SUPREME COURT Of BRITISH COLUMBIA VANCOUVER REGISTRY NOV 1 D 1011 No. Vancouver Registry SUPREME COURT OF BRITISH COLUMBIA BETWEEN: AND: Auditor General of British Columbia Her Majesty the Queen in Right of the Province of British Columbia as represented by the Ministry of Attorney General, Sandra Harper, Robert Jones, Udhe Singh Basi, Bobby Singh Virk, John Doe and Jane Doe PETITIONER RESPONDENTS PETITION TO THE COURT Petitioner Auditor General of British Columbia c/o McMillan LLP 1500-1055 West Georgia Street Vancouver, BC Respondents Her Majesty the Queen in Right of the Province of British Columbia as represented by the Ministry of Attorney General Legal Services Branch, Ministry of Attorney General 1 st Floor, 1001 Douglas Street Victoria, B.C. Sandra Harper Suite 201-747 Fort Street Victoria, B.C. Robert Jones 4825 Maplegrove Street Victoria, B.C.
- 2 - Udhe Singh Basi 5064 Cambriawood Terrace Victoria, B.C. Bobby Singh Virk 4304 Maltwood Lane Victoria, B.C. John Doe and Jane Doe c/o Michael Frey Frey & Company 300-754 Broughton Street Victoria, B.C. This proceeding has been started by the petitioner for the relief set out in Part 1 below. If you intend to respond to this petition, you or your lawyer must (a) file a response to petition in Form 67 in the above-named registry of this court within the time for response to petition described below, and (b) serve on the petitioner( s) (i) 2 copies of the filed response to petition, and (ii) 2 copies of each filed affidavit on which you intend to rely at the hearing. Orders, including orders granting relief claimed, may be made against you, without any further notice to you, if you f~il to file the response to petition within the time for response. Time for response to petition A response to petition must be filed and served on the petitioner(s), (a) if you were served with the petition anywhere in Canada, within 21 days after that service, (b) if you were served with the petition anywhere in the United States of America, within 35 days after the date of that service, (c) if y~u were served with the petition anywhere else, within 49 days after that service, or (d) if the time for response has been set by order of the court, within that time. (1) The address of the registry is: 800 Smithe Street Vancouver, B.C. (2) The ADDRESS FOR SERVICE of the petitioner is: McMillan LLP 1500-1055 West Georgia Street Vancouver, B.C. V6E 4N7 Telephone: 604-689-9111
- 3 - Attention: Louis J. Zivot Fax number for service (if any) of the petitioner: 604-685-7084 E-mail address for service (if any) of the petitioner: N/A (3) The name and office address of the petitioner's lawyer is: Same as address for service. Part 1: ORDERS SOUGHT CLAIM OF THE PETITIONER 1. A declaration that the Petitioner is, for the purpose of exercising his powers and duties under the Auditor General Act, and in particular pursuant to section 16 of that Act, entitled to access to all records, information and any explanations from the Government of the Province of British Columbia (the "Government") and all other persons or organizations within the scope ofthe auditing powers of the Petitioner, notwithstanding that such records, information or explanations may be subject to a claim of privilege or confidentiality in favour of the Government, Cabinet, or a third party. 2. An order that the Respondent Her Majesty the Queen in Right of the Province of British Columbia as represented by the Attorney General give access to the Petitioner to all records and information in its custody or possession and employees of the Ministry of Attorney General provide explanations where requested by representatives ofthe Office of the Auditor General, relating to the performance audit being conducted by the Petitioner concerning the approval, administration and funding of indemnities granted to persons by the Government (the "Indemnities Performance Audit"). 3. An order that the Respondent Sandra Harper ("Harper") for the purposes of the Indemnities Performance Audit give access to the Petitioner to all records and information in her custody or possession and provide explanations, where requested by representatives of the Office of the Auditor General, relating to the approval, administration and funding of indemnities granted by the Government with respect to the legal defence of the Respondents Udhe Singh (Dave) Basi ("Basi") and Bobby Singh Virk ("V irk") in criminal proceedings brought against them related to their employment with the Government and tried in the Supreme Court of British Columbia, Vancouver Registry, Docket No. 23299 (the "Basi/Virk Criminal Proceedings"). 4. An order pursuant to section 17 of the Auditor General Act that the Respondent Harper for the purposes of the Indemnities Performance Audit produce to the Petitioner any and all records, securities and things in her custody or possession and give evidence where requested relating to the approval, administration and funding of indemnities granted by the Government with respect to the legal defence of the Respondents Basi and Virk in the Basi/Virk Criminal Proceedings.
