Reasons for Decision: In the Matter of Terence D. Coughlan
R.S.O. 1990, c. S.5, AS AMENDED
AND
IN THE MATTER OF
TERENCE D. COUGHLAN
Hearing:
March 20 and April 10, 2000
Panel:
Howard I. Wetston, QC - Chair
Morley P. Carscallen, FCA - Commissioner
R. Stephen Paddon, QC - Commissioner
Counsel:
For the Staff of the Ontario Securities Commission:
Tim Moseley
For the Motion Applicants:
David Hausman
Yvonne B. Chisholm
Richard Neidermayer
Peter L. Roy
For Coughlan:
Christopher D. Bredt
Freya Kristjanson
REASONS FOR DECISION OF VICE-CHAIR WETSTON AND COMMISSIONER CARSCALLEN
BACKGROUND
WMC International Limited, WMC International Holdings Limited, WMC Limited, James H.Lalor, Peter Maloney, William J. Braithwaite and Colin Wise (the "Motion Applicants")request an order for disclosure of the s.13 evidence of Mr. Terence Coughlan (the "MotionRespondent") under s. 17 of the Act. The motion was heard on March 20 and 21, and April10, 2000.
This motion is brought in the context of a Nova Scotia Supreme Court action (the "CavalierAction"), brought by Sumner M. Fraser, William Kitchen, William Mundle and Dr. JamesCollins, in their personal capacities and as representatives of certain investors (the"Cavalier Plaintiffs") in Cavalier Energy Limited ("Cavalier"), an oil and gas explorationcompany. The Motion Applicants are the defendants in the Cavalier Action. The MotionRespondent was a former Chief Executive Officer and director of Cavalier.
In January, 1988, Westminer (Canada) Acquisition Corp. acquired Seabright ResourcesInc. ("Seabright"), a reporting issuer in Ontario, pursuant to a take-over bid for the ClassA shares of Seabright. Messrs. Lalor, Braithwaite and Maloney served as directors ofWestminer Canada Holdings Limited and Westminer Canada Ltd. and Mr. Wise servedas general counsel to Western Mining Corporation Holdings Ltd. The decision to acquireSeabright was made after Seabright's public disclosure of its mining exploration results ata Nova Scotia gold mine. Letters of credit and/or letters of guarantee were provided assecurity for a $15,000,000 borrowing by Cavalier. Westminer subsequently discoveredthat the Nova Scotia gold mine had no commercially mineable gold reserves. In July,1988, Messrs. Braithwaite and Peter Roy, brought to the attention of Staff of theEnforcement Branch of the Commission the concerns regarding the adequacy ofSeabright's public disclosure regarding the Nova Scotia gold mine.
In July, 1988, Cavalier filed a preliminary prospectus with Wood Gundy acting asunderwriter. Wood Gundy subsequently withdrew from the offering in August, 1988. InSeptember, 1988, the Alberta Securities Commission refused receipt for the offering. InApril, 1990, another preliminary prospectus was filed by Cavalier. Receipt of theprospectus by the OSC was conditional upon the resignation of Mr. Coughlan. However,in July or August, 1990, the OSC lifted this condition. In October or November, 1990, theToronto Stock Exchange (the "TSE") approved an application for listing on the conditionthat Mr. Coughlan resign as an officer and director of Cavalier, and that any Cavaliershares that he held directly or indirectly be placed in a non-voting escrow for three years.An appeal by way of hearing de novo was made to the TSE Board of Governors and wasdismissed. A further appeal to the Commission was also dismissed.
As a result of an investigation by Staff, a s.11 order was issued in February, 1989, and Mr.Coughlan was examined pursuant to s.13 in April, 1989. Staff's investigation of Mr.Coughlan and subsequent proceedings were resolved by settlement agreement in March,1990. Under the terms of the settlement agreement, Mr. Coughlan consented to an orderwhich provided that, with certain exceptions, his trading exemptions would be withdrawnfor a year, subject to the written approval of the Commission. Mr. Coughlan made noadmission as to the facts underlying the settlement agreement. Mr. Coughlan alsoundertook to make payment to the Commission of $40, 000 with respect to Staff'sinvestigation costs.
In July, 1988, Westminer Holdings Limited and Westminer Canada Limited filed aStatement of Claim in the Supreme Court of Ontario (the "Ontario Action") against theformer directors of Seabright claiming damages and interest for fraud, deceit, conspiracyand negligent misrepresentations against Mr. Coughlan. An amended Statement of Claimwas filed in December, 1988. There was no production of documents or discoveryevidence with regard to the Ontario Action; it did not proceed beyond the pleading stage.
