Proceedings

ONTARIO SECURITIES COMMISSION

IN THE MATTER OF

THE SECURITIES ACT, R.S.O. 1990, c.S.5, as amended


AND


YBM MAGNEX INTERNATIONAL INC.

HARRY W. ANTES

JACOB G. BOGATIN

KENNETH E. DAVIES

IGOR FISHERMAN

DANIEL E. GATTI

FRANK S. GREENWALD

R. OWEN MITCHELL

DAVID R. PETERSON

MICHAEL D. SCHMIDT

LAWRENCE D. WILDER

GRIFFITHS MCBURNEY & PARTNERS

NATIONAL BANK FINANCIAL CORP.

(formerly known as First Marathon Securities Limited)


REASONS FOR DECISION OF THE

ONTARIO SECURITIES COMMISSION



MOTION DATE: January 26, 2001


BEFORE: Howard I. Wetston, Q.C. - Vice-Chair


Derek Brown - Commissioner


Robert W. Davis, FCA - Commissioner


COUNSEL: Michael Code - For the Staff of the Ontario Securities Commission


Kathryn Daniels - For the Staff of the Ontario

Securities Commission


John Keefe - For the Applicant


CONCURRING DECISION


I have read the decision of Vice-Chair Wetston and Commissioner Brown dated February 6, 2001 and concur with the reasons set forth.


February 15, 2001


Robert W. Davis, FCA



ONTARIO SECURITIES COMMISSION

IN THE MATTER OF

THE SECURITIES ACT, R.S.O. 1990, c.S.5, as amended


AND


YBM MAGNEX INTERNATIONAL INC.

HARRY W. ANTES

JACOB G. BOGATIN

KENNETH E. DAVIES

IGOR FISHERMAN

DANIEL E. GATTI

FRANK S. GREENWALD

R. OWEN MITCHELL

DAVID R. PETERSON

MICHAEL D. SCHMIDT

LAWRENCE D. WILDER

GRIFFITHS MCBURNEY & PARTNERS

NATIONAL BANK FINANCIAL CORP.

(formerly known as First Marathon Securities Limited)


REASONS FOR DECISION OF THE

ONTARIO SECURITIES COMMISSION



MOTION DATE: January 26, 2001


BEFORE: Howard I. Wetston, Q.C. - Vice-Chair


Derek Brown - Commissioner


Robert W. Davis, FCA - Commissioner


COUNSEL: Michael Code - For the Staff of the Ontario Securities Commission


Kathryn Daniels - For the Staff of the Ontario

Securities Commission


John Keefe - For the Applicant



I. NATURE OF THE MOTION


These are the reasons for an order issued by the Ontario Securities Commission (the "Commission") on January 31, 2001 dismissing a motion filed by the Applicant, Griffiths McBurney & Partners ("GMP").


On January 2, 2001, GMP filed a Notice of Motion with the Commission requesting an order permanently staying the proceeding commenced by Notice of Hearing on November 1, 1999 as against GMP or, in the alternative, an order permitting GMP to conduct pre-hearing oral examinations and to obtain documentary discovery of eight named witnesses.


The motion raises the following issues for consideration:


(i) Does a Section 11 investigation which uses Section 13 powers have to be completed prior to a Section 127 Notice of Hearing being issued; and


(ii) Does an ongoing investigation, which continues after the issuance of a notice of hearing and makes use of compulsory powers of process, need to be conducted on an inter partes basis with notice to and equal participation by the Applicants.


II. FACTS


1. On December 5, 1997, the Commission issued an order under Section 11 of the Securities Act R.S.O. 1990, C. S.5, as amended (the "Act"), authorizing staff of the Commission ("Staff") to investigate certain matters concerning the Applicant GMP.


2. Pursuant to the Section 11 order (the "Order"), Staff examined a number of witnesses and made several requests for the production of documents.


3. By Notice of Hearing dated November 1, 1999, the Commission gave notice to the Applicant GMP, that pursuant to Section 127 of the Securities Act a hearing would commence on, or soon after, November 29, 1999 to consider, inter alia, whether in the opinion of the Commission it is in the public interest to make an order pursuant to Subsection 127(1) Clauses 1 and 4 of the Securities Act respecting GMP.


