COURT OF APPEAL FOR ONTARIO
DOHERTY, GOUDGE and ARMSTRONG JJ.A.
BETWEEN:
Hugh Corbett and
DELOITTE & TOUCHE LLP
Melissa Kennedy
for the appellant
Respondent
- and -
J.L. McDougall, Q.C.,
N.J. Emblem and
ONTARIO SECURITIES COMMISSION
R.S. Bennett
for the respondent
Appellant
Heard: March 28, 2002
On appeal from the judgment of the Divisional Court (Justice Tamarin Dunnet, Justice Edythe MacDonald and Justice Gordon Sedgwick) dated April 12, 2001.*
DOHERTY J.A.:
I
Overview
1Section 13 of the Ontario Securities Act, R.S.O. 1990, c. S.5, as amended, (the “Act”) gives the investigative arm (the “Staff”) of the Ontario Securities Commission broad powers, when conducting an investigation under s. 11 of the Act, to compel production of documents and to compel individuals to give evidence under oath. Those powers are subject to s. 16 of the Act, which prohibits disclosure of any of the compelled material. The Commission can, however, order disclosure of the compelled material under s. 17(1) of the Act if it concludes that disclosure is “in the public interest”.
2In May 1998, the Commission ordered Staff to commence an investigation under s. 11 of the Act into the circumstances surrounding a public offering made by Philip Services Corp. (“Philip”) in November 1997. In February 1999, the Commission made an order expanding the inquiry to include the conduct of Deloitte & Touche LLP (“Deloitte”), the auditors of Philip from 1990 to December 1999. During this investigation, Staff compelled Deloitte to produce documents in its possession relevant to the audits for 1995, 1996 and 1997. Six Deloitte partners (the “Deloitte Partners”) who were involved in the 1997 audit were examined under oath. I will refer to the documents and testimony collectively as the “compelled material”.
3Staff commenced proceedings under s. 127 of the Act against Philip and several officers of the company (the “Philip respondents”) in August 2000. Rule 3.3(2) of the Ontario Securities Commission Rules of Practice, (1997) 20 OSCB\1947 (the “Rules”) requires Staff to make disclosure to the Philip respondents of all “relevant” material in its possession. Staff determined that all of the compelled material obtained from Deloitte was “relevant” to the s. 127 proceeding and should be disclosed to the Philip respondents. Staff sought an order from the Commission under s. 17(1) allowing it to make disclosure of the compelled material to the Philip respondents. Deloitte opposed disclosure to the Philip respondents unless and until Staff could demonstrate the relevance of any document or any transcript that it proposed to disclose to the Philip respondents.
4The Commission decided that it was “in the public interest” to require disclosure of the compelled material to the Philip respondents. Deloitte appealed to the Divisional Court. The majority (Dunnet J. and Sedgwick J.) allowed the appeal and set aside the order of the Commission without prejudice to Staff re-applying for an order under s. 17(1)(b) on “a proper evidentiary basis”. Edythe MacDonald J. dissented in part. In her view, “any material that forms part of the Philip audit file” produced by Deloitte was properly ordered disclosed to the Philip respondents.
5This court granted leave to appeal. I would allow the appeal and restore the order of the Commission. The Commission exercises a broad discretion when deciding whether to order disclosure of compelled material. The exercise of that discretion engages the expertise of the Commission and the courts should defer to the exercise of that discretion unless satisfied that the Commission acted unreasonably. In my view, neither the approach taken by the Commission to the exercise of its discretion under s. 17(1) of the Act, nor the application of that approach to the specific circumstances of this case can be characterized as unreasonable. Consequently, I would set aside the order of the Divisional Court and restore the order of the Commission.
II
Factual Background
6Philip was a public company trading on the Toronto Stock Exchange. In November 1997, it proposed to make a public offering of some twenty million common shares. The Act required that Philip make full, true and plain disclosure of its financial affairs in the material filed with the Commission in support of the public offering. That material included a prospectus, audited financial statements for the years 1995 and 1996, and unaudited financial statements for the first nine months of 1997. All of the financial statements were prepared by Deloitte. The public offering proceeded and raised some (U.S.) $364 million.
7In January 1998, only two months after the public offering, Philip made the first of a series of announcements that altered in a negative way the financial picture painted in the material Philip filed with the Commission. The disclosures significantly reduced Philip’s earnings as set out in its audited 1995 and 1996 financial statements, and substantially altered its 1997 financial picture. Following these disclosures, the price of the Philip shares dropped dramatically. Philip was subsequently de-listed and sought bankruptcy protection.
