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The Supreme Court of Canada’s justices pose for a photo at the Supreme Court of Canada in Ottawa on Feb. 10, 2015.BLAIR GABLE/Reuters

The Supreme Court of Canada has unanimously struck down a federal law aimed at conscripting lawyers into the fight against money laundering by criminals and terrorists.

The court's landmark ruling puts the confidential relationship between lawyers and their clients on a special plane, as an essential feature of the justice system that the government will find very hard to disturb as a result. The battle between the Canadian government and the country's 95,000 lawyers goes back to anti-terrorism legislation passed shortly after the Sept. 11, 2001, attacks in the United States.

The federal Attorney-General had urged the court not to treat lawyers as "above the laws passed by Parliament," but the Supreme Court found much to dislike in a money-laundering law that allowed government agents to search lawyers' offices and seize documents without a warrant. The court said it would have turned lawyers into unwitting agents of the state, unable even to inform their clients when their confidential records were at risk of being viewed by a government agency set up to fight money laundering (methods of disguising illegal sources of income).

The law requires lawyers, accountants, life insurance brokers and others who move money for clients to keep records of the transactions, verify identities and establish internal programs to ensure no money laundering occurs. They can be jailed if they fail to comply. A Liberal government first included lawyers in the fight against money laundering in November, 2001. The Conservative government expanded the law's reach in 2006.

The ruling exempts lawyers from the money-laundering law, and reinforces a previous decision that the relationship of confidentiality known as solicitor-client privilege is a near-absolute. And it goes further, by establishing for the first time, by a 5-2 vote, that a lawyer's duty of commitment to the client's cause is a "principle of fundamental justice" – which means it is enduring and central. It will thus be nearly impossible for the government to interfere in that relationship by using the threat of criminal prosecution.

The Canadian Bar Association, representing 38,000 lawyers, called the affirmation of the lawyer's commitment to the client a historic moment.

"It's one of those points people will still be talking about 50 years from now," Craig Ferris, a commercial litigation lawyer in Vancouver, said for the CBA. "I liken it to Pierre Trudeau saying there's no place in the bedroom of the nations – this is the Supreme Court saying the state has no place in the solicitor-client relationship."

A spokesman for Finance Minister Joe Oliver said the government is reviewing the ruling.

Justice Thomas Cromwell, writing for the five judges in the majority on that point, said that "the state cannot impose duties on lawyers that undermine their duty of commitment to their clients' causes."

Mr. Ferris explained the principle to mean that the state can't cause lawyers to feel conflicted in their duties to the client, and said the principle protects clients. "It allows Canadians to be confident that their lawyers are advancing their interests, that they're not conflicted, that there are not loyalties to the state. When they speak to a lawyer, there is complete confidence that it's privileged and the lawyer is going to use it for their benefit, and not for the state's benefit."

The court cited several major flaws, such as the power given to government agents to examine and copy documents until a lawyer asserted that the documents are subject to "privilege." The court said this approach increases the risk that confidential communications between lawyer and clients will be revealed. A lawyer claiming privilege would need to reveal a client's name and address, though this information itself may be confidential, the court said.

The law was never used against lawyers. Law societies that challenged it won temporary court orders barring its use in five provinces, and the federal government came to an agreement with the Federation of Law Societies to allow a single court challenge to proceed in British Columbia, while refraining from using the law until the case was concluded. Both the trial judge who first heard the case and the B.C. Court of Appeal ruled that the law was unconstitutional.

The law societies, which regulate lawyers, say they have set up their own rules for stopping money laundering by banning lawyers from receiving more than $7,500 in cash on a single matter, in most cases, and by requiring them to verify their clients' identities.