Proceedings

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IN THE MATTER OF THE SECURITIES ACT
R.S.O. 1990, c. S.5, AS AMENDED

AND

IN THE MATTER OF Y

AND

IN THE MATTER OF
AN APPLICATION BY THE CROWN
UNDER SECTION 17 OF THE SECURITIES ACT


REASONS AND DECISION


Hearing: November 20, 2008
   
Decision: August 31, 2009
   
Panel: Lawrence E. Ritchie          - Vice Chair and Chair of the Panel
Mary G. Condon               - Commissioner
   
Counsel: Karen Manarin                - For the Ontario Securities Commission
Melanie Adams
Michelle Spain

David Finley                      - For the Crown


REASONS AND DECISION


I. BACKGROUND

A. The Commission Proceeding and the Criminal Proceeding

[1] This is an application (the “Crown Application”) brought by the Royal Canadian Mounted Police (the “Applicant”) for an order, pursuant to subsection 17(1) of the Securities Act, R.S.O. 1990, c. S.5 (the “Act”), authorizing the disclosure to the Applicant of certain testimonial and documentary evidence that was obtained by the Ontario Securities Commission (the “Commission”) pursuant to section 13 of the Act (the “Evidence”).

[2] The Evidence was obtained in the course of an investigation relating to matters that became the subject of a Notice of Hearing and Statement of Allegations. Staff alleged that Y, other individual respondents and Z Corporation failed to ensure that Z Corporation filed financial statements in Z Corporation’s prospectus that contained full, true and plain disclosure (the “Commission Proceeding”).

[3] The Commission has approved Settlement Agreements between Staff and Y and the other individual respondents, and Staff withdrew the allegations against Z Corporation. As a result, there are no outstanding matters before the Commission in the Commission Proceeding.

[4] Y has been charged with 12 counts of fraud over $5,000 contrary to section 380(1)(a) of the Criminal Code relating to Z Corporation. Y seeks access to the Evidence in order to make full answer and defence to the criminal charges in the upcoming trial (the “Criminal Proceeding”).

[5] Y filed three Notices of Application to Produce Third Party Records, commonly known as O’Connor applications (in respect of the decision in R v. O’Connor, [1995] 4 S.C.R 411 (SCC)) in the Criminal Proceeding. While Z Corporation, amongst others, was the subject of the O’Connor applications, the Commission was not.

B. The Y Application and the Crown Application

[6] The Crown Application was heard on November 20, 2008 (the “Hearing”). On the same day, immediately following the Hearing, we heard a related application and motion for directions brought by Y (the “Y Application”).

[7] The Crown Application and the Y Application were held in separate in camera proceedings pursuant to subsection 9(1) of the Statutory Powers Procedure Act, R.S.O. 1990, c. S.22. Y and his counsel did not attend the hearing of the Crown Application, and counsel for the Crown (“Crown Counsel”) did not attend the hearing of the Y Application. Moreover, Y and his counsel did not know what Evidence was sought by the Applicant in the Crown Application, and the Crown did not know what Evidence was sought by Y in the Y Application. Further, Y took no position concerning the Crown Application.

[8] The Crown requests an order allowing disclosure and use of the Evidence where (i) the witness who provided the Evidence provided written consent to the order (“Consenting Respondent”); and (ii) the Commission allows the application brought by Y for disclosure and use of that Respondent’s Evidence.

[9] All of the Consenting Respondents received notice of the hearing, and none appeared at the hearing.

C. The Y Orders

[10] After considering the written and oral submissions of the parties in the Y Application, we issued two Confidential Orders on December 18, 2008, and issued three additional Confidential Orders on January 9, 2009 (the “Y Orders”).