8In May 1998, Staff commenced an investigation into the adequacy of the financial disclosures made by Philip in connection with the public offering. Staff was concerned that Philip was aware of the negative financial information in November 1997 but chose not to disclose it until after the public offering was completed.
9In July 1998, Staff issued a summons to Deloitte compelling it to produce copies of:
all correspondence with Philip between January 1, 1995 and June 1, 1998;
audit working paper files for the years ended 1995, 1996, 1997; and
any interim draft and/or final reports and/or memos relating to the losses identified by Philip’s 1997 financial statements and document briefs.
10In response to the summons, Deloitte assembled 324 files. It was agreed that rather than physically produce the files to Staff, Deloitte would keep them in a separate secure location to which Staff would have access. Although the files were not physically in the possession of Staff, they were within the power, possession and control of Staff for the purposes of the Act. Deloitte also provided Staff with a series of indices identifying each file by title and location. Staff examined some, but by no means all, of the files and took copies of some of the documents it examined.
11Each Deloitte partner examined under oath was told that the conduct of Deloitte was under investigation. Apart from their personal CVs the partners did not produce any documentation that was not part of the material produced by Deloitte.1
12In August 2000, the Commission commenced a s. 127 proceeding against the Philip respondents. In essence, Staff alleged that the Philip respondents failed to make full, true and plain disclosure of Philip’s financial affairs in the material filed in support of the public offering in November 1997. Particulars of the allegations were set out in a detailed thirty-eight page Statement of Allegations. Those particulars provided background information and referred to the specific transactions and events said to give rise to Philip’s failure to make proper financial disclosure. The particulars included the claim that the Philip respondents failed to disclose material financial information to Deloitte. Staff sought various orders against the Philip respondents, including an order prohibiting them from trading in securities.
13Deloitte was not a party to the s. 127 proceeding brought against the Philip respondents and the Philip respondents are not parties to this proceeding. In December 2000, after the Commission had ordered disclosure, Staff advised Deloitte that it had no intention of proceeding against Deloitte.
III
Relevant Legislative Provisions
- (1) The Commission may, by order, appoint one or more persons to make such investigation with respect to a matter as it considers expedient,
(a) for the due administration of Ontario securities law or the regulation of the capital markets in Ontario; or
(b) to assist in the due administration of the securities laws or the regulation of the capital markets in another jurisdiction.
(1) A person making an investigation or examination under section 11 or 12 has the same power to summon and enforce the attendance of any person and to compel him or her to testify on oath or otherwise, and to summon and compel any person or company to produce documents and other things, as is vested in the Ontario Court (General Division) for the trial of civil actions, and the refusal of a person to attend or to answer questions or of a person or company to produce such documents or other things as are in his, her or its custody or possession makes the person or company liable to be committed for contempt by the Ontario Court (General Division) as if in breach of an order of that court.
(1) Except in accordance with section 17, no person or company shall disclose at any time, except to his, her or its counsel,
(b) the name of any person examined or sought to be examined under section 13, any testimony given under section 13, any information obtained under section 13, the nature or content of any questions asked under section 13, the nature or content of any demands for the production of any document or other thing under section 13, or the fact that any document or other thing was produced under section 13.
(2) Any report provided under section 15 and any testimony given or documents or other things obtained under section 13 shall be for the exclusive use of the Commission and shall not be disclosed or produced to any other person or company or in any other proceeding except in accordance with section 17.
- (1) If the Commission considers that it would be in the public interest, it may make an order authorizing the disclosure to any person or company of,
(b) the name of any person examined or sought to be examined under section 13, any testimony given under section 13, any information obtained under section 13, the nature or content of any questions asked under section 13, the nature or content of any demands for the production of any document or other thing under section 13, or the fact that any document or other thing was produced under section 13;
(1) The Commission may make one or more of the following orders if in its opinion it is in the public interest to make the order or orders.
An order that trading in any securities by or of a person or company cease permanently or for such period as is specified in the order.
An order that a person is prohibited from becoming or acting as a director or officer of any issuer.
(4) No order shall be made under this section without a hearing, subject to section 4 of the Statutory Powers Procedure Act. [Emphasis added.]
(b) The Rules
3.3(2) In the case of a hearing under s. 127 of the Securities Act and subject to Subrule 3.7, staff of the Commission shall, as soon as is reasonably practicable after service of the notice of hearing, and in any case at least 10 days before the commencement of the hearing, make available for inspection by every other party all other documents and things which are in the possession or control of staff that are relevant to the hearing and provide copies, or permit the inspecting party to make copies, of the documents at the inspecting party’s expense.
