Might CRA obtain seemingly confidential documents prepared for or during mediation or other settlement conferences? The answer is yes.
Although hard to imagine, the Federal Court allowed the application of CRA to overcome the rule against settlement privilege and obtain many internal documents and details relating to the settlement of the litigation in question.
This issue was raised in a recent tax case in which CIBC was questioned as to deductions taken from its tax liability, the dispute centering on whether the admitted losses were the liability of the parent bank or its operating subsidiaries. 1
CRA sought disclosure of details of settlement documents intent on determining the truth of this issue by such means. Many of the questions relating to the settlement issues were ordered to be produced. The court noted, rightly, that such an order could put a “chill” on such settlement discussions and indeed, reflected that the decision could be seen as “putting CRA in the room during the mediation, having access to every relevant document” and that “it seems apparent that CIBC would alter its behaviour during mediation discussions if CRA was in the room with it”. The court stated as follows:
I am sympathetic to the view that this kind of order could place a chill on settlement discussions, since it could mean that taxing authorities could get their hands on all relevant documents from settlement negotiations in non-tax litigation. Parties may be more hesitant to speak openly or creatively, and thus settlements may be harder to come by. Indeed, this could be seen as putting CRA in the room during the mediation, having access to every relevant document, even if they are only able to use it much further down the road in reduced circumstances. It seems apparent that CIBC would alter its behavior during mediation discussions if CRA was in the room with it.
The thought of CRA notionally being in the settlement conference should remind all counsel to make fair and reasonable allocations of damage sums and further to ensure that the pleading and pertinent evidence support such claims.