R.S.O. 1990, C.C s.5, AS AMENDED
IN THE MATTER OF
BELTECO HOLDINGS INC., TORVALON CORPORATION,
GARY SALTER, ELAINE SALTER, PETER ARTHUR MITCHELL,
RODIKA FLORIKA, GLEN ERIKSON, CHRISTINE ERIKSON,
KAI HOESSLIN, HARCOURT WILSHIRE,
921159 ONTARIO INC., 918211 ONTARIO, INC.
April 2, 3, 4, 1997
John F. Howard, Q.C., Chair
G. Patrick H. Vernon, Q.C., Commissioner
Lawrence Ritchie, Esq. - OSC Special Counsel
Darryl T. Mann, Esq. - Peter Arthur Mitchell
Allan Sternberg - Glen Erikson & Christine Erikson
DECISION AND REASONS
(Orally, April 4, 1997)
THE CHAIR (orally): In order to put the matters which are going to be decided in context, I want to begin with a few words of background.
The hearing on the merits of the matters which are set out in the Notice of Hearing and the Statement of Allegations has been scheduled to begin before thisPanel of Commissioners on the 2nd of April, 1997 for some time. There were, however, as we all know, numerous preliminary motions on behalf of theRespondents and some on behalf of Staff which had not been dealt with. So, this Panel sat on March 6th and 7th to deal with some of these matters.
As it turned out, not all the preliminary motions could be heard in those two days, but a number were heard and dealt with in the decision which we produced onMarch 10th. That decision describes the motions before us and records the decision which we reached. At that time, the parties were exhorted to ensure that allremaining preliminary motions were filed and prepared for argument at the opening of the hearing on the merits, on the 2nd of April.
Perhaps not surprisingly, the result was that in addition to any matters that were not dealt with on the material already before us on March 6th, we receivedextensive new material which we had marked for identification following the numbering system which we instituted at the hearing on March 6th and 7th. So, justto put the matter in context, let me deal with the new material which was marked for identification during the hearing on these preliminary motions.
Document 18(a) is a Motion Record filed on behalf of Mr. Mitchell by Mr. Mann, which can be described as the limitation period motion. It is dated March 31st,1997. Document 18(b) is a Factum on that motion and 18(c) is a Book of Authorities on that motion.
Document 19(a) is a Motion Record submitted by Mr. Sternberg on behalf of the Eriksons dated March 27th, 1997, which deals with a number of preliminaryissues, but which involves both what we came to describe as the systemic bias motions and the limitation period motion similar to that brought by Mr. Mann.
So far as the argument which has just been concluded is concerned, the matters that have been specifically dealt with in Mr. Sternberg's Motion can besummarized by reference to page 2 of the Motion. In paragraph (d) of the Notice of Motion an Order is sought directing the Staff to produce documents theredescribed and without limiting the generality of the request, specific documents are described which may be in the custody, power or possession of CanadianOver-the-Counter Automated Trading System, the Canadian Dealer Network Inc. or the Toronto Stock Exchange. The documents sought are further identifiedto be documents regarding facts alleged to give rise to the complaints against the Eriksons and when those facts first came to the knowledge of the Commission.
I take it that that is an application for a specific production order related to the limitation period motion. The limitation period motion is in sub-paragraph (e) ofthat Notice of Motion, asking for an order quashing the proceedings because it was commenced outside the limitation period.
In addition, Mr. Sternberg seeks an order from the Commission compelling eleven identified members of the Staff of the Commission (one was added during theargument) to give evidence. It became clear in the argument, if it isn't clear from the Notice of Motion, that the evidence sought from these members of Staff isdirected towards what I have called the systemic bias motions.