3.7 Despite any provision in Rule 3, no disclosure is required to be made under this Rule 3 (i) which would contravene section 16 of the Securities Act or (ii) of a fact or matter which would not be admissible in evidence at a hearing by reason of subsections 15(2) or (3) of the Statutory Powers Procedure Act. [Emphasis added.]
IV
The Decision of the Commission
15The Commission recognized that it could order disclosure under s. 17(1) only if Staff established that disclosure to the Philip respondents was “in the public interest”. Citing Coughlan v. Ontario Securities Commission (2000), 143 O.A.C. 244 (Div. Ct. ) at para. 38, the Commission observed at p. 5 that in determining whether disclosure was warranted:
[I]t must consider the purpose for which the evidence is sought and the specific circumstances of the case. … [I]n determining whether to order disclosure it must balance the continued requirement for confidentiality with its assessment of the public interest at stake, including harm to the person whose testimony is sought.
16In keeping with the approach set out in Coughlan, supra, the Commission first considered the purpose relied on by Staff in making the application, that is to permit Staff to fulfil its disclosure obligations to the Philip respondents. The Commission accepted that Staff had a disclosure obligation to the Philip respondents. It described the scope of that obligation in terms of the concept of relevance as developed in R. v. Stinchcombe (1991), 1991 45 (SCC), 68 C.C.C. (3d) 1 (S.C.C.) and subsequent cases. The Commission concluded that Staff’s disclosure obligations extended to all material in its possession or control that met the relevance standard described in those cases.
17In determining whether the compelled material reached the relevance threshold, the Commission considered:
• the nature of the allegations made against the Philip respondents as described in the detailed Statement of Allegations;
• that the files in issue had been produced by Deloitte in response to a summons arising out of an investigation into the adequacy of the financial disclosure made in the prospectus and the financial statements contained therein;
• the indices provided by Deloitte describing the files;
• the representations by Staff to the Commission that at least two of the Philip respondents had gone on record as intending to challenge the credibility of the Deloitte auditors in the s. 127 proceeding; and
• that some of the compelled material would be relied on by Staff in presenting its case.
18In reaching the conclusion that all of the material crossed the relevance threshold, the Commission said at pp. 13-14:
[I]t seems obvious to us that, in light of Staff’s allegations, the conduct of Deloitte[] and of their audits, and what Deloitte[] knew when, would have to be considered by counsel for [the Philip respondents] in determining what their defences should be, and how to conduct them. What Deloitte[] knew or said, and when they knew and said it, might well be relevant in the determination of whether sanctions should be imposed by the Commission, and, if so, what those sanctions should be.
19The Commission rejected Deloitte’s argument that Staff could not establish relevancy with respect to any document it had not examined. The Commission agreed with Staff’s position that given the nature of the documents and the allegations made in the s. 127 proceeding, the relevancy of the compelled material should be determined “as a package”. The Commission observed that documents that may appear irrelevant to Staff may have considerable relevance to the defence of the Philip respondents, and that documents that might have no apparent relevance in isolation may have considerable relevance when viewed in the context of other material or information in the possession of the Philip respondents. The Commission’s ultimate conclusion on the relevance issue is captured in the following extract from p. 14 of its reasons:
Given the test of “relevance” enunciated in the cases to which we have referred, we think that [the Philip respondents] are entitled to disclosure of everything in Deloitte[’s] audit files, and its correspondence with Philip. There is a “reasonable possibility” that the withholding of some of the documents in these files “will impair the right of [the Philip respondents] to make full answer and defence”. For the reasons just given, we are unable to say that any specific document would be “clearly irrelevant” or would not be “of some use”.
20The Commission also gave separate consideration to the testimony of the Deloitte partners. Again applying the relevance standard from Stinchcombe, supra, it found at p. 17, that the transcripts were “statements obtained from persons who have provided relevant information” and were therefore within the ambit of Staff’s disclosure obligations.
21Having concluded that Staff could not meet its disclosure obligations to the Philip respondents without an order permitting disclosure of the compelled material, the Commission went on to hold at p. 17:
[I]t is now necessary for us to weigh the importance of enabling Staff to proceed against [the Philip respondents] under the Notice of Hearing against Deloitte[’s] right to have the documents and transcripts maintained in confidence.
