[1] The main issue in the forthcoming tax appeal out of which this interlocutory appeal arises is whether the prices paid by Glaxo Canada to a related company Adechsa S.A. for purchases of a drug-ranitidine hydrochloride (the drug) were reasonable. The reason the issue arises is because the appellant (Her Majesty the Queen) takes the position that, being non-related parties, the prices cannot be taken necessarily to be reasonable.

[2] Glaxo Canada is a wholly-owned subsidiary of Glaxo Group Limited which in turn is a wholly-owned subsidiary of GlaxoSmithKline plc, a multi-national pharmaceutical company with head quarters in the United Kingdom. Glaxo Inc., located in the United States is a subsidiary of GlaxoSmithKline where successor companies are involved in an action in the U.S. Tax Court whereby the U.S. Internal Revenue Service has also questioned the transfer price paid for the drug.

[3] Canada Revenue Agency (CRA), in order to establish a reasonable price which Glaxo Canada would have paid to an arm's length party, identified purchases of the drug made by two other Canadian drug companies, Apotex Inc. and Novopharm Limited, both of whom purchased from arm's length manufacturers. These two companies agreed to provide additional information for use in this litigation on condition that Confidentiality Orders limiting the disclosure of their confidential information would be issued by the Tax Court of Canada. CRA also determined that other information sought by Glaxo Canada, either found in the tax returns of taxpayers (Shire Biochem Ltd. and Kenral Ltd.), or in files of manufacturers of the drug, located in the Health Protection Branch were necessary for the conduct of the tax appeal. Such information was accessed by the appellant and provided to Glaxo Canada's counsel only after the Tax Court of Canada issued Confidentiality Orders respecting the confidentiality of the information. All Confidentiality Orders were obtained on consent of all parties.

[4] Each of the Confidentiality Orders contained the following terms, or terms similar thereto:

2. ..."trial counsel" means...P. Barsalou, S. Rheault...or any other solicitor or student-at-law employed by the firm of Barsalou Auger who has conduct of this action.

5. All Confidential Information shall be retained in the custody of t rial counsel and shall not be used by trial counsel for any purpose other than in connection with this action subject to the provisions of this order. Confidential Information shall not be disclosed by trial counsel except that, and solely for the purpose of this action, Confidential Information may be disclosed by trial counsel to such persons, including experts, as trial counsel deems necessary. No less than 7 days prior to disclosure of such information, trial counsel shall provide ...with an executed undertaking as referred to in Paragraph 6 hereof. Novopharm Limited shall not disclose the identity of such persons, including to the other party in this appeal. The Confidential Information may be delivered to the offices of such person, subject to the provisions of this order provided no objection is raised by Novopharm Limited.

7. Trial counsel and such person to whom Confidential Information is disclosed pursuant to paragraphs 5 and 6 of this order shall not directly or indirectly disclose any Confidential Information or the subject matter or contents thereof to any other person, firm or corporation without further order of the Court, or the consent in writing of Novopharm Limited.

8. Trial counsel and such person to whom Confidential Information is disclosed pursuant to paragraphs 5 and 6 of this order shall not use any Confidential Information or the contents or the subject matter thereof for any purpose other than in connection with this action subject to the provisions of this order

[5] There have been extensive discoveries including third party discoveries in the case both relating to Canadian and international issues, of which approximately 65 days were devoted to the discoveries of Glaxo Canada's nominees.

[6] The parties also attempted to draft Agreed Statements of Fact and approximately 50 of these on a variety of topics were drafted by either Glaxo Canada's counsel or the appellant's counsel and then sent to the opposing party for review and comments. None of the Agreed Statements of Fact were ultimately approved by both parties. Some of the draft Agreed Statements of Fact contain summaries of confidential information which had been provided by the third parties.

[7] As a result of the attempts to negotiate the Agreed Statements of Fact it became evident to Glaxo Canada, in reviewing matters with its foreign counter-parts, that some of the proposed Agreed Statements of Fact were not factually correct and further that some of the evidence given previously on the examinations for discovery was incorrect. Accordingly Glaxo Canada began providing what it considered to be corrected answers to the evidence given on the examination for discovery.

[8] Counsel for the appellant took the position that because of the large number of proposed changes to the sworn evidence, the respondent's conduct amounted to an abuse of process and brought a motion to have the tax appeal dismissed on this basis.

[9] In response to the motion Glaxo Canada filed an affidavit upon which extensive cross-examination took place. Certain questions were asked on the cross-examination which were objected to by counsel for the respondent. Those questions are as follows:

1. What Agreed Statements of Fact (names of the Agreed Statement of Facts and dates of particular drafts) were provided to counsel for Glaxo Inc., a company incorporated in the United States.