- 4-5. An order that the Respondent Robert Jones ("Jones") for the purposes of the Indemnities Performance Audit give access to the Petitioner to all records and information in his custody or possession and provide explanations, where requested by representatives of the Office of the Auditor General, relating to the"approval, administration and funding of indemnities granted by the Government with respect to the legal defence of the Respondents Basi and Virk in the BasiNirk Criminal Proceedings. 6. An order pursuant to section 17 of the Auditor General Act that the Respondent Jones for the purposes of the Indemnities Performance Audit produce to the Petitioner any and all records, securities and things in his custody or possession and give evidence where requested relating to the approval, administration and funding of indemnities granted by the Government with respect to the legal defence of the Respondents Basi and Virk in the Basi/Virk Criminal Proceedings. 7. An order that the Petitioner and the Respondents be at liberty to apply to this Honourable Court to seek further directions. 8. Costs. 9. Such further or other relief as this Honourable Court deems just. Part 2: FACTUAL BASIS 1. The Auditor General of British Columbia is an officer of the Legislature of the Province of British Columbia (the "Legislature"). This proceeding is brought under the Auditor General Act, S.B.C. 2003, c. 2 (the "Act"). 2. The Respondent Ministry of Attorney General is a ministry of the Government of the Province of British Columbia (the "Government") with records and information in its custody or possession relevant to the Indemnities Performance Audit being conducted by the Petitioner. 3. The Respondent Harper is a lawyer practicing in Victoria, British Columbia with Harper & Company and has records and information in her custody or possession relevant to the Indemnities Performance Audit. 4. The Respondent Jones is a lawyer practicing in Victoria, British Columbia and has records and information in his custody or possession relevant to the Indemnities Performance Audit. 5. The Respondents Basi and Virk were charged with, and ultimately pleaded guilty to, criminal offences relating to breach of trust and disclosure of confidential information in 2002 and 2003 concerning the disposition by the Government of assets of B.C. Rail. The Respondents Basi and Virk were granted indemnities by the Government in relation to the the BasiNirk Criminal Proceedings.
- 5-6. The Respondents John Doe and Jane Doe are individuals granted indemnities by the Government who may have a claim of privilege or confidentiality over information sought by the Auditor General as part of the Indemnities Performance Audit. Role of the Auditor General 7. The Auditor General is the auditor of the accounts of the Government and is the auditor of inter alia each Government ministry and each fund or appropriation that is part of the Province's consolidated revenue fund. 8. The Auditor General is required to provide an independent opinion to the Legislature on the summary financial statements of the Government, which includes the consolidated revenue fund, as prepared and presented by the Comptroller General in accordance with generally accepted accounting principles for senior governments. 9. The Auditor General is also required to provide an independent opinion on the financial statements of those Government organizations and trust funds where he has elected to be the auditor. 10. In addition to the Auditor General's role in conducting the financial statement audits described above, the Auditor General also has the mandate to conduct performance audits. Performance audits are systematic, purposeful, organized and objective assessments of an organization or program. Performance Audits may assess, for instance, whether an organization is achieving its objectives effectively, economically and efficiently and in compliance with financial and administrative provisions of legislation. 11. An "audit" is defined under section 1 of the Auditor General Act as an audit conducted in accordance with generally accepted auditing and assurance standards. The Auditor General's performance audits are conducted in accordance with the assurance standards of the Canadian Institute of Chartered Accountants (the "CICA Standards"). 12. The Auditor General's Office receives suggestions for performance audit topics from Members of the Legislative Assembly, the public, ministry staff, and public interest groups. Topics are chosen for an audit based on the Auditor General's assessment of the significance of the program in terms of spending and public interest, and an assessment of risks inherent in the program or activity. 13. The primary means of communicating audit results is through the reports of the Auditor General. In 200911 0, the Office of the Auditor General released a total of 60 opinions and reports: 48 financial statement audit opinions and 12 performance audit reports and other opinions or reports. 14. In 2010111, the Office of the Auditor General released a total of 71 audit opinions, reports, guides and brochures. This included 46 financial statement opinions, two enrolment audits, two guides, two accountability report audit opinions and finally, 19 performance audit and examination reports.