22In weighing these competing interests, the Commission referred to the purposes underlying the Act and to Deloitte’s argument that it would be disadvantaged in present and future lawsuits if the Commission made the disclosure order. Ultimately, the Commission concluded that the purposes of the Act were best served by a full and fair inquiry into the merits of the allegations made against the Philip respondents and that those interests “far outweigh[] Deloitte[’s] right to confidentiality”.3
The Decision of the Divisional Court
23Dunnet J., for the majority, observed that the Commission had exercised a broad discretion in determining the public interest under s. 17 of the Act, and that “considerable deference” was due to the Commission’s assessment of the public interest. In her view, however, there was no evidence to support the Commission’s finding that all of the compelled material was relevant to the s. 127 proceeding. She also concluded that the Commission failed to balance Deloitte’s interest in maintaining the confidentiality of the documents against the need to disclose those documents to the Philip respondents. Dunnet J. said at paras. 34-36 and 43:
[34] The OSC appears to have taken the view that what would likely be required by [the Philip respondents] to be produced in the Proceedings should now be produced by Staff. In exercising its discretion, it was incumbent on the OSC to consider that the integrity of the Deloitte audit formed no part of the Statement of Allegations against [the Philip respondents]. At a minimum, the OSC should have required and been provided with the necessary evidentiary basis to make a reasoned decision, taking into account and weighing the competing interests.
[35] In the circumstances of this case, the OSC misapplied Stinchcombe by reversing the onus and by placing the burden on Deloitte to show why the entire disclosure should not be produced, particularly in the face of a failure on the part of Staff to review all the documents. Accordingly, there was no evidence upon which the OSC could determine relevance. That onus remained on the Staff.
[36] Further, the OSC erred in ordering all of the documents and testimony to be disclosed, without considering the “specific circumstances” of this case, namely: Staff did not review all of the documents; they did not present evidence relating to the defences of [the Philip respondents] and they did not provide any evidence as to the relevance of any particular document. In addition, Deloitte had produced information relevant to its own investigation which would have no relevance to [the Philip respondents’] case.
[43] The OSC made its order for “carte blanche” production in the public interest without an evidentiary basis or a consideration of Deloitte’s reasonable confidentiality expectations and interests, given that all the documents had not been reviewed and were produced in the context of an investigation concerning Deloitte’s activities, which was subsequently discontinued. The OSC erred in failing to balance those interests with the rights of [the Philip respondents]. [Emphasis added.]
24In partial dissent, Edythe MacDonald J. concluded at para. 2 that the Commission was “probably correct” in requiring disclosure of Deloitte’s audit files and its correspondence, but that the Commission had gone too far in ordering disclosure of “documents and testimony obtained by the Ontario Securities Commission in its separate investigation of Deloitte regarding the audit work it performed for Philip”.
V
The Standard of Review
25Counsel both submit that the court should apply a reasonableness standard of review in sitting on appeal from an order of the Commission under s. 17(1) of the Act. I agree with counsel.
26The Commission’s task on an application under s. 17(1) can be broken down into two stages. First, the Commission must give meaning to the phrase “public interest” in s. 17(1). In doing so, it must identify the factors relevant to the “public interest” and describe the analytical framework within which those factors can be weighed. Second, the Commission must apply that framework to the specific circumstances of this case. The first inquiry raises a question of law of general application to s. 17(1) applications. The second inquiry involves an exercise of the broad discretion given to the Commission by s. 17(1) and turns on the specific circumstances of this application. Both inquiries, however, engage the expertise of the Commission. It must give meaning to the phrase “public interest” in the context of the broad regulatory scheme governing the operation of capital markets and with an eye towards the principles animating the Act as a whole. The same considerations are germane to the exercise of the Commission’s discretion in the second stage of the inquiry.
27The importance of the Commission’s expertise at both stages of the s. 17(1) inquiry strongly suggests a deferential approach on an appeal from the Commission’s decision. The existence of a statutory right of appeal under s. 9 of the Act and the absence of any privative clause suggest less deference.
28The reasonableness standard of review sits between the more deferential standard of patent unreasonableness and the more exacting standard of correctness. I believe it accommodates both the deference that the Commission’s expertise demands and the statutory right of appeal created by the Act. The case law offers strong support for the application of a reasonableness standard of review: Pezim v. British Columbia (Superintendent of Brokers) (1994), 1994 103 (SCC), 114 D.L.R. (4th) 385 at 403-11 (S.C.C.); Canada (Director of Investigation and Research) v. Southam Inc., 1997 385 (SCC), [1997] 1 S.C.R. 748 at 775-80; Baker v. Canada (Minister of Citizenship and Immigration), 1999 699 (SCC), [1999] 2 S.C.R. 817 at 852-56; Committee for the Equal Treatment of Asbestos Minority Shareholders v. Ontario (Securities Commission) (2001), 2001 SCC 37, 199 D.L.R. (4th) 577 at 591-92 (S.C.C.); Coughlan v. Ontario Securities Commission, supra, at paras. 20-33; Dyzenhaus & Fox-Decent, “Rethinking the Process/Substantive Distinction: Baker v. Canada” (2001), 51 U.T.L.J. 193 at 228-32.