2. Were counsel for Glaxo Inc., retained to act for or on behalf of the Appellant (Glaxo Canada) as of September 14, 2004? If so, for what purpose? What assistance did they provide to the Appellant?

3. Who has access, and for what purpose, to the documentation produced by the Respondent (HMQ) in the within appeal, both hard copies and computer copies via limited or unlimited access to the Ringtail computer software document management system on the Glaxo (unclear which entity) intranet, specifically the following:

§ Novopharm scientific data provided to HPB (Ins 300001 to 300245)

§ Novopharm data from the patent litigation (Ins 515001 to 515758)

§ Transcripts of Third Party Examinations of Leslie Dan

§ Apotex scientific data provided to HPB (Ins 310001 to 310379)

§ Apotex data from patent litigation (Ins 514050 to 514435)

§ Apotex financial data (Ins 514001 to 514049, 514436)

§ Transcripts of Third Party Examinations of Barry Sherman

§ Uquifa S.A. scientific data provided to HPB (INs 530067 to 530150)

§ Maprimed S.A. scientific data provided to HPB (INs 530185 to 530239)

§ Delmar Chemicals/Torcan scientific data provided to HPB (INs 330001 to 330025)

§ Barisintex S.A. scientific data provided to HPB (INs 370001 to 370040)

§ Shire Biochem Inc., excerpts from Canada Income Tax returns including financial data (INs 200706 to 200727)

§ Kenral Inc. excerpts from Canada Income Tax returns including financial data (INs 200728 to 200736)

§ Documents created by CRA in the audit of the Appellant (INs 200001 to 200705, 200737 to 200754)

§ Transcript of Examination for Discovery of Tom Burkimsher, including responses to Undertakings (INs 520001 to 520052)

§ Financial Spreadsheets prepared by the Respondent and provided to the Appellant (INs 620001 to 620225 - Internal Numbers are not final)

§ Inland Revenue Data (INs 502001 to 504246)

§ New Zealand Tax Office data (INs 511001 to 511074)

§ Australian Tax Office data (INs 512001 to 512007)

§ Transcripts of the Examinations for Discovery of Dr. George Mattok, including responses to Undertakings (INs 530001 to 530323)

§ French Tax Authority documents INs 540001 to 540003)

§ French Tax Authority documents (INs 540001 to 540003)

§ IMS data (550001 to 550036)

4. Who has access, and for what purpose, to summaries of the information or the content of such information contained in the documents identified in the above paragraph, either orally communicated, provided in hard copy or by computer copies via limited or unlimited access to the Ringtail computer software document management system on the Glaxo (unclear which entity) intranet?

7. Which corrections, completions, clarifications or other changes to Agreed Statements of Fact were suggested by US counsel to Glaxo Inc.?

10. Were all references to "Glaxo Inc. in the U.S." made during cross examination of Dr. Ian Winterborn, to the petitioner "Glaxo SmithKline Holdings (America) Inc. and its subsidiaries"?

11. Has a petition been filed on behalf of the American Glaxo subsidiary in the U.S. Tax Court, a copy of which was entered as Exhibit 124 for identification?

12. What is the name of the law firm referenced when terminology such as "US. Counsel for Glaxo Inc." was used? Is it McKee Nelson of Washington, D.C.?

[10] When counsel for the respondent refused to answer the questions, the appellant brought a motion in the Tax Court to compel answers to the questions. The Tax Court Judge held that none of the questions should be answered holding that the questions were either subject to solicitor/client privilege or litigation privilege or were irrelevant. The appellant Her Majesty the Queen appeals from this order of the Tax Court.

[11] It is clear from the evidence that confidential information was passed by counsel for the respondent to persons other than personnel in his law firm. There is no evidence that paragraphs 5, 7 and 8 of the confidentiality orders were complied with and the appellant sought through its questions to determine the identity of persons to whom the information had been released. The purpose of seeking this information was to ensure that there had been no improper disclosure of the confidential information which the appellant had undertaken to keep confidential. Serious consequences could ensue for the third parties who released the information and the government who might seek third parties' assistance in future cases if indeed confidential information of the sort released should find itself into the hands of competitors of the companies who had provided the information. Similarly government departments would, in the future, become leery about disclosing confidential information. As a result it is necessary to determine precisely who came into possession of this information and to what use was made of it. By this I mean was the information used for the purpose of the present litigation or for some other purpose?

[12] Counsel for the appellant agreed during oral argument that if she had the answers to questions 3 and 4 this would provide her with the necessary information which she needed with respect to the confidential information. Consequently, in my view, this information should be provided along with the names and addresses of the recipients of the information as well as the dates of disclosure. It is no answer for the respondent to say that the details of the passage of this confidential information is subject to litigation privilege or solicitor/client privilege when it may well be that the confidentiality orders have been violated by the law firm which agreed to ensure the confidentiality of the information provided to it for the benefit of its client and of the administration of justice.

