Judgments

[1995] 3 F.C. 643

T-2689-94

The Professional Institute of the Public Service of Canada (Applicant)

v.

The Director of the Canadian Museum of Nature (Respondent)

Indexed as: Professional Institute of the Public Service of Canada v. Canada (Director of the Canadian Museum of Nature) (T.D.)

Trial Division, Noël J.—Ottawa, September 25 and October 5, 1995.

Access to information — Union seeking judicial review of denial of access to forensic accounting report prepared pursuant to recommendation of Museum’s solicitor to determine whether defamation action against union prudent — Museum disclosing report to Auditor General — Report obtained for dominant purpose of litigation, but disclosure to Auditor General waiver of privilege.

Practice — Privilege — Union seeking disclosure of forensic accounting report prepared pursuant to recommendation of Museum’s solicitor to determine whether defamation action against union prudent — Dominant purpose for creation litigation — Actual use irrelevant — Voluntary disclosure to Auditor General, knowing would be used in conformity with statutory mandate, waiver of privilege.

This was an application for judicial review of the denial of access to a forensic accounting report that had been prepared for the Board of Trustees of the Canadian Museum of Nature. The applicant union had published a report criticizing the Museum’s management and handling of funds. The Museum’s solicitor recommended that a forensic audit be undertaken to determine whether it was prudent to commence an action in defamation. A letter from the authors of the audit at the time of their engagement confirmed that the audit would be prepared in support of potential litigation. Although the audit apparently cleared the Museum of any wrongdoing, it refused the union’s Access to Information Act application for disclosure of the audit on the ground that the audit was subject to solicitor-client privilege. The Auditor General was, however, allowed access to the forensic report.

The issues were: (1) whether the forensic audit had been obtained for the dominant purpose of litigation; and (2) if so, whether the solicitor-client privilege was waived by the voluntary disclosure of the report to the Auditor General.

Held, the application should be allowed.

In determining a litigation privilege claim, the fact that the use actually made of a document may have been quite different from that originally intended, is irrelevant. Dominant purpose must be assessed as of the time that the document was brought into existence. While the forensic report was capable of different uses, the dominant purpose for its creation was litigation.

The Auditor General must be regarded as a third party vis-à-vis the government entities that he is called upon to audit. That the Auditor General cannot be confined by a privilege belonging to the entity which he is called upon to audit and that he must make use of relevant and material information that comes to his attention in the fulfilment of his statutory mandate establishes that the voluntary release of information to the Auditor General is a waiver of privilege. There was neither any evidence that the Auditor General invoked any of his statutory powers to compel the Museum to disclose the report, nor any indication that he would have resorted to such powers had the Museum refused disclosure on the grounds of privilege. Furthermore, it was not clear that the Auditor General had the power to compel the production of the report, and if he had, it was not clear that the Museum could not have invoked privilege. In turning the report over to the Auditor General voluntarily and with the full knowledge that it would be reviewed and used in conformity with the Auditor General’s statutory mandate, the Museum waived the privilege.

STATUTES AND REGULATIONS JUDICIALLY CONSIDERED

Access to Information Act, R.S.C., 1985, c. A-1, ss. 2, 4, 23, 41, 48.

Auditor General Act, R.S.C., 1985, c. A-17, ss. 6, 7, 13.

Museums Act, S.C. 1990, c. 3, s. 30.

CASES JUDICIALLY CONSIDERED

CONSIDERED:

Cineplex Odeon Corp. v. M.N.R. (1994), 114 D.L.R. (4th) 141; 26 C.P.C. (3d) 109; [1994] 2 C.T.C. 293; 94 DTC 6407 (Ont. Gen. Div.).

REFERRED TO:

Anderson v. Bank of British Columbia (1876), 2 Ch.D. 644 (C.A.); Waugh v. British Railways Board, [1980] A.C. 521 (H.L.).

APPLICATION by a labour union for judicial review of the denial of access under the Access to Information Act to a forensic audit prepared on the recommendation of the solicitor for the Canadian Museum of Nature to determine whether it would be prudent to sue the union for defamation. Application allowed.

COUNSEL:

Peter J. Barnacle for applicant.

Michael F. Ciavaglia for respondent.

SOLICITORS:

Nelligan Power, Ottawa, for applicant.

Deputy Attorney General of Canada for respondent.

The following are the reasons for order rendered in English by

Noël J.: This is an application for judicial review, pursuant to section 41 of the Access to Information Act, R.S.C., 1985, c. A-1 (the Act), of the decision of the Canadian Museum of Nature (the Museum) to deny the Professional Institute of the Public Service of Canada (the PIPSC) access to a forensic accounting report that was prepared for the Board of Trustees of the Canadian Museum of Nature.