Next, we received from Mr. Mann on behalf of Mr. Mitchell a Motion Record, a Factum, and a Book of Authorities, directed towards the consequences of thedisclosure of without prejudice communications to other respondents, and we can deal with that very quickly. Mr. Mann requested that a different Panel of theCommission be set up to hear that motion. We agree that this is desirable since we do not want to become contaminated by seeing stuff we shouldn't see. It hastherefore been arranged that a Panel of the Commission will sit on Tuesday, April 8th at two p.m. to hear Mr. Mann's motion regarding disclosure of withoutprejudice communications. The documents were marked as 20(a), 20(b) and 20(c) and have been removed from the material which was before this Panel. Theywill be delivered in advance of the argument of that motion to the members who will be sitting.
Then a further Motion Record was filed by Mr. Mann on behalf of Mr. Mitchell, which he characterized as the rule-making authority motion and that motion isrelated to the systemic bias motion because Mr. Sternberg has a similar Motion in his Motion Record 19(a), or in some previous motion that is before us. ThatMotion Record was marked as 21(a). Mr. Mann's Factum is 21(b), his Book of Authorities is 21(c) and two volumes of documents to be relied are 21(d) and21(e). We did not hear any argument with respect to that motion.
Finally as document 22, we received Staff's written Submission and Authorities in response to the motions for examination of Staff and the limitation issues datedApril 1.
Both Mr. Mann's limitation period motion and Mr. Sternberg's limitation period motion and Mr. Sternberg's systemic bias motions seek to have members of theStaff ordered to be present at the hearing to give viva voce evidence, which they submitted before us was relevant and essential to determine the issues raisedwhen we come to determine the issues on the merits.
It has not been the practice of the Commission to issue subpoenas to members of Staff who may be required to give evidence at a hearing, but if a case can bemade which would justify the issue of a subpoena or a summons to others, it has been the practice for members of Staff to present themselves without thenecessity of a summons. The respondents have been assured that this practice will be followed in these proceedings.
After a preliminary discussion, we determined that we would proceed to hear the applications for viva voce evidence and further production, as it is apparent thata determination of these matters is necessary before dealing with the remaining motions on the merits. In the disposition of these motions, the first issue whichhas to be determined is: What are the tests to be applied in deciding whether witnesses should be compelled to appear to give viva voce evidence on apreliminary motion, sometimes called an interlocutory application?
Having heard the extensive and helpful submissions of all counsel, it is our view that the tests can be briefly summarized.
First, the Panel must be satisfied that the evidence to be given by a proposed witness will be relevant to the issue or issues to be determined.
Secondly, it is common ground that the Commission has the power to compel the attendance of witnesses to give relevant and admissible evidence at a hearing inany proceeding before it, including these preliminary motions.
Thirdly, that power is a discretionary power which must be exercised in a manner to ensure that the proceeding is fair to all persons involved.
By analogy, we were referred to the principles which are applied in proceedings to quash a summons, which very briefly requires very serious consideration andin order to quash, a conclusion must be reached that to require the evidence would be abusive of the process, or an unjustified fishing expedition. We were alsoreferred to the Civil Rules of Practice in Ontario and to certain criminal cases dealing with preliminary issues before a plea and before commencing to hear thecase before the court on the merits.
In considering the matter, we propose to adopt the reasoning in the Knight case in the Supreme Court of Canada, (1990) 1 SCR 653 at 657. There it is madeclear that an administrative tribunal such as this is master of its own procedures. We need not assume all the trappings of a court and we are entitled to retain theflexibility necessary and adapted to the need to fulfil our obligations and mandate in a fair and efficient manner.
In this connection, we believe that it is important to keep in mind that even in criminal matters, the observation of Mr. Justice Sopinka in one of the casesreferred to us where it is pointed out that interlocutory proceedings ought not to be permitted to take on lives of their own and it is important to the fair andexpeditious determination of the matters to be determined on the merits that hearings not become fragmented.
On the other hand, if it appears that the determination of a matter raised by a preliminary motion may conclude the whole matter expeditiously on relativelynarrow grounds and thus avoid delay and the costs both in dollars and inconvenience of a very long hearing into all of the issues, then that is a proper case for thereception of evidence related to that narrow issue which has been raised.