29In Baker, supra, the court made it clear that even where the statutory decision maker exercises a broad discretion, the pragmatic and functional standard of review analysis should apply. L’Heureux-Dubé J. said at p. 855:
Incorporating judicial review of decisions that involve considerable discretion into the pragmatic and functional analysis for errors of law should not be seen as reducing the level of deference given to decisions of a highly discretionary nature. In fact, deferential standards of review may give substantial leeway to the discretionary decision-maker in determining the “proper purposes” or “relevant considerations” involved in making a given determination. The pragmatic and functional approach can take into account the fact that the more discretion that is left to a decision-maker, the more reluctant courts should be to interfere with the manner in which decision-makers have made choices among various options. However, though discretionary decisions will generally be given considerable respect, that discretion must be exercised in accordance with the boundaries imposed in the statute, the principles of the rule of law, the principles of administrative law, the fundamental values of Canadian society, and the principles of the Charter.
30I think these words have direct application to decisions by the Commission involving the exercise of its discretion under s. 17(1). The Commission is entitled to substantial leeway in deciding what meaning should be given to the “public interest” in that section, and in deciding whether the public interest as interpreted by the Commission warranted disclosure in the circumstances of the case.
VI
Was the Commission’s Decision Unreasonable?
a) a) The meaning of “public interest” in s. 17(1)
31As indicated above, the Commission interpreted s. 17(1) as requiring it to evaluate the extent to which the policies of the Act were served by the purpose for which the disclosure was sought and the harm done by disclosure to confidentiality interests or other individual interests. The Commission recognized that it must weigh and balance these competing interests in determining whether the public interest favoured disclosure.
32I have no hesitation in holding that the Commission’s approach to the determination of the public interest was a reasonable one. I do not understand counsel for the respondent to challenge the correctness much less the reasonableness of that approach. Dunnet J., in describing the nature of the public interest inquiry, relied on the same passage from Coughlan, supra, that the Commission relied upon in its reasons.
33Although I do not think that it is seriously argued that the Commission took an unreasonable approach to the determination of the public interest under s. 17(1), I will address one argument made by counsel for Staff. In the course of her reasons, Dunnet J. referred, with approval, to the decision of this court in Biscotti v. Ontario Securities Commission (1991), 1991 7216 (ON CA), 1 O.R. (3d) 409. Counsel for Staff submits that Biscotti, supra, takes a restrictive view of when disclosure should be ordered under s. 17(1) and that it has been overtaken by changes in the Act and the Commission Policy/Rules. He contends that Dunnet J. erroneously applied the more restrictive test in Biscotti, supra.
34In Biscotti, supra, various individuals were charged with improper trading contrary to the Act. They sought disclosure of testimony given by witnesses during a s. 11 investigation. Under the Act as it then stood, testimony could not be disclosed unless the Commission consented to disclosure under s. 14. That section made no reference to the public interest.
35The Commission, in reasons approved by this court, held that disclosure of compelled testimony should be made where disclosure was in the public interest. The Commission went on to hold, however, that disclosure would only be warranted “in the most unusual circumstances”. In so holding, the Commission relied on its policy, OSC Policy 2.8.A.3, (1982) 21 OSCB 394E, dealing with disclosure:
- As to evidence given in the course of an investigation, the Commission will normally consent to a witness obtaining a copy of his own evidence pursuant to the provisions of section 14 of the Act. Apart from this, the Commission does not view it as being in the public interest, and the conduct of effective investigations, to consent to the release of information or evidence obtained through an investigation order issued under section 11 or 13 of the Act.
36OSC Policy 2.8.A.3 gave paramount weight to the interests served by maintaining the confidentiality of the compelled testimony. That policy was rescinded in 1997 on the day the Rules were enacted (see (1997), 20 OSCB 1876 and 1825). Those rules, quoted above (para. 14), provide for disclosure of relevant material to s. 127 respondents. Counsel for Staff contends that these changes in Commission Policy/Rules and the express reference to the “public interest” in s. 17(1) rendered the approach taken in Biscotti, supra, obsolete.
37I think s. 17(1) gives statutory authority to the public interest test developed by the Commission in Biscotti, supra. However, I am also of the view that it was open to the Commission to conclude that the rescission of OSC Policy 2.8, which spoke against disclosure of compelled testimony and the simultaneous commitment to full disclosure of relevant material to individuals facing proceedings under s. 127, significantly affected the public interest calculus required by s. 17(1). Specifically, it was open to the Commission to find that where disclosure is sought for the purpose of enabling Staff to comply with its disclosure obligations as set out in the applicable rules, there is no presumption against disclosure except in the “most unusual circumstances”. Instead, a request for disclosure for that purpose, should be assessed by weighing the benefit of compliance with the stated disclosure policy, against the harm done to other legitimate interests if disclosure is made. That was the methodology used by the Commission in Coughlan, supra, and approved by the Divisional Court.