1.         FACTS

The relevant facts are as follows:

1. In 1994, the Museum declared surplus seven positions and laid off the incumbent employees filling these positions. The PIPSC’s union committee investigated the circumstances surrounding the lay-offs and subsequently published a report criticizing the Museum’s management and handling of funds.

2. In March 1994, the Museum ordered that a special forensic audit be carried out by the accounting firm of Peat Marwick and Thorne to review the allegations in the PIPSC’s report. In a letter to the Chief Operating Officer of the Museum dated February 25, 1994, the Department of Justice, the Museum’s solicitor, had recommended that a forensic audit be carried out to determine whether it was prudent to proceed to litigation. A letter from Peat Marwick and Thorne dated February 28, 1994 which confirmed the ordering of the forensic audit indicated that the report would be prepared in order to support a potential action in defamation against the authors.

3. On April 13, 1994, the President of the Museum stated before the Canadian Heritage Parliamentary Committee that he believed the audit would show that the PIPSC’s report was based on material presented out of context, largely misrepresented and factually incorrect.

4. On May 25, 1994, the Audit and Finance Committee of the Museum’s Board of Trustees reviewed the audit and concluded that the audit cleared the Museum’s management of any wrongdoing but that the audit would not be released based on solicitor-client privilege.

5. The role of the Auditor General was discussed at the meeting of May 25, 1994. A representative of the Office of the Auditor General expressed concern that the Auditor General must be prepared to answer any questions asked (presumably, about the PIPSC’s allegations). A representative of the Department of Justice present at the meeting suggested that the Auditor General could access the work while still maintaining privilege on the material. The Auditor General was allowed access to the forensic report, which was referred to in the Auditor General’s financial audit of that year.

6. On May 31, 1994 the PIPSC sought disclosure of the forensic audit under the Access to Information Act. The Museum refused disclosure on the ground that the audit was exempt from disclosure under section 23 of the Act. The PIPSC filed a complaint with the Information Commissioner of Canada over the Museum’s refusal. On September 23, 1994 the Information Commissioner dismissed the complaint, finding that the forensic audit was privileged information under section 23 of the Act.

7. The PIPSC seeks disclosure of the forensic audit to obtain information concerning the financial operations of the Museum and in order to be able to respond to the Museum’s allegations that the PIPSC’s report was misleading or inaccurate.

2.         RELEVANT STATUTORY PROVISIONS

2.1       Access to Information Act

The relevant provisions are as follows:

Purpose of Act

2. (1) The purpose of this Act is to extend the present laws of Canada to provide a right of access to information in records under the control of a government institution in accordance with the principles that government information should be available to the public, that necessary exceptions to the right of access should be limited and specific and that decisions on the disclosure of government information should be reviewed independently of government.

…

Right of Access

4. (1) Subject to this Act, but notwithstanding any other Act of Parliament, every person who is

(a) a Canadian citizen, or

(b) a permanent resident within the meaning of the Immigration Act, has a right to and shall, on request, be given access to any record under the control of a government institution.

…

Solicitor-client privilege

23. The head of a government institution may refuse to disclose any record requested under this Act that contains information that is subject to solicitor-client privilege.

…

Review by the Federal Court

41. Any person who has been refused access to a record requested under this Act or a part thereof may, if a complaint has been made to the Information Commissioner in respect of the refusal, apply to the Court for a review of the matter within forty-five days after the time the results of an investigation of the complaint by the Information Commissioner are reported to the complainant under subsection 37(2) or within such further time as the Court may, either before or after the expiration of those forty-five days, fix or allow.

…

Burden of proof

48. In any proceedings before the Court arising from an application under section 41 or 42, the burden of establishing that the head of a government institution is authorized to refuse to disclose a record requested under this Act or a part thereof shall be on the government institution concerned.

2.2       Auditor General Act[1]

The relevant provisions are as follows:

Report to House of Commons

6. The Auditor General shall examine the several financial statements required by section 64 of the Financial Administration Act to be included in the Public Accounts, and any other statement that the President of the Treasury Board or the Minister of Finance may present for audit and shall express his opinion as to whether they present fairly information in accordance with stated accounting policies of the federal government and on a basis consistent with that of the preceding year together with any reservations he may have.

7. (1) The Auditor General shall report annually to the House of Commons

(a) on the work of his office; and

(b) on whether, in carrying on the work of his office, he received all the information and explanations he required.

(2) Each report of the Auditor General under subsection (1) shall call attention to anything that he considers to be of significance and of a nature that should be brought to the attention of the House of Commons, including any cases in which he has observed that

(a) accounts have not been faithfully and properly maintained or public money has not been fully accounted for or paid, where so required by law, into the Consolidated Revenue Fund;

(b) essential records have not been maintained or the rules and procedures applied have been insufficient to safeguard and control public property, to secure an effective check on the assessment, collection and proper allocation of the revenue and to ensure that expenditures have been made only as authorized;

(c) money has been expended other than for purposes for which it was appropriated by Parliament;

(d) money has been expended without due regard to economy or efficiency; or

(e) satisfactory procedures have not been established to measure and report the effectiveness of programs, where such procedures could appropriately and reasonably be implemented.