In 1988, a series of four Nova Scotia Supreme Court actions (the "Seabright Proceedings")were brought in Nova Scotia in which the present Motion Applicants were adverse ininterest to Mr. Coughlan. Mr. Coughlan alleged that the Ontario Action and other lawfuland unlawful means were used by the Motion Applicants and other defendants to injurethe former Seabright directors. The allegations contained in the Seabright Proceedingswere litigated and tried in the Nova Scotia Supreme Court Trial Division. The decision inthe Seabright Proceedings was rendered on March 23, 1993 (Coughlan et al. v. WestminerCanada Ltd. et al (1993), 120 N.S.R. (2d) 91 (S.C.)) after 83 days of trial testimony, fourdays of Commission evidence, the filing of 1659 exhibits, and 169 days of discoveryinvolving the exchange of 100,000 documents. Mr. Coughlan was examined forapproximately three weeks; he was on the stand at trial for sixteen days, including ninedays of cross-examination. The Nova Scotia Court of Appeal dismissed the appeal andallowed the plaintiffs' cross-appeal in part (Coughlan et al. v. Westminer Canada et al.(1994), 127 N.S.R. (2d) 241 (C.A.)).
The trial court found as a fact that the defendants, including the Motion Applicants,pursued the former directors of Seabright in the Ontario Action with the predominant intentto injure them. We note that Mr. Justice Nunn, the trial judge in the SeabrightProceedings, awarded Mr. Coughlan damages in respect of the investigation of the OntarioSecurities Commission as a consequence of the instigation of the inquiry byrepresentatives of the defendants in that case. Justice Nunn held that:
Clearly the fact is readily established that the defendants [among them themoving parties], prior to commencing their actions directly and deliberatelycaused the Ontario Securities Commission to conduct the inquiry. While itmay be true that the Commission would have launched an inquiry on its ownmotion once it learned if (sic) the action, this activity of the defendantscertainly appears to support the plaintiffs (sic) allegation that the real intentof the defendants was to injure Coughlan in every way they could.....
There are also claims for special damages on Coughlan's behalf. I will dealwith each...
2. Claim for the fees, disbursements and expenses, including the settlementpayment, relating to the investigation of the Ontario Securities Commissionas a consequence of the instigation of the inquiry by representatives of thedefendants.
This is a valid claim and Coughlan is entitled to recover such amounts fromthe corporate defendants.
The Cavalier Plaintiffs filed an amended Statement of Claim in the Cavalier Action inAugust, 1995. The Cavalier Action is scheduled to commence in the Nova Scotia SupremeCourt on April 25, 2000.
SUBMISSIONS OF THE PARTIES:
The Motion Respondent
The Motion Respondent submitted that it is not in the public interest for the Commissionto release Mr. Coughlan's s. 13 evidence for seven reasons. First, counsel submitted thatthere is a fundamental presumption of privacy under the Act that is not to be interfered withexcept for good reason (s. 16(2)). Second, counsel submitted that Mr. Nigel Campbell,Commission Staff at the time, gave assurances to Mr. Coughlan at the time of hisexamination that his evidence would not be disclosed and that the Commission shouldabide by those assurances. It was also emphasized that Policy 2.8, which has since beenrevoked by the Commission, but was the policy at the time that Mr. Coughlan gave hisevidence, stated that "the Commission did not view it as being in the public interest, andthe conduct of effective investigations (own emphasis), to consent to release of informationor evidence obtained through an investigation issued under section 11 or 13 of the Act";( Re: Weram Investments Ltd. v. The Ontario Securities Commission 1988) OSCB 2433(OSC); appeal dismissed (1990) OSCB 2287; 39 OAC 52(Divisional Court)).
Thirdly, it was submitted that it is in the public interest and in Mr. Coughlan's interest thatevidence obtained under s. 13 not be divulged unless so required for a legitimateSecurities Act purpose. Fourth, Mr. Coughlan's agreement to settle indicates that he hadan expectation that his s. 11 evidence would not be divulged. Fifth, the release of thetranscript will likely be an invasion of the privacy of third parties. Sixth, the trial judge inthe Seabright Proceedings made specific findings of fact with respect to trauma causedto Mr. Coughlan by the Motion Applicants and they should therefore not be given accessto his private information for a civil litigation purpose. Lastly, counsel for Mr. Coughlansubmitted that the evidence at issue is only of tenuous relevance in the context of the civillitigation since the pleading relates to the initiation of the investigation and Mr. Coughlangave his evidence two months after the investigation order and approximately elevenmonths after the Motion Applicants first approached the Commission. In this regard, it issubmitted that the Cavalier Plaintiffs have not pleaded a lack of independent judgementby the OSC. Counsel for the Motion Respondent also made certain Charter argumentsconcerning the release of the s.13 evidence in their factum, but did not pursue thesearguments in their oral submissions.
The Motion Applicants
The Motion Applicants submit that the conspiracy allegations of the Cavalier Plaintiffsquestion the integrity of the Commission in its investigation of Mr. Coughlan. It issubmitted that while the amended statement of claim, at paragraph 33, refers to initiatingan OSC investigation, the pre-trial briefs of the Cavalier Plaintiffs and their examinationfor discovery make it clear that their strategy is to establish undue influence on theinitiation and conduct of the Coughlan investigation and proceedings before the OSC.While not explicit in the Seabright Proceedings, they contend that it can be reasonablyconcluded that the court was sympathetic to the submission.
