Proceedings

Between
Eugene Lewis (an Investigator with the Ontario SecuritiesCommission), appellant, and
David Bruce Fingold, Fobasco Limited and Slater IndustriesInc., respondents

Ontario Court of Justice (General Division)
Keenan J.

Heard: May 4-7, 1998.
Judgment: February 11, 1999.

Counsel:

Rod Macleod, Q.C. and Bruce McMeekin, for the appellant.
Austin M. Cooper, Q.C. and Mark J. Sandler, for the respondents, David Fingoldand Fobasco Limited.
Donald N. Plumley, Q.C. and Joseph C. D'Angelo, for the respondent, SlaterIndustries Inc.

 


 

1. KEENAN J.:-- This summary conviction appeal is from an acquittal by Judge W.J. Babeon a charge that the respondents engaged in "insider trading" in shares of Cineplex OdeonCorporation in contravention of section 76 of the Securities Act.

2. The appellant is an investigator with the Ontario Securities Commission ("TheCommission").The dismissed charge was sworn January 19, 1993 and was amended April 5,1994 and read as follows:

"David Bruce Fingold, Fobasco Limited and Slater Industries Inc. between the25th day of February 1989 and the 23rd day of March 1989 at the City ofToronto in the Municipality of Metropolitan Toronto, each being a person in aspecial relationship with Cineplex Odeon Corporation with knowledge of materialfacts or material changes revealed at a meeting of the Directors of CineplexOdeon Corporation on or about February 25, 1989 and which had not beengenerally disclosed, traded in the shares of Cineplex Odeon Corporation inviolation of section 76 of the Securities Act R.S.O. (1990) ch. s.5 and did therebycommit an offence contrary to the Securities Act R.S.O. 1990 ch. s.5 section122(1)(c)".

 

3. The trial judge dismissed the charge on two grounds:

1) That the information was laid beyond the limitation period of one year.
2) That the defendants had a defence on the merits.

 

4. The appellant appeals on both grounds.

5. The historical background and the events which gave rise to the charge are set out in detailin the very thorough reasons for judgment of the trial judge.I will attempt to summarize andfocus on the matters necessary to understanding the issues in this appeal.

6. David Fingold and his brother Paul Fingold are the sons of the late Samuel Fingold whodied in 1970.The elder Fingold was a well-known entrepreneur and businessman.His originalbusiness was movie exhibition.Beginning in the 1930's he built up a chain of 45 movie theatresunder the name Roxy Theatres.With the advent of television he sold the Roxy Theatre chain inthe early 1950's.He began to acquire other business interests including Slater Industries Inc.("Slater"), which is in the steel industry.

7. In 1962, Samuel Fingold founded a private holding company, Fobasco Limited("Fobasco") as a vehicle for holding shares in the various other enterprises.On his death in 1970,the shares in Fobasco passed to David Fingold and Paul Fingold. Each of them held 50% of thevoting shares and had equal decision making power in the affairs of Fobasco.

8. In 1966, Samuel Fingold re-entered the movie exhibition business in some joint ventureswith Odeon Theatres.When David Fingold graduated from University in 1967, he joined hisfather who assigned him to focus on the management of the theatre investments.Paul Fingoldwas assigned to and focussed on the affairs of Slater.On the death of their father, the focuscontinued, Paul devoting his time to Slater and David attending to expanding joint ventures withOdeon.

9. In 1979, Nat Taylor, a veteran movie exhibitor founded Cineplex and introduced a newconcept of multiple theatres at a single location.He was joined in this new enterprise by GarthDrabinsky, a young Toronto entertainment lawyer who quickly became the driving force inCineplex.Many of the Cineplex theatres were located in major shopping centres, some of whichwere owned by Cadillac Fairview Corporation, a company controlled by the Bronfman family ofMontreal through its holding company Cemp Investments. Drabinsky persuaded Cemp to invest inCineplex.He used some of those new investment funds to make an offer in 1984 to buy theCanadian Odeon interest then held by the family of the late Michael Zahorchec.His offer wasrejected. Drabinsky met with David Fingold and they conceived a plan to acquire the Zahorchecinterest through an offer made by David Fingold, ostensibly on his own, to be followed by amerger into a new company to be called Cineplex Odeon Corporation.The largest block ofshares (though not the majority) was held by the Bronfman interest who had the largestrepresentation on the Board of Directors.The Fingold shares were held by Fobasco and Davidwas elected a Director.

10. Cineplex Odeon thrived not only because of reduced competition but because of the driveand initiatives of Garth Drabinsky who quickly converted it into a broad-based entertainmentcompany.He expanded film exhibition in the Cineplex concept into the United States and enteredinto film production and distribution in Canada.

11. In 1985, MCA Corporation, a large U.S. entertainment conglomerate which ownedUniversal Films, engaged Drabinsky and Cineplex to build a multiplex theatre on the UniversalStudios lot in California.In December 1985, MCA offered to make a direct investment inCineplex Odeon. The offer was accepted and on completion of the transaction in mid-1986 MCAacquired 50% of the equity in Cineplex Odeon in return for $200,000,000 worth of treasuryshares.The shares issued to MCA were a special class of restricted voting shares giving MCAonly one-third of the votes at shareholders meetings of Cineplex Odeon.MCA also had the rightto one-third of the seats on the Board of Cineplex Odeon.David Fingold retained his seat on theBoard but relinquished his seat on the Executive Committee to make room for an MCA nominee.

12. The infusion of MCA money into Cineplex Odeon enabled Drabinsky to continue hisdiversification into a broad-based entertainment giant.He accelerated expansion in the U.S.market and quickly became perhaps the largest film exhibitor in the United States.CineplexOdeon acquired Film House, a small film duplicating business in Toronto which with the MCAconnection, became a favourite supplier of prints for Universal Films and very quickly becamevery profitable.

13. MCA invited Cineplex Odeon to become a 50% joint venture partner in developingUniversal Studios' theme park in Orlando, Florida.That project was viewed as the forerunner ofother similar theme park developments in other countries. Drabinsky brought Cineplex Odeon intothe live entertainment business with the acquisition and restoration of the Pantages Theatre tohouse the production of the Phantom of the Opera. Other activities included the acquisition andconstruction of theatres, real estate development and uncharacteristically a chain of walk-in dentalclinics called Tridont (which proved to be a failure).

14. Conflicts developed, however, between MCA and Drabinsky. On the one hand,Drabinsky was unhappy.He had a commitment to 50% of the Orlando development projectwithout having control of it.Because of ballooning costs, the equity required from CineplexOdeon increased from $60,000,000 to $92,000,000.In November 1988, Drabinsky and theCineplex Board met in Los Angeles to hear a progress report from the Universal Studiosmanagers.At the meeting, he sharply criticized MCA's management of the Orlando project andconsiderable animosity developed.

15. For its part, the MCA representatives on the Cineplex Odeon Board were not pleasedwith some of Drabinsky's ventures such as the failure of the dental clinics and the cost ofrefurbishing the Pantages Theatre.As will be seen, the unexpected and disappointing results formovie exhibition in the last quarter of 1988 aroused even more concern by the MCArepresentatives.

16. Towards the end of 1988, Drabinsky sold a 49% interest in Film House for $73,000,000with an option on the remaining 51%.The resulting profit of $47,700,000 was treated asordinary income in 1988 although payment was not received until 1989.The inclusion of thisprofit in 1988 offset a loss for the fourth quarter due to bad exhibition results which would haveproduced a much lower profit for the year.In order to show a steady year over year growth inprofit, some of the gain from the Film House sale was offset by a write down of $18,700,000 forwhat was classified as "film costs".The accounting practices employed by Cineplex Odeon wereknown to be controversial and the inclusion of non-recurring profits from sale of assets wascriticized.In fact, the 1988 results released March 22, 1989 were subsequently restated inresponse to that criticism.

17. David Fingold was enthusiastic about the prospects of Cineplex Odeon.He admiredDrabinsky's drive and creativity and was confident that the company would continue to grow andprosper.At the time of the merger of Cineplex with Canadian Odeon, Fobasco received 510,597common shares of Cineplex Odeon on July 25, 1984.David Fingold also purchased shares for hispersonal account and family accounts including his wife's holding company, MimarcoInvestments.In September 1984, Fobasco took up 650,238 convertible preferred shares at $3.00per share.Mimarco also subscribed for shares of that issue.As a Director, David Fingold hadoptions to purchase an additional 50,000 shares of Cineplex Odeon at $3.00 per share.Therewere other small purchases of shares for family members in 1984 and into 1985 at prices rangingfrom $3.50 to $4.00 a share.