- 6-15. Currently, the Auditor General is conducting the Indemnities Performance Audit, an audit of the Government's practice of granting special indemnities to individuals under the authority of the Financial Administration Act, but outside of a formally established and approved government policy ("Special Indemnities"). Special Indemnities are used to cover the cost of private legal counsel for an individual's defence in legal or professional body proceedings or to cover the costs associated with individuals who are appearing as witnesses in public inquiries and similar reviews. In some cases, Special Indemnities also cover expenses related to settlement. 16. The Indemnities Performance Audit will consider the effectiveness of the system (or framework) governing the granting and administration of Special Indemnities and whether the terms and conditions of the indemnities granted by Government have been complied with. The audit will consider if access to, administration of, and reporting on the indemnities are undertaken in a fair and transparent way. 17. The range of performance audits defined in Section 11 of the Act specifically includes auditing an individual or organization in relation to an indemnity given by the Government or a Government organization. 18. The Auditor General has both a legal and a professional responsibility to keep information confidential, subject to it not restraining the Auditor General's ability to carry out his duties under the Act. Section 9 of the Act requires that all information obtained by the Auditor General be kept in confidence, except as required in the course of the administration of an enactment, or in court proceedings. 19. Section 9(a) of the Act specifically permits the Auditor General to communicate confidential information in the administration of the Act. Section 9(a) does not distinguish between general confidential information and confidential information that may contain privileged information. There is therefore a theoretical possibility of the disclosure of information that is subject to solicitor-client privilege of Government or a third party with whom Government has dealings and is thereby subject to an audit or investigation under the Act. 20. Despite this remote possibility, reports of the Auditor General are normally issued without identifying detailed or personal information. 21. The Auditor General has not in the course of his tenure communicated information that is subject to solicitor-client privilege and is not aware of any prior published reports that communicate such information. However, concerns have been expressed by Government and others regarding the possibility of this arising. 22. The Auditor General's duties require that he have access to information, including confidential and privileged information, in a timely way to complete his work and fulfill his mandate. In the context of an audit, access includes reviewing all relevant documentation on the auditee's premises, making notes to document the review, selecting the documents the auditor requires to be produced, and copying the relevant documents for further analysis by the auditor and to support the Auditor General's conclusions.
- 7-23. The Ministry of Attorney General has expressed concerns that the Auditor General's powers under section 9 of the Act allow for disclosure. The Auditor General has responded to these concerns regarding issues of privilege and confidentiality and section 9 of the Act by developing guidelines that address how the Auditor General would approach a potential disclosure of information that may be subject to privilege (the "Guidelines"). 24. These Guidelines reflect a practice that has been followed by the Auditor General in relation to privileged documents he has obtained in the past, including those subject to public interest immunity (Cabinet) privilege, and those subject to solicitor-client privilege in favour of the Government. To date, no disclosures have occurred and the process has provided open access to documents allowing the Auditor General to complete his work in an efficient and effective manner and with the level of independence needed. Process for Conducting a Performance Audit 25. Performance Audits are conducted in accordance with the CICA Standards. Generally, in conducting a performance audit, the Office of the Auditor General engages in a planning phase that consists of conducting preliminary interviews and document reviews; producing an audit planning memorandum; and producing the examination plan. The purpose of the audit planning phase is to develop and expand upon information currently available to ensure the audit is adequately planned in accordance with CICA Standards. 26. After the audit team gathers preliminary background information through interviews and documents, the Office of the Auditor General sends a notice of planning to the auditee. The notice of planning lists some of the key documents required, the initial information the Auditor General requires access to, the interviews to be conducted, and the dates of the onsite visits by the Office of the Auditor General to gather information to prepare its audit planning memorandum. The notice of planning also advises the auditee that additional information will be identified by the auditors as the planning progresses and requests that this information be provided within ten working days. 27. The purpose of the audit planning memorandum is to present the audit scope, objectives and criteria; document the risk assessment that informed the determination of the audit scope and objectives; and outline the overall approach and timing for the audit. 28. Adequate knowledge of the entity and subject matter being audited is required at the audit planning stage. Developing the audit planning memorandum requires full access to the documents, interviewees, and onsite visits identified in the notice of planning to allow the team to understand the entity and the significant issues impacting the program's performance. The audit plan considers such factors as the completeness of the information being audited, the relevance of the information and where the greatest degree of risk exists. 29. Once the audit planning memorandum is approved, the planning phase is complete and the audit examination work begins. The examination phase verifies, through more detailed testing and audit procedures, the understanding developed through the planning phase. 30. In conducting an audit examination, the audit team draws evidence from a variety of sources, including examination of documents, testing of transactions, conduct of interviews,