In particular, in finding a conspiracy to injure Mr. Coughlan, the court allowed a claim forfees, disbursements and expenses including "the settlement payment relating to theinvestigation of the OSC as a consequence of the investigation of the inquiry byrepresentatives of the defendants" ($40,000.00).
As part of their public interest argument under s. 17 that the s. 13 evidence should bedisclosed, the Motion Applicants submit that the purpose of this evidence would be torefresh the memory of Mr. Joseph Groia who was Director of Enforcement at the relevanttime of the events of a decade ago and to provide evidence that the Commission actedindependently of the Motion Applicants in the initiation and conduct of the investigation.In this regard, the questions maybe equally as important as the answers.
It is submitted that Weram, supra, reflected the former policy of the Commission regardingdisclosure and is in any event different from this case. The Motion Applicants submittedthat the Commission is not bound by its former Policy 2.8. S. 17 of the Act now allows fordisclosure in the public interest and is not affected by the former policy. The MotionApplicants seek in their submissions to use Mr. Coughlan's s. 13 evidence as a shield andnot a sword. They argue that public interest considerations warrant the disclosure ofevidence which directly relates to the integrity of the investigative and hearing processesof the Commission. They contend that unlike the investigation into Mr. Coughlan'sconduct, the investigation in Weram, supra, did not result in the issuance of a Notice ofHearing and an order on consent by the Commission. Furthermore, Mr. Coughlan hastestified for 16 days at trial in public regarding the issues that form the subject matter ofStaff's investigation and subsequent proceedings, thereby obviating any concern regardingconfidentiality of the s.13 evidence.
In response to the Motion Respondents reliance upon Biscotti v. The Ontario SecuritiesCommission (1991) 1 O.R. (3d) 409 (CA) it was contended that Biscotti, supra, was alsodecided under the old Act and is therefore distinguishable.
With respect to the relevance of the evidence, counsel submitted that based on the pre-trial memorandum and other documents submitted by the Cavalier Plaintiffs, it is clear thatthe Cavalier Plaintiffs' litigation strategy will involve allegations that the OSC did not actindependently. Finally, it was submitted that as a market participant in Ontario's capitalmarkets Mr. Coughlan has a lower expectation of privacy with respect to his conduct; (B.C.Securities Commission v. Branch et al (1995), 123 DLR (4th) 462 (SCC) at 488-489). Byway of example, if there was no settlement proceeding, that evidence could very well havebeen disclosed in a Commission proceeding.
Staff
Staff of the Commission made a number of helpful submissions to assist the Commissionin its deliberations but took no position regarding whether the motion should or should notbe granted.
ANALYSIS
The Motion Applicants bear the burden of establishing that it is in the public interest tomake the order. This decision must be made in the context of the current legislation.Policy 2.8 is no longer Commission policy and s. 17 of the Act now provides theCommission with the discretion to order disclosure of the evidence obtained under s. 13,upon notice, if it is in the public interest. The decision in Biscotti, supra, is of assistancebut was decided under the old Act and Policy.
In our opinion Weram, supra, is different than this case. In general, we agree that a s. 17order should not be granted where a party to an action seeks to obtain the transcript of theexamination of a witness under s. 13 particularly where that person is not a party to thelitigation. In and of itself this would not be in the public interest. In determining whetherto exercise our discretion in the public interest, we must have regard to the specificpurpose for which the evidence is sought and the specific circumstances of the case. Inother words, does the disclosure serve a useful purpose in the public interest?
In Weram, supra, a 1988 decision, the evidence was sought merely to assist the litigationof the substantive issues and was decided under former Policy 2.8. In that case no Noticeof Hearing or Order was issued by the Commission. Also in Weram, supra, evidence wassought of other persons. In this case, the Motion Applicants are attempting to defendthemselves, for the second time, against an allegation of conspiracy flowing fromallegations that initiating a Commission investigation furthered a conspiracy which causeddamages to the Cavalier Plaintiffs.
In determining whether to make an order for disclosure a balance needs to be struckbetween the continued requirement for confidentiality and our assessment of the publicinterest at stake. The public interest can only be determined and understood within thecontext of the unique and specific circumstances of the case, as well as the statutoryframework in which it is to operate.
This obligation to maintain confidentiality is not absolute, but rather has limits, otherwise,disclosure could never be in the public interest. However, confidentiality is the expressedintent of the Act. Fairness requires notice be given to Mr. Coughlan if disclosure isrequested. In determining whether to make the order under s. 17 we must consider whatthe harm is to Mr. Coughlan. The Act does not speak to personal privacy rights but ratheraddresses the issue of confidentiality of information under s. 13 which must be related toactivities of Mr. Coughlan as a participant in Ontario's capital markets. In this case, by wayof example, the Notice of Hearing that gave rise to the settlement agreement alleged thatMr. Coughlan authorized, permitted and acquiesced in the filing by Seabright of documentsthat contained misrepresentations, Seabright's failure to file required press releases andmaterial change reports and its failure to comply with its obligations under National Policy40 (timely disclosure).