…

Access to Information

13. (1) Except as provided by any other Act of Parliament that expressly refers to this subsection, the Auditor General is entitled to free access at all convenient times to information that relates to the fulfilment of his responsibilities and he is also entitled to require and receive from members of the public service of Canada such information, reports and explanations as he deems necessary for that purpose.

(2) In order to carry out his duties more effectively, the Auditor General may station in any department any person employed in his office, and the department shall provide the necessary office accommodation for any person so stationed.

(3) The Auditor General shall require every person employed in his office who is to examine the accounts of a department or of a Crown corporation pursuant to this Act to comply with any security requirements applicable to, and to take any oath of secrecy required to be taken by, persons employed in that department or Crown corporation.

(4) The Auditor General may examine any person on oath on any matter pertaining to any account subject to audit by him and for the purposes of any such examination the Auditor General may exercise all the powers of a commissioner under Part I of the Inquiries Act.

3.         QUESTIONS IN ISSUE

The PIPSC contends that the forensic audit was not obtained for the dominant purpose of litigation, and thus is not privileged information under section 23 of the Act. Alternatively, if the forensic audit was obtained for the dominant purpose of litigation, the PIPSC contends that it has since been used and disclosed for other purposes with the result that the solicitor-client privilege has been waived. In the further alternative, the PIPSC contends that parts of the forensic audit are reasonably severable from the non-disclosable parts and hence these ought to be accessible as public information.

4.         DISCUSSION

The first argument raised by the PIPSC may be disposed of fairly quickly. What is being claimed in this instance is the litigation privilege. It applies to protect from disclosure communications between a solicitor and client as well as with third parties, so long as these communications are made in the course of preparation for any existing or reasonably contemplated litigation. The only further requirement which the courts have placed on this extension of the traditional solicitor-client privilege[2] is that the communications so protected must have been generated for the dominant purpose of litigation. In this respect, the PIPSC alleges that litigation was not the dominant purpose behind the confection of the forensic report. Indeed, the PIPSC suggests that the use that has been made of the report since its creation demonstrates that it was confected primarily for public relations purposes and specifically, to allow the Museum and its senior management to better posture itself in the public eye in the wake of the allegations made by the PIPSC.

The fact that the use actually made of the report after its confection may have been quite different from that which was originally intended, while relevant to the issue of waiver, has little or no bearing on the PIPSC’s first contention. It is well established that the dominant purpose of a document is to be assessed as of the time at which it is brought into existence as it is the dominant purpose for its creation that is in issue.[3] In this respect, the record unequivocally shows that the forensic audit was originally ordered to be conducted on the recommendation of legal counsel for the purpose of ultimately allowing the Museum to pursue an action in defamation. The record also shows that that purpose was known and acknowledged by the authors of the report at the time of their engagement, and that they were to act under the direction of the Museum’s legal counsel. No purpose other than litigation can be gleaned from the written exchanges between counsel, the Museum and the authors of the report. I would have to ignore that evidence altogether and in effect treat it as a sham to ascribe to the report, at the time of its creation, a prime purpose other than that which the Museum contends.

It follows that while I have no doubt that the report was capable of different uses, I must conclude on the evidence before me that the dominant purpose for its creation was litigation. The PIPSC’s first contention is accordingly rejected.

The allegation that the Museum subsequently waived the privilege is more compelling. Specifically, the PIPSC contends that the Museum waived its privilege by voluntarily disclosing the report for a detailed review by the Auditor General in the course of the preparation of its annual report. The Museum counters that the disclosure of the forensic report to the Auditor General should not be viewed as a disclosure to a third party and that, in any event, the disclosure was not voluntary as the Museum was bound to disclose the report to the Auditor General.

In Cineplex Odeon Corp. v. M.N.R. (1994), 114 D.L.R. (4th) 141 (Ont. Gen. Div.), the Minister of National Revenue sought the production of otherwise privileged documents which had been released by the external auditor’s tax group to its audit group. The Minister of National Revenue contended that the release of the documents by the tax group to the audit group constituted disclosure to a third party with the result that the privilege which existed while the documents were in the hands of the tax group had been lost. Haley J., in rejecting this contention, had this to say about the relationship between external auditors and their clients, at page 145:

Peats as external auditor for the applicant corporation is governed by the guidelines set out in the handbook of the Canadian Institute of Chartered Accountants. The auditor is called upon to give an objective opinion of the fairness and accuracy of the financial statements prepared by the management of the corporation. Ms Levine agreed that the auditor must maintain an independence from the management of the corporation in performing the audit. The auditor’s report is prepared for the shareholders of the corporation as opposed to the management.