- 8 - and assessment of key controls. The examination phase is designed to ensure the Auditor General forms his conclusions about the subject matter he is auditing, with a high degree of assurance. The Auditor General must have sufficient appropriate evidence to draw his conclusions. 31. The independent role of the Auditor General allows him to provide assurance to the Legislative Assembly and the public without having to disclose private information publically. The Auditor General summarizes audit results to a general level to influence positive change while shining a light on deficiencies in processes and systems. 32. Given his mandate, the Auditor General ordinarily reviews private and confidential information. Some of the information reviewed belongs to third parties. While the Auditor General frequently has access to personal and private information in order to understand and test the adequacy of system and process controls, this personal identifiable information is not generally relevant to any reporting and therefore is not disclosed in the reports of the Auditor General. Access to information does not mean it will be disclosed. In addition, given the vast amount of information that needs to be accessed to conduct a performance audit, it is not part of the auditing process to notify third parties of this access or to seek tlieir permission. The process of seeking to advise third parties whose personal information will be considered as part of an audit is potentially so complicated and time-consuming that doing so would significantly impair or even paralyze the Auditor General's ability to carry out his duties. 33. For example, access to personal information was required for the Auditor General's February 2010 report on the clinical information system used by the Vancouver Coastal Health Authority. As the objective of the audit involved assessing security measures used to protect health care records and information, this audit required access to highly personal health information. The personal information was not disclosed in the report because the audit was, as it is in the case of the Indemnities Performance Audit, an assessment of the system not an individual. 34. The Auditor General is currently concluding an audit that involves access to criminal records, including police reports and private information of certain persons convicted of criminal offences and released into the community. Staff from the Office of the Auditor General involved in the audit underwent security screening, including a police record check, to meet the same employment requirements for government staff with access to the same records. However, no waivers in regards to the audit were required from persons whose records were accessed. 35. By necessity, and to comply with the CICA Standards, some audits in both the public and private sectors require access to confidential and privileged documents. 36. In conducting audits that access highly private and sensitive information, the Office of the Auditor General takes every precaution to maintain confidentiality. 37. As part of ensuring that everyone who works for the Office of the Auditor General abides by the confidentiality requirements of section 9 of the Act, the Office of the Auditor General has adopted a Code of Values, Ethics and Professional Conduct (the "Professional Conduct Code"). The Professional Conduct Code provides that:
- 9 - You must protect the security and confidentiality of information acquired during the course of an engagement at all times and should not disclose any such information to third parties without proper and specific authority or unless there is a legal or professional right or duty to disclose. Inappropriate disclosure of confidential information obtained in the exercise of your duties is a breach of law and the standards of the Office and could result in discipline or be grounds for dismissal. 38. Employees ofthe Office of the Auditor General receive training on the Code of Values, Ethics and Professional Conduct, which includes a special module on the requirement to keep records confidential. Employees further complete an annual declaration confirming their awareness and adoption-of the Professional Conduct Code. 39. In addition, all employees of the Office ofthe Auditor General must comply with the B.C. Public Service's Standards of Conduct for Public Service Employees and all employees take a Public Service Oath, both of which include expectations to maintain confidentiality. 40. Employees of the Office of the Auditor General who belong to professional associations (such as accounting bodies) are also governed by their codes and bylaws. Indemnities Performance Audit 41. The Auditor General is completing the planning stage for the Indemnities Performance Audit. Some key documents have not been provided by Government during the planning stage. The planning to date has been based on what the Auditor General could obtain, rather than the open access he needs. The Auditor General has therefore had to make some assumptions regarding the missing documentation. 42. Performance audits require that a risk assessment be conducted to meet CICA Standards. Not having access to all documentation limits the risk assessment, the quality of the audit plan, the ability of the Auditor General to fulfill his mandate in relation to ensuring the terms and conditions of indemnity agreements are complied with, and the ability of the Auditor General to conclude on the audit objectives. 43. It is the understanding of the Auditor General, based on his audit team's planning to date, that the Government generally provides indemnification protection to employees as part of the terms and conditions oftheir employment. The collective agreements between the Government and various bargaining units define the terms and conditions of indemnity protection for included employees. 44. For excluded employees and Order in Council appointees in categories A and B, section 73 of the Public Service Agency's terms and conditions for excluded employees defines the terms and conditions of indemnity protection (the "PSA Indemnity Policy"). Order in Council appointees in categories C and D are not covered by the PSA Indemnity Policy. 45. The PSA Indemnity Policy provides, in part, that where an employee/appointee is sued for anything done or omitted to be done in the course of his or her office or employment,