Subsection 16(2) and 17(1) of the Act respectively provide as follows:
Confidentiality. - Any report provided under Section 15 and any testimonygiven where documents or other things obtained under section 13 shall befor the exclusive use of the Commission and shall not be disclosed orproduced to any other person or company or in any other proceeding exceptin accordance with section 17.
Disclosure by Commission. - If the Commission considers that it would be in thepublic interest, it may make an order authorizing the disclosure to any person orcompany of.......
The Commission investigation into this matter is finished and the limitation period hasexpired. No further proceedings against Mr. Coughlan are contemplated in this matter.The matter was resolved by settlement agreement on March 21, 1990. The integrity of anyinvestigation under the Securities Act is no longer in issue. There is no longer anyongoing public interest in maintaining confidentiality for the "exclusive use" of theCommission in the enforcement and administration of the Securities Act.
Market participants recognize that their rights to confidentiality are not equivalent to non-market participants; Branch, supra. Evidence regarding their conduct as a marketparticipant that is compelled flows from their conduct and not necessarily when they givetheir evidence. Among other things, this is one of the principles in the decision of theSupreme Court of Canada in Branch, supra.
Mr. Coughlan previously commenced an action against the Motion Applicants claimingrelief analogous to the relief claimed in the Cavalier action. He gave his s. 13 evidencenearly eleven years ago. The settlement agreement clearly reveals that the Commission'sinvestigation was in relation to Mr. Coughlan's involvement as an officer and director of apublic company and reporting issuer in Ontario. It is clear from a review of the judgementof Mr. Justice Nunn, in the Seabright Proceedings, that he testified for sixteen days,including nine days of cross-examination, about the very issues that were the subject ofthe Commission investigation. In this context it becomes difficult to ascertain any specificharm to Mr. Coughlan as a result of a s. 17 order. Moreover, at this stage, no harm toOntario's capital markets was identified.
We recognize the assurance given by Staff counsel, Mr. Campbell, to counsel for Mr.Coughlan but that was in the context of the original action and could not in any event bindthe Commission. As indicated previously, this is a unique case. We now have anapplication which in our view is unambiguous as to the allegations of the CavalierPlaintiffs, that is, the Commission did not act independently by exercising its own discretionto commence proceedings against Mr. Coughlan. It is clear that the Commissionproceedings did have a direct impact on the proposed initial public offering. Although itappears that the Ontario Action caused the withdrawal of Wood Gundy Inc. as the principalunderwriter in August 1988, subsequent difficulties in completing the IPO wereexacerbated by the position taken by securities regulators. While that may have been anunfortunate result for the Cavalier Plaintiffs, it is our opinion that public confidence in theregulatory system is in the public interest and is an important goal that must not beoverlooked. Indeed disclosure in this case enhances and does not undermine publicconfidence in the administration of the Securities Act. As stated by the Supreme Court ofCanada in Branch, supra, page 486
The primary goal of securities legislation is the protection of the investor, butother goals include capital market efficiency and ensuring public confidencein the system. (Own emphasis).
In their pretrial memorandum in the Cavalier action, the Cavalier Plaintiffs make thefollowing factual allegations in support of which they intend to introduce evidence at trial:
Unbeknownst to Cavalier Capital, there were many interventions byWestminer agents with the regulatory authorities, mainly the OSC, which hada serious affect on Cavalier Capital's ability to communicate its losses. (Ownemphasis). Over the course of the 20 months from the complaint tosettlement, the corporate defendants were in regular communication with theOSC principally through their counsel, Mr. Peter Roy. There were some 17direct and 11 written communications between Westminer and the OSCduring that period. Between July and October, 1988, Mr. Roy deliveredsome 16 volumes of documents as well as the results of numerousinterviews to the OSC. Mr. Roy's zeal on behalf of his client was motivatedby legal counsel's assurance to the Westminer Board that they were veryconfident Westminer would win in a civil action against Coughlin and otherformer directors of Seabright, and that Coughlin and Garnett had nodefences to have brought action.
On December 13, 1989 Messrs. Wise and Roy attended at the OSC todiscuss the status of the investigation. The OSC had advised it was of theview the investigation should be suspended pending the resolution of thelawsuits, either the Ontario action or the Seabright Proceedings in NovaScotia, in which the allegations of fraud against Coughlin et al could betterbe pursued. The OSC's reluctance to proceed was met, however, with thedefendants insistence that the OSC proceed with its investigation instead. (Own emphasis).
In our opinion, the Motion Applicants should be given the opportunity to provide Mr. Groiawith this evidence to refresh his memory and to prepare a defence to the allegations. Thedisclosure of the evidence may be the best way to resolve disputes as to adjudicativefacts. It is not our role to determine relevancy or how the evidence will be used at trial.That is for the court. It is our duty to determine, in our opinion, whether the disclosure ofthe evidence will serve a useful purpose in the public interest. In this case, we are of theopinion that Mr. Coughlan's confidentiality rights are affected only minimally and we arenot satisfied there is any specific direct harm. To not grant the order would mean that theconfidentiality right is absolute and not limited by our s. 17 public interest discretion. Asstated previously, the public interest includes ensuring public confidence in the regulatorysystem particularly with respect to the independent administration and enforcement of theSecurities Act.