38Although the Commission in Biscotti, supra, determined disclosure based on a public interest test, it did so after placing a very high premium on maintaining the confidentiality of the compelled material. It was open to the Commission to recalibrate the public interest inquiry to reflect the current policies of the Commission. That recalibration is reflected in this and other s. 17(1) disclosure orders made by the Commission. It is not unreasonable.
(b) The Commission’s exercise of its discretion in applying that framework
39In concluding that the public interest favoured disclosure, the Commission applied the standard of relevance described in Stinchcombe, supra, to fix the scope of Staff’s obligation to make disclosure to the Philip respondents.4 Counsel for Deloitte does not suggest that the Commission acted unreasonably in applying the Stinchcombe, supra, relevance standard. He takes the position that the standard developed in Stinchcombe, supra, is entirely consistent with Staff’s disclosure obligation prior to that decision. He submits, however, that Staff failed to demonstrate relevance.
40Relevant material in the Stinchcombe, supra, sense includes material in the possession or control of Staff and intended for use by Staff in making its case against the Philip respondents. Relevant material also includes material in Staff’s possession which has a reasonable possibility of being relevant to the ability of the Philip respondents to make full answer and defence to the Staff allegations. This latter category includes material that the Philip respondents could use to rebut the case presented by Staff; material they could use to advance a defence; and material that may assist them in making tactical decisions: Stinchcombe, supra, at p. 12; R. v. Egger, 1993 98 (SCC), [1993] 2 S.C.R. 451 at 467; R. v. Chaplin, 1995 126 (SCC), [1995] 1 S.C.R. 727 at 742; R. v. Dixon, 1998 805 (SCC), [1998] 1 S.C.R. 244 at 257-58.
41In deciding whether material in its possession could reasonably be relevant to the Philip respondents, Staff was obliged to take a generous view of relevance. Staff was not privy to defence strategies or tactics, or to material in the possession of the Philip respondents, which could alter the significance of documents in Staff’s possession. As Cory J. said in Dixon, supra, at p. 258:
The right to disclosure of all relevant material has a broad scope and includes material which may have only marginal value to the ultimate issues at trial.
42Having settled on the meaning of relevance for the purposes of Staff’s disclosure obligations, the Commission concluded that all of the compelled material met that standard. This finding is central to the Commission’s disclosure order. If the compelled material is not relevant, then Staff is not obliged to disclose it to the Philip respondents and the disclosure order under s. 17(1) cannot be justified for that purpose. Dunnet J. found that there was no evidence to support the Commission’s finding that all of the compelled material was relevant. If she is correct, the Commission’s decision is clearly unreasonable and cannot stand.
43I do not agree that there was no basis for the Commission’s decision. The Commission was not limited to considering evidence available in the strict legal sense. It could, at least within the bounds of reasonableness, consider any information proffered by, and any representations made by, Deloitte or Staff that in the Commission’s opinion informed the public interest inquiry: Statutory Powers Procedure Act, R.S.O. 1990, c. S.22, s. 15.
44This disclosure application turned in large measure on whether the compelled material was relevant. Relevance occurs where the nature of the allegations and the contents of the material in possession of Staff intersect. The Commission possessed detailed information concerning the nature of the allegations and the factual context in which those allegations were made. A reading of the Statement of Allegations leaves no doubt that the relationship between Deloitte and Philip, as it related to disclosure of financial information in the 1995, 1996 and 1997 audits, will be central to the s. 127 proceeding against the Philip respondents. The Statement of Allegations is replete with claims that material financial transactions were not disclosed to Deloitte or were disclosed in a misleading way. It is alleged that these non-disclosures and misleading disclosures found their way into the financial information provided in support of the public offering. According to the allegations made by Staff, the blame for the misleading quality of the financial information provided to the Commission rested with the Philip respondents who failed to make proper disclosure to Deloitte or who actually misled Deloitte concerning the nature of the financial transactions.
45Given these allegations, the flow of information and advice back and forth between Philip and Deloitte as it related to the many transactions referred to in the Statement of Allegations could well be very important to determining both the accuracy of the financial information provided to the Commission and any blame attributable for inaccuracies in that information. Both of these issues would inevitably be front and centre in the s. 127 proceeding.