- 10- other than defamation, and the Ministry of Attorney General provides the Government with a legal opinion that the employee/appointee's conduct was within his or her office or course of employment and was in good faith, the Ministry of Attorney General shall defend the lawsuit and the Government shall indemnify the employee/appointee against the expenses of the defence and any settlement reached or judgment awarded. 46. The PSA Indemnity Policy provides for additional tests to determine eligibility for coverage in defamation cases. Criminal matters are not covered under the PSA Indemnity Policy. 47. It is the further understanding of the Auditor General that since 1999 the Government has granted, on a case by case basis, inqeltinification coverage for the costs of private legal counsel to employees and appointees on approximately 100 occasions under the authority of section 72 of the Financial Administration Act. These discretionary Special Indemnities have been issued in circumstances where the employment status of the individual and/or the nature of the proceedings for which the individual required indemnification were not covered by a collective agreement or the PSA Indemnity Policy. 48. Special Indemnities issued to individuals under the authority of section 72 of the Financial Administration Act are not governed by an established and approved Government policy, such as the PSA Indemnity Policy, that defines the authority for granting and administering these indemnities, tests for eligibility, and extent of coverage. It is these Special Indemnities that are the focus of the Indemnities Performance Audit. 49. The costs of private legal counsel incurred under Special Indemnities are funded by the Ministry of Finance, pursuant to the terms of a legal representation agreement between the Government and private legal counsel. The legal representation agreement forms part of a Special Indemnity agreement. Invoices, some of which may be presented in a redacted format, are ordinarily submitted to the Legal Services Branch of the Ministry of Attorney General (the "Legal Services Branch"). The Legal Services Branch ordinarily reviews and approves the invoices and forwards them for payment to the Risk Management Branch of the Ministry of Finance (the "Risk Management Branch"). In some cases, the Legal Services Branch pays the invoices directly and then recovers the amounts paid from the Risk Management Branch. 50. The Auditor General has concerns over an apparent lack of adequate controls over the public funds expended under the authority of Special Indemnities, as well as an apparent lack oftransparency around the decisions made about who receives the indemnity and the extent of the obligations assumed. 51. In conducting the Indemnities Performance Audit, the Auditor General will seek to address the following three objectives: 1. whether the Government has a legal and administrative framework in place to ensure that the granting of Special Indemnities is for sound reasons and that all decisions are authorized, consistent, and transparent; 2. whether the Government has appropriate mechanisms in place to ensure that financial obligations assumed in granting Special Indemnities are effectively managed,
- 11 - appropriately authorized, and in compliance with the applicable indemnity agreement; and 3. whether current reporting requirements are sufficient to ensure that the Government is accountable for obligations assumed and expenditures incurred in relation to Special Indemnities. 52. Based on the audit planning work conducted to date, a number of potential risks associated with the approval, administration and funding of Special Indemnities have been identified that emphasize the importance of the Auditor General examining Special Indemnities: (a) Special Indemnities are granted outside of established policy for indemnity protection for included and excluded employees and appointees; (b) there is no separate established and approved policy framework to support the granting of Special Indemnities and practice has evolved over time. The Auditor General has been informed that decisions have been based on precedent and the circumstances of each new Special Indemnity approved; (c) the lack of an established and approved policy framework has resulted in a practice and processes that may not be well understood by the Government staff tasked with administering the agreements and processing payments of legal expenses; (d) as the practice of granting Special Indemnities is discretionary and not governed by formal policy, there is a risk that employees and appointees who would be eligible for coverage may not be aware of the practice, and as a result, not be treated consistently; (e) the process of determining eligibility, granting and administering Special Indemnities, and authorizing the payment of legal invoices related to Special Indemnities appears to be centralized in one branch of government, the Legal Services Branch. The Auditor General's understanding is that in most cases, this is done based on the advice and recommendations of, and with the administration of indemnity arrangements supervised by, one lawyer in the Legal Services Branch. The possibility of a lack of adequate segregation of duties creates a higher risk to the activity and will be investigated as part of the Indemnities Performance Audit; (f) for the few instances where the Minister of Finance approves a Special Indemnity, usually for an individual holding political office, the approval is not supported by legal advice from the Ministry of Attorney General; (g) the payment of legal expenses funded under Special Indemnities is approved by Legal Services Branch, but charged to a statutory account managed by the Risk Management Branch; (h) some legal invoices provided to the Government for payment were provided in a redacted form and therefore the full invoices were not reviewed prior to approval for payment of the legal expenses;
- 12 - (i) the documentation available to support the decisions to deny or grant Special Indemnities is not retained in one location and there are risks that it is not complete; and G) it is not apparent that there are sufficient mechanisms in place to control the costs associated with Special Indemnities. 53. To support his conclusions and cnmplete this audit, the Auditor General requires access to all documentation relevant to the granting and administering of Special Indemnities, and documentation related to the authorization and payment of legal expenses incurred pursuant to Special Indemnities. The audit team must have full and unfettered access to all files in order to determine what information is relevant to the audit objectives and audit scope. 54. Any records or documents relating to the provision or denial of a Special Indemnity, for example, are relevant to determining whether the granting of the indemnity was properly authorized, consistent and transparent. Any records or documents relating to the payment of legal expenses under the authority of a Special Indemnity are relevant to determining whether the payments made were in compliance with the terms of the agreement, authorized and charged to the correct account. Records and Information Required from the Ministry of Attorney General 55. The Auditor General has not been provided with full access to all records related to Special Indemnities during the planning phase of the Indemnities Performance Audit, which has slowed and hampered the audit planning process. Access to many documents over which the Ministry of Attorney General claims public interest immunity (Cabinet) privilege and many documents which the Attorney General claims may contain solicitor-client privilege has been restricted. An audit plan has not been approved because of these difficulties. 