[13] As I have disposed of the confidentiality issue, the discussion of the remaining questions will turn on issues other than confidentiality. I will now deal with the questions 1 and 7:.

1. What Agreed Statements of Fact (names of the Agreed Statement of Facts and dates of particular drafts) were provided to counsel for Glaxo Inc., a company incorporated in the United States?

7. Which corrections, completions, clarifications or other changes to Agreed Statements of Fact were suggested by US counsel to Glaxo Inc.?

[14] Among other arguments, counsel for the appellant sought to justify questions 1 and 7 on the basis of Rule 95(4) of the Tax Court of Canada General Procedure Rules.

A party may on an examination for discovery obtain disclosure of the names and addresses of persons who might reasonably be expected to have knowledge of transactions or occurrences in issue in the proceeding, unless the Court orders otherwise.

Counsel argued that finding out the identity of the persons who suggested changes would reveal "persons who might reasonably be expected to have knowledge of transactions or occurrences". However the question seeks much more information than that. Persons who suggest changes to Agreed Statements of Fact are not necessarily persons who have knowledge of specific events or occurrences. Their input may relate to legal advice or other strategy issues, knowledge of which the appellant is not entitled. It is possible that questions relating to the identity of persons suggesting changes to answers on discovery might be answerable but I do not need to deal with this because the questions do not relate to changes to discovery answers but rather to changes to draft Agreed Statements of Fact. Therefore I do not believe that Rule 95(4) is relevant to the questions actually posed.

[15] Question number 1 not only fails to confine itself to the Agreed Statements of Fact containing confidential information but it is also an attempt to delve into the brief of counsel for the respondent. Aside from the question of confidential information, counsel for the respondent is entitled to provide information to third parties and obtain comments upon it for use in this litigation in Canada. Those communications are subject to solicitor/client privilege. Communications made by counsel to other persons in order to obtain information and the communications back to him are the subject of solicitor/client privilege. Counsel must be free to make full investigation and research without risking disclosure of his opinions, strategies and conclusions to opposing counsel. To circumscribe this right is to circumscribe the necessary power which counsel must have in order to adequately represent his client Stevens v. Canada (Prime Minister), [1998] 4 F.C. 89 (FCA); Samson Indian Nation and Band v. Canada, [1995] 2 F.C. 762; R. McClure, [2001] 1 S.C.R. 445; Ottawa-Carleton (Regional Municipality) v. Consumers' Gas Co., (1990) 74 D.L.R. (4^th) 742; see also Morrissey v. Morrissey, (2000) 196 D.L.R. (4^th) 94, para. 37 and 38.

[16] In the present case, the parties were seeking for their benefit and for the Court's benefit to obtain Agreed Statements of Fact. If the information obtained by counsel from others during the drafting of these Agreed Statements of Fact is to be automatically subject to disclosure to the other party, this would discourage the parties from having negotiations to enter into Agreed Statements of Fact. Parties are to be encouraged for the general efficiency of the conduct of litigation and for efficiency in the courts to enter such Agreed Statements of Fact if at all possible.

[17] For the above reasons, questions 1, 2, 7, 10, 11 and 12 are all subject to privilege either solicitor/client privilege or litigation privilege. In my view as well the appellant has failed to show that questions 11 and 12 are relevant to the present litigation. This is, of course, subject to the information to be provided which is referred to in paragraph 12 of these reasons.

[18] In the result, the appeal will be allowed in part and questions 3 and 4 as well as the information mentioned in paragraph 12 of these reasons will be ordered to be answered. The appeal with relation to the other questions is dismissed.

[19] In view of the divided success on the appeal there will be no order as to costs.

"J. EDGAR SEXTON"

J.A.

"I agree

Gilles Létourneau J.A."

"I agree

K. Sharlow J.A."

FEDERAL COURT OF APPEAL

NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET: A-553-04

Appeal from a decision of Mr. Justice Beaubier of the Tax Court of Canada dated October 5, 2004.

STYLE OF CAUSE: HER MAJESTY THE QUEEN

GLAXO SMITHKLINE INC.

PLACE OF HEARING: Ottawa

DATE OF HEARING: January 19, 2005

REASONS FOR JUDGMENT: SEXTON J.A.

CONCURRED IN BY: LÉTOURNEAU & SHARLOW JJ.A.

DATED: JANUARY 24, 2005

APPEARANCES:

Ms. Naomi Goldstein

Ms. Myra Yuzak

FOR THE APPELLANT

Mr. Pierre Barsalou

Ms. Eleni Kouros

FOR THE RESPONDENT

SOLICITORS OF RECORD:

John Sims, Deputy Attorney General of Canada

FOR THE APPELLANT

Barsalou Lawson, Barristers & Solicitors, Montreal

FOR THE RESPONDENT

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