18. David Fingold's confidence and enthusiasm were rewarded by a generally upward trend inthe value of the shares through 1985 and 1986.Insider reports show 1985 pricesat $7.00 inApril, $6.00 in May, a peak of $11.37 in September, $9.50 and $8.75 in November and $10.00 inDecember. Substantial sales by Fobasco were recorded in June 1986 of 114,000 shares at $23.50and 21,700 shares at $21.75.Shortly after those sales, there werepurchases by Fobasco of54,500 shares at $22.00.This apparent inconsistency in the Fobasco investment policy wasexplained by the fact that the Fingold brothers had equal decision making authority over the assetsof Fobasco. Paul, who ordered the sales, felt that it was time to take a profit; David, whorepurchased some of the shares, believed there was more profit to be made.

19. Slater Industries Inc. became a shareholder in Cineplex Odeon in the wake of the stockmarket crash in October 1987.Garth Drabinsky and Vice-Chairman Myron Gottlieb hadborrowed money to purchase additional shares at $17.50 shortly before the collapse which sentthe value of Cineplex Odeon shares down to $11.00.Drabinsky and Gottlieb were under pressurefrom their lenders in May 1988.They took their problem to the Cineplex Board.The MCAinterest declined to be involved but the Bronfman interest and David Fingold wanted to considerit.David and Paul Fingold took the proposal to the Board of Slater on May 17, 1988.The SlaterBoard approved a purchase of up to 1,500,000 shares of Cineplex Odeon from Drabinsky andGottlieb at a price of $11.00 to be financed by a loan.Some of the Slater Board members hadreservations about the purchase.Accordingly, only half the shares (750,000) were takendown.Slater later purchased 67,800 shares in the market to hold a total of 817,800 shares.

20. The Minutes of the Meeting of the Slater Board show that David Fingold had expressedthe opinion that the shares were undervalued "in light of the excellent management and past andexpected profitability of the Corporation" and that they could potentially double in value over thenext two to two and a half years.Paul, who had sold shares at prices over $20.00 in June 1986was now in June 1988 supporting David in the purchase of Cineplex Odeon shares at$11.00.However, the purchase attracted not only concerns from some of the other Directors, butcriticism from shareholders and market analysts who suggested that the transaction was intendedto support the share price of Cineplex to preserve the Fingold's own investment and that a steelcompany had no business involving itself in the entertainment industry.Late in 1988 when theCineplex share price recovered, Paul and other Slater Directors felt that the Slater shares shouldbe sold and a profit taken.Paul also wanted to sell out the Fobasco shares of CineplexOdeon.David agreed with the sale of the Slater shares but was opposed to the sale of any of theFobasco shares.He said that he reluctantly agreed because Paul wanted to pay down Fobasco's$10,000,000 bank debt.

21. A new client application form for the account of Fobasco was filed with Gordon Capitaland approved on February 23, 1989.It showed an order to sell 20,000 Cineplex Odeonshares.Gordon Capital's records also show trades for the Fobasco account on February 23 and24, 1989 involving sales of almost 200,000 shares.Another new client application form wascompleted presumably to cover the greater number of shares sold.A meeting of the Board ofCineplex Odeon at which the 1988 financial results were disclosed was held on February 25,1989.In the period following, a series of sell orders through Gordon Capital and First MarathonSecurities disposed of all of Slater's shares and more than 90% of the Fobasco shares by March 7,1989.Slater sold 816,300 shares for $15,011,030 or an average price of $18.39.Slater issued apress release on March 14, 1989 in the name of Paul Fingold announcing the sale of substantiallyall of the Slater shares in Cineplex Odeon.Subsequently, all the remaining Fobasco shares weresold; in all, 672,900 shares for $12,489,601 or an average price of $18.56.

22. None of the Mimarco shares or David Fingold's own personal holdings in CineplexOdeon were disposed of during the period of the sales of Fobasco and Slater shares.Thoseshares were disposed of March 22, 1989 the day on which the 1988 financial results werereleased.Those shares had a total value of approximately $3.5 million dollars.

23. The 1988 financial results were presented to the Cineplex Odeon Board at the meeting ofFebruary 25, 1989.The Audit Committee had met the day before.David Fingold was then amember of the Executive Committee but not the Audit Committee.He heard the 1988 financialresults for the first time when they were presented to the meeting of the Board on February25.The poor results from film exhibition for the fourth quarter of 1988 were unexpected anddisappointing.The mood of the meeting was acrimonious and fractious.Drabinsky attempted toexplain the various reasons for the fourth quarter results.Not only were his explanations greetedwith scepticism, he was vigorously criticized by some Board members about his makingcommitments to heavy expenditures and potential liabilities without full review and approval byother Board members.The Board passed a resolution requiring Drabinsky to bring all proposalsfor projects not in the ordinary course of business to the Executive Committee for approval priorto committing the company's resources.

24. By letter dated February 27, 1989, David Fingold submitted his resignation from theBoard of Cineplex Odeon. The letter stated that the resignation was, "to be effective TuesdayFebruary 21, 1989".Jerald Banks, Secretary of Cineplex Odeon replied by letter dated March 1,1989 accepting the resignation effective February 28.That letter noted that David Fingold hadattended the Board meeting on February 25 at which the 1988 financial statements had beenpresented.He was therefore in possession of confidential information and that any trading inCineplex Odeon shares should be governed accordingly.David Fingold later acknowledged theCineplex letter and stated that the reference to February 21 was a "typing error" and that heintended his resignation to be effective Tuesday, February 28th.

25. As already noted, on March 22, 1989, the Cineplex Odeon financial statement for 1988was released to the public. At the same time, an announcement was made that the company hadsold out its interest in the Universal Studios Orlando project at a considerable profit.That sameday, David Fingold sold out his remaining personal and family holdings in Cineplex Odeon.

26. On March 29, 1989, David Fingold completed and signed a standard form of insidertrading report as required by the Commission.The regulations require that the report be filedwith the Commission by the 10th day of the month in which the transactions occurred; hence thereport was due March 10 for transactions in February.Prior to delivery of the report, DavidFingold whited out the date of March 29 and filled in the date March 10.

27. The internal strife at Cineplex Odeon continued through the rest of 1989.MCA, whichhad originally opposed the sale by Cineplex Odeon of its stake in the Orlando development andlater relented, also opposed efforts by Drabinsky and Gottlieb to buy out the Bronfman interest inCineplex.The well publicized dispute was settled when MCA agreed that it would sell its interestin Cineplex Odeon as well.Ultimately, Drabinsky and Gottlieb were unable to obtain thefinancing to take out the whole position.They left the company, taking with them the liveentertainment division.

28. As the Cineplex Odeon shares were also traded on the markets in the United States, theSecurities Exchange Commission (SEC) had regulatory jurisdiction.In 1991, the SEC began aninvestigation into possible insider trading in that period in 1989 in which Drabinsky and Gottliebwere attempting to obtain financing for their takeover bid.The SEC requested the Commissionto obtain evidence from Drabinsky.The Commission investigator, Sara Blake obtained an orderunder section 11(2) of the Securities Act.Pursuant to that order, she issued summonses toCineplex Odeon and to Drabinsky requiring attendance for examination and production ofdocuments.The examination was scheduled for November 1, 1991.On October 4, 1991,(erroneously stated October 14 in the judgment) Ms. Blake ordered an Info-Globe search of allstories concerning Cineplex Odeon from March 30, 1989 to November 1, 1989, the period of thetakeover activity.She also obtained the Cineplex public file maintained by the OSC whichcontains the financial statements and lists of Directors and Officers and dates of change in any ofthose positions. Ms. Blake also obtained the Commission's "insider file" for Cineplex whichcontains all insider reports filed by Directors and other insiders including David Fingold.