As Mr. Sternberg quite properly said, however, to determine the matter finally on a preliminary motion, the evidence must be such as to establish that no triableissue remains to be dealt with, or as Mr. Mann put it, at the end of the evidence on the preliminary hearing or motion the respondents must be in a position tomove for summary judgment.
Those are the principal tests which we have considered and we turn now to the application for attendance of witnesses on the systemic bias motion.
As I indicated, Mr. Sternberg seeks the attendance of twelve members of Staff. Since at least part of the material upon which he will be relying in his motionshas been dealt with adversely to his position by both the Commission, as reported at (1996) 19 OSCB 3874 and on review by Mr. Justice Sharpe of the OntarioCourt of Justice (General Division) reported at (1996) 19 OSCB, page 4721, it is clear that Mr. Sternberg seeks to obtain evidence which is additional to themain issue which was considered in that case and which is evidence which the Commission and the Court pointed out was not before the Commission on thatoccasion. As well, he appears to be seeking additional evidence which may relate specifically to his clients, the Eriksons, and in particular, Mr. Erikson.
At page 4 of Mr. Sternberg's Notice of Motion, the alternative reliefs are set out which relate to this matter which I will summarize briefly. He seeks an orderstaying the proceedings because:
(a) the Enforcement Branch of the Commission is prejudiced and no longer able to exercise its discretion in good faith and thereby is in breach of a duty offairness to his clients;
(b) the Enforcement Branch has concluded that the Securities Dealers whose principal business is the sale of penny stocks and their advisers must respectively beput out of business, et cetera;
(c) that the Commission has breached the duty of fairness owed to the Eriksons and is no longer able to exercise its judgment in good faith in accordance withthe principles of due process and natural justice and finally on this aspect of the matter, and;
(d) that the Commission has prejudged the case against Glen Erikson and Christine Erikson.
Now, those grounds have not been argued before us, but I summarized them because the nature of the issues being raised on the merits is important inconsidering the discretion to be exercised regarding requiring viva voce evidence.
Frankly, we cannot conceive that these matters are appropriate for determination as preliminary issues. We cannot see how there could be no triable issue at theconclusion of oral evidence from the members of the Staff which have been identified by Mr. Sternberg. It will not, in our view, expedite the completion of thesehearings to receive the evidence requested.
The issues are very complex, will clearly involve serious issues of credibility and they appear to involve the attitude of every member of the Staff at theCommission who has been involved in this matter. In our view, to deal with them now as a preliminary matter will fragment the hearing and can only lead tointolerable delay.
Understandably, Mr. Sternberg cannot identify the specific evidence which the identified witnesses will give and the exercise, if embarked upon, appears to us tobe a classic fishing expedition, as described in the cases. Accordingly, we will not require witnesses to attend on the hearing of that preliminary motion.
Perhaps by way of pure obiter, which is a euphemism for "here comes some obiter", it is our view that the matters raised would better be dealt with at the end ofthe hearings on the merit. Counsel for Staff has undertaken that three of the twelve witnesses will be called as witnesses at the hearing. If Mr. Sternberg is notthen satisfied at the conclusion of the Staff case that all witnesses who can give relevant and admissible evidence which is necessary to his case have been calledduring the Staff case, he could renew his request for their attendance at that time. We recognize that Mr. Sternberg does not have to accept this invitation andthere may be reasons why he is unwilling to do so.
Turning to another matter, it is not our understanding that there is a specific motion for identified documentary evidence or disclosure on this aspect of Mr.Sternberg's motion. But we observe, as we did during the argument, that we expect that if there is any documentary evidence which may be relevant, such forexample as standard guidelines to the Enforcement Branch or specific guidelines or instructions to the Enforcement Branch, that any such documents will beproduced to Mr. Sternberg prior to the commencement of the hearing on the merits of this motion.
I turn now to the application for the attendance of witnesses on the limitation period motion.
Here Mr. Mann seeks the evidence of Brian Butler and Mehran Shahviri. It is not entirely clear from my notes whether in addition, Mr. Sternberg seeks theattendance of Joanna Fallone or not, but in view of the conclusion we have reached, it may not matter.