D. The Crown Orders

[11] On January 9, 2009, we issued a Confidential Order in the Crown Application. Considering the Y Orders and the written consents from Respondents filed by the Crown, we made the following order:

IT IS ORDERED THAT, pursuant to paragraph 17(1)(b) of the Act:

1. Staff may disclose to the Applicant and Crown counsel the Evidence provided by C1, C3, C5, C6, C10, C11, C14, N6 and N9 that was obtained by Staff pursuant to section 13 of the Act in accordance with a Summons;

2. Staff may disclose to the Applicant and Crown counsel the fact that O4 provided compelled testimony to the Commission pursuant to section 13 of the Act in accordance with a Summons;

3. Disclosure and use of the Evidence described in paragraphs 1 and 2, above, will be on the basis that:
a. The Applicant and Crown counsel will not use the Evidence other than as expressly permitted by this Order;

b. Except as expressly permitted by this Order, the Evidence shall be kept confidential;

c. Any use of the Evidence other than as expressly permitted by this Order will constitute a violation of this Order;

d. The Applicant and Crown counsel shall maintain custody and control over the Evidence so that copies of the Evidence and any other information in their possession which was obtained pursuant to or as a result of this Order are not disclosed or disseminated for any purpose other than the use expressly permitted by this Order;

e. Crown counsel will not file any part of the Evidence on the public record in the Criminal Proceeding unless it is necessary;

f. The Evidence shall not be used for any collateral or ulterior purpose;

g. The Applicant and Crown counsel shall, promptly after the completion of the trial and any appeals in the Criminal Proceeding, return all copies of the Evidence to Staff or confirm in writing that they have been destroyed; and

h. This Order does not affect any rights the Respondents may have relating to protection against self-incrimination granted by the Canadian Charter of Rights and Freedoms and the Evidence Act (Ontario).

i. This Order does not affect the prohibition on use of compelled testimony contained in section 18 of the Act.

j. This Order does not affect the obligation of the Crown to make appropriate disclosure in the Criminal Proceeding.
4. The Application with respect to N2/O5 is dismissed, without prejudice to the Applicant renewing its Application if circumstances change.

[12] On March 12, 2009, we issued a second Confidential Order in the Crown Application. Considering the Y Orders and further written consents from Respondents filed by the Crown, we made the following order:

IT IS ORDERED THAT, pursuant to paragraph 17(1)(b) of the Act:

1. Staff may disclose to the Applicant and Crown counsel the Evidence provided by O3, N5/O6 and O2 that was obtained by Staff pursuant to section 13 of the Act in accordance with a Summons;

2. Disclosure and use of the Evidence will be on the basis that:
a. The Applicant and Crown Counsel will not use the Evidence other than as expressly permitted by this Order;

b. Except as expressly permitted by this Order, the Evidence shall be kept confidential;

c. Any use of the Evidence other than as expressly permitted by this Order will constitute a violation of this Order;

d. The Applicant and Crown counsel shall maintain custody and control over the Evidence so that copies of the Evidence and any other information in their possession which was obtained pursuant to or as a result of this Order are not disclosed or disseminated for any purpose other than the use expressly permitted by this Order;

e. Crown counsel will not file any part of the Evidence on the public record in the Criminal Proceeding unless it is necessary;

f. The Evidence shall not be used for any collateral or ulterior purpose;

g. The Applicant and Crown counsel shall, promptly after the completion of the trial and any appeals in the Criminal Proceeding, return all copies of the Evidence to Staff or confirm in writing that they have been destroyed; and

h. This Order does not affect any rights the Respondents may have relating to protection against self-incrimination granted by the Canadian Charter of Rights and Freedoms and the Evidence Act (Ontario).

i. This Order does not affect the prohibition on use of compelled testimony contained in section 18 of the Act.

j. This Order does not affect the obligation of the Crown to make appropriate disclosure in the Criminal Proceeding.
E. Publication of the Orders and Reasons

[13] After the Hearing, we invited the parties to the Crown Application to give written submissions on whether the Orders and Reasons in the Crown Application should be released to the public, and if so, on what basis, including the timing of publication and whether monikers should be retained, rather than identifying the Respondents.

[14] In the Crown Application, Staff submitted that the Orders and Reasons should be published immediately, while retaining the use of monikers rather than identifying Respondents by name. The Applicant did not disagree with Staff’s position. After considering the parties’ submissions, we concluded that publishing the Orders and Reasons, while retaining the use of monikers rather than names, is consistent with the open courts principle and with the confidentiality and disclosure provisions of Part VI of the Act. We also concluded that, in keeping with the open courts principle, the Orders and Reasons should be published in anonymized form without further delay without awaiting the completion of the Criminal Proceeding.