4. Without notice to the Applicant, Staff obtained a new Section 11 order (the "New Order") dated February 18, 2000 in respect of the matter. The New Order did two things: firstly, it broadened the terms of the old Order; and, secondly, it granted two additional Staff members the authority to carry out the Section 11 inquiry.


5. Pursuant to the New Order, Staff conducted several more examinations of which the Applicant did not receive notice. One of the witnesses examined was an ex-employee of the Applicant, Mr. Michael Middleton.


6. Mr. Middleton was examined by Staff pursuant to the New Order on April 19, 2000 and was represented by his own counsel, Mr. Todd White.


7. Counsel for GMP learned of the ongoing investigation of Mr. Middleton and others under the New Order through the process of ongoing disclosure. On June 23, 2000, counsel wrote Staff objecting to the examination of Mr. Middleton without prior notice to counsel for GMP and characterised Staff's conduct as constituting an abuse of process.


III. ANALYSIS


There is no dispute that a Commission hearing commenced by way of Notice of Hearing is governed by the Statutory Powers Procedures Act, R.S.O. 1990, Chap. S.22, as amended (the "SPPA"), and the rules of natural justice and procedural fairness.


The Applicant contends that the governing provisions applicable to Commission proceedings as contained in the Act and the SPPA should be interpreted so as to conform to the principles of natural justice. The Applicant's view is that, upon such a construction and absent clear and explicit language to the contrary, the SPPA incorporates the principles of natural justice into, and prevails over, the investigative powers available to the Commission under Part VI of the Act. Under such an interpretation, both GMP and Staff would have an equal opportunity to be present and examine witnesses during the continuation of the investigation. As a result, the Applicant claims that upon the issuance of a Notice of Hearing the Commission's one-sided right to conduct Section 13 examinations of witnesses without notice to the Applicants is inconsistent with the SPPA and the rules of natural justice.


We are guided in our approach to the interpretation of the SPPA and the Act by the decision in Re Rizzo & Rizzo Shoes Ltd., [1998] 154 D.L.R. (4th) 193 at 204 (S.C.C.), where Mr. Justice Iacobucci stated that:


"Elmer Driedger in Construction of Statutes (2nd ed. 1983) best encapsulates the approach upon which I prefer to rely. He recognizes that statutory interpretation cannot be founded on the wording of the legislation alone. At p. 87 he states:


Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatic and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament."


Part VI of the Securities Act deals with "Investigations and Examinations". Part XXII of the Act is entitled "Enforcement". The Legislature has not provided that an investigation must end once a Part XXII proceeding commences. It could have done so but did not as is evident from an examination of Subsection 17(6) which expressly addresses the interplay between a Part VI investigation and a Part XXII proceeding.

Moreover, a plain reading of the relevant provisions of the Act also reveals the absence of temporal limits on Section 11 investigations. Section 11 authorizes the Commission to appoint one or more persons to conduct an investigation provided the Commission considers it expedient in the administration of the law. The absence of temporal limits in Section 11 is in complete contrast to the limits placed on search warrants exercised by the Commission in Section 13 of the Act. Whereas Subsection 13(4) authorizes the Commission to apply for an authorization to search, Subsection 13(7) limits the power of such an order to not later than 15 days after the order is granted. If the Legislature intended temporal limits to apply to Section 11 it would have explicitly provided for them as it did in Section 13.


Furthermore, Section 3 of the SPPA provides that:


(1) "Subject to subsection (2), this Act applies to a proceeding by a tribunal in the exercise of a statutory power of decision conferred by or under an Act of the Legislature, where the tribunal is required by or under such Act or otherwise by law to hold or to afford to the parties to the proceeding an opportunity for a hearing before making a decision.