During the hearing of the motion we asked all counsel to consider how the Commissionmight minimize any impact, if any, on Mr. Coughlan should we order the disclosure of theevidence. For example, we suggested only disclosure to counsel or to Mr. Groia. Otherthan a suggestion by the Motion Applicants that they did not require references to thirdparties, no other submissions were advanced. The Motion Respondent did not take up thissuggestion. Accordingly, on April 14th, 2000 we ordered, pursuant to s. 17 of theSecurities Act, the disclosure of the transcript of Mr. Coughlan's s. 13 evidence and onlythose documents referred to in the transcripts.
As indicated previously, while the factum of the Motion Respondent contained a numberof Charter arguments they were not pursued during the oral hearings of the motion. In anyevent, it is our opinion that none of the authorities provided by the Motion Respondent hasany application to the matters and issues in this motion. It is our opinion that there hasbeen no unlawful search or seizure contrary to section 8 of the Charter nor has Mr.Coughlan's security of the person rights under section 7 of the Charter been infringed.
Accordingly the motion was granted in part.
Commissioner Paddon dissented and has issued his own Reasons.
April 19th, 2000.
"Howard I. Wetston" "Morley P. Carscallen"
DISSENTING OPINION: COMMISSIONER PADDON
On June 15, 1215 King John agreed that arbitrary despotism should be replaced with asystem of checks and balances free from the Kings whim. Government was recognizedto be more than the arbitrary rule of any man and custom and law were declared to standabove the crown. Thus was born Magna Carta which, while bruised, survives in Englishjurisprudence to this day. It has been used as the foundation of principles and systemsof government throughout the British Empire and should not be forgotten in the modernday administration of law in Canada and its provinces.
"The underlying idea of the sovereignty of law, long existent in feudalcustom, was raised by it into a doctrine for the national state. And when insubsequent ages the State, swollen with its own authority, has attempted toride roughshod over the rights or liberties of the subject it is to this doctrinethat appeal has again and again been made, and never, as yet, withoutsuccess."
Winston S. Churchill, The Birth of Britain, Vol. 1, p. 257.
Magna Carta is part of the underpinning of Canada's Charter of Rights andFreedoms and at page 848 of The Law of Evidence in Canada by John Sopinka, SidneyN. Lederman and Alan W. Bryant the following appears under the heading "Self-Incrimination and the Right to Silence":
"14.298 In U.S.A. v. Ross, Fish J.A., in reflecting on the Supreme Court ofCanada decisions on the principle of self-incrimination, summarized them inthis way.
These cases deal with testimonial compulsion within and without the criminaljustice system, both at trial and prior to trial. Read together, they establishthat:
1. The right to silence has become constitutionally entrenched in Canada. Thisright, however, is not absolute.
2. The right to silence derives in large measure from the principle against self-incrimination, which is a principle of fundamental justice within the meaningof s. 7 of the Charter.
3. Any statute that compels a person to testify diminishes that person's libertyand must therefore comply with the principles of fundamental justice.
4. The principles of fundamental justice are not hierarchical and none may beconsidered subordinate or impervious to the others.
5. The structure of the Charter reveals the intention of its framers to enact inconstitutional form the same structural protection against self-incriminationfor witnesses that existed historically.
6. This structure is founded upon the Crown's obligation to make a case, butit also assumes a general rule of compellability coupled with evidentiaryimmunity.
7. The principles of fundamental justice sometimes compete with one another.This is true of the privilege against self-incrimination and the principle thatall relevant evidence should be accessible to triers of fact.
8. The principle against self-incrimination requires that persons compelled totestify be granted "derivative-use immunity" in addition to the "use immunity"guaranteed by s. 13 of the Charter.
9. In addition, courts may exempt witnesses from testifying where they aresatisfied that the predominant purpose of compelling those witnesses totestify is to obtain incriminating evidence against them rather than somelegitimate public purpose.
10. To qualify as a valid public purpose, compelled testimony in a criminal orpenal prosecution must be for the purpose of obtaining evidence infurtherance of that prosecution."
I believe that Part VI of the Securities Act (the "Act") reflects the above principles.
The Applicant in the motion before us consists of three corporations and fourindividuals who are Defendants in an action in the Supreme Court of Nova Scotia (the"Cavalier Action"). All of these Defendants were also Defendants in former actions in theSupreme Court of Nova Scotia (the "Seabright Action") where they had judgments madeagainst them. The moving parties are now defending themselves in the Cavalier Action,again in Nova Scotia, and wish to obtain certain information through section 17(1) of theAct to help them defend the action. They must satisfy us that it is in the public interest thatsuch information be disclosed to them. Terrence D. Coughlan ("Coughlan"), a resident ofNova Scotia, who was previously brought before the Ontario Securities Commission("OSC") in 1989 in a proceeding under section 124 (now 127) is the person whoseevidence is sought and he is resisting strongly its release. The 1989 proceeding resultedin a Settlement Agreement between Coughlan and the Staff of the OSC. A copy of thatSettlement Agreement is before us.