F. The Crown Reasons and the Y Reasons

[15] These reasons should be read together with the Y Reasons, where we address, in some detail, the Commission’s subsection 17(1) jurisdiction and the factors the Commission considers in determining whether it is in the public interest to authorize disclosure of compelled evidence. We do not find it necessary to repeat those general principles here.

II. THE LAW

[16] Subsection 17(1)(b) of the Act provides:

17(1) If the Commission considers that it would be in the public interest, it may make an order authorizing the disclosure to any person or company of,

(b) the name of any person examined or sought to be examined under section 13, any testimony given under section 13, any information obtained under section 13, the nature or content of any questions asked under section 13, the nature or content of any demands for the production of any document or other thing under section 13, or the fact that any document or other thing was produced under section 13;

[17] Pursuant to subsection 17(4) of the Act, an order under subsection 17(1) “may be subject to terms and conditions imposed by the Commission.”

[18] Subsection 17(3) is as follows:
17(3) Without the written consent of the person from whom the testimony was obtained, no order shall be made under subsection (1) authorizing the disclosure of testimony given under subsection 13(1) to,
(a) a municipal, provincial, federal or other police force or to a member of a police force; or

(b) a person responsible for the enforcement of the criminal law of Canada or of any other country or jurisdiction.
III. THE ISSUES

[19] The Commission must determine: (i) whether the Respondents whose Evidence is sought by the Applicant have given written consent to disclosure of the Evidence, as required by subsection 17(3) of the Act; and

(ii) if the answer to (i) is “yes”, whether it is in the public interest to authorize the disclosure of that Evidence pursuant to subsection 17(1) of the Act, and if so, under what terms and conditions. IV. ANALYSIS

[20] We have reviewed the written consents filed by the Crown and we are satisfied that they comply with subsection 17(3) of the Act.

[21] Accordingly, the remaining issue is whether it would be in the public interest to authorize disclosure of the Evidence of the Consenting Respondents, and if, so, under what terms and conditions.

[22] For the purposes of the Crown Application and the Y Application, the leading case is Re Black (2008), 31 O.S.C.B. 10397 (“Re Black”). In that case, two of the respondents in a Commission proceeding applied under subsection 17(1) of the Act for disclosure of compelled evidence to allow them to make full answer and defence to criminal charges brought against them in the United States. In a two to one decision of the Commission, the majority (Commissioners Wigle and Perry) refused (with one exception) to authorize the requested disclosure on the basis that neither an order of the Commission nor an undertaking by counsel could control the use and dissemination of the compelled evidence once it was used in the U.S. criminal proceeding, and the witnesses who gave compelled evidence to the Commission would no longer have protection against self-incrimination under section 18 of the Act, section 9 of the Evidence Act (Ontario), R.S.O. 1990, c. E.23, as amended (the “Evidence Act (Ontario)”), section 14 of the Statutory Powers Procedure Act, R.S.O. 1990, c. S.22, as amended (the “SPPA”), section 5 of the Canada Evidence Act, R.S.C. 1985, c. C-5., as amended (the “Canada Evidence Act”) or sections 7 and 13 of the Charter of Rights and Freedoms (the “Charter”). Therefore, the Commission ordered disclosure only with respect to a corporate witness who did not object to the application on the basis that by not objecting, the witness had waived its right to confidentiality and protection against self-incrimination for the purposes of the application, and the integrity of Commission investigations would be maintained because Staff could continue to assure future witnesses that their evidence will remain confidential unless they consent to disclosure (Re Black, supra at para. 243).

[23] The majority made the following comment about the importance of protection against self-incrimination in their decision:

In our view, any disclosure of evidence obtained under Part VI of the Act would be appropriate where the Commission or an Ontario court could exercise control over the use and derivative use in order to ensure that the witnesses’ rights against self-incrimination would be protected. The Applicants’ requested order does not meet this requirement.

(Re Black, supra at para. 232)

[24] In his dissenting reasons, Commissioner LeSage indicated that he would have granted the disclosure under section 17(1) as he believed that an order could be drafted that would allow the Commission to maintain control over the permitted use of the evidence sought.