46The titles of the files, as described in the indices prepared by Deloitte, and the fact that the documents were produced in response to a summons issued in the context of an investigation into the financial disclosure made by Philip, provide a basis upon which the Commission could conclude that the documents were part of, or reflective of, the back and forth flow of information and advice which ultimately yielded the financial information produced in support of the public offering.
47Considering the focus of the allegations against the Philip respondents and the description of the documents, albeit generic, I think it was open to the Commission to reasonably conclude that all of the documents cleared the relevance threshold described in Stinchcombe, supra. For the same reasons, it was open to the Commission to conclude that the testimony of the Deloitte partners, all of whom were involved in the 1997 audit, was also relevant.
48In examining the reasonableness of the Commission’s conclusion, I think it is noteworthy that at no point did Deloitte suggest that any specific documents, file or group of files, were irrelevant. While Staff bore the onus of demonstrating relevance, I think the Commission could properly take into consideration the absence of any suggestion by Deloitte that a particular document, file or group of documents, was clearly irrelevant. Deloitte knew the contents of the compelled material better than anyone. If some of that material was obviously beyond the pale of the s. 127 proceeding, Deloitte could have directed the Commission’s attention to that part of the compelled material.
49In holding that the Commission had no basis upon which to find all of the compelled materials relevant, Dunnet J. was concerned that Staff had not examined many of the documents that it claimed were relevant and therefore disclosable. Counsel for Deloitte forcefully advanced the contention that Staff could not meet its burden of demonstrating relevance with respect to documents that it had never examined. No doubt, in many circumstances, the relevance of a document cannot be determined without examining the document itself. However, the nature of these allegations put the entire relationship between Deloitte and Philip, as it concerns the financial statements for the relevant years, in issue. The nature of the allegations also make what was not communicated to or by Deloitte as important as what was communicated to or by Deloitte. In these circumstances, I see considerable merit in the concerns expressed by the Commission over attempts to judge relevance on a document-by-document basis. In any event, I certainly would not say that the Commission’s global approach to determining the relevance of the compelled material was an unreasonable one.
50With respect, I think the conclusion of Dunnet J. that there was no basis for the Commission’s finding that the documents were relevant, flowed in part from four factual errors revealed in her reasons. First, she observed that Staff had not presented “any evidence” of the position taken by the Philip respondents in the s. 127 proceeding. While Staff was obviously limited to the extent to which it could speak for the Philip respondents (who were under no obligation to disclose their positions), Staff did refer to submissions made by counsel for one of the Philip respondents in an earlier appearance before the Commission, and to a letter sent to Staff by counsel for another of the Philip respondents. The submissions and the letter made it clear that Deloitte’s conduct in the course of the audits would be very much in issue in the s. 127 proceeding.
51Second, Dunnet J. noted that the “integrity” of the audit did not form any part of the allegations made by Staff. I must disagree. The allegations did not question the integrity of Deloitte, the auditor, however, the integrity of the audits, as affected by what the Philip respondents told and did not tell Deloitte, was very much in issue. Many of the allegations claimed that the Philip respondents failed to disclose important information to Deloitte about various material financial transactions.
52Third, in the course of her reasons, Dunnet J. said at para. 36:
Deloitte had produced information relevant to its own investigation which would have no relevance to [the Philip respondents’] case.
53It was incorrect to suggest that there was a separate investigation into Deloitte. There was only one investigation. That investigation was directed at the financial information provided to the Commission by Philips in support of the public offering made in November 1997. Initially, the investigation targeted Philip and its officers. Later, the investigation was expanded to include Deloitte. The subject matter of the investigation, however, remained the same. The Commission was concerned with whether it had received a full, true and plain financial disclosure and if it had not, with who was to blame for any shortcomings in the information. There was no reason for concluding that documents relevant to Deloitte’s potential culpability were irrelevant to the culpability of the Philip respondents. The logical inference is quite the contrary. What Deloitte knew, when it knew it, and the advice, if any, it gave to Philip were all potentially relevant, both to Deloitte’s responsibility for any inadequacy in the disclosure, and to Philip’s responsibility for that same inadequacy.
54Lastly, in holding that the Commission acted without any basis, Dunnet J. observed at para. 36 that Staff failed to “provide any evidence as to the relevance of any particular document”. I must disagree with this observation. Many, although by no means the majority, of the compelled documents were contained in the brief prepared by Staff for the purposes of the s. 127 proceeding. Those documents would be relied on by Staff in the s. 127 proceeding. There can be no clearer demonstration of relevance than an indication by Staff that it would use a document as part of its case.