In the course of the proceeding, Coughlan was examined under oath and in additionto the protection of confidentiality provided under section 16(2) of the Act he receivedfurther assurance that the evidence given by him would not be disclosed beyond theCommission.
An action was brought in Ontario on July 29, 1988 against Coughlan and others (the"Ontario Action") and it is described below.
Now, 10 years later, the moving parties want to have the "section 11 evidence".
In my view, there are several reasons why the relief sought should not be granted.The principles involved are set out in the opening pages of this opinion. Informationgathered by a governmental agency, which is directed in its creating statute to keep suchinformation confidential, must not only be so kept by the agency but also defended againstany intrusion. Any exception to this rule must be rigidly tested. The Applicants have toprove on the balance of probabilities that they are entitled to the information because it isin the public interest that they have it. They must convert their own individual interests intothe public interest. Why should they have it? They say - "We need it to defend ourselvesin the Cavalier Action." But when that allegation is examined it is clear that the CavalierAction does not rely on the OSC's prior conduct but directly on the Ontario Action. TheStatement of Claim and the Amended Statement of Claim in the Cavalier Action clearlybase the Plaintiffs' claim in the Cavalier Action on the bringing of the Ontario Action. Thataction was commenced by Westminer Canada Holding Limited and Westminer CanadaLimited. The Statement of Claim in the Seabright Action contains serious allegationsagainst Coughlan concerning the Westminer purchase of Seabright. One only has to readthe Statement of Claim to see what Westminer was saying publicly about Coughlan at thattime. Now, in the Cavalier Action, the Plaintiffs say that the Ontario Action damaged theirkey man with the effect that his financial standing in the community was destroyed.Because he was their promoter of Cavalier, they lost their investment. That's what theiraction is all about. There is no direct link alleged by the Cavalier Plaintiffs to any otherconduct.
The Ontario Action is first referred to in paragraph 25 of the Cavalier Statement ofClaim. It was commenced on July 29, 1988 and served on August 2, 1988. In paragraph26 of the Cavalier Action, in the Statement of Claim it is alleged that because of theOntario Action, Wood Gundy Inc. withdrew on August 16, 1988 from the initial publicoffering being pursued by Cavalier. The allegations of fraud, deceit, conspiracy andnegligent misrepresentation against Coughlan are relied on by the Plaintiffs in the CavalierAction as the cause of Wood Gundy's withdrawal. Paragraphs 27, 28, 29, 31, 33 and 35contain further reference to the harm caused by the bringing of the Ontario Action. Fromthe pleading it is unquestionable that the Cavalier Action is based on the commencementof the Ontario Action.
The Applicant tried to convince us in this proceeding that the statement made inparagraph 33 of the Cavalier Action Statement of Claim, where reference is made to theOntario Securities Commission investigation as one among four distinct means that theDefendants were found to have used in Seabright, somehow was being relied upon by thePlaintiffs in the Cavalier Action. My reading of the pleadings make it clear that this is notthe case. To me that suggestion is not supported by the evidence before us. TheStatement of Claim in eight paragraphs makes it crystal clear that the gravamen of thePlaintiffs' case is based on the bringing of the Ontario Action. There is no basis to releasethe Coughlan testimony in the context of the Cavalier Action because no allegation of thePlaintiffs refers to the OSC proceedings as a causal fact. In my view that alone should bethe end of it.
I can understand the Cavalier Defendants' concern about another conspiracyfinding against them but their focus seems to be in the wrong place. The element ofconspiracy was, in Seabright, the joint conduct of the Defendants. The four elementsrelied on by the Court in Nova Scotia were the means found to have been those employedby the Seabright Defendants. There could have been one element or ten elements usedto effect the conspiracy. It is not those four elements that are the conspiracy but rather thecombined acts of the conspirators in using them.
Even though I do not accept that the OSC's 1989 proceeding is any part of the basisfor the Cavalier Plaintiffs' claim, I will now look at its relevance if it were.
As set out in the moving parties brief they believe that:
"The question as to whether the moving parties (or any of them) influencedthe course of the staff's investigation regarding Coughlan and Seabright isan important issue for the Cavalier Plaintiffs in the Cavalier Action."
Again, based on my detailed analysis of the Statement of Claim and AmendedStatement of Claim, OSC Staff's investigation is not an issue. Having carefully reviewedthe Pre-Trial Memorandum I, once again, do not see the OSC proceeding as an issue.The Cavalier Plaintiffs' Pre-Trial Memorandum does not raise it as an issue. Thatdocument was filed late in March, 2000 and nothing has changed from the impression Ihave of the action based on the Amended Statement of Claim.