[25] In Re Black, the Commission stated that the factors to be considered in weighing the public interest under subsection 17(1) of the Act include:

1. The high degree of confidentiality associated with compelled evidence and the strict limitations on its disclosure and use imposed by sections 16, 17 and 18 of the Act;

2. The reasonable expectations of witnesses compelled to provide evidence;

3. The potential harm to witnesses as a result of the Commission authorizing use and disclosure of their compelled evidence;

4. The protections against self-incrimination provided by the Charter, the Canada Evidence Act and the Ontario Evidence Act; and

5. The integrity of Commission investigations.

(Re Black, supra, at para. 135)

[26] The Commission added in Re Black that this was not meant to be an exhaustive list:

. . . the challenge faced by the Commission in applications under Part VI of the Act involves striking a balance between the continued requirement for confidentiality and our assessment of the public interest at stake.

In exercising the Commission’s public interest discretion under subsection 17(1) of the Act, we must also consider the specific purpose for which the evidence is sought and the unusual or exceptional circumstances of the case and determine whether the disclosure of the evidence would serve a useful public purpose.

(Re Black, supra at paras. 137-138)

[27] In the Y Reasons, we reaffirmed the finding of the majority in Re Black that “the balance of factors in the public interest is very different” with respect to the Non-Objecting Respondents, who, in the Y Application, included Consenting Respondents, Non-Opposing Respondents, and No Objection Respondents (Re Black, supra at para. 243, Y Reasons, para. 16). We find that the same principle applies even more strongly to the Consenting Respondents in the Crown Application, who provided express written consent to disclosure of their Evidence to the Crown. We find that in these circumstances, the public interest requires us to give less weight to the potential harm or prejudice to Consenting Respondents, and further that disclosure of their Evidence does not affect Staff’s ability to give confidentiality assurances to future witnesses, thus maintaining the integrity of Commission investigations.

[28] The more difficult issue in the Crown Application is whether Y may be prejudiced by an order authorizing disclosure of the Evidence of Consenting Respondents to the Crown. As both Staff and Crown Counsel acknowledged at the hearing of the Crown Application, Y is under no obligation to disclose to the Crown any information about his defence in the Criminal Proceeding.

[29] We are satisfied that the disclosure sought by the Crown will not prejudice Y. First, we find it significant that Y, who was represented by his criminal defence counsel in the Y Application, received notice of the Crown Application but did not object to it or attend the Hearing.

[30] Crown Counsel submits that the Crown seeks disclosure only with respect to Consenting Respondents whose Evidence we order disclosed to Y in the Y Application. The Crown does not seek disclosure of the fruits of Y’s independent defence investigation. Nor does the Crown seek disclosure of evidence obtained by the Commission, except where the Evidence of a Consenting Respondent was ordered disclosed to Y in the Y Application. Finally, Crown Counsel assured us at the Hearing that, with respect to the Evidence disclosed, he will comply with his disclosure obligations under Regina v. Stinchcombe (1991), 68 C.C.C. (3d) (“Stinchcombe”).

[31] In the Y Application, we ordered disclosure subject to terms and conditions that included limitations on the use of the disclosed evidence, including that Y and his counsel are authorized to disclose and use the Evidence “solely for the purpose of the examination of any witness who testifies in the Criminal Proceeding, in order to allow [Y] to make full answer and defence to the charges made against him in the Criminal Proceeding.” Y submitted that the disclosed evidence was for cross-examination of Crown witnesses, in case of inconsistency between the evidence given in the Criminal Proceeding and the evidence given in the Commission Proceeding.

[32] Because of the restricted scope of the Crown Application, the effect of our Orders will be to authorize disclosure only with respect to Consenting Respondents (respondents in the Crown Application who have given the Crown express written consent to disclosure), who either consented to, made no objection to or did not oppose the Y Application or were on the Crown Witness List. In this context, we are not satisfied there is any prejudice to Y in the Crown obtaining the same Evidence. Moreover, we find that authorizing disclosure to the Crown, subject to appropriate constraints, is contemplated by Part VI of the Act, and will tend to further the administration of justice in the Criminal Proceeding, which we find to be in the public interest.

DATED in Toronto, Ontario this 31st day of August, 2009.



"Lawrence E. Ritchie"
Lawrence E. Ritchie
"Mary G. Condon"
Mary G. Condon