56. Full and unfettered access is fundamental to an auditor's role in scrutinizing the management of the programs, services and resources he or she is auditing. 57. Access from the perspective of an audit requires the audit team to view documents in situ. This gives the auditor the context of how and why records may be kept and may itself provide valuable information for the audit and further inquiries. Therefore, being provided with a hard drive of imaged documents with no logical order or grouping, that have been removed from a series of files, is not suitable. The required access includes having the ability to choose which files and documents to review, being able to review key documents in the context of related documents and correspondence, take notes, correlate documents with other documents in other files, weigh pieces of evidence so as to form a view of any identified risks or issues, and have a level of assurance that such a view is reasonable. In most cases, this will also include taking copies of documents for further review and consideration in the context of the rest ofthe audit. 58. The Auditor General must determine what information is necessary for an audit. A proper audit cannot be conducted where the auditee selects what documents and records can be examined, as the Auditor General will never know what information and documentation exists, what information and documentation has been withheld, why such information and
- 13 - documentation has been withheld, the impact such information and documentation may have had on the work of the Auditor General. 59. If the Auditor General is not provided with full access to unredacted records, including the ability to make copies where required, the Office of the Auditor General is unable to properly plan and conduct a performance audit, in accordance with CICA Standards, as there is no certainty that all relevant information has been provided. 60. Where sufficient appropriate access is not granted and the Office of Auditor General does not obtain the necessary information for its audit, the Auditor General will consider what impact the lack of information has on his conclusions. In instances where the information necessary for the Auditor General to reach his conclusions on audit objectives does not exist or is in such a state as to not be reliable, the Auditor General will be unable to conclude on the audit objectives. In such cases, the Auditor General's report will state that he is unable to reach a conclusion. In severe instances, the Auditor General will be unable to conduct an audit. 61. The redacting of or refusal to provide information said to be subj ect to third party solicitor-client privilege has resulted in the Auditor General not being able to review invoices from private legal counsel to determine whether the services provided and the payments made complied with the terms of Special Indemnity agreements. 62. The Auditor General has experienced difficulty accessing records in a timely manner and out of the norm for production and access based on prior history. This particularly relates to documents over which the Ministry of Attorney General has asserted are subject to public interest immunity (Cabinet) privilege or solicitor-client privilege of third parties. 63. The Ministry of Attorney General's concern that documents that may contain information that is subject to solicitor-client privilege in favour of third parties or public interest immunity (Cabinet) privilege are not producible by Government has resulted in many documents not being provided, being provided in a redacted form, or being provided after a substantial delay. 64. The Auditor General does not wish to become engaged in a debate or proceeding concerning whether particular documents or information are actually subject to solicitor-client privilege, public interest immunity (Cabinet) privilege, or some other privilege. 65. It is the understanding of the Auditor General that the Government, and specifically the Ministry of Attorney General and Ministry of Finance, have in their possession indemnity agreements, legal representation agreements, and in most cases, invoices from private legal counsel retained by third parties pursuant to Special Indemnities. 66. It is the understanding of the Auditor General that invoices, in the form held by the Legal Services Branch, are forwarded by the Legal Services Branch to the Risk Management Branch either directly for payment or for recovery of legal costs incurred by the Legal Services Branch.
- 14-67. For documents that are in the possession of the Ministry of Attorney General, the Auditor General is simply requesting the same access that the Ministry of Attorney General and the Ministry of Finance have. 68. following: To date the Office of the Auditor General has requested, but not received, the (a) access to complete indemnity files for Special Indemnities, which includes the particular indemnity agreements complete with schedules (ie., legal representation agreements and fees and billing schedules), copies of invoices from private legal counsel, outcomes of each matter that was covered by each particular indemnity, briefing notes/emails to support each particular decision, and the request from the Ministry of Attorney General for prior written approval of Special Indemnities as required by section 72 of the Financial Administration Act and the Guarantees and Indemnities Regulation; (b) all documentation related to claims for payment pursuant to Special Indemnity agreements and approvals authorizing payment by the Ministry of Attorney General; and (c) copies of all documents, including Cabinet documents, related to the development of a formal policy for Special Indemnities. 69. During its audit planning work, the Office of the Auditor General has determined that in some instances, the legal representation agreements require that only redacted invoices be provided by private legal counsel to the Government for payment. In other instances, the Government may have been provided with the full detailed invoices. Until the Office of the Auditor General is provided with full access to complete indemnity files, it is unable to determine the exact scope of the information that is in the possession of the Government and relevant to the Indemnities Performance Audit. 