The only relevance the moving parties suggest that the section 11 evidence may have inthe Cavalier Action is referred to in (t), (u) and (v) of their Notice of Motion in thisproceeding. I have already dealt with the first sentence of (t). They state that they intendto call Joe Groia to testify at the trial. Groia was the Director of the Enforcement Branchof the OSC during the Coughlan investigation. In (u) the moving parties through theircounsel, state that they need the "section 11 evidence . to assist Groia in the preparationof his testimony regarding these events .". It might have been useful for us to have hadbefore us on this motion, direct evidence from Groia that if he is going to be a witness inthe Cavalier Action he needed to read the transcript of the evidence. Mindful of the factthat the issues before the Commission back in 1989 had no relevance to anything allegedin the Cavalier Action, it would have been helpful to this Commissioner to have Groia'sexplanation as to why he might need such assistance. Given the remoteness of therelevance of the evidence sought, I cannot agree that it is required by the moving partiesat this time.
From the standpoint of Groia's need to refresh his memory, a good start would behis reading of Braithwarte's deposition.
The moving parties in section (v) state that "Most importantly, the moving partiesanticipate that Coughlan's section 11 testimony may, in itself, serve as cogent evidencethat Staff acted independently of the conduct of the moving parties in the conduct of theinvestigation. In this respect, the questions asked of Coughlan may prove to be equallyimportant as the answers that he gave."
This to me, particularly in the last sentence, looks like a riddle posed for theCommission. We do not know what the evidence was and how could we or anyonereading the transcript garner anything relevant in the current Cavalier Action from thisapproach?
The OSC investigation was conducted to deal with timely disclosure of materialfacts concerning Seabright in the period before December, 1987. How the evidence andquestions at that investigation could be relevant to the current Cavalier Action escapesme. It is complete speculation to anticipate whether the material sought will have anyrelevance to the issues in the Cavalier Action. It is the speculative and questionablerelevance and speculative and questionable use at trial that leads me to conclude thatrelease of such material would not be in the public interest. The onus required to be metto satisfy section 17 of the Act has not been met. A clear direct need has not beenestablished.
I now turn to the public interest postulated by the moving parties. In paragraph (x)of the Notice of Motion, the moving parties allege that "the Cavalier Plaintiffs appear toadvance a position that will call into question the integrity of the Commission'sinvestigative and adjudicative processes. They have, in effect, alleged that Staff acted asa 'pawn' of the moving parties throughout its investigation of Coughlan."
Having studied the Amended Statement of Claim and Pre-Trial Memorandum of themoving parties and all the material put before us on this application, I can find no supportfor this allegation of the moving parties. They have very carefully, in paragraph (x), usedthe words "in effect". They can put this propositions to Groia whom they have, in effect,represented to us they are going to call at the trial and see how he reacts to it, bearing inmind his former role at the OSC.
As pointed out in the opening of this dissenting opinion, evidence given under oathto a regulatory authority is ab initio privileged. This right is confirmed in Part VI of the Act.Notwithstanding the non-disclosure provisions of section 16, the Commission may overridethis right if to do so would be, in its opinion, in "the public interest". Here the Commissionis being urged to conclude that this motion is worthy of the exemption. Is it the publicinterest that the moving parties are concerned about or rather their own narrow interest ina private law suit? In my view the motion before us does not support a finding that thepublic interest referred to in section 17 has been established. In the words of ChairmanWright referred to below, "the most unusual circumstances" do not exist here.
The moving parties allege that the record at the OSC is important because of thereference in the Statement of Claim regarding the four steps taken by the Defendants inthe Seabright Action. However, as the Respondent points out at paragraph 30 of hisFactum filed in this motion:
"Neither the trial judge nor the Court of Appeal made any of the kinds offindings alleged by the defendants here to be in issue; they did not speculateon the motives of the OSC or OSC staff in their conduct of the investigation;they did not call into question the conduct of OSC staff in deciding to issuethe Notice of Hearing, or entering the Settlement Agreement. In the contextof the issues the relevant question was whether the Westminer parties wentto the OSC to launch a complaint: the trial judge found they had indeeddone so, and the Westminer parties make this admission in paragraph 23 ofthe Applicants' Factum."
Taking that allegation as being correct, how can one claim that the evidence takenat the OSC will be an issue in the Cavalier Action? In the absence of it being an issue itis clearly not in the public interest to release the material sought for use at the trial. Aspointed out by Coughlan's counsel at paragraph 36 of his Factum:
(i) Mr. Coughlan is not a party to the civil proceeding;
(ii) Mr. Coughlan asserts his privacy interest in information given to the OSC inthe cause of the section 11 investigation;
(iii) Mr. Coughlan does not consent to the production; and
(iv) production would be contrary to the expressed representation of OSC staffat the time of the section 11 examination that there would be no disclosureto Westminer, the party now seeking the information in the civil litigation.
I believe that the Biscotti v. Ontario Securities Commission case is useful to us here.The Court of Appeal confirmed the decision of Chairman Wright:
"The power of the Commission to compel a person to come forward and givestatements under oath relating to an investigation is a broad and unusualpower afforded by the Legislature to the Commission to enable it to carry outits responsibilities to the public under the Securities Act. It is not a power tobe lightly used nor in our view should the information gathered be madeavailable to anyone other than staff and counsel conducting theinvestigation, except in the most unusual circumstances. Any othertreatment would prejudice the investigatory responsibilities of theCommission, and could severely prejudice persons whom the Commissionstaff require to give such statements.