(2) This Act does not apply to a proceeding,

(g) of one or more persons required to make an investigation and to make a report, with or without recommendations, where the report is for the information or advice of the person to whom it is made and does not in any way legally bind or limit that person in any decision he or she may have power to make; or


These provisions clearly indicate that the procedural safeguards contained in the SPPA relate to the conduct of hearings and not to the conduct of investigations. Moreover, this conclusion is also supported by reference to Section 127(4) of the Act.


"No order shall be made under this section without a hearing, subject to section 4 of the Statutory Powers Procedures Act."


It is evident from the above reasons that we agree entirely with the decision of this Commission in A&B, unreported April 14, 2000 where it was stated that:


"We see nothing in Part VI which would prevent Staff from continuing, or indeed commencing, proceedings under an order made under subsection 11(1) of the Act following the issuance of a notice of hearing in a matter. It seems to us that there is nothing inappropriate in, and to us Part VI contemplates, an investigation under subsection 11(1) continuing until the completion of the hearing of the matter.

In our view, the SPPA and the Commission's Rules of Practice deal with the hearing phase of the overall proceedings, and not with the investigative phase, and we see no reason, either in Part VI or in fairness, that the two cannot proceed at the same time."


We disagree with the Applicant's contention that the Commission erred in its decision in A&B. The Section 13 summons was not issued to Mr. Middleton as a corporate officer produced for discovery but rather as a corporate witness being compelled to testify as to his personal knowledge about the facts in issue.


In conclusion, we are of the opinion that the Applicant's interpretation of the Securities Act, read in light of the SPPA, is incompatible with the object of the legislative enactment.


Basically, the second issue advanced by the Applicant suggests that the principles of natural justice, in conjunction with the SPPA, require that the Section 13 investigation be conducted on an inter partes basis with equal participation by the Applicant.


Staff must act fairly in the conduct of an investigation, but this does not mean that the investigation under Part VI should provide for equality of participation in the fact finding process; B.C.S.C. v. Branch et al. (1995), 123 D.L.R. (4th) 462 at 493 (S.C.C.).


We agree with staff counsel that "procedural rights and investigative powers are not symmetrical as between public authorities and private defendants."


The jurisprudence of the Supreme Court of Canada makes it clear that the requirements of natural justice and the common law duty of procedural fairness are flexible concepts that depend on the circumstances of the case, the nature of the investigation being made, the subject matter being dealt with and the statutory provisions under which the Commission is acting; A.G. of Canada v. Inuit Tapiristat of Canada, [1980] 2 S.C.R. 735; Old St. Bonafice Residents Ass. v. Winnipeg City, [1990] 3 S.C.R. 1170; Knight v. Indian Head School Div., [1990] 1 S.C.R. 653.


It is clear that natural justice must be considered in its statutory context. We have already considered that context in these reasons. The extent of participation in the investigative process by the Applicant must be weighed against the prejudice to the scheme of the legislation. In this regard we also appreciate the gravity of the allegations and the potential consequences to GMP.


Fairness is a matter of primary importance, however, Part VI investigative powers must be exercised ex parte in order to be effective. There can be no doubt that the rules of natural justice or procedural fairness entitle GMP to a fair hearing under Section 127 of the Act. The duty to provide adequate and timely disclosure is one of the elements of the Commission's duty to act fairly or in accord with the principles of natural justice. In this sense, the Applicants know the case they must meet, they have the right to answer that case and the right to put in their own case. Staff have submitted that, with the exception of two witnesses, full disclosure of the Section 11 examinations has been made. The exceptions are at this time "beyond their control" but will be disclosed when permitted to do so.


In conclusion, we cannot accept the Applicant's submissions that the investigative procedures under Part VI are unfair given the statutory framework and the nature of the respective roles as between Staff and private parties in the context of investigations under the Securities Act.


The Applicant requests a stay of these proceedings on the basis of an abuse of process. The Applicant has not met the burden of demonstrating such an abuse. Alternatively, the Applicant asks for the oral pre-hearing examination of witnesses. For the reasons given above, the Commission also sees no basis for this request.


Accordingly, the motion was dismissed.


February 6, 2001.


Howard I. Wetston, Q.C., Derek Brown