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The Litigator
AGM :: Affleck Greene McMurtry LLP

THE LITIGATOR

Affleck Greene McMurtry LLP
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BCCA strikes down non-disclosure provision of Securities Act

In a recent decision,[1] a British Columbia lawyer has successfully challenged the constitutional validity of the non-disclosure and confidentiality provisions found in the investigative powers given the B.C. Securities Commission under the B.C. Securities Act, s.148(1),as a breach of his freedom of expression under section 2 of the Charter.  Section 148(1), which is similar to section 16 of the Ontario Securities Act, prohibits disclosure by a person, except to the person’s counsel, of any information or evidence obtained or sought to be obtained or the name of any witness examined or sought to be examined in the course of a Securities Commission investigation, unless the commission consents to such disclosure.  If violated, the offender faces a fine as high as $3,000,000, imprisonment for up to three years, or both. 

In this case, B.C. lawyer Howard Shapray claimed that when acting on behalf of persons who were the subject of investigative orders or summonses, the section improperly prohibited him from innocent and otherwise lawful speech hampering his ability to properly respond to and defend disputed allegations of misconduct.  In addition, he claimed that he was being unfairly prevented from preparing witnesses to give evidence under oath because he was unable to gather evidence from other persons or to speak to witnesses before they provided sworn statements to the Commission.

The BCCA was left to decide whether the limits on disclosure in section 148(1) of the Act “minimally impaired” freedom of expression guaranteed by the Charter and it decided that they did not. The Court found the B.C. Securities Commission’s evidence to support its claim that s.148 minimally impaired freedom of expression lacking in several respects. in particular, there was no evidence that any less intrusive alternatives were considered by the B.C. legislature when the section was first enacted, albeit prior to the Charter.  The Court also rejected the Commission’s claim that the plaintiff’s challenge was premature, as he had not first sought and been denied the Commission’s consent to disclosure.  Finally, the Court noted that, while the Commission staff had the liberty to prepare its case against a targeted person and provide the disclosure it deems fit, the target did not have the same ability.

The BCCA concluded that the limits on freedom of expression in s.148 were drafted in overly general terms and gave no recognition to disclosure and access interests.  The Court further rejected the Commission’s argument that because the section permits it to consent to a or evidence obtained during an investigation, but prior to commencing any proceeding, the provision balances the objectives of the BC Securities Act in general and the provision in particular with the competing interests of ensuring a fair hearing for the target of a Commission investigation and ensuring that counsel for such a person can properly represent his or her client at the investigative stage.  The Court determined that while prior restraint provisions have been accepted in Canadian law under section 1 of the Charter, the consent to disclosure exception was not sufficient because it failed to provide any evidence of guidelines or the circumstances in which statutory consent, which only the Commission could provide, would be granted or the factors it considers in doing so.  Instead, the Commission “simply asserts as a general proposition that disclosure of information during an investigation would undermine its effectiveness, could damage a person or company’s reputation, violate privacy, and unfairly affect the price of securities” to justify the gag provision.  The Court found s.148(1) to be a “blunt instrument indeed”.  Unlike section 16 of the Ontario Securities Act, subsection 148(1) applies despite the Freedom of Information and Act with a few exceptions.

In its ruling, the B.C. Court of Appeal ordered that its declaration that section 148(1) is invalid be in abeyance for 12 months to allow the B.C. legislature to draft an alternative provision that is constitutionally viable while balancing the purpose and interests of the BC Securities Act.  The B.C. legislature partially listened and redrafted s. 148(1) to state that the Commission may make a non-disclosure order that applies during the duration of the investigation for purposes of protecting the integrity of the investigation under s. 142 and removed some of the limiting application of the Freedom of Information and Protection of Privacy Act.

Ontario Comparison

The B.C. Court of Appeal made several references to the Ontario experience in rendering its decision.  Section 16 of the Ontario Securities Act dealing with non-disclosure and confidentiality prohibits, except in accordance with section 17, a person or company from disclosing at any time except to his or her counsel and information in relation to s. 11, 12, 13 and 15. In its final report regarding Ontario’s section 16 confidentiality provision, dated March 21, 2003, the Ontario committee stated two important purposes of the section.  Namely, it protects the integrity of the investigation process and provides statutory protections to a witness who provides information or documents pursuant to a summons under the Ontario Securities Act.  Most importantly, the Ontario committee noted the need for a policy statement outlining the scope of the confidentiality provision in section 16 and clarifying the process for making an application under section 17.