29. On October 24, 1991, Ms. Blake had a telephone conversation with Jon Levin, a lawyerwho represented Garth Drabinsky.Mr. Levin told her that Drabinsky would tell her at theimpending examination about David Fingold.

30. The examination of Drabinsky on November 1, 1991 was taken under oath before Ms.Blake and was duly recorded and transcribed.Drabinsky said that David Fingold was a Directorwho attended the meeting of the Board on February 25, 1989 when the 1988 year end resultswere discussed.He said that the results showed losses in the film exhibition business, that theywere offset by a gain on sale of Film House but that analysts who concentrated on the corebusiness of Cineplex would conclude that the results were bad.He said that David Fingold wasaware of dissension among the Board members.He said that the information disclosed at themeeting was confidential and was not generally disclosed to the public until about a monthlater.He said that after the meeting Fingold resigned as a Director so he could sell his stock andthat he did so while in possession of confidential information which had not been generallydisclosed.Drabinsky expressed his opinion as a lawyer familiar with securities law that DavidFingold was clearly guilty of insider trading.The record of the interview discloses that Ms. Blakehad reviewed the last insider trading report by David Fingold relating to "sales" reportedly madeFebruary 27 and noting his resignation on February 28.

31. On November 6, 1991, Ms. Blake wrote to Elliot Dobin at the SEC office in New Yorkand reported on her examination of Garth Drabinsky.She drew to his attention the addition to hislist of suspects the name of David Fingold. She attached the details of the trades reported inFingold's last insider training report and stated that she had requested the Minutes of the meetingattended by Fingold to find out what information was known by Directors and not publiclydisclosed. On November 20, 1991, Ms. Blake wrote to Cineplex Odeon Secretary, Peter Mandellfollowing up on her previous request for copies of the Minutes of Board meetings prior to April1989.Those Minutes were sent to her and received on January 27, 1992.Upon receipt of thoseMinutes, Ms. Blake put a note in the file which stated that January 27, 1992 was to be consideredthe date of commencement of the limitation period under section 129 of the Securities Act.Therefollowed a period of investigation into the trades carried out by David Fingold either on his ownbehalf or as a Director of Fobasco and as a Director of Slater.

32. Shortly before the original information was sworn, Ms. Blake met with Lorie Waisberg,solicitor for David Fingold. They had a discussion about the results of the investigation and theintention of the Commission to prosecute David Fingold for insider trading.Mr. Waisberg raisedthe issue of limitation period and was told that the proceedings would be commenced within thelimitation period.The information was sworn January 19, 1993.

The Limitation Period

33. The applicable section of the Securities Act was section 129:

"No proceedings under this Part shall be commenced in a court more than oneyear after the facts upon which the proceedings are based first came to theknowledge of the Commission".

 

That section was repealed in 1994 and was replaced by a new limitation period of five years from"the date of the occurrence of the last event upon which the proceeding is based".It appears thatthe present appeal may be the last interpretation of the old section 129 and will have no value asprecedent.The trial judge noted:

"The obvious intent of this section was to provide some measure of protection forpotential defendants from having to face charges arising out of transactions fromthe distant past without barring prosecutions for matters that the Commissionwas unaware of, and providing the Commission a reasonable opportunity toinvestigate once it had been made aware of a matter, in order to make aconsidered decision on whether to prosecute, based on the usual considerations inexercising prosecutorial discretion such as the strength of the case and whetherthe matter is serious enough to warrant the allocation of resources necessary toprosecute it.As well, because prosecutions for offences against the SecuritiesAct require the consent of the Minister by s. 122, time to prepare a sufficientlycompelling case to present to him is required.

 

The appellant adds that the public interest in the protection of the freedom and integrity of themarket requires great care before prosecutions are brought.He says the Commission is alert tothe need for caution in doing so because of the potential impact of its investigation on an accusedor on the market.

34. It is common ground that:

1. The onus is on the Commission to prove beyond a reasonable doubt that itcomplied with the limitation section.
2. That the knowledge of the Commission is the knowledge of Sara Blake.
3. That filings with the Commission do not become knowledge by reason ofthe filing.
4. That the knowledge requirement is actual knowledge and does not includeconstructive knowledge.

 

35. The issues are:

1. What are the facts upon which the proceedings are based?
2. When did they first come to the knowledge of the Commission?

 

36. The trial judge conducted an exhaustive review of the cases which have interpretedsection 129 and its predecessor section 125.R. v. Andrews and Ambridge (1992), 15 O.S.C.B.1487 (Paris J. Prov. Div. J.) R. v. Whale (1992), 15 O.S.C.B. 1471 (Livingston Prov. Div. J.)affmd. 1993 16 O.S.C.B. 1437 (Killeen J.) OSC v. Reid (22 September 1994 Ontario CourtGeneral Division, Davidson J.) revg. R. v. Reid (12 January 1993 Ontario Court ProvincialDivision, Paris J.) R. v. Funger (24 April 1994 Ontario Court General Division, BeaulieuJ.).Those last two cases interpreted "after the facts upon which the proceeding is based firstcame to the knowledge of the Commission" as being equivalent to the point at which theCommission becomes aware of such facts with such a degree of confidence as would enable it tostart the proceedings by laying an information under Part III of the Provincial OffencesAct.Section 23 provides:

"Any person who on reasonable and probable grounds believes that one or morepersons have committed an offence, may lay an information in the prescribedform under oath before a justice alleging the offence and the justice shall receivethe information".

 

He noted that the inclusion of the word "believes" connotes a subjective test which is a differenttest than that suggested by the wording of section 129.He noted that in R. v. Whale (supra),Killeen J. said that he was inclined to agree that the critical phrase in s. 125(1) is not simply theequivalent of the phrase "reasonable and probable grounds to believe that an offence had beencommitted".He cited the passage of the judgment of Carruthers J. in OSC v. InternationalContainers Inc. and Kolton [1989] O.J. 1007 affmg.R. v. International Containers Inc. andKolton (24 January 1989 Grossi Prov. Div. J. as he then was).

"I do not think that the learned trial judge erred in law in quashing theinformation.The yardstick by which he was to measure the nature of the factsfor the purpose of section 125(1) of the Securities Act is that which constitutesthe essential or material averments required by law.This is to be determined onan objective view of that which was available to the Commission at the relevanttime.It is not that which it thinks is necessary or all that may be admitted intoevidence at the trial or the subject of the granting of particulars. On this basis, it ismy opinion that the names of the individuals with whom it is alleged thedefendants illegally traded do not constitute `facts upon which the proceedingsare based'".

 

37. The trial judge made an exhaustive review of the expressions "reasonable and probablegrounds", the Criminal Code expression "reasonable grounds", the American term "probablecause" and the distinctions between suspicion, belief and knowledge.He reviewed the tests of thedegree of sufficiency of grounds for issuing process, obtaining a warrant or effecting anarrest.He quoted from the Supreme Court of Canada decision in R. v. Storrey (1990), 53 C.C.C.(3d) 316 at p. 324:

"... The Criminal Code requires that an arresting officer must subjectively havereasonable and probable grounds on which to base an arrest.Those groundsmust, in addition, be justifiable from an objective point of view. That is to say areasonable person placed in the position of the officer must be able to concludethat there were indeed reasonable and probable grounds for the arrest. On theother hand the police need not demonstrate anything more than reasonable andprobable grounds. Specifically they are not required to establish a prima faciecase for conviction before making the arrest".

 

38. The trial judge noted that section 129 uses the word "knowledge" and makes noreference to "belief".He referred to Black's Law Dictionary, Fifth Edition and quoted thefollowing:

"When knowledge of the existence of a particular fact is an element of an offencesuch knowledge is established if a person is aware of a high probability of itsexistence unless he actually believes that it does not exist ...
Knowledge consists in the perception of the truth of affirmative or negativepropositions, while "belief" admits of all degrees, from the slightest suspicion tothe highest assurance.The difference between them is ordinarily merely in thedegree to be judged of by the Court ...
Belief.A conviction of the truth of a proposition, existing subjectively in themind."

He concluded:

"I am of the view then that "knowledge" implies objective determination of thetruth, in contrast to "belief" or "suspicion" which imply varying degrees ofsubjective conviction as to the truth."