55This last error is of some importance. Where Staff alleges misleading disclosure and material non-disclosure and relies on a document or documents from a particular file to make its case, it is a fair inference that all documents from that file or other related files will reach the low relevance threshold required for disclosure simply by their association with documents that are part of the case for the prosecution.
56In addition to finding that there was no evidence that all of the compelled material was relevant, Dunnet J. found that the Commission failed to balance the confidentiality expectations and interests of Deloitte against the purpose advanced for making the disclosure order. If the Commission failed to address Deloitte’s interests, it departed from the balancing approach it described at the outset of its reasons and I would agree that its decision was unreasonable. The Commission’s reasons, however, show that it did perform the balancing process described by the Divisional Court. After concluding that the compelled material and testimony was relevant and disclosable, the Commission went on to say at p. 17:
Based on these conclusions, it is now necessary for us to weigh the importance of enabling Staff to proceed against [the Philip respondents] under the Notice of Hearing against Deloitte[’s] right to have the documents and transcripts maintained in confidence.
57The Commission alluded to the purposes underlying the Act and to Deloitte’s argument that disclosure would compromise its position in other litigation. It then held that the interests served by disclosure “far outweigh[] Deloitte[’s] right to confidentiality”.
58This assessment is entirely reasonable. The disclosure sought by Staff was limited to disclosure to the Philip respondents. Philip was Deloitte’s client. The compelled materials reflected work done for Philip by Deloitte, or acquired or created by Deloitte in its capacity as Philip’s auditor. Deloitte’s confidentiality expectations as against their own client must be minimal. Indeed, counsel for Deloitte candidly conceded in the course of oral argument that if Staff established the relevance of the compelled materials, Deloitte’s confidentiality interests could not trump the interests of the Philip respondents in disclosure.
59Contrary to the holding of the Divisional Court, I think the Commission did balance the interests of Deloitte against the purpose served by disclosure. Their conclusion that the latter outweighed the former was not unreasonable.
VII
Conclusion
60For the reasons set out above and applying an unreasonableness standard of review, I would hold that the Divisional Court erred in setting aside the order of the Commission. I would restore the order of the Commission.
61In restoring the order of the Commission, I do not minimize the concerns expressed by counsel for Deloitte about what he described as “box car” disclosure, whereby Staff seek to turn over everything produced in the course of a s. 11 investigation to respondents in a s. 127 proceeding.
62The Commission was satisfied that Staff was not engaged in that kind of irresponsible conduct. I have already said that I find nothing unreasonable in that assessment. The Commission controls its own processes and can guard against unwarranted disclosure. For example, if in this case, questions arose about specific documents or parts of the testimony given by the Deloitte partners, the Commission could, if it thought it was warranted, require Staff to specifically examine those documents or testimony and provide a more detailed basis for any claim of relevancy to the s. 127 proceeding. As this application developed, the Commission accepted Staff’s argument that a document-by-document approach to relevance would be inappropriate. That does not mean that in another case where circumstances are different, or different arguments are advanced to the Commission, that the Commission could not take a different approach and tailor a more refined disclosure order.
63On agreement, no costs were ordered in the Divisional Court. The Commission, quite properly in my view, has not requested costs in its factum. I do not think that this is a case for costs against Deloitte.
RELEASED: “JUNE 13 2002”
“DD”
“Doherty J.A.”
“I agree S.T. Goudge J.A.”
“I agree Robert P. Armstrong J.A.”
- On May 1, 2001, Morden J.A. made a consent order sealing the court file and the file in the Divisional Court. That order expires thirty days from the release of these reasons. At the hearing of the appeal, which was conducted in an open court, neither counsel sought any variation of the order of Morden J.A. It remains in effect.
Footnotes
- In addition to the documents and the testimony of the Deloitte partners, Deloitte provided a 225 page written response to certain specific questions posed by Staff after the completion of the examinations. This response does not appear to be part of the material that Staff sought to disclose to the Philip respondents.
- In addition to the sections set out below, Staff also referred to s. 17(6) of the Act which gives Staff the power to disclose compelled material. That section was not in force when this investigation began and the parties agreed that it had no direct application. Staff did, however, rely on the section in support of the Commission’s assessment of “the public interest”. As I would restore the order of the Commission on other grounds, I need not address the meaning of s. 17(6) or its applicability, direct or indirect, to this proceeding.
- The Commission also protected against misuse of the compelled material in the order that it made. It prohibited use for any purpose other than making full answer and defence in the s. 127 proceeding.
- Stinchcombe, supra, recognizes that privileged documents need not be disclosed even if relevant. Deloitte claimed privilege with respect to some documents. Those were not among the documents Staff proposed to disclose to the Philip respondents.
