In a rare outcome, Ontario's Capital Markets Tribunal (the Tribunal) recently stayed enforcement proceedings against Silvio Serrano (Serrano) as an abuse of process, on the basis that his right to make full answer and defence was irreparably impaired. Specifically, the Tribunal held that the impairment arose from OSC Enforcement Staff's (Staff) refusal to disclose unredacted transcripts of a co-respondent's statutorily compelled interview to Serrano. Staff refused to make the disclosure because a previous order required portions of the interview to be kept confidential. The Tribunal ultimately refused to order disclosure and create a situation where contradictory orders existed in the same proceeding, as such a result would harm the administration of justice and put the integrity of the Tribunal's process into disrepute.
One can only speculate about what the redacted portions of the transcript hid that could lead to such an unexpected outcome.
Background
The statement of allegations in the proceeding arose out of an investigation order into Serrano's co-respondent, Benjamin Ward (Ward), and the corporate respondents, Canada Cannabis Corporation and Canadian Cannabis Corporation.
Six months after the statement of allegations was filed, the predecessor to the Tribunal – the adjudicative branch of the Ontario Securities Commission (the Commission) – issued an order that portions of Ward's compelled interview were to be kept confidential. Redacted transcripts were provided to the respondents by Staff in its disclosure. This precipitated a motion by Serrano, who sought disclosure of the unredacted versions of the confidentiality order and the Commission's reasons for issuing the order, as well as the material filed on any motion to redact the transcripts.
On this motion, Staff took the position that it was prohibited from so much as identifying any information pertaining to the order and the reasons for granting it. After some procedural wrangling, the Commission ordered that the respondents be provided with redacted copies of the confidentiality order and the reasons therefore.
Serrano then filed a further motion seeking disclosure of the unredacted transcripts of Ward's interviews and unredacted copies of the confidentiality order and reasons. Shortly thereafter, the newly constituted Tribunal (the successor to the adjudicative branch of the Commission) approved a settlement of the proceedings against Ward and the corporate respondents.
Decision
The Tribunal began by observing that, in the normal course, a Stinchcombe [1] like standard of disclosure, which applies to the Crown in criminal proceedings, is applicable to Staff in enforcement proceedings. This standard of disclosure is enshrined in Rule 27(1) of the Capital Markets Tribunal Rules of Procedure and Forms, which states:
In an enforcement proceeding under s.127(1) of the Act, Staff shall:
(a) provide to every other Party copies of all non-privileged documents in Staff's possession that are relevant to an allegation;
(b) identify to every other Party all other things in Staff's possession that are relevant to an allegation; and
(c) where inspection of an original document or thing identified in (a) or (b) of this Rule is requested by a Party, make the document or thing available for inspection.
Legal privilege is the only exception to this general rule of disclosure and the Tribunal concluded there were no privilege issues in this case. The Tribunal reasoned that there was "a reasonable possibility that the non-disclosure of many of the redactions in the Ward transcripts [would] significantly impair the right of the respondents to make full answer and defence," as the redacted information could be used "in making important decisions that would affect the conduct of their defence." For this reason, the Tribunal concluded that disclosure of the redactions to the respondents was required for a fair hearing.
Interestingly, however, the Tribunal concluded that disclosure to the respondents of the redacted portions of the Ward transcripts would not be an appropriate remedy in this case. Staff would be unable to comply with such a disclosure order due to the earlier confidentiality order made by the Commission, which unequivocally prohibited disclosure of the redacted information. Furthermore, the Tribunal determined that it ought not vacate the confidentiality order because there had been no substantive change in the underlying facts and bases for making it in the first place.
As a fair hearing could not proceed without disclosure of the redacted portions of the Ward transcripts, and said disclosure could not legally be provided to Serrano without creating a situation where conflicting decisions existed within the same proceeding, the Tribunal opted to stay the enforcement proceeding against him.
As the Tribunal recognized, a stay is the "most drastic remedy a tribunal can order." This remedy was nevertheless justified due to the manifest prejudice Serrano would suffer if he was required to proceed to a hearing on the merits without the redacted material.
Conclusion
While little can be gleaned from the Tribunal's reasons as to what type of confidential information was contained in the redacted portions of Ward's interview transcripts, the Commission's decision to redact the transcripts ultimately derailed Staff's ability to proceed against Ward's co-respondent, Serrano.
The takeaway for respondents in securities enforcement proceedings is clear: always firmly advance your pre-hearing right to full Stinchcombe-like disclosure. At the very least, doing so will improve your ability to make full answer and defence to the allegations made against you. In unique circumstances, where the right to full disclosure cannot be fulfilled by Staff and the fairness of the hearing is therefore compromised, a stay of proceedings may be the only appropriate remedy.
Footnote
1. R. v. Stinchcombe, [1991] 3 SCR 326.
About Dentons
Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Specific Questions relating to this article should be addressed directly to the author.