Reasons for Decision: In the Matter of The Crabbe Huson Group, Inc.
R.S.O. 1990, c. S.5, AS AMENDED
AND
IN THE MATTER OF
THE CRABBE HUSON GROUP, INC.
Hearing:
August 4, 1999
Panel:
John A. Geller, QC - Vice-Chair
G. Patrick H. Vernon, QC - Commissioner
Counsel:
For Tahera Corporation
Jonathan Stainsby
For Crabbe Huson Group, Inc.
James C. Tory
James E.A. Turner
For the Staff of the Ontario Securities Commission
Tim Moseley
REASONS FOR DECISION
The July 30, 1999 edition of the OSC Bulletin contained a Notice of Hearing in this matter.In the Notice of Hearing it was stated that the Commission would hold a hearing pursuantto section 127 of the Securities Act (the "Act") to consider whether, pursuant to thatsection, it was in the public interest for the Commission to make an order, inter alia, that;
i) The Crabbe Huson Group Inc. ("Crabbe Huson") cease trading in securitiespermanently or for such time as the Commission may direct; and
ii) the exemptions provided for in sections 35, 72, 73 and 93 of the Act should notapply to Crabbe Huson until such time as the Commission may direct.
The same edition of the Bulletin contained a notice stating that a hearing would be heldon August 10, 1999 and that Staff of the Commission ("Staff) and Crabbe Huson hadagreed upon a proposed settlement of the matter, which would be considered at thehearing. It was stated in the latter notice that the terms of the proposed settlement wouldonly be released if and when the Commission approved the proposed settlement.
By letter dated July 29, 1999, Heenan Blaikie, on behalf of Tahera Corporation ("Tahera"),advised that they believed that Tahera had an interest in the proceedings scheduled to beheard by the Commission on August 10, 1999, and requested a copy of the proposedsettlement agreement so that they would have an opportunity to take instructions from theboard of directors of Tahera and to make submissions to the Commission concerningmatters of interest to Tahera. In addition, Messrs. Heenan Blaikie advised that, in theirview, Tahera is an interested person within the meaning of section 104 of the Act and,depending on the terms and conditions of the proposed settlement, Tahera might need tomake an application to the Commission for relief under the provisions of that section.
Heenan Blaikie requested the Commission to schedule a pre-hearing so that the issue ofTahera standing could be considered, and a copy of the proposed settlement agreementcould be made available to Heenan Blaikie (on such terms and conditions as theCommission might consider appropriate), and so that Heenan Blaikie might then considerwhat position its client would take at the August 10, 1999 hearing.
The hearing before us was convened as a motions hearing to consider the requests madeby Heenan Blaikie.
By letter from Heenan Blaikie to the Secretary of the Commission dated August 4, 1999(the date of our hearing), Heenan Blaikie, on behalf of Tahera, made an application undersection 104 of the Act for relief under that section directing Crabbe Huson to comply withand to cease contravening Part XX of the Act and the regulations related thereto. In itsapplication, Tahera requested that the section 104 application be heard together with thehearing pursuant to section 127 of the Act scheduled for August 10, 1999. It was statedthat Tahera believed that Crabbe Huson's actions had caused Tahera and its shareholderssignificant direct damage, and that this damage resulted from the costs associated with anaborted amalgamation and by reasons of a significant block of shares held by CrabbeHuson for an extended period of time, in violation of applicable corporate and securitieslaw, and the effect that that holding had on the market for shares of Tahera's predecessorsover this period as well as the ability of those predecessors to procure financing.
The proceedings under the Notice of Hearing arose out of the acquisition by CrabbeHuson (a Portland, Oregon, investment management firm) of more than 20% of theoutstanding common shares of Lytton Minerals Ltd. ("Lytton") in accounts managed byCrabbe Huson. Staff alleged that, in connection with those purchases, Crabbe Husonbreached certain requirements of Parts XX and XXI of the Act.
Staff and Crabbe Huson agreed on a proposed settlement of the section 127 proceedings,which settlement included agreement, for purposes of the settlement, to a statement offacts. At the August 10, 1999 hearing, the Commission was to be asked to consider and,if deemed advisable, approve the proposed settlement, based upon the agreed statementof facts.
Tahera is the corporation resulting from the amalgamation of Lytton and New IndigoResources Inc. effective February 28, 1999.
Relief Requested by Tahera
Although there was some lack of precision in the July 29, 1999 and August 4, 1999 lettersfrom Heenan Blaikie to the Secretary of the Commission, what Tahera is asking theCommission to do at the hearing before this panel is the following:
1. grant Tahera standing in the August 10, 1999 settlement hearing;
2. order the production to Tahera of the proposed settlement agreement; and
3. consolidate with the settlement hearing Tahera's request for relief under section104 of the Act.
Absent the granting of standing to Tahera, we see no basis for an order that Tahera begiven a copy of the proposed settlement agreement. Even if we granted Tahera's standingon a "Torstar" basis, we could do so without at the same time ordering production of thesettlement agreement. "Torstar" status would permit Tahera to join in the final argument,but not to lead evidence or cross-examine witnesses.