 

39. The trial judge acknowledged that there is no obligation on the Crown to commence aprosecution as soon as it has legally sufficient grounds to do so.He referred to the Ontario Courtof Appeal decision in R. v. Young (1984), 46 O.R. 520.

Dubin J.A. stated:
"Courts cannot undertake the supervision of the operation or efficiency of policedepartments and be asked to determine whether the police proceeded asexpeditiously as they should have in any given case.
Furthermore to compel the police or Crown counsel to institute proceedingsbefore they have reason to believe they will be able to establish the accused's guiltbeyond a reasonable doubt would as Mr. Justice Marshall stated have adeleterious effect both upon the rights of the accused and upon the ability ofsociety to protect itself.
There is the further consideration that to hold otherwise would permit the Courtto impose ad hoc limitation with respect to the institution of proceedings forindictable offences where no statutory prescription is in place".

 

The trial judge noted that section 129 does contain the statutory prescription referred to by DubinJ.A.He stated that with respect to offences under the Securities Act:

"While the authorities need not prosecute as soon as they are in a legal position todo so there is a limited time within which they must decide whether or not to doso once they are in such a position".

 

40. The trial judge concluded that the proper test to be applied in construing section 129 isthat stated by Carruthers J. in the International Containers case.He then turned to anexamination of the evidence as to the knowledge of Sara Blake and what she did know aboutDavid Fingold's trading in Cineplex shares when she interviewed Drabinsky on November 1,1991.He took into account what she had said about the focus of her attention being on the sixindividuals under investigation by the SEC.He noted that Ms. Blake had reviewed her Infoglobesearch which contained stories about the sale in March 1989 of the Slater shares of Cineplex,David Fingold's relationship to Slater and his resignation from the Cineplex Board.She had alsoreviewed the Cineplex public file which showed and confirmed David Fingold's resignation fromthe Cineplex Board on February 28, 1989.She had also reviewed the OSC "insider file" whichcontained all insider reports filed by David Fingold while he was a member of the Board ofCineplex.It showed all of his direct and indirect holdings.It included the final report filed afterhis resignation.He noted:

"By her comments during the examination Ms. Blake revealed that she wasfamiliar with the last insider report filed by Fingold, the date of his resignation,and the date of the trade reported in it".

 

He noted that Drabinsky had given information under oath during a formal examination and thathe was a lawyer experienced in the field and knew the significance of the matters he was talkingabout.

41. The trial judge also noted that Ms. Blake said that Drabinsky appeared to be "rehearsed"and that he had a "mischievous look" about him.She felt that Drabinsky was trying to providesupport for those people under investigation who he liked and was trying to implicate those hedidn't like. The trial judge found that Ms. Blake was wrong in allowing her subjective lack ofbelief in Drabinsky's veracity to require confirmation by delivery of the minutes of the director'smeeting of February 25, 1989.He said:

"Confirmation of most of what Drabinsky said can be found in the documents Ms.Blake had in her possession before and at the interview".

 

And, further,

"The required filings are in themselves evidence and newspapers accountsquoting corporate officials are, in my view, capable of supplying confirmation ofthe evidence she had under oath from Drabinsky".

 

42. He found that the Commission had knowledge on November 1st at the Drabinskyinterview, that David Fingold was a director of Cineplex, that he attended the director's meetingon February 25, 1989 at which the adverse 1988 financial results were discussed, that there wasdissension among Board factions, that Fingold resigned on February 28th and that his InsiderReport showed sales of almost 200,000 shares of Cineplex on February 27, 1989.He concludedthat the Commission had not discharged the burden of proving beyond a reasonable doubt that theproceedings were brought within the time limited by section 129.He stated:

"Having regard to the burden of proof, therefore, I am not satisfied beyond areasonable doubt that she did not know of the information in the files concerningDavid Fingold's position with Cineplex, his resignation, his control of Slater andthe sale of the Slater shares and the fact that the 1988 year end financial resultshad been announced on March 22, 1989 or about one month after the meeting ofFebruary 25th as Drabinsky had said. Indeed, on balance, given the fact that shewas aware that allegations touching David Fingold were to be made at theexamination and presumably would prepare herself for it, I find that she probablydid know".

 

43. The appellant contends that the trial judge's conclusion discloses a misunderstanding ofthe limitation period and the onus of proof in relation to it.He argues that the use of a doublenegative together with the assertion that "she probably did know" is wrong and reflects an errorby the trial judge. He says that the real test is whether the prosecution has proved beyond areasonable doubt that the starting point for the limitation period is the date chosen by theCommission i.e. January 27, 1992.

44. It is common ground that the onus of proof of compliance is on the prosecution and thatthe standard of proof is proof beyond a reasonable doubt.The trial judge correctly stated:

"Under the governing provision, the Crown must establish that the informationwas sworn within 12 months of the Commission's first gaining "knowledge" of"the facts upon which the proceedings are based".As the proceedings werecommenced by an information sworn on January 19, 1993, the prosecution mustprove beyond a reasonable doubt that the facts upon which the proceedings werebased first came to the knowledge of the Commission on or after January 20,1992".

 

45. It is for the Court to determine whether the prosecution has proved beyond a reasonabledoubt that it complied with the limitation requirements of the Securities Act.The test is anobjective one based upon the evidence before the Court.The Commission's subjective belief thatthe limitation period commenced on January 27, 1992 is not determinative although it is a factorto be considered along with all the other evidence on the issue.The trial judge's assertion that hewas not satisfied beyond a reasonable doubt that Ms. Blake did not "know" on or beforeNovember 1, 1991 and his finding that "she probably did know" are not inconsistent with hisfindings that the prosecution failed to discharge the burden of proof beyond a reasonable doubtthat the proceedings were brought within the time limited.

"Facts" and "Knowledge"

46. The appellant contends that the trial judge erred in finding that the facts upon which theproceedings were based were known to Ms. Blake and therefore to the Commission on November1, 1991.He contends that she had only the information given to her by Drabinsky which couldnot be "fact" until it had been adverted to, digested, computed and registered.He submits thatthe word "facts" in s. 129 suggests a more sophisticated analysis than merely adding up theavailable information including hearsay; it suggests assessment of the admissibility and probativevalue of evidence which subsequently can lead a trier of fact to make a finding of fact.

47. The appellant contends that the trial judge erred in his interpretation of the "facts uponwhich the proceedings were based" in two ways:

1. He equated "facts" and "knowledge of the Commission" with informationgiven to the Commission; and
2. That he equated "knowledge" with the point of receipt of informationwithout the process of consideration, analysis and verification thatconverts information into knowledge.

 

48. As to facts upon which the proceedings are based, the appellant contends that theLegislature's use of the word "facts" in s. 129(1) as opposed to "evidence" or "information" infersthat the informant in a Securities Act prosecution should not mechanically add up the availableinformation to a level where he or she knows or ought to know there are reasonable and probablegrounds to believe that an offence had been committed.He contends that the cases of Reid andFunger, supra, though binding on the trial judge, were wrongly decided in that they equated s. 129"facts within the knowledge" test with the "reasonable grounds to believe" test for the swearing ofan information under the Provincial Offences Act.He says that is the wrong test because itpermits commencement of a prosecution on the basis of a subjective belief which may even begrounded on inadmissible hearsay evidence.The test under s. 129 of the Securities Act is anobjective test.The appellant contends that under s.129 it is incumbent on the informant in aSecurities Act prosecution to measure and assess the value of the information before him or her todetermine what evidence (as opposed to information) there may be and to extrapolate the factssupported by that evidence.

49. In the context of this particular prosecution, the appellant contends that the facts uponwhich the proceedings are based are the matters of fact as set out in a matrix which follows thecriteria set out by Farley J. in R. v. Woods (1994), 17 O.S.C.B. 1189 at 1193.They are:

"a) The defendant is in a special relationship with the public company;
b) and the defendant purchases or sells securities of the public company;
c) with that defendant having knowledge of material information about thatpublic company;
d) which material information has not been generally disclosed."
[emphasis his]

 

As to the respondent David Fingold, the appellant contends that the information given byDrabinsky on November 1, 1991 alleged that Fingold, an insider of Cineplex, sold shares whilepossessed of knowledge gained at the directors meeting on February 25, 1989, of a material factabout disappointing fourth quarter results which had not been generally disclosed to the public.Itis contended that that information did not become the knowledge of the Commission until Ms.Blake received confirmation on January 27, 1992 that Fingold had indeed been present at themeeting of the directors when the fourth quarter results were discussed.

