In Harrington Global Opportunities Fund S.A.R.I. and Harrington Global Inc. (“Harrington”) v. Investment Industry Regulatory Organization of Canada (“IIROC”), Justice Perell largely foreclosed the possibility of wronged investors obtaining a Norwich Order in order to get information and documentation from IIROC prior to initiating an action.
IIROC is the national regulatory organization that oversees investment dealers and trading activity on debt and equity marketplaces in Canada. In the course of undertaking this role it collects data about trading from the markets, from dealers, and from its own investigations.
A Norwich Order is an extraordinary remedy that is only offered in rare and exceptional circumstances where someone who assisted or facilitated wrongdoing in some manner (even if they are personally innocent of any wrongdoing) has information that would help the plaintiff or applicant identify potential defendants. A judge may use his/her discretion to order that party to disclose the information. This order cannot be made against witnesses or innocent bystanders. As an example, these orders have been obtained by copyright holders have sought the identity of illegal downloaders from the downloaders’ internet service providers (who facilitated the illegal downloads, even if they did not actually break the law by illegally downloading copyrighted content).
Harrington Global Opportunities Fund S.A.R.L. is a hedge fund managed by Harrington Global Limited (collectively “Harrington”).In this case, Harrington owned 2.7 million sharesof Concordia International Corp. (“Concordia”). In 2015, Concordia’s share price dropped significantly during two distinct periods, costing Harrington approximately $150 million. During these two periods, various sources in the media were comparing Concordia to another struggling pharmaceutical company and cautioning investors against investing in Concordia.
Harrington believed that the drop in the share price was caused by illegal market manipulation, specifically a tactic called “short and distort” where the manipulators spread harmful rumours about the stock while simultaneously selling shares and driving the price down.
IIROC is Canada’s federal securities regulator. Its role is to, among other things, monitor the markets, identify anomalous trading behaviour, and investigate potentially illegal activity. Harrington made a complaint to IIROC about theirsuspicions and IIROC investigated. In the process of its investigation, IIROC obtained trading information about the American trades of Concordia from its American counterpart the Financial Industry Regulatory Authority (“FINRA”). IIROC concluded that there was no evidence of manipulation and the decrease in the share price could be attributed to legitimate factors.
Harrington wanted to bring a civil claim against the wrongdoers to recoup its losses, but, in order to identify the potential defendants, it needed IIROC to provide it with its records of the stock activity during the relevant period (called a Trades, Orders, and Quotes Report, or a “TOQ Report”). IIROC had previously provided Harrington with a copy of the TOQ Report but redacted the identities of the traders and the clients that had been voluntarily provided by the dealers. Harrington brought an Application for a Norwich Order in order to obtain not just the redacted information but also the information that IIROC obtained from FINRA, as about 80% of the trades were made in the US.
In order to obtain a Norwich Order, the Applicant must meet a 5-part test and prove:
- That the Applicant has a bona fideclaim or potential claim against the “wrongdoers”;
- That the Respondent to the Norwich proceeding has a connection to the wrongdoing aside from just being a witness;
- That the Norwich Order is the only practical source of the information;
- That the interest of the party seeking the information outweigh the interests of others; (including privacy interest); and
- That it is in the interests of justice that the Order be made.
Justice Perell denied the Order after finding that the Applicant failed to make out most of these parts of the test.
Most importantly for future proceedings, Justice Perell found that the Harrington failed to meet the second, fourth and fifth requirements.
Justice Perell determined that IIROC, a regulator, was more akin to a witness. Its role was to monitor trading in real time, investigate any anomalous trading activity it discovered, and investigate any complaints that were made to it (which it did). It had no statutory duty to turn over information about its investigations to members of the public. It did not participate in or facilitate any stock manipulation, if any occurred.
In addition, under the fourth and fifth requirements Harrington failed the balancing tests. Justice Perell determined that turning over the private information of traders and clients would undermine IIROC’s role as a regulator by deterring dealers from disclosing information to IIROC. It would also undermine IIROC’s relationship with FINRA (and possibly other countries’ regulators). As part of IIROC’s agreement with FINRA, IIROC was not allowed to disclose the information received from FINRA without FINRA’s consent, however FINRA explicitly refused its consent to disclose the information it provided IIROC to Harrington.
The facts underlying Justice Perell’s findings are not unique to Harrington’s case. Unless IIROC is actually assisting someone in illegal activity, not just monitoring or investigating, this decision makes it virtually impossible to obtain a Norwich order against IIROC. While the decision is not binding on other judges of the Superior Court or the higher Appeal Courts, this decision would certainly be relied on by IIROC in the event any future Norwich Order was sought and, unless the facts significantly diverge or a higher court overturns the decision, this decision would likely be relied on by other judges. Other Regulators with similar roles would also likely rely on this decision to fend-off any requests for Norwich Orders.
Pre-litigation Orders are rare. While this decision likely forecloses the possibility of obtaining a Norwich Order against IIROC prior to litigation (except where they facilitate the harm), it still leaves open the possibility of obtaining information from IIROC after a legal proceeding has been started. It also does not prevent a potential plaintiff from seeking a Norwich Order from others that might have facilitated the wrongdoing, such as investment dealers, if they can be identified.