Mr. Mann points to an apparent discrepancy between the will-say statements he has been provided and the Notice of Hearing and Statement of Allegations. Inshort, the former refer to trading which begins in 1990 and the latter to trading in 1991 and 1992.
The determination of the limitation issue does amount to a mixed question of fact and law. Under Section 129 of the Securities Act as it was and is applicable tothese proceedings, which were commenced on December the 15th, 1993, the test is that if the facts upon which the proceeding is based first came to theknowledge of the Commission more than two years prior to December 15, 1993, then the proceeding is outside the limitation period and must be dismissed.
It is common ground that the Commission, which was referred to by that word in the statute, means the Staff and not the Commissioners.
Mr. Mann argues that the question is whether the Commission had the facts or the means to quickly or easily obtain the facts upon which the proceedings arebased prior to December 15, 1991, and if that is so, the proceedings fail.
In our view, the better statement of the question to be decided is that the period starts to run when the Commission Staff had sufficient facts that they hadreasonable and probable grounds to commence proceedings. This is the test applied for proceedings under the Securities Act which are brought in the ProvincialCourt where, of course, the proceedings are commenced by the laying of an information.
It is our view that it is reasonable to apply the same test to the commencement of the proceedings before the Commission by Notice of Hearing. In saying that,we do believe that the Staff must act reasonably after initial facts or complaints are brought to its attention. They may not just do nothing when they have factswhich raise suspicion. If they do nothing, there is then an issue as to when the Staff is obliged to formally commence an investigation. We can conceive ofsituations in which the investigation has proceeded in such a dilatory manner that the test cannot be met.
It is common ground that the onus with respect to the limitation issue, once it has been raised, is upon the Staff. In our view, the apparent discrepancy in thedisclosures made calls for an explanation as to what facts regarding the proceedings were known to the Staff prior to December 15, 1991, when those facts firstcame to the knowledge of Staff, and what investigation, if any, was commenced prior to December 15, 1991.
In our view, there is at least a possibility that the issue can be determined in a preliminary way, thus avoiding a very extended hearing as to the truth of the factswhich will be relied upon.
Since the onus is on the Staff in this matter and the matter has been raised as an issue, it would have to be dealt with in any event during the Staff's case in chiefon the hearing on the merits. It is our view, therefore, that the most expeditious way of dealing with this matter as a preliminary matter is to request Staff to callevidence strictly limited to the issue of the limitation period, as we have described it.
Without in any way telling Counsel how he is to conduct his case, we expect that the evidence to be tendered will be at least the evidence of Brian Butler andMr. Shahviri and probably Joanna Fallone, as I understand that she may have relevant evidence from the material which we have seen.
We emphasize that if at the conclusion of that evidence to be called, there appears to be a triable issue left to be determined, we will postpone a final decisionuntil the conclusion of the hearing on the merits. If new evidence surfaces during the hearing on the merits, the parties can bring a further motion for attendanceof witnesses if they are so advised.
We propose to adjourn today and that the evidence on the preliminary limitation period motions will begin on Wednesday, the 9th of April, at ten a.m. We willproceed to hear that evidence until it is completed and give a prompt decision.
As well, we will hear, following that evidence and maybe before we give a prompt decision, argument on all of the remaining motions which the parties wish usto determine before the hearing starts so that they can be dealt with prior to the commencement of the hearing. That includes the Staff motion to quash thesummons to Hellen Siwanowicz and the motion to exclude the Eversley affidavit.
We propose that at the opening on April the 9th, we discuss the priority of the matters to be heard after the evidence on the limitation issue is concluded but it isour view that the two to which I have referred should be dealt with first.
In case I have not made it clear so far, the specific request in Mr. Sternberg's motions for documents to which I referred at COATS and so on, we direct that anydocuments as described which are in the custody or control of the Commission and are relevant to the issues to be determined on the return of those motions areto be produced, but specifically not if the documents are not in the custody or control of the Commission.
Text of oral decision released 7 April 1997.
"J.F. Howard" "G.P.H. Vernon"