50. As to the respondent Slater, the appellant says that Drabinsky made no mention of Slateron November 1, 1991 and that Ms. Blake did not review those parts of the insider reports whichshow the relationship between Fingold, Slater and Cineplex until February 1992.He says thatMs. Blake had no information let alone any "knowledge" of any special relationship of Slater toCineplex, any sales by Slater, any knowledge by Slater of any material fact or change until sometime well within the limitation period.

51. With respect to Fobasco, the appellant contends that Ms. Blake had no knowledge of anyspecial relationship between Fobasco, Fingold and Cineplex and no information or "knowledge"of any sales of Fobasco shares in Cineplex or any knowledge on the part of Fobasco of anymaterial fact or change at any time until well within the limitation period.

52. The trial judge did not deal specifically with the distinction between the Commission'sknowledge of the sales by David Fingold of his own shares versus the Fobasco shares or theSlater shares.However, on the other issue of the liability of the various parties, the trial judgequite properly found that David Fingold was the operating mind and the person authorized to dealin Cineplex shares both with respect to Fobasco and Slater.In doing so, he quite properlyrejected the defence position that Paul Fingold was the one responsible for giving the orders tosell Slater's shares in Cineplex.The trial judge held, correctly in my view, that the liability ofDavid Fingold was both that of principal and a party under s. 77(1) of the Provincial Offences Actand s. 122(3) of the Securities Act; that Fobasco's liability follows directly upon that of DavidFingold as its operating mind and principal director; and that Slater's liability also follows that ofDavid Fingold.He consistently rejected evidence and argument which sought to separate theother respondents, particularly Slater, from the liability of David Fingold.

53. The appellant argues that it was wrong for the trial judge to find that the Commission hadknowledge of any facts relating to Fobasco and/or Slater on November 1, 1991 and that in orderto do so, the trial judge must have employed hindsight.The respondents contend that prior to theNovember 1, 1991 meeting with Drabinsky, Ms. Blake had reviewed the Cineplex public file andthe Cineplex insider file, both of which were maintained by the Commission.The insider files forDavid Fingold clearly set out his relationship with Fobasco and Slater.She knew from herconversation with Jon Levin, that Drabinsky would have something to say about David Fingold inthe context of insider trading.During the interview on November 1, 1991, she referred to the"sales" reported in David Fingold's last insider report.Those "sales" of nearly 200,000 shareswere clearly sales of his "indirect" holdings as his "direct" holdings were only 52,000 shares andwere not affected by the February 27 "sales".The "indirect" holdings were clearly those ofFobasco and Slater. The trial judge found that Mr. Blake knew all that from her review of theCineplex files. He concluded that as of November 1, 1991, she knew that David Fingold had soldsome of his "indirect" holdings and that his "indirect" holdings included those of Fobasco andSlater.

54. At trial, Ms. Blake testified that she was not prepared to rely on the statements ofDrabinsky without verification that David Fingold had indeed been present at the Directorsmeeting of February 25, 1989.She stated that the focus of her investigation to that point hadbeen restricted to the trading activities of the six Cineplex "insiders" being investigated by theS.E.C. in New York.Therefore, her "in depth" review of the Infoglobe files and insider activitygenerally had not included a review of David Fingold's trading.She testified that she wasconfused by the content of David Fingold's last insider report which showed trades on February27, 1989 listed in the purchases column with an arrow directed towards the sales column.Shetestified that she did not examine the appendix to report although she said it may have her"fingerprint" on it.

55. The trial judge grounded his finding that Ms. Blake had "knowledge" on November 1 onthe fact that Drabinsky had reported that David Fingold was a director of Cineplex who hadattended a Directors meeting on February 25, 1989 at which he became apprised of confidentialinformation, that he resigned as a Director so he could sell shares in Cineplex and that he did sowhile still in possession of confidential information that had not been generally disclosed.He saidthat "confirmation of most of what Drabinsky said can be found in the documents that Ms. Blakehad in her possession before and at the interview" and " ... by her comments during theexamination Ms. Blake revealed that she was familiar with the last insider report filed by Fingold,the date of his resignation, and the date of the trade reported in it". Contrary to her assertion attrial that she was confused by the content of that last report, she had referred to those trades as"sales" in the course of the interview with Drabinsky on November 1, 1991.The trial judge foundthat she had applied her subjective mistrust of Drabinsky to lead her to conclude that she did nothave reasonable and probable grounds to believe that an offence had been committed.The trialjudge concluded, however, that she had applied the wrong test and that upon the application ofthe correct objective test, he concluded that she did have knowledge and stated "I am of theopinion that on an objective view of reasonable probability, "knowledge" did not depend upon theindependent confirmation of every aspect of Drabinsky's evidence, and that the Commissionthrough Ms. Blake could not reasonably decide that it did not yet know what it had been toldunder oath by Drabinsky".

56. The appellant contends that it was the trial judge who erred in applying too low astandard in his objective test of the point at which information amounting to "facts" first came tothe "knowledge" of the Commission.I agree that "facts" must mean more than mere rumour orgossip on the street or even an "overpowering suspicion".It must be information obtained froman identifiable source which might reasonably be expected to have such information and obtainedin circumstances which would tend to support the accuracy and reliability of the informationgiven.Similarly, "knowledge" does not require proof or verification to constituteknowledge.The trial judge referred to the definition of "knowledge" in Black's Law Dictionarywhich is cited above. One cannot deny knowledge when information given under oath supportedby documentary evidence by a person who has first hand knowledge is received.

57. It is common ground that the test under s. 129 of the Securities Act is an objectivetest.Both the appellant and the respondents argue that the proper test is not the "reasonable andprobable grounds to believe that an offence has been committed" under the Provincial OffencesAct as applied in the cases of Reid and Funger supra.I agree with the obiter comment by KilleenJ. in R. v. Whale supra that the critical phrase in the section is not simply the equivalent ofreasonable and probable grounds to believe that an offence had been committed.The test isdefined by the words of the section.In my opinion, the trial judge correctly applied the testidentified by Carruthers J. in OSC v. International Containers Inc. and Kolton supra.He equated"facts" with information which constitutes the essential or material averments required bylaw.(See passage set out above)

58. That statement by Carruthers J. has been criticized in that the inclusion of the expression"available to the Commission" appears to include "constructive knowledge" on the part of theCommission.Read in its proper context, I do not consider that the use of the word "available"connoted anything more than the information which had been given to the Commission up to thatpoint It does not include "constructive knowledge".The same conclusion was reached byStephen Sofer, a counsel for the Commission in his Case Comment on R. v. Reid 2 C.C.L.S. 56 atpp. 64-65:

"Query, however, whether Mr. Justice Carruthers intended to modify theinterpretation of the limitation period or whether, when he wrote "which wasavailable to the Commission", he meant "what was known by the Commission".The legislation itself refers to facts coming to the "knowledge" of theCommission.It is submitted that when Mr. Justice Carruthers spoke of an"objective test", he was merely holding that the Court will look at what theCommission knew and determine when the Court believes the Commission hadreasonable and probable grounds to swear the information.The subjective viewof the Commission of what it thought it knew or needed to know isirrelevant.What the Commission knew and when it knew it (objectivelydetermined by the Court) should be the test."

 

59. In order to embark upon an investigation, the Commission has to have evidence:

1. That the defendant;
2. Was an insider of the issuer;
3. Possessed of information;
4. Of a material fact or change;
5. That had not been generally disclosed; and
6. Traded in securities of the issuer.

 

When the Commission has that amount of information, it has knowledge of the facts upon whichthe proceedings are based. In order to trigger the commencement of the limitation period, it is notnecessary that the Commission have acquired all the details of evidence and the particulars thatare to be introduced in evidence at trial.

60. The limitation period in s. 129 is a one year period during which the Commission mustinvestigate and determine that there is sufficient evidence of the commission of an offence tojustify prosecution.The Commission must analyse and verify the original information anddetermine whether there is sufficient credible and cogent evidence to justify a prosecution withreasonable assurance that the prosecution will result in a conviction.The Commission must alsodecide during that period whether the public interest and the integrity of the marketplace arebetter served by a decision to prosecute or not prosecute.