If such an audit were conducted by another firm of chartered accountants there would be no question that they would be third parties in relation to the corporation and disclosures to those auditors would constitute waiver of privilege …. [Emphasis is mine.]

Later in the course of his judgment, Haley J. outlined the practice of outside auditors in the United States when confronted with documents belonging to a client which are privileged but which are nevertheless required to conduct an independent audit. He stated, at page 150:

It appears from the practice in the United States outlined in an article “Lawyers’ Responses to Audit Inquiries and the Attorney-Client Privilege”, Arthur B. Hooker; in (1980), 35 Bus. Law. 1021, that auditors will often request, privileged documents from clients or their attorneys in the course of the audit. To the extent that these disclosures are necessary to permit the independent auditor to fulfil his obligations the client will be required to waive the privilege.

The reason behind such a practice is obvious. Because of the higher duty which they owe to the shareholders, external auditors are bound to disclose otherwise privileged information which comes to their attention and which may have a material impact on the financial statements under audit so that the release of such information to the auditors is a de facto abandonment of the privilege by the client.

The Auditor General is by law the auditor of the Museum.[4] As such his responsibilities and functions are essentially the same as those of external auditors. He acts as a “public watchdog” which demands in turn that he maintain total independence at all times. He owes no fidelity to the entities which he is called upon to audit. His only obligation in relation to any given audit is to state for the benefit of the responsible minister and Parliament whether the statements audited present information fairly in accordance with stated accounting principles on a basis consistent with prior years together with any reservations he may have.[5]

Keeping the foregoing in mind, I believe that the Auditor General must be looked upon as a third party vis-à-vis the government entities that he is called upon to audit. In terms of the privilege, it is also apparent that the disclosure of an otherwise privileged document to the Auditor General in the course of an audit is wholly inconsistent with an intent to maintain the privilege and as such amounts to a waiver. The mere fact that the Auditor General cannot be confined by a privilege belonging to the entity which he is called upon to audit,[6] and that he must indeed make use of relevant and material information that comes to his attention in the fulfilment of his statutory mandate clearly establishes that the voluntary release of information to the Auditor General must be understood as a waiver of privilege by all those concerned.

The Museum argues, however, that the release of the forensic report to the Auditor General was not voluntary as it was disclosed pursuant to statutory provisions requiring such disclosure. The record does not bear this out. What the record does indicate is that the forensic report was turned over to the Auditor General further to the recommendation of the Audit and Finance Committee of the Museum made during an in camera meeting which was attended by officers of the Office of the Auditor General. The minutes indicate that one of these officers expressed a need for the Office of the Auditor General to satisfy itself that the forensic report was confected in accordance with its standards. This need arose from the view expressed by the same officer that the Auditor General had to be prepared to answer questions about the management of the Museum.[7]

That is the context in which the forensic report was turned over to the Office of the Auditor General. There is no evidence that the Auditor General invoked any of his statutory powers to compel the Museum to disclose the report nor is there any indication that the Auditor General would have resorted to any such powers if the Museum had refused disclosure on the grounds of privilege. Furthermore, even if the Auditor General wanted to use his statutory powers, it is not clear that he possessed the power to actually compel the production of the report. Finally, even if he did possess such powers, and if I could read from the record a de facto invocation of these powers, it is not obvious to me that the Museum’s privilege could not have been validly invoked to resist disclosure.

The Museum further argues that the mere possibility that, in the absence of turning over the record, the Auditor General could have reported to the House of Commons its failure to cooperate[8] was sufficient compulsion in itself, and that on that ground alone, the disclosure of the forensic report cannot be said to have been voluntary. I rather think that this highlights the fact that the Museum was confronted with a choice and that it opted to disclose the information rather than preserve its confidentiality.

I therefore reject the contention that the Museum was compelled to disclose the report to the Auditor General. The report was turned over to the Auditor General voluntarily and with the full knowledge that it would be reviewed and used in conformity with the Auditor General’s statutory mandate.[9] Indeed, it was so used and as it turned out, the Museum and its management were vindicated by the published report of the Auditor General to the responsible Minister which stated, inter alia:

Our review of the KMPG report did not disclose any matters that would have an impact on the financial statements nor have we noted any other matters emerging from the report that would result in a non-compliance issue.[10]

In the process, however, the Museum waived the privilege. I have therefore concluded that there is no ground upon which the Museum can maintain the refusal to disclose the report and an order compelling the release of the report to the PIPSC will be issued, with costs against the Museum.

In order to preserve the confidentiality of the subject report pending the possible exercise by the Museum of its right of appeal, the release order will be effective thirty days from today’s date.

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