70. These particular categories of documents and information are required by the Auditor General to conduct the Indemnities Performance Audit in accordance with CICA Standards. CICA Standards require that the auditor obtain sufficient appropriate audit evidence to support his conclusions, with a high degree of assurance, regarding whether the terms and conditions of the agreements have been complied with. There must be persuasive evidence in order to reach a high degree of assurance. 71. In particular, access to all indemnity files and other Government records for Special Indemnities is necessary in order for the Auditor General to satisfy his responsibility of providing a conclusion regarding whether the terms and conditions of Special Indemnities have been met. 72. By way of example, the legal representation agreements define the scope of coverage, limits of coverage, and rates payable under each Special Indemnity. Without access to the legal representation agreements, the Auditor General is unable to determine whether the coverage extended and rates authorized are consistent across similar indemnities, whether the rates paid are consistent with rates paid in other contexts, who authorized and approved the legal representation agreements, and whether particular legal representation agreements were amended. 4856782. J
- 15-73. As another example, access to and production of invoices issued by private legal counsel are necessary in order for the Auditor General to test the invoices against the applicable legal representation agreement. This includes confirming that the rates charged and services billed for are consistent with the rates and extent of coverage authorized in the fees and billing schedule that is included as part of the legal representation agreement. While the Auditor General requires the billing details for the purposes of his audit, he is generally not interested in the substance of the case. 74. Without access to the invoices issued by private legal counsel, the Auditor General cannot determine whether Government paid for legal services that did not correspond with the coverage provided under the legal representation agreements. The following table sets out some of the terms found in an example legal representation agreement and associated fees and billing schedule, for which compliance cannot be tested without access to the invoices issued by private legal counsel. Term from Legal Representation Agreement The hourly rate for each lawyer retained to provide services is as follows: Authorized Lawyer (name) and Hourly Rate (amount). The hourly rate for each legal assistant assisting Counsel in providing services is as follows: Legal Assistant (name) and Hourly Rate (amount). Reason Why Legal Invoices Required to Test Compliance with this Term Invoices must be reviewed to confirm that the charges for lawyers and legal assistants only pertain to authorized individuals. Invoices must also be reviewed to confirm that charges for lawyers, legal assistants and articling students correspond with the authorized rates. In no event will the Province pay Counsel for the fees of a lawyer who is not an Authorized Lawyer or the fees of a legal assistant who is not named in the Schedule. The hourly rate for each articled student assisting Counsel in providing services is (hourly rate). If the Authorized Lawyer, legal assistant or articled student is required to travel in providing the Services, the travel time of the Authorized Lawyer, legal assistant or articled student may be claimed but only at one half of the applicable hourly rate. Costs of court appointed witnesses, consultants and document management experts require prior written consent of the Province before amounts can be billed. Details on nature of disbursements and rates that are allowed are detailed in a Fees and Invoices must be reviewed to confirm that travel time charged is at one half of the applicable hourly rate. Invoices must be reviewed to determine if there have been charges for witnesses, consultants and/or document management experts, and if so, confirm that there was prior written consent. Invoices must be reviewed to determine compliance with the types of permitted
- 16 - Billing Schedule. disbursements and the rates charged. For example, the Fees and Billing Schedule forbids payment of fees or disbursements for work performed by researchers, librarians, secretaries, administrative assistants, computer operators, bookkeepers, corporate and other records clerks and word processing operations. The Fees and Billing Schedule also forbids payment of disbursements for which no receipt is provided. The Fees and Billing Schedule provides that at no time will the Province pay for hotel and meal rates that exceed the rates in the schedule. Each disbursement made by Counsel during the Billing Month, which if the disbursement is for an amount exceeding $20 must be supported by: A statement of when it was incurred and to whom it was paid and the task or sub-task in the litigation plan to which it relates; and A receipt for payment of that disbursement. Invoices and back up documentation for disbursements must be reviewed to ensure amounts are supported by receipts, that the required statement was provided, and the timeframe, person and purpose comply with the scope of the indemnity agreement. 75. Without access to unredacted legal invoices, the Auditor General is also unable to test compliance between the invoices and the terms of Special Indemnity agreements. The Auditor General is aware that in some instances Special Indemnity agreements and legal representation agreements specify that legal services in regards to only certain aspects of proceedings are covered. The following table sets out some of the terms found in an example Special Indemnity agreement for which compliance cannot be tested without access to the invoices issued by private legal counsel. Term from Sample Indemnity Agreement No person who is a member of the immediate family of the Indemnified Person may be employed or otherwise engaged by counsel to do any work or provide any goods or services to which this indemnity Agreement applies. The Province may, in its absolute discretion, hold back up to 25 per cent of any amount payable for legal fees... until after all rights of appeal have expired. Reason Why Legal Invoices Required to Test Compliance with this Term Invoices must be reviewed to con finn that services were not provided by an immediate family member (including work done by lawyers, legal assistants, articling students, consultants, document management experts). Invoices must be reviewed to test whether there were any holdbacks, and the amounts. "Proceedings" means the defence of counts Invoices must be reviewed to confirm that the [...] of the indictment. services provided were only related to the