There have been only a few cases interpreting the Ontario s.16 however, and none have dealt directly with its constitutionality. In Branch v. Ontario (Minister of the Environment), [2009]O.J. No. 45 (CA), the Court of Appeal generally stated that sections 11-18 of the Securities Act is an example of explicit legislative drafting that confers investigative powers on a civil court.  Aside from this statement, the Court did not comment on the constitutionality of these sections.

Under section 17 of the Ontario Act, a person, company or Commission staff may request an order authorizing the disclosure of information obtained in the Commission’s investigation.  Unlike the BC Securities Act, the Ontario Securities Act under s.17 provides a list of circumstances upon which disclosure prior to the issuance of a notice of hearing or the conclusion of the investigation can be allowed for information obtained under s.11-13 and 15 only with the Commission’s consent if it considers the disclosure in the public interest.  No order shall be made under ss.17(1) by the Commission unless reasonable notice, where practicable, and the opportunity to object is given to the persons or companies named by it or the person who gave testimony under s.13.   However, the Commission can impose terms and conditions on the consent to disclose order. It still falls short of providing guidelines except for “in the public interest” for the denial or provision of consent to disclose information obtained during the investigative phase.  The OSC Rule 3 of the Rules of Practice applicable to sections 11-18 of the Ontario Securities Act are not helpful as they apply during a proceeding, and not during the investigative phase.

In the Supreme Court of Canada decision of Deloitte & Touche LLP v. Ontario (Securities Commission), Iacobucci J. suggested that the Ontario Securities Commission find an approach to how and whether it discloses information under s.17 obtained during an investigation that provides fair consideration for the respondents in jeopardy and enables them to meet the case against them yet also is sensitive to the third party’s privacy interests and expectations. In that case, Deloitte & Touche LLP was auditor for a company being investigated under the Act.  Its partners were interviewed and provided their audit files to the Commission staff.  The Commission commenced proceedings against the company, which company sought disclosure of the information provided by Deloitte & Touche LLP, who objected to the order.  The file was disclosed.

In A. v. Ontario Securities Commission, [2006] O.J. No. 1768 (SCJ), Campbell J. dealt with A.’s allegation of his section 7 Charter breach in being compelled to testify under a section 11 summons.  Justice Campbell stated that, in that action, counsel for the OSC accepted that there was some risk to A.'s Charter rights, but was of the view that the regime of the protections provided to him under the Securities Act and, if necessary, review by the Court, are sufficient to ensure that the investigative process will not result in a violation of Charter rights.

In A Co. v. Naster, [2001] O.J. No. 4997 (Div. Ct), although not on point, the Court dealt with Mr. X attempting to prohibit the Commission’s disclosure of his transcript from an examination that occurred under summons to the respondents in a proceeding.  Mr. X, who was an officer of A Co., claimed that, ss.17(6) did not allow the disclosure of the transcript and that the disclosure would have been a breach of his right to privacy and s.8 of the Charter dealing with search and seizure.  Mr. X feared further distribution of the testimony outside the litigation. The Commission counsel, Naster proposed to disclose the transcript under ss.17(6) and pursuant to disclosure requirements under R. v. Stinchcombe and the OSC Rules of Practice in a proceeding.  The Court concluded the authorized compulsory production of testimony and documents will not amount to a search or seizure under s.8 of the Charter. Mr. X did not have an expectation of privacy when the testimony was given considering the OSC’s role of regulating the industry and the industry members’ obligations and understanding of that role.

[1] Howard Shapray v. British Columbia (Securities Commission), [2009] B.C.J. No. 1358 (C.A.).

Sandra Monardo
Affleck Greene McMurtry LLP

Sandra Monardo

Sandra Monardo is a former associate of Affleck Greene McMurtry LLP

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