March 12, 2010
NOTICE AND REQUEST FOR COMMENTS
REGARDING PROPOSED AMENDMENTS TO
RULE 12 OF THE RULES OF PROCEDURE OF
THE ONTARIO SECURITIES COMMISSION
The Ontario Securities Commission (Commission) is seeking comments on a proposed new rule to replace existing Rule 12 of the Commission’s Rules of Procedure (2009) 32 OSCB 1991 (Rules) which applies to procedures for hearings to approve settlement agreements between staff of the Commission’s Enforcement Branch (“Staff”) and respondents.
The Rules apply to all proceedings before the Commission where the Commission is required under the Securities Act, R.S.O. 1990, c. S.5 and the Commodity Futures Act, R.S.O. 1990, c. C.20 or otherwise by law to hold a hearing or to afford to the parties to the proceeding an opportunity for a hearing before making a decision.
Proposed new Rule 12 (attached to this Notice as Annex “A”) is being published for a sixty (60) day comment period. If the proposed Rule is adopted by the Commission with or without changes, existing Rule 12 will be repealed and replaced by the new Rule which will apply immediately to all proceedings before the Commission, including proceedings commenced by a Notice of Hearing issued prior to the adoption of the new Rule.
The new Rule will be implemented pursuant to section 25.1 of the Statutory Powers Procedure Act, R.S.O. 1990, c. S.22 (SPPA).
The proposed new Rule is designed to ensure the fair and efficient resolution of proceedings before the Commission to approve settlement agreements between Staff and respondents in the most expeditious and cost-effective manner, consistent with the Commission’s objective to make its adjudicative processes transparent and accessible.
During the comment process on the Rules in 2008-09, a number of comments were received on the Commission’s procedures for approving settlement agreements which suggested that the Commission consider reviewing its procedures for approving settlement agreements. Although there was a broad consensus among the commentators that those procedures should be revised, there was no specific consensus at that time on what those revisions should be. Therefore, when the Commission adopted the Rules in April 2009, it decided that it would not amend the existing procedures for approving settlement agreements, but undertook to review those procedures during 2009-10.
The Commission began the review of its settlement approval process in September 2009 by inviting members of the respondents’ bar and Staff to participate in an informal round-table discussion on the process. At the round-table discussion, there was a consensus among participants that the Commission’s current settlement approval process might not encourage settlements but might, in some circumstances, discourage parties from entering into settlement discussions. In particular, participants were of the view that the current settlement approval process is perceived as resulting in too great a level of uncertainly of outcome. Participants expressed the view that many respondents were reluctant to engage in settlement negotiations with Staff only to have the ultimate settlement agreement rejected by a Commission panel at a public hearing. Even though the details of a rejected settlement remain confidential, participants were of the view that the public nature of the rejection was itself prejudicial to all parties, particularly to respondents.
Participants proposed that any changes to the existing procedures should, among other things:
- enhance the efficiency of the Commission’s settlement process, reduce costs, encourage settlements and decrease the number of lengthy merits hearings;
- provide a degree of flexibility and avoid high costs and time delays;
- balance the requirement for open, transparent proceedings and the parties’ desire for greater certainty of outcome; and
- support the settlement negotiation process by recognizing that joint submissions on facts and sanctions are arrived at through active negotiation between the parties and that settlement agreements should normally be approved where they are reasonable in the circumstances.
Following consideration by the Commission’s Adjudicative Committee of the comments made at the round-table, on the recommendations of that committee, the Commission approved the publication for comment of proposed new Rule 12.
Proposed new Rule 12
Under the new Rule, settlement agreements between Staff and respondents will still be required to be approved by the Commission through a hearing for which a public notice will be issued. However, the new Rule provides for a settlement conference before a panel of one or more Commissioners (“Panel”) to be held prior to proceeding to a public hearing to approve the settlement.
A settlement conference will be held only if both Staff and the respondent jointly request the conference. There must be at least one settlement conference before a settlement agreement can proceed to a hearing before a Panel for approval. A settlement conference would likely be held at the stage where the parties have reached a settlement (which might be evidenced by a draft settlement agreement or a joint memorandum of settlement) that they propose to present to a Panel for approval at a public hearing. At the settlement conference, the Panel will indicate whether or not it would be prepared to approve the settlement agreement if it were submitted to it for approval at a public hearing.
If, during the settlement conference, the Panel concludes that it would be unlikely to approve the settlement agreement, it will discuss the grounds for its conclusions with the parties. It is, however, not intended that the Panel conduct any “mediation” or similar function, merely that it will identify for the parties any matter that, in the view of the Panel, would likely lead it to refuse to approve the settlement in the public interest if presented at a hearing.
If the Panel presiding at the settlement conference indicates that it would likely reject the proposed settlement agreement, the parties may consider the Panel’s grounds for rejection and continue to negotiate another settlement that the parties believe would be more likely to be approved by the Commission, or they may abandon the settlement process and proceed in the normal course.