Consolidation of Hearings
Subsection 104(1) of the Act provides as follows:
104. (1) Where, on the application of an interested person, it appears to theCommission that a person or company has not compiled or is not complying withthis Part or the regulations related to this Part, it may issue, subject to such termsand conditions as it may impose, an order,
a) restraining the distribution of any document used or issued in connectionwith a take-over bid or issuer bid;
b) requiring an amendment to or variation of any document used or issued inconnection with a take-over bid or issuer bid and requiring the distributionof any amended, varied or corrected document; and
c) directing any person or company to comply with this Part or the regulationsrelated to this Part or restraining any person or company from contraveningthis Part or the regulations related to this Part and directing the directors andsenior officers of the person or company to cause the person or company tocomply with or to cease contravening this Part or the regulations related tothis Part.
It was clear to us that Tahera's section 104 application, made at this time, was designedto provide Tahera with a ticket into the settlement hearing, enabling it to present evidenceat a consolidated hearing and also to present arguments as to the propriety of approvingthe proposed settlement.
Mr. Stainsby was not able to convince us that consolidation of the two hearings wasnecessary to preserve Tahera's rights, if any, to relief under section 104 of the Act, or thatTahera would in any way be prejudiced in respect of that application if the hearings werenot consolidated.
On the other hand, permitting the consolidation would be to permit Tahera to adduceevidence at the consolidated hearing in support of its section 104 application, which wouldbe additional to the facts contained in the agreed statement of facts in the proposedsettlement agreement. This, in our view, would be prejudicial and unfair to Crabbe Huson.
Accordingly, we decided, at the end of the hearing, that the two proceedings should notbe consolidated. If Tahera is serious about its section 104 proceedings, there is nothingto prevent it from proceeding with them in the normal course and manner.
Standing
In In the Matter of the Investment Dealers Association of Canada Regulation 2100.4 (1997)20 OSCB 2277, the Commission reviewed and considered its previous decisions as to thegranting of standing in hearings before it. As was stated in that decision, the position ofthe Commission on entitlement to standing has developed over a number of years. In ourview, the following statement from In the Matter of George Albino (1991) 14 OSCB 365,quoted in the Investment Dealers decision, properly summarizes what should beconsidered when there is an application for intervention in section 127 proceedings:
"In conclusion, it seems to us that on requests for standing the Commission mustfirst and foremost consider the nature of the issue and the likelihood thatintervenors will be able to make a useful contribution without injustice to theimmediate parties (the MacMillan Bloedel test, adopted in Torstar). Where a would-be intervenor has a direct financial interest, in that that person may acquire abenefit or incur a loss as an immediate result of a Commission decision, fullstanding is appropriate. The clearest application of that principle is to securityholders and to those who have announced an intention (i.e., offerors in take-overbids) to acquire securities. Where the intending intervenor has a clear financialinterest - most obviously, as a holder of securities of the subject issuer - but thatinterest will not be immediately affected by the decision the Commission may make,then only restricted (i.e., Torstar) standing is to be granted, as in section 124proceedings such as Torstar itself."
When pressed by us to describe Tahera's financial interest in a decision of theCommission as to the settlement agreement, the best that Mr. Stainsby was able to comeup with was that if the settlement agreement required Crabbe Huson to sell down itsinterest in Tahera, and if there was no restriction on when and how it did that, it might wellimpact Tahera's ability to raise financing through issuing shares, which is somethingTahera has been known to do repeatedly in the past.
In our view, this is not the type of financial interest contemplated by Albino which wouldentitle Tahera either to full standing, as having a direct financial interest, or even "Torstar"type standing, as having a clear financial interest, in a section 127 proceeding.
In any event, the Albino test would require that the intervenor be able to make a usefulcontribution without injustice to the immediate parties. Even if we had considered thatTahera had a financial interest in the decision in the settlement hearing, we would havebeen concerned that it could not intervene with full status in the settlement hearing withoutinjustice to Crabbe Huson.
To permit a third party to adduce evidence in a section 127 settlement hearing in additionto the agreed statement of facts would, in our view, ordinarily operate to work an injusticeon the respondent. It would, in our view, ordinarily be unfair to a respondent which, havingagreed to a settlement on the basis of an agreed statement of facts, might then be facedwith other facts being presented to the settlement panel. Although we are not preparedto say that in no circumstances could an intervenor be granted full status in a section 127settlement hearing, we think that it would be a rare and exceptional case where this couldproperly happen, and this is not such a case.
We were advised at the hearing that Staff, in coming to its agreement with the respondent,had been aware of, and taken into consideration, the facts furnished to them by Tahera.In the circumstances, we considered that Tahera could not make a useful contribution tothe settlement hearing.
As a result, at the conclusion of the hearing we declined to grant Tahera intervenor status.
Production of Proposed Settlement Agreement
Accordingly, there was not, as we have said, any basis for ordering production of theproposed settlement agreement to Tahera.
August 24th, 1999.
"J. A. Geller" "G. P. H. Vernon"