61. The process of evidence gathering, verification and analysis is to take place during thelimitation period. That process is not to be used as any ground for delaying the commencement ofthe limitation period which is to be objectively viewed as the point at which information ofsufficient cogency to amount to the facts upon which the prosecution is based, first came to theknowledge of the Commission.When, as in this case, that point of commencement is in issue, it isfor the Court to determine on an objective standard when those facts first came to the knowledgeof the Commission.It is not the prerogative of the Commission to decide when the limitationperiod commences by asserting a need to investigate or verify the original information.

62. It is noted that the commencement of the limitation period is the point at which the factsupon which the proceedings are based first came to the knowledge of the Commission.There is arule of statutory construction called the Presumption Against Tautology.It is based upon theproposition that the legislature does not intend to say the same thing twice and therefore eachword in the enactment is to have a meaning.

63. The rule is addressed in Driedger on The Construction of Statutes, (third edition) at page159:

"It is presumed that the Legislature avoids superfluous or meaningless words,that it does not pointlessly repeat itself or speak in vain.Every word in a statuteis presumed to make sense and to have a specific role to play in advancing theLegislative purpose.In Hill v. William Hill (Park Lane Ltd.), Viscount Simonwrote:

"Although a Parliamentary enactment (like Parliamentary eloquence) iscapable of saying the same thing twice over without adding anything towhathas already been said once, this repetition in the case of an act ofParliament is not to be assumed.When the Legislature enacts a particularphrase in the Statute, the presumption is that it is saying something whichhas not been said immediately before.The rule that a meaning should, ifpossible, be given to every word in the Statute implies that, unless there isgood reason to the contrary, the words add something which would not bethere if the words were left out".

 

As Lord Simon indicates, every word and provision found in the Statute issupposed to have a meaning and a function.For this reason courts should avoid,as much as possible, adopting interpretations that would render any portion of astatute meaningless or pointless or redundant."

64. In order to give effect to the word "first", one must recognize that the process ofdeveloping and verifying the information must relate back to theprevious point in time at whichthat information "first" came to the knowledge of the Commission.The starting point of thelimitation period must be that "first" point.The trial judge found that the facts upon which theprosecution was based first came to the knowledge at the November 1, 1991 examination ofDrabinsky.He did not accept Ms. Blake's subjective belief that she did not have that knowledgeuntil the information given to her on oath by Drabinsky was verified by the Minutes of themeeting of Directors of Cineplex delivered to her on January 27, 1992. The trial judge did notapply a wrong test. He applied the correct test.There was ample evidence to support hisfindings.Indeed, there was additional evidence not referred to or relied upon by the trialjudge.In her report to the S.E.C. on November 6, 1991, Ms. Blake referred to the informationgiven to her by Drabinsky about Fingold's trading in Cineplex shares.She added the Fingoldname to those being investigated by the S.E.C. and specified the number of shares that he hadsold.That fact is also inconsistent with the position taken at trial by Ms. Blake that theinformation from Drabinsky could not be considered to be fact within her knowledge until aftershe had received verification on January 27, 1992.The trial judge correctly held that the factsupon which the proceedings were based first came to the knowledge of the Commission onNovember 1, 1991 and that the information sworn on January 19, 1993 was out of time.

The Merits

65. Although my opinion on the issue of the limitation period fully disposes of the appeal, Ihave been asked to express my opinion on the trial judge's Ruling in regards to the merits.

66. The offence of insider trading is found in section 76 of The Securities Act which reads:

"76(1) No person or company in a special relationship with a reporting issuershall purchase or sell securities of the reporting issuer with the knowledgeof a material fact or material change with respect to the reporting issuerthat has not been generally disclosed".

 

The definition of "material fact" is found in section 1(1) of The Securities Act.

"Material fact where used in relation to securities issued or proposed to be issued,means a fact that significantly affects, or would reasonably be expected to have asignificant effect on, the market price or value of such securities;"

 

67. The trial judge found that David Fingold was a person in a special relationship withCineplex, the reporting issuer, and was, therefore, an insider.He also found as fact that DavidFingold was the directing mind of both Fobasco and Slater and that he traded by selling theirshares in Cineplex. The trial judge found that the conflicts among the Cineplex directors and thefractious mood at the directors meeting were not "material facts" as defined.He did, however,find that the unexpected disappointing results for the fourth quarter of 1988 was a material factand that it would reasonably be expected to have a significant effect on the market price of theCineplex shares.He found that those fourth quarter results had not been generally disclosed whenDavid Fingold disposed of the Fobasco and Slater shares in Cineplex.

68. The issue was whether a defence of reasonable mistake of fact was available to permitDavid Fingold who clearly had knowledge of the unexpected and disappointing fourth quarterresults to assert that he had a genuine reasonable belief that those results were not a "materialfact" within the meaning of the definition.

69. The trial judge concluded:

"The defence position, then, is that a defence of "reasonable mistake of fact" isavailable as to the materiality of undisclosed facts and changes as it is to all otherelements of the offence.The Crown position is that such a defence is not open;all that is required is proof by the Crown that the defendant knew such facts as areasonable man would expect to have a substantial effect on the share price; andthere is no room for a reasonable mistake as to what would be reasonablyexpected.
I have already found that the financial results made known to the directors on 25February would be reasonably expected to substantially effect the market price ofCineplex shares.I also find, on all the evidence, that David Fingold probably didnot believe that these results would substantially effect the market price.Seen inthe context of his long involvement with the company and its predecessors, hisconfidence in Drabinsky, and his belief in the viability of its ongoing projects, itcannot be said that his own belief was without any basis."

 

70. The appellant contends that the decision was clearly not based "on all the evidence".Hesays that the trial judge completely ignored and made no mention of the evidence which showsconclusively that David Fingold knew very well that the fourth-quarter 1988 results were amaterial fact that would adversely affect the market price of Cineplex shares when they becameknown, that he resigned from the Cineplex Board for the purpose of selling the Fobasco andSlater shares before that information became generally known to the public.

71. The appellant points to:

1. the negative and fractious mood at the Cineplex directors' meetingFebruary 25, 1989;
2. his failure to advise Drabinsky of his intention to sell the Fobasco andSlater shares;
3. his abrupt resignation after the February 25 meeting;
4. his attempt to have the resignation recorded as of February 21;
5. the letter from Cineplex Secretary Banks correcting the date of resignationand warning that Fingold was in possession of confidential information andshould govern his trading accordingly;
6. his acknowledgement of Banks' letter correcting the date of resignationand blaming a typing error;
7. the abrupt sale of all Fobasco and Slater shares before the release to thepublic of the 1988 results;
8. the late delivery of the final insiders' report;
9. the "white out" and change of the date on the insiders's report;
10. the attempts to attribute the sale of the Slater shares of Cineplex to PaulFingold.
11. the failure to obtain approval from the Slater Board to the sale of theshares.

 

The appellant contends that those incontrovertible facts and the lame explanations offered forsome of them constitute conclusive proof that David Fingold was engaged in insider trading withthe full knowledge that he was doing so, that the acquittal on the merits was a perverse decision,that it was a palpable and overriding error and that the acquittal should be set aside and aconviction registered.

72. With respect to the relationship between David Fingold, his brother Paul, Fobasco andSlater, the trial judge took into account and commented on the evidence relating to that issue.Henoted that the brothers each held 50% of Fobasco and had equal decision-making power.Henoted the apparent anomaly in 1986 where Paul sold some of Fobasco's shares in Cineplex andDavid later repurchased some of them. He noted the well-documented concern expressed bySlater directors and shareholders, about holding a large block of Cineplex shares and wasapparently disposed to accept David's assertion that Paul had decided to sell the Slater block andtake the profit.It also appears that the trial judge accepted David Fingold's assertion that he wasreluctant to sell Fobasco's shares of Cineplex but agreed to do so to reduce Fobasco's bankdebt.Support for such a finding is the uncontroverted evidence that almost two hundredthousand of Fobasco's shares in Cineplex had already been sold by David Fingold before the boardmeeting of February 25 when he first became aware of the negative results for 1988.The trialjudge also found as a fact, not disputed by the appellant, that with respect to all trading in theshares of Cineplex, David Fingold was acting for and on behalf of Fobasco and Slater.

