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CAN I KEEP MY TAX APPEAL CONFIDENTIAL?

FCA CONFIRMS THAT TAX COURT CAN SEAL DOCUMENTS AT DISCOVERY STAGE!

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When initiating complicated Tax Appeals, one of the questions that sophisticated clients often have (often unfortunately well into the process) is whether they can keep sensitive commercial documents “confidential”. That seems like a simple question, but it has a long and somewhat turgid answer involving the Open Court Principle and special rules in the Tax and Federal Courts for confidentiality-orders.

In this Tax Appeals Series Report, we review the Open Court Principle and how it affects the Tax Court’s ("TCC") power to make Confidentiality Orders – and a Federal Court of Appeal (“FCA”) decision on point.

The Open Court Principle & Confidentiality Orders

The Open Court Principle holds that court proceedings (and all documents filed in them) are presumptively open to public scrutiny.

Confidentiality orders are a limited exception to this rule and can be requested on a motion before the Court. In the tax context, a person asking the court to exercise its discretion to limit the Open Court Principle through a confidentiality order must establish 3 conditions:

1. Court openness poses a serious risk to an important interest,
2. The order sought is necessary to prevent the serious risk because no reasonable alternative measures exists, and
3. The order’s benefits outweigh its negative effects on openness.

At the discovery stage, both sides already benefit from the “implied undertaking rule”, namely that information produced cannot be used except for the purpose of the litigation. However, the rule is imperfect because it does not stop a third-party from requesting a document ultimately filed in court. That gap is what a confidentiality order can fill.

Note that one category of documents never requires a confidentiality order, and that is communications protected by solicitor-client privilege are not disclosed unless privilege is waived.

The CAE Inc. Decision

A recent decision of the FCA in Canada v. CAE Inc., 2026 FCA 138 (“CAE Inc.”) has recently confirmed the TCC's jurisdiction to grant a confidentiality order at the discovery stage.

In CAE Inc., the taxpayer’s request for confidentiality was granted on the strength of detailed affidavit evidence describing the nature of various sensitive commercial materials. The FCA found that the TCC had applied the correct legal test and was permitted to grant a sealing order without having itself reviewed the confidential documents in question.

Takeaways

CAE Inc. confirms the TCC has broad jurisdiction to protect sensitive confidential information disclosed to opposing parties in the tax appeal discovery process. Businesses in litigation should turn their minds to confidentiality early on but should also expect the Crown Counsel to strenuously object to all but the clearest situation, as the Crown Counsel is obligated to defend the Open Court Principle. Under the Open Court Principle, care will have to be taken to determine what is and is not critically confidential.

Where confidentiality is an issue in Tax Appeals, Experienced Tax Counsel can help.

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For an updated Index of our Tax Appeals Series, click here.