- 17 - I defined proceedings. 76. The invoices issued by private legal counsel are further required by the Auditor General for the purposes of the Indemnities Performance Audit to confirm that the invoices were appropriately reviewed; the goods and services invoiced for were received; and the amounts paid were authorized by an appropriate expense authority. 77. If the Auditor General is not provided access to complete Special Indemnity agreements, including the attached legal representation agreements and fees and billing schedules, as well as invoices from private legal counsel, the Auditor General will be unable to provide a conclusion in regards to the first and second objectives of the Indemnities Performance Audit. 78. The Ministry of Attorney General takes the position that the identity of lawyers retained by third parties, the terms and conditions of retainers, and bills and amounts are the subject of solicitor-client privilege in favour of third parties. 79. The Auditor General, for the purpose of the Indemnities Performance Audit, also requires access to documents the Ministry of Attorney General claims represent advice to Cabinet related to the development or consideration of policy surrounding the granting of indemnities beyond the authority of the PSA Indemnities Policy. The pathway for requesting access to these documents is firstly through the Ministry of Attorney General, which in tum seeks direction from Cabinet Operations, the body that assists and supports the operations of Cabinet. 80. To inform his understanding of the historical treatment of Special Indemnities and the rationale behind Special Indemnities, the Auditor General requires unfettered access, and the ability to take copies where required, to all documentation related to the development of a formal policy for Special Indemnities, including Cabinet documents. 81. Although a request for all documents related to the history of the policy development for Special Indemnities (including all previous drafts, supporting briefing materials and decision documents) was made in the notice of planning for the Indemnities Performance Audit dated July 28,2011, the Ministry of Attorney General sought to impose conditions on the Auditor General's access to these documents without identifying or articulating any specific claim for public interest immunity (Cabinet) privilege. 82. Initially, the Ministry of Attorney General selected 27 policy-related documents and confirmed that access was permitted by Cabinet Operations before delivering paper copies of the documents to the Office of the Auditor General on August 18,2011. However, the audit team's ability to access, review or copy other policy-related documents over which a claim of public interest immunity (Cabinet) privilege was made was restricted until October 16,2011, at which time the audit team was permitted to review the documents on site. When access was granted, the audit team was neither allowed to copy the documents nor take notes for the audit file. The audit team was only allowed to confirm whether the documents were relevant. The Office of the Auditor General subsequently confirmed all documents were relevant. On November 9, 2011, the Ministry of Attorney General delivered the requested policy-related
- 18 - documents to the Office of the Auditor General. Fifteen weeks elapsed between the notice of planning requesting the documents and the date on which the documents were delivered. It is anticipated that during the course of the Indemnities Performance Audit the Auditor General may require access to further, as yet unidentified, policy-related documents over which a claim of public interest immunity (Cabinet) privilege may be made. 83. Another example of the delay in receiving information over which a claim of privilege has been made is in relation to a briefing note that was prepared for the Deputy Attorney General. The briefing note was prepared in November 2010, and verbally requested by the Auditor General's office in November 2010. It was requested in writing in February 2011 as part of the review of financial information related to the audit of the 2010111 Summary Financial Statements. The briefing note was not provided to the Auditor General at that time because the Ministry of Attorney General claimed that it contained solicitor-client privilege and confidentiality in favor of the Respondents Basi and Virk. Following the order of this Court on June 30, 2011, it took an additional six weeks for the Ministry of Attorney General to provide the document to the Auditor General. On September 22, 2011, the Ministry of Attorney General informed the Auditor General that the delay occurred because Cabinet privilege applied to the document and clearance from Cabinet Operation was required. 84. Copies of the policy-related documents are required by the Auditor General to provide context for the decisions made to approve Special Indemnities. The length of time it is taking to obtain copies and the restrictions placed on the Auditor General's access has impeded the Indemnities Performance Audit. If the Auditor General is not provided with copies of the policy development documents he requires, including those prepared for Cabinet, the Auditor General will be unable to provide a conclusion in regards to the consistency of decision-making, which is part of the first objective of the Indemnities Performance Audit. 85. The Auditor General's view is that access to and the ability to copy relevant records related to the expenditure of public monies is a requirement of his mandate and necessary for the conduct of the Indemnities Performance Audit, and that providing access does not impair any claimed privilege. The Auditor General further has no intention of releasing privileged information. Should an unanticipated situation arise, the Auditor General has agreed to notify potentially affected parties in accordance with the Guidelines. 86. The Ministry of Attorney General has indicated that to permit disclosure of information that it views as subject to third party solicitor-client privilege to the Office of the Auditor General it requires an absolute commitment from the Auditor General that such information will not be disclosed; a waiver of solicitor-client privilege by the third party; or a court order requiring disclosure to the Auditor General. 87. The Auditor General takes the position and has advised the Ministry of Attorney General that such conditions are not pre-requisites to access by the Auditor General and the Auditor General's access to all records and information relating to an indemnity given by the Government is not limited by potential claims of solicitor-client privilege by a third party. The Act provides the Auditor General with access to all records, information and explanations required and the ability to request production of records, securities and things from witnesses. The Act does not contain any exemptions for potentially privileged information. The Auditor