Constitutionalizing Pursuit of the Client's Cause: Canada (AG) v Federation of Law Societies

In a decision being lauded by the bar, the Supreme Court of Canada held that provisions of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, SC 2000, c 17 [PCTFA] violate sections 7 and 8 of the Charter in Canada (Attorney General) v Federation of Law Societies of Canada, 2015 SCC 7 [FLSC].

Legislative Scheme

The legislative scheme surrounding the prohibition of money laundering and terrorist financing is complex. Provisions of the Criminal Code, RSC 1985, c C-46, make it illegal to launder money and fund terrorist activity, while the PCTFA provides mechanisms for the investigation of these crimes.

The PCTFA requires that lawyers abide by recordkeeping standards, reporting standards, and creates the Financial Transactions and Reports Analysis Centre of Canada (“FINTRAC”) as a compliance agency. Further, the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations, SOR/2002-184 [PCTFA Regulations], specify how this applies to lawyers. The purported goal of the legislation is to “deter illicit transactions and, if such transactions occur, to help establish a paper trail that, with the proper judicial authorization, could be accessed by law enforcement” (FLSC, para 12).

In broad strokes, the legislation provides that:

1. Lawyers must verify the identity of those for whom they act as financial intermediaries.
2. Lawyers must issue a “receipt of funds record” for such transactions over $3000 unless the funds have come from a public body and keep such records for five years.
3. FINTRAC may “examine the records and inquire into the business and affairs” of any lawyer. This encompasses the ability to search through computers and obtain copies or prints of such records.

However, there are some exceptions that are enumerated in the scheme. For instance, lawyers are exempt when providing legal services, and they are not required to divulge matters otherwise protected under solicitor-client privilege. Additionally, s. 64 of the PCTFA provides a process where lawyers may protect documents they claim to be covered by the solicitor-client privilege from search.

The challenge to the impugned provisions can be divided into two parts: an issue relating to search and seizure and an issue relating to the requirements of identity verification.

Section 8 of the Charter

The search powers include provisions that allow authorized persons to enter locations such as offices, to examine records without a warrant. In regards to dwelling houses, the same search powers are granted but a warrant is required.

Writing for the majority, Justice Cromwell holds that: “The regime authorizes sweeping law office searches which inherently risk breaching solicitor-client privilege” (FLSC, para 35). He characterizes the law as having a “predominantly criminal law character” and relies on Lavallee, Rackel & Heintz v Canada (Attorney General), [2002] 3 SCR 209 [Lavallee], to note that “the need for the full protection of [solicitor-client] privilege is activated” and that, in any case, the reasonable expectation of privacy here is high (FLSC, paras 33-37).

Further, expanding on the importance of Lavallee, he notes the similarities to the stricken provision of the Criminal Code dealing with officers examining privileged notes taken by a lawyer in that case. Justice Cromwell finds similar flaws with the PCTFA in this case. For example, he notes that notice to the client (or an alternative) who holds the solicitor-client privilege is not required. Moreover, the PCTFA does not comply with the requirements of searching of law offices set out in Lavallee, such as there being no reasonable alternative to the search.

In sum, Justice Cromwell holds that the search provisions in the PCTFA violate s. 8 and cannot be saved under s. 1. He reads down provisions of the Act so that they do not apply to lawyers and law firms, but strikes down s. 64 relating to exemptions to solicitor-client privilege.

Section 7 of the Charter

Having already rendered unconstitutional the search provisions, Justice Cromwell considers the remaining provisions. He begins by setting out the test required to prove a s. 7 infringement from Canada (Attorney General) v Bedford, [2013] 3 SCR 1101. First, one must prove a limit on the right to life, liberty or security of the person. One must then prove that the law violates the principles of fundamental justice. Justice Cromwell quickly disposes of the first part of the test, holding that the liberty interests of lawyers are engaged, given the severe jail or fine penalties imposed under the scheme.

The British Columbia Court of Appeal held that the principle of fundamental justice (“PFJ”) violated here was the “independence of the bar.” The Federation asserts that the PFJ is violated as it interferes with how lawyers provide services to their clients, and the impugned legislation makes their offices “an archive for the use of the prosecution.” Analysing these two assertions, the former being broader, the latter being narrower, Justice Cromwell goes on to hold that for many of the same reasons that solicitor-client privilege is protected, the Court should “recognize as a principle of fundamental justice that the state cannot impose duties on lawyers that undermine their duty of commitment to their clients’ causes” (FLSC, para 84).

He also undertakes the analysis for creating new PFJs in the case, placing much emphasis on the requirement that there is overwhelming evidence of a strong and widespread consensus to support this PFJ. Applying this view to the impugned scheme, Justice Cromwell holds that the PFJ is violated for forcing lawyers to receive and retain more information than required for effective and ethical client representation and that clients could reasonably believe that lawyers are “acting on behalf of the state in collecting and retaining this information… ” (FLSC, paras 108-109).

As such, Justice Cromwell reads down the general provisions in the PCTFA Regulations regarding the verification of identity to not apply to lawyers, while striking down the remaining ones that directly apply to lawyers.

In short concurring reasons, Chief Justice McLachlin and Justice Moldaver do not agree that there is sufficient certainty for the “lawyer’s commitment to the client’s cause” to be a PFJ. In their view: “The lawyer’s commitment to the client’s interest will vary with the nature of the retainer between the lawyer and client, as well as with other circumstances. It does not, in our respectful opinion, provide a workable constitutional standard” (FLSC, para 119).

Impact

In two spots in the decision, Justice Cromwell states that he wishes not to interfere with the legislature’s ability to regulate in pursuit of its valid goal to prevent money laundering and terrorist financing. In relation to the search provision, he states: “I do not foreclose the possibility that Parliament could devise a constitutionally compliant inspection regime without a judicial pre-authorization requirement” (FLSC, para 56). Further, he holds: “Parliament is entitled, within proper limits which I have outlined, to impose obligations beyond those which the legal profession considers essential to effective and ethical representation” (FLSC, para 113).

However the line is drawn in the sand. This decision stands for the protection of solicitor-client privilege in Canada, created a new PFJ that protects the lawyer’s commitment to the client’s cause. This prevents lawyers from being put between a rock and a hard place—from being forced to compromise the relationship they hold with their clients under the threat of harsh penalties. While promoting the privilege, Justice Cromwell is measured in his approach, clearly noting that “this holding does not place lawyers above the law” (FLSC, para 111).