I recently wrote about how Dalton McGuinty's Liberal government in Ontario was changing the law to erode the concept of solicitor-client privilege by giving the Canadian Public Accountability Board, an extension of the Ontario Securities Commission charged with oversight of accountants, automatic access to all documents related to an audit, including privileged information.

The Ontario Bar Association, representing the province's lawyers, sent a letter to Finance Minister Greg Sorbara expressing a lot of concern over the change.

Reader Murray thinks we're both wrong:

Both the OBA and this posting fundamentally misunderstand the situation. There is no such this as auditor-client privilege. If an auditor has obtained a solicitor-client document as part of the audit then either one of two things has happened: (1) privilege has been waived by the client already, or (2) the auditor already COMPELLED its disclosure, in EXACTLY the same way the auditor of the auditor (CPAB) compels disclosure under the new provisions. In other words, if there is a fundamental objection to CPAB getting the document, then the auditor should not have had it in the first place. It is quite simple, really.

You have to give Murray credit. That I am likely to misunderstand the situation is a given. But saying the Ontario Bar Association has gotten in wrong? That takes chutzpah.

But Murray makes a good point. If I give my accountant a piece of privileged information, do I waive privilege, even implicitly?

Neither the OBA nor I have provided any background. That's an oversight I'd like to fix right now.

This situation of accountants having privilege was studied in Philip Services Corp. v. Ontario Securities Commission, 2005 CanLII 30328 (ON S.C.). Yeah, it was in a case involving the OSC, and that in itself is significant.

In this case, Deloitte Touche was acting as an auditor for Philip Services. Here are some relevant excerpts from that decision:

[51] While the present case does not involve a Charter challenge, the message from the Supreme Court jurisprudence is clear: restrictions on solicitor-client privilege to attain other important societal objectives are to be closely scrutinized and restricted to what is absolutely necessary for the competing objective so as to achieve the minimal necessary impairment of solicitor-client privilege. It would follow, therefore, that section 153 of the OBCA cannot be read as authorizing the auditor to ignore the solicitor-client privilege with which the documents are impressed in his hands by their nature as Legal Opinions and the limited use that may be made of them.

[57] In my view, there is no necessity, in order to achieve the societal objective of fair financial statements certified as fair by fully informed auditors, that the waiver go beyond the auditors. By definition, the waiver enables the auditors to comply with the full scope of their audit standards. To hold that the waiver is broader than that, is to sanction a more than "minimal impairment" of this privilege which is fundamentally important to our justice system. In my view, the jurisprudence prevents finding that the Legal Opinions, once given to the auditors in that capacity for their purposes, were thereby made available to be handed over to the Commission for its purposes. That the statute compelling production to the auditors was not directly invoked seems to me to be irrelevant: it was there in the background. Even if the statute did not exist, the fundamental importance of solicitor-client privilege would dictate the narrow waiver rather than the broad.

[66] Philip submits that, if the Legal Opinions, the Stikeman Letter, the Skadden Letters and the Soule Notes remained privileged at the time that Philip provided them to Deloitte, the subsequent production of these documents by Deloitte cannot impact on the strength of those privilege claims. As stated above, this court must determine whether the individual purportedly waiving the legal right to privilege possessed the requisite authority to make such a waiver. The disclosure of privileged documents to Staff by Deloitte does not waive privilege in the documents, as Deloitte lacked the requisite authority to waive privilege over the documents.

[68] Equally clearly, Deloitte had no authority to act as the agent of Philip to waive the privilege, which still attached to these documents in its possession. Philip gave Deloitte no specific authority to waive privilege. Nor can there be an implied authority, for the audit responsibilities of the auditor do not normally require the surrender of the client's privileged documents to third parties for their purposes and not for the purpose of the audit responsibilities of Deloitte. The mere possession of the documents did not carry the authority to waive the privilege. The fact that the Disputed Documents largely came into the possession of Staff via an unauthorized disclosure by Deloitte undermines their usefulness in the hands of Staff.

Read the whole thing. The bottom line, though, was that the OSC was foiled because the court found that handing over privileged information to an accountant as part of an audit did not constitute waiving privilege. Accountants therefore inherited a measure of privilege as solicitors. Oversight of accountants granted to the CPAB by the OSC did not give the CPAB the ability to ignore privilege.

An OSC regulation is not strong enough to do that.

That was the finding of the court in August 2005.

In May 2006, the government promises to address the issue of making oversight of accountants stronger through legislation.

In October 2006, we get Bill 151. The Bill proposes law is written explicitly to confound this finding, The proposed law was written in order to get the OSC out of this bind. It's like the OSC can't simply take a loss and move on. It loses a case, and in a few months, the government is promising to fix it, and a few months later a bill appears that addresses that point directly.

No wonder the OBA is worried. I am too. For two reasons:

• Like the OBA, I think this is a fundamental weakening of the notion of privilege. Like the courts, I think that privilege has to be protected, and any weakening of the privilege is dangerous.
• I don't like the timing. If you needed any evidence that the government is subject to the whims of the OSC, here it is.

Oh, and by the way, the OSC started its fight with Philip Services in late 2000. Six years later, and the OSC is getting the government to change the laws to make sure it will win the next one. To the OSC, losing a court case is not an occasion to learn about the limits of its authority, it's an opportunity to determine where its authority needs to extended and expanded next.

And that leads to an interesting question. I'm suggesting that the government makes changes to help the OSC when the OSC loses in the courts. I think it's true. But is the government being duped into helping the OSC? Did the drafters of this legislation know about this case? Or did the OSC advise Government Services Minister Gerry Phillips, who is in charge of the OSC file, to make this change, without telling the ministry officials that this change was motivated by a court case loss from last year?

It's important because to change the law in order to overturn a court decision is much more serious than extending the law into an area in which there is no case law. In the second situation, the government is filling a legal void, and the courts are ready to evaluate that law if and when a case appears that is governed by this new law. In the first situation, the government is essentially at odds with the courts and using its power to legislate as a way to getting around a legal finding. That sort of conflict is not entered into lightly.

If it was trickery, how could the OSC get away with it? Remember that the OSC should be the responsibilty of Finance Minister Greg Sorbara and his specialists at the Ministry of Finance. But because the company for which he was CEO, Royal Technologies, is under investigation by the OSC for actions that took place when Sorbara was CEO, there is a conflict of interest. Instead of finding a new finance minister, Dalton McGuinty gave the OSC to the Ministry of Government Services under Gerry Phillips. Needless to say, the bureaucrats there are not finance experts.

If the government officials drafting the legislation did not know about the case, and took the advice of the OSC on how to expand CPAB powers without realizing that the courts had already ruled on this issue, then the OSC is playing a dangerous game. To trick the government like that is going to earn it enemies. Which is why I think the government had to know about the case. But then it means that the government is willing to provide legislative protection for the OSC in order to turn a court loss into a win.

Either situation makes me feel uncomfortable.