The fact that, under s. 14 of the Act, statements made pursuant to s. 11 maynot be disclosed in any way without the consent of the Commission itself,indicates the understanding of the Legislature of the necessity ofconfidentiality. The power to compel testimony under s. 11 is exercised, andthe statements are given, in the course of an investigation on theunderstanding that they will not become public in any way.
. . .
The right to compel a witness to make a statement under oath is perhaps themost important tool which staff has in conducting investigations. Informationand opinion are divulged which could not be admitted in any proceedingsbefore this tribunal or any other. The very nature of the process under whichthey are obtained in our view dictates that these statements should not bereleased or used in the manner suggested by the Respondents.
There undoubtedly are circumstances in which the consent provided for ins. 14 might be given, but it appears to us that the basis for this consentshould be that the confidentiality clearly provided for in the statute isoutweighed by the public interest in disclosure."
Section 14 of the Act requires that it be and remain confidential and that theprohibition against disclosure continues unless the Commission consents toits disclosure. The requirement for consent does not end after theinvestigation ends or after a hearing has commenced. Further, the need forconfidentiality does not diminish once the investigation is complete. Thereis no reason why the legislation should be construed that way. If that hadbeen the legislature's intention, the section would have expressly soprovided.
Biscotti v. Ontario Securities Commission (1991), 1 OR (3d)409 (C.A.) at 414."
The above reference is made in the Respondent's Factum and the followingreferences made therein are relevant.
45. In the context of a civil suit, Weram Investments Ltd. commenced anOntario action against the Hudson Bay Mining and Smelting Co. Ltd. andSceptre Resources, seeking damages as a result of misrepresentations andmisleading and inadequate disclosure. The OSC commenced aninvestigation as a result, but no charges were laid. Weram applied under s.14 for consent of the Commission to release of transcripts, documents andother materials arising out of the investigation, presumably in the context ofthe civil suit. The Commission refused, relying upon OSC Policy Statement2.8, which provided at the time:
"As to evidence given in the course of an investigation, theCommission will normally consent to a witness obtaining acopy of his own evidence pursuant to the provisions of section14 of the Act. Apart from this, the Commission does notview it as being in the public interest, and the conduct ofeffective investigations, to consent to the release ofinformation or evidence obtained through an investigationorder issued under sections 11 or 13 of the Act."
This Policy Statement was in effect at the time that Mr. Coughlan's section11 evidence was compelled and the section 11 transcript was created. Thatsame test - the "public interest" - is contained in section 17 of the presentAct.
Weram Investments Ltd. v. Ontario Securities Commission(June 10, 1988 OSCB. 2433; appeal dismissed June 8, 1990OSCB. 2287; 39 O.A.C. 52 (Div. Ct.)).
O.S.C. Policies, Section 2.8, (1982) 4 O.S.C.B. 394E.
46. The following statements of the Chairman regarding Norcen EnergyResources Ltd. are apposite:
"Commission investigations, whether conducted undersections 11 or 13 of the Act . are performed by Commissionstaff on a confidential basis. Confidentiality is essential inorder to facilitate the investigation and in order to avoid,either prejudicing a person's right to fair process in theevent that the findings of the investigation justifyproceedings, or damaging a person's reputation when theresults of the investigation do not support furtherproceedings. The effective functioning of the Commissiondepends heavily upon the reliance which parties affectedby its operations can place upon the confidentiality of theCommission's administrative proceedings."
Norcen Energy Resources (April 29, 1983 O.S.C.B. 760).
47. As this Commission stated in In Re Rush:
"When the Securities Commission is investigating possiblebreaches of the Securities Act or the relevant sections of theCriminal Code, it, of necessity, obtains information andevidence from a great many sources. This information isusually taken under oath. Witnesses who are always entitledto counsel, if they so desire, may or may not have the benefitthereof. The information obtained is not subject to therules of evidence and it often, of necessity, covers manysubjects and deals with the affairs of many people. In theresult, much of this information has nothing to do with thecharges that might be laid. The information so obtainedby the Commission is not evidence in the sense that it isever used as such, i.e. any person who gives informationto the Commission will have to give their evidence inCourt at a preliminary hearing and a trial in the usual way.Whether or not the witnesses formally ask for the protection ofthe evidence act (sic) the Commission invariably gives thisprotection to them. In the opinion of the Commission theseapplicants should not have access to information given to theOntario Securities Commission by others which may covermany other actions of the individuals concerned which have norelationship to the charges laid.
In Re Rush, 1967, OSC Bulletin 2 OA (OSC) at 20A-21A.
CONCLUSION
For the reasons set out above, including the precedents adopted, I conclude thatthe case before us is not one that supports a finding that it would be in the public interestto release the information requested. Therefore I would dismiss the Motion.