73. The trial judge used the expression "on all the evidence".It is true that he did not dealspecifically with those points raised in points 2 through 11 in paragraph 71 above.He hadreferred to the testimony of David Fingold that he considered the poor fourth-quarter results anaberration because several negative factors like the dispute with Disney and the Christmascalendar would not recur and would be more than offset by the potential profitability of theOrlando and other theme-park projects.David Fingold testified that he did not believe that thefourth-quarter results, if generally known, would affect the market price of the shares ofCineplex.The trial judge accepted his evidence and found that his belief was reasonable andalthough he was wrong in believing that the fourth-quarter results would not affect the marketprice of the shares that his belief was nonetheless reasonable and was a reasonable mistake of factwhich entitled him to be acquitted of the charge.

74. It is well-established that there is no obligation on a trial judge to deal with every piece ofevidence or to demonstrate that he has considered all arguments and instructed himself on allapplicable points of law.The trial judge's decision will not be disturbed if the record disclosesevidence which supports his findings of fact and that there was no error in law.See R. v. Burns(1994), 89 C.C.C. (3d) 193 (S.C.C.).

75. The issue of "reasonable mistake of fact" arises because the offence of insider tradingunder section 76 of The Securities Act has been classified as an offence of "strict liability".In R.v. The City of Sault Ste. Marie (1978), 40 C.C.C. (2d) 353, Dickson J. wrote at page 373:

"I conclude, for the reasons which I have sought to express, that there arecompelling grounds for the recognition of three categories of offences rather thanthe traditional two:

1. Offences in which mens rea, consisting of some positive state of mind suchas intent, knowledge, or recklessness, must be proved by the prosecutioneither as an inference from the nature of the act committed, or byadditional evidence.
2. Offences in which there is no necessity for the prosecution to prove theexistence of mens rea; the doing of the prohibited act prima facie importsthe offence, leaving it open to the accused to avoid liability by proving thathe took all reasonable care.This involves consideration of what areasonable man would have done in the circumstances. The defence will beavailable if the accused reasonably believed in a mistaken set of factswhich, if true, would render the act or omission innocent, or if he took allreasonable steps to avoid the particular event.These offences mayproperly be called offences of strict liability. Mr. Justice Estey so referredto them in Hickey's case.
3. Offences of absolute liability where it is not open to the accused toexculpate himself by showing that he was free of fault.

Offences which are criminal in the true sense fall in the first category.Publicwelfare offences would, prima facie, be in the second category.They are notsubject to the presumption of full mens rea.An offence of this type would fall inthe first category only if such words as "wilfully", "with intent", "knowingly", or"intentionally" are contained in the statutory provision creating the offence.Onthe other hand, the principle that punishment should in general not be inflicted onthose without fault applies.Offences of absolute liability would be those inrespect of which the Legislature had made it clear that guilt would follow proofmerely of the proscribed act."

 

76. In strict liability offences, the onus is on the accused to establish on a balance ofprobabilities that he took all reasonable steps to avoid committing the offence. This requirementhas been equated with the term "due diligence". The accused may also escape liability if he is ableto establish on a balance of probabilities that he reasonably believed in a mistaken set of factswhich, if true, would render the act or omission innocent.As the trial judge observed, noquestion of due diligence arises on the evidence in this case.Nor in my opinion is the issue in thiscase any question of "negligence" on the part of the accused.On any view of the evidence, DavidFingold had "knowledge" on February 25 that the fourth quarter results were disappointing andunexpected.There is no suggestion that he did not know about or did not intend the trades inCineplex stock which followed after he obtained that knowledge.Those trades were not due tonegligence.They were conscious and deliberate. The question is whether he is entitled as amatter of law to say that he had a reasonable belief that the bad fourth quarter results were not a"material fact" and, if so, whether he discharged the onus on him of establishing on a balance ofprobabilities that he did have such reasonable belief. Although the trial judge did not specificallysay so, it is clear from his reasons that he did address the onus of proof and that by his decision,he must have concluded that the accused had discharged the onus of establishing on a balance ofprobabilities that he had a reasonable belief that the fourth quarter results were not a material factand that he was therefore free to sell the Cineplex stock belonging to Fobasco and Slater.

77. The Supreme Court of Canada has held in R. v. DeSousa (1992), 76 C.C.C. (3d) 124 inconstruing the Criminal Code offence under s. 269 (unlawfully causing bodily harm) that theremust be an element of personal fault that attaches to "a culpable aspect of the actus reus, but notnecessarily in regard to each and every aspect of the actus reus".After citing that proposition, thetrial judge stated:

"The only culpable aspect that I can see in an offence under s. 76(1) of theSecurities Act is trading `with knowledge'.Accordingly, it appears to me that theCharter mandates that a defence of due diligence and reasonable mistake of factextend to that element of the offence."
"Accordingly, in view of my finding as to David Fingold's state of mind in respectto the materiality of the information he learned at the meeting of February 25,1989, the three defendants are entitled to acquittals on the merits."

 

78. The appellant argues that the trial judge erred in his interpretation of the culpable aspectof the actus reas of insider trading under s. 76 of the Securities Act in that:

a) he applied a subjective test to "material fact" where the correct test is anobjective test, and
b) he revived and applied the "make use of" defence which was removedfrom the Securities Act in 1985.

 

79. As to the first point, the appellant argues that "material fact" is entirely objective and thatthe insider's belief about materiality has no application once the prosecution establishes that thedefendant is an insider, that he traded in shares, and had knowledge of a material fact which hadnot been generally disclosed.The offence is complete.The trial judge agreed that there is noobligation on the prosecution to prove the defendant's knowledge of the materiality as that wouldcreate a full mens rea offence. Given the definition of "material fact" which employs theexpression "would reasonably be expected" he turned to apply the strict liability test whichprovides for a defence based upon reasonable mistake of fact.

80. The appellant argues that knowledge of material fact is a matter of law and is not open toindividual interpretation.He likens it to the test for obscene material as set out by the SupremeCourt of Canada in Regina v. Jorgensen (1995), 102 C.C.C. (3d) 97 and refers to this passagefrom the judgment of Sopinka J. at paragraph 97:

"This is not, of course, to suggest that a retailer must know that the materialsbeing sold were obscene in law. If the retailer says he viewed the films and sawthe particular spanking or noticed the underlying degradation but thought that itwas harmless and inoffensive, this will not provide a defence.The retailer willnot be immune from charges merely because he or she does not know how thelaw defines obscenity.Nor will a retailer be immune from conviction because heor she is unaware that there are any laws against selling obscene material. Thiswould amount to the defence of mistake of law and it is well established thatignorance of the law is no defence.What is required is that the Crown provebeyond a reasonable doubt that the retailer's knowledge that the materials beingsold have the qualities or contain the specific scenes which render such materialsobscene in law."

 

The appellant argues that the same test applies to material facts under S. 76.He contends thatonce the definition of material fact has been met on an objective test it is not open to a defendantto assert that at the time of the alleged offence that he had a reasonable belief that it was notmaterial.To permit the defendant to raise that issue is to permit a defence of mistake of law whenit is well established that ignorance of the law is no excuse.

81. The respondent argues that the Jorgensen case has no application.It relates to anobjective standard of what constitutes obscenity based upon a community standard ofacceptance.In Jorgensen the prosecution was required to prove that the accused had knowledgeof the specific acts which made the material obscene in law.Once that was established, it was notopen to the accused to advance his own personal or subjective opinion of what constitutesobscenity. I agree that the obscenity test has no application in this case.The obscenity testrequires proof beyond a reasonable doubt in a criminal case that the retailer's knowledge that thematerials being sold have the qualities or contain the specific scenes which render such materialsobscene in law. It does not permit an accused to assert his own subjective belief that the materialsbeing sold were not obscene.In a strict liability offence, the defendant can avoid liability byestablishing on a balance of probabilities that he reasonably believed in a mistaken set of factswhich, if true, would render the prohibited act an innocent one.

