilege may be made under the Income Tax Act. XI. DIRECTIONS FOR PROTECTION OF SOLICITOR-CLIENT PRIVILEGE IN COURSE OF INVESTIGATION [57] While I take guidance from the foregoing, the directions I now make are not tailored for the search of law offices pursuant to Criminal Code search warrants, but rather to demands for documents, or summons to testify, during investigations under the Securities Act. There will be orders that BDS comply with the demand for production of records and things and classes of records and things and with the summons to attend before an investigator, subject to the determination by the court of any solicitor-client privilege issues raised as follows: 1. The lawyer shall seal in a package and suitably identify any document in respect of which solicitor-client privilege is, or might reasonably be, claimed by the client; 2. The lawyer shall inform the Commission in writing of the nature of any document for which privilege from production is claimed. Without revealing information that is privileged, the document must be described in a way that will enable the Commission to assess the claim of privilege consistent with Rule 26(2.1) of the Rules of Court; 3. The lawyer shall retain the package unless the Commission and the lawyer otherwise agree or the court otherwise directs; 4. Provided the Commission consents, the lawyer shall notify any client whose privilege may be affected by the demand, or by any question asked pursuant to a summons; 5. If the Commission does not consent pursuant to direction no. 4, the Commission shall serve two days' notice of any application to summarily determine solicitor-client privilege on the lawyer and all corporate entities or individuals that the Commission has reasonable grounds to believe will be affected by the application; 6. If the Commission consents pursuant to direction no. 4, the Commission shall serve seven days' notice of any application to summarily determine solicitor-client privilege on the lawyer and, at the same time, deliver a copy of the notice by registered mail to all corporate entities or individuals that it has reasonable grounds to believe will be affected by the application; 7. The lawyer on behalf of the client, or the client, shall serve two days notice of any application to summarily determine solicitor-client privilege on the Commission; 8. Any application for summary determination may include an application that the package be produced to the court. [58] I stated at the outset that I have not had the advantage of full submissions on the matter of directions and, as a result, I recognize that further or different directions might be required. In particular, there will be liberty to apply to fix the time for compliance with any direction, or to shorten or extend any period of notice. I remain seized of any such application. "M.D. Macaulay, J." The Honourable Mr. Justice M.D. Macaulay