If the parties jointly request, a settlement conference may be held at an earlier stage before they have reached full agreement. If the parties have reached agreement on most substantive matters but have outstanding issues on which they wish to seek the Commission’s views, they may jointly request a settlement conference. Although the Panel will participate in discussions on the outstanding issues identified by the parties, the Panel will generally limit its role to expressing views that might be of assistance to the parties in reaching a settlement. The Panel will not conduct a mediation or similar function.
Settlement conferences will be held in camera without public notice and all settlement discussions will be without prejudice. No record of the settlement conference will be made unless the parties request otherwise.
Once a Panel presiding at a settlement conference has indicated that it would be prepared to approve the settlement agreement if it were presented to the Panel at a public hearing, the parties may file a joint application for a hearing to consider the settlement agreement for final approval. A public Notice of Hearing to consider the application to approve the settlement agreement will be issued accompanied by a copy of the final signed settlement agreement. The Panel presiding at the hearing to approve the settlement agreement will consist of one or more of the members of the Panel who presided at the settlement conference. At the public hearing to approve the settlement agreement, it is anticipated that the parties will make submissions to support a finding that the settlement agreement is in the public interest. If the settlement agreement presented at the hearing is the same as the draft settlement agreement or is on terms substantially the same as the joint settlement memorandum presented at the settlement conference, it will in the normal course be approved by the Panel. The Panel’s approval may be given by endorsement on the record and the issuance of an order. However, if the Panel determines that it is appropriate in the circumstances to issue oral and/or written reasons, it may do so. The approved settlement agreement, the Panel’s order and reasons, if any, will be posted on the Commission’s website and published in the Bulletin.
Comments must be submitted in writing by Monday, May 10, 2010 either by mail, facsimile or e-mail to:
John P. Stevenson
Secretary to the Commission
Ontario Securities Commission
20 Queen Street West
19th Floor, Box 55
Toronto, Ontario, M5H 3S8
Proposed Amended Rule 12 of the Commission’s Rules of Procedure (2009) 32 OSCB 1991
Rule 12 – Settlement Agreements
12.1 Purpose of Settlement Conference
(1) The purpose of a settlement conference is to provide the parties with the opportunity, prior to proceeding to a hearing under this Rule to approve a settlement agreement, to make confidential submissions on a proposed settlement to a Panel in order to obtain guidance on whether the terms of the proposed settlement would, in the view of the Panel, be in the public interest.
(2) At least one settlement conference shall be held before a hearing to approve the settlement agreement.
12.2 Application for a Settlement Conference
(1) An application for a settlement conference shall be filed jointly by the parties to the proposed settlement no later than 5 days before the settlement conference.
(2) The application shall be accompanied by:
- the consent in writing of the parties to participate in the settlement conference;
- an agreement concerning the confidentiality of the settlement discussions and any document or thing presented at the settlement conference; and
- a draft of the proposed settlement agreement or a joint memorandum setting out the terms of the proposed settlement between the parties.
12.3 Notice of Settlement Conference
(1) The Secretary shall issue a Notice of Settlement Conference for an application referred to in subrule 12.2(1) only after all the documents required to be filed pursuant to subrule 12.2(2) have been filed.
(2) The Notice of Settlement Conference shall be issued only to the parties to the settlement conference and shall not be published or otherwise made available to the public.
12.4 Oral or Electronic
A settlement conference may be held in person or by way of electronic hearing, as the Panel may direct.
12.5 In Camera Proceeding
(1) The settlement conference shall be held in camera and no transcript or other record of the proceeding shall be made unless the parties to the settlement request otherwise, except that the Panel may make such record of the conference as it deems necessary for its own record and use.
(2) Rule 5.1 shall not apply to any document or thing filed under Rule 12.1 or presented at a settlement conference or any record made by the Panel pursuant to subrule 12.5(1), and any such document or thing shall be kept confidential pursuant to Rule 9 of the SPPA and shall not be made available to the public.
12.6 No Communication to Panel Hearing the Merits
In the event that the matter subject to the settlement conference proceeds to a hearing on the merits, the Panel presiding at the settlement conference shall not participate in the hearing on the merits and no communication made at the settlement conference shall be disclosed to the Panel hearing the matter on the merits.
12.7 Application for a Hearing to Approve the Settlement
(1) An application for a hearing to approve a settlement shall be filed jointly by the parties to the settlement no later than 2 days before the hearing.
(2) The application shall be accompanied by:
- a draft order;
- the respondent’s consent to the order; and
- the settlement agreement signed by the settling parties.
12.8 Notice of Settlement Hearing
The Secretary shall issue a Notice of Hearing for an application referred to in subrule 12.7(1) only after all the documents required to be filed pursuant to subrule 12.7(2) have been filed.
12.9 Settlement Hearing Panel
The Panel presiding at the hearing to approve the settlement shall be one or more of the members of the Panel that presided at the settlement conference.
12.10 Public Settlement Hearing
(1) A hearing to approve an application under subrule 12.7(1) shall be open to the public.
(2) The Panel may issue oral or written reasons if it deems it appropriate to do so.
12.11 Publication of Settlement Agreement When Approved
The order approving the settlement agreement, the settlement agreement, and the Panel’s reasons, if any, shall be posted on the Commission’s website and in the Bulletin forthwith following approval of the settlement agreement by the Panel, unless otherwise ordered by the Panel.