82. While the definition of "material fact" does not require proof that it will indeed affect theprice of the security, it does require proof that it is a fact which would be reasonably expected tohave a significant effect on the market price.Once the prosecution has established objectivelythat it was a material fact the likelihood of the defendant raising a defence of reasonable mistakeof fact successfully is quite remote.However, given the fact that a defence of reasonable mistakeof fact is available in a strict liability offence, it cannot be said that it can be totally barred.It is, atall events, a matter for the trier of fact to assess the credibility of the defendant and to determinewhether he has discharged the onus on him to establish a reasonable mistake of fact on a balanceof probabilities.

83. The trial judge found that the unexpected and disappointing fourth quarter results of1988 were a material fact in that those results if generally known would reasonably be expected tohave a significant effect on the market price of the shares.The overwhelming weight of theevidence at trial was that news of those results would have an adverse effect on the market priceof the shares.The defence called Professor Michael Berkowitz who testified about the "efficientmarket theory" which says that the market knows well in advance of announcement and hasalready discounted any news that may come from the company.However, Professor Berkowitzdid agree that unexpected disappointing news could have an effect on the market price and wouldnot already have been discounted by the market.Nonetheless, the trial judge accepted DavidFingold's testimony that at the time that he sold the Fobasco and Slater shares in Cineplex that hereasonably believed that the disappointing fourth quarter results would not have a significanteffect on the market price of the shares.He accepted David Fingold's reasons for holding thatbelief and concluded:

"Seen in the context of his long involvement with the company and itspredecessors, his confidence in Drabinsky, and his belief in the viability of itsongoing projects, it cannot be said that his own belief was without any basis".

The trial judge's conclusion was that David Fingold had discharged the onus on him ofestablishing on a balance of probabilities that he had made a reasonable mistake of fact and wastherefore not liable.

84. The appellant argues that the trial judge permitted the respondent to successfully raise the"not make use of" defence which was repealed in 1988.In was contained in s. 75(2) of theSecurities Act which stated:

"No purchaser or vendor shall be found to have contravened clause 1(a) if suchpurchaser or vendor proves that he did not make use of knowledge of thematerial fact or change in purchasing or selling securities."

 

The appellant refers to the judgment of Farley J. in Regina v. Woods in which he stated in relationto an insider trading offence:

"The offence is in essence not a question of using insider information but ofbuying or selling securities of a company while possessed of insider information."

 

Farley J. continued:

"The critical aspect is not of course that insider information is in fact used tomake the trading decision, but rather that a person with a special relationship witha reporting issuer cannot trade while possessed of insider information.Thesystem is not perfect since is does not catch those situations where that personwould have bought or sold but for possession of the insider information whichchanged the decision to a stand pat one."

 

85. Farley J. gave as an example of the application of the "make use of" defence a situationwhere a person had previously given trading instructions which had not yet been carried out eitherin a single transaction or pursuant to a standing order to buy a thousand shares or to sell $10,000worth each week.Inherent in that example is the finding that a material fact came to theknowledge of the person trading but that it had nothing to do with the decision to make thetrade.It assumes that the information indeed was a material fact as defined in the act and that noissue of reasonable mistake of fact is involved.In this case, the issue was whether David Fingoldcould reasonably believe that the fourth quarter results were not a material fact.

86. In Woods (supra), Farley J. discussed the "make use of" defence and the significance ofits removal as follows:

"Woods submitted that upon removal of the "makes use of" defence theprohibition on insider trading contained in s. 75(2) became an absolutely liabilityoffence.However it seems to me that this change had no impact on theclassification of s. 75(1) as a strict liability offence. Although referred to as adefence, the "makes use of" defence helped to define the actus reus of the offenceunder s. 75(1) was in trading by an insider who made use of undisclosed materialinformation.In order to commit the proscribed act the insider must not only havetraded while in possession of undisclosed material information, but he would alsohave had to use that information in making the trade.Following the removal ofthe "makes use of" defence, the actus reus was broadened to include any trademade by an insider while in possession of material undisclosed information:see s.75(1) and (2). One will appreciate the difficulty of finding evidence which wouldallow one to penetrate the brain of the insider to prove that the decision makingprocess with respect to the trade in the securities made use of that insiderinformation.
This change did not affect the degree of fault required to prove the offence;rather it changed the description of the proscribed act.Both before and after theremoval of this defence, it was open to the accused to prove, on a balance ofprobabilities, that he used all reasonable care to ensure that he did not commit theproscribed act or that he acted under a reasonable mistake of fact. Further this"makes use of" defence was never a common law defence.All of the commonlaw defences of due diligence and reasonable mistake of fact together with thestatutory defence in s. 75(4) of the S Act and the defences created by theRegulations remain available.

 

87. The actus reus of an offence under s. 76(1) of the Securities Act is trading withknowledge of a material fact. In Woods (supra) Farley J. set out what he referred to as the factualelements of the offence and I repeat them:

"a) The defendant is in a special relationship with the public company;
b) and the defendant purchases or sells securities of the public company;
c) with that defendant having knowledge of material information about thatpublic company;
d) which material information has not been generally disclosed."

 

It is noted that Farley J. underlined the words "material information" in sub-paragraph c.Later inhis judgment Farley J. referred back to those factual elements and stated:

"The factual elements of the actus reus of the offence under s. 75(1) have beenlisted in the discussion on Issue 1.There is room for these common law defencesto operate with respect to each of these four factual elements of the offence.Anaccused may assert an honest and reasonable mistake as to any of the factsrelevant to each of these factual elements.Further, this same defence withrespect to the question of disclosure of the information to the public generally(fourth element) is expressly codified in s. 75(4)."

 

88. In the instant case the trial judge found that David Fingold had reason to believe that the1988 year end results were not a material fact within the definition of the Act.His defence wasnot that he did not use his knowledge of a material fact; his defence was that he had a reasonablebelief at the time that it was not a material fact and that he was therefore at liberty to sell hisshares without violating S. 76 of the Securities Act.

89. It is well established that an appeal court will show great deference to the trial judge'sfindings of fact unless it is clearly shown that he misapprehended the evidence and made findingsof fact that are not supported by any of the evidence.The appeal court acknowledges the specialadvantage that the trial judge has in assessing the credibility of witnesses.The appeal court willexamine the evidence and to some extent re-weigh the evidence but not for the purpose ofsubstituting its own opinion.If the appeal court finds that there is some evidence upon which thetrial judge, having correctly instructed himself on the law, could arrive at the verdict, the appealcourt will not interfere.

90. The appeal court's power in a summary conviction appeal under s. 813 of the CriminalCode is found in sec. 822 which states inter alia that sections 683-689 apply to these appeals.InRegina v. Burke (1996), 105 C.C.C. (3d) 205, Sopinka J. reaffirmed the principle that anappellate court will not reverse a verdict unless it is shown to be unreasonable.In that case,although the result was a reversal of the trial judge's decision, Sopinka J. wrote at page 212:

"Thus, although the appellate court must be conscious of the advantages enjoyedby the trier of fact, reversal for unreasonableness remains available under s.686(1)(a)(i) of the Criminal Code where the "unreasonableness" of the verdictrests on a question of credibility"
"[6] I acknowledge that this is a power which an appellate court will exercisesparingly.This is not to say that an appellate court should shrink from exercisingthe power when, after carrying out its statutory duty, it concludes that theconviction rests on shaky ground and that it would be unsafe to maintain it.Inconferring this power on appellate courts to be applied only in appeals by theaccused, it was intended as an additional and salutary safeguard against theconviction of the innocent." [my emphasis]

 

I take that statement as a recognition that there is a statutory additional safeguard againstoverturning an acquittal on an appeal.There is a heavy onus on the appellant in any case of anappeal from an acquittal.There is a long line of authorities which affirm the principle that anacquittal will not be overturned unless it is clearly shown that there is a palpable and overridingerror, and that the verdict was clearly wrong and cannot be allowed to stand.

91. Accordingly, even though it may very well have been open to another judge to have takenanother view of the evidence of David Fingold and to have found that he failed to discharge theonus of proving on a balance of probabilities that he had a reasonable mistake of fact in relation tothe materiality of the fourth quarter results, it cannot be said that there was no basis upon whichthe trial judge made the findings that he did.I cannot conclude, therefore, that he erred inacquitting the accused on the merits.The appeal is therefore dismissed on that ground as well.

KEENAN J.