Hill v. Gordon-Daly Grenadier Securities et al. [Indexed as: Hill v. Gordon-Daly Grenadier Securities]

56 O.R. (3d) 388

[2001] O.J. No. 4181

Court File No. 131/01

Ontario Superior Court of Justice

Divisional Court

Then, Gravely and Taliano JJ.

October 30, 2001

Civil procedure -- Evidence -- Defendants prosecuted by Ontario Securities Commission and found guilty of offence under Securities Act on basis of admissions by defendants contained in settlement agreement between defendants and Commission -- Settlement agreement and Commission's reasons for judgment admissible on certification motion in proposed class proceeding founded on same conduct as successful prosecution -- Settlement privilege did not apply.

Securities regulation -- Evidence -- Use in subsequent civil proceedings -- Defendants prosecuted by Ontario Securities Commission and found guilty of offence under Securities Act on basis of admissions by defendants contained in settlement agreement between defendants and Commission -- Settlement agreement and Commission's reasons for judgment admissible on certification motion in proposed class proceeding founded on same conduct as successful prosecution -- Settlement privilege did not apply.

Evidence -- Privilege -- Collateral use -- Defendants prosecuted by Ontario Securities Commission and found guilty of offence under Securities Act on basis of admissions by defendants contained in settlement agreement between defendants and Commission -- Settlement agreement and Commission's reasons for judgment admissible on certification motion in proposed class proceeding founded on same conduct as successful prosecution -- Settlement privilege did not apply.

The representative plaintiff in a proposed class proceeding alleged that she invested moneys a result of fraudulent representations, breach of fiduciary duty, conspiracy and breach of s. 52 of the Competition Act, R.S.C. 1985, c. C-34 by the defendants. She also alleged that the defendants manipulated the stock market. The defendants were successfully prosecuted by the Ontario Securities Commission for breach of trust contrary to s. 127(1) of the Securities Act, R.S.O. 1990, c. S.5. On the basis of admissions made by the defendants and contained in a settlement agreement between the Commission and the defendants, the Commission found that the defendants failed to deal fairly, honestly and in good faith with their clients. The clients in question were the proposed class plaintiffs. The defendants brought a motion to strike out, from an affidavit filed in support of the plaintiff's motion for class certification, three documents arising from the prosecution: the statement of allegations filed by Commission staff against the defendants; the settlement agreement; and the Commission's reasons for decision. The motion was dismissed. The defendants appealed.

Held, the appeal should be allowed in part.

The Commission's reasons for conviction and findings, and not merely the fact of conviction, were admissible in subsequent civil proceedings. The facts set out in the settlement agreement, to which the defendants agreed, constituted an admission against interest, and were tantamount to a guilty plea. Quite apart from the fact that the defendants agreed that they would not take a public position contrary to their admissions in the settlement agreement, it was offensive to one's sense of justice and an affront to common sense to prevent the plaintiff from proving, on a motion to certify a class proceeding, that which the defendants had already admitted in a public forum before a statutory body acting in the public interest. Moreover, the defendants conceded that the order of the Commission was admissible, yet a meaningful understanding of the order required an examination of the settlement agreement, which was referred to in the preamble to the order and attached to the order.

The rule that settlement negotiations and settlement agreements are privileged had no application to this case. While litigants in a civil dispute have a legitimate expectation that their discussions are private and privileged, that expectation does not arise within the context of proceedings before the Commission. When the defendants were charged under the Securities Act, they knew that they were involved in a proceeding before a quasi-criminal, statutory tribunal and that they were subject to a process that was defined by legislative enactment with ground rules quite unlike those that accompany the resolution of private disputes. The Practice Guidelines for Settlement Procedure before the Commission provide that after a proposed settlement is approved by the Commission, the settlement agreement and any related order will be published in the OSC Bulletin. As the defendants entered into the settlement agreement with full awareness that what was being admitted to would be made public, they must be taken to have expressly waived any claim to privacy or to privilege. Any expectation of privacy or privilege was lost when the settlement was approved by the Commission.

The settlement agreement provided that "Staff and each of the respondents agree with the facts set out in this Part III for the purpose of this proceeding only." This clause meant that the agreed statement of facts was for the purpose of the Commission proceeding only and not any other possible Commission proceeding that might be instituted under the Securities Act. It did not have the effect of rendering the settlement agreement inadmissible in the civil proceedings.

There was no basis in law for the admission of the statement of allegations. Allegations have no evidentiary value.

APPEAL from a judgment of Cumming J. (2001), 2001 28015 (ON SC), 56 O.R. (3d) 379, dismissing a motion to strike out evidence from an affidavit filed in support of a motion for class certification.

Edwards v. Law Society of Upper Canada (1995), 40 C.P.C. (3d) 316 (Ont. Gen. Div.), distd Potter v. Swain, 1945 343 (ON CA), [1945] 4 D.L.R. 4, [1945] O.W.N. 514 (C.A.); English v. Richmond, 1956 8 (SCC), [1956] S.C.R. 383, 3 D.L.R. (2d) 385; Charlton (Re) (1968), 1968 477 (ON CA), [1969] 1 O.R. 706, 3 D.L.R. (3d) 623 (C.A.), consd Other cases referred to Demeter v. British Pacific Life Insurance Co. (1984), 1984 1996 (ON CA), 48 O.R. (2d) 266, 7 O.A.C. 143, 13 D.L.R. (4th) 318, [1985] I.L.R. 1-1862 (C.A.), affg (1983), 1983 1838 (ON SC), 43 O.R. (2d) 33, 150 D.L.R. (3d) 249, [1983] I.L.R. 1-1689, 37 C.P.C. 277 (S.C.); Franco v. White (2001), 2001 24020 (ON CA), 53 O.R. (3d) 391 (C.A.), affg [2000] O.J. No. 922 (S.C.J.) (sub nom. F. (K.) (Litigation guardian of) v. White); Hunter v. Chief Constable of West Midlands Police Force, [1982] A.C. 529, [1981] 3 All E.R. 727, [1981] 3 W.L.R. 906 (H.L.), affg [1980] 1 Q.B. 283, [1980] 2 All E.R. 227, [1980] 2 W.L.R. 689, 124 Sol. Jo. 83 (C.A.) (sub nom. McIlkenny v. Chief Constable of West Midlands Police Force); Rush and Tompkins Ltd. v. Greater London Council, [1988] 3 All E.R. 737 (H.L.); Simpson v. Geswein (1995), 1995 16110 (MB KB), 103 Man. R. (2d) 69, [1995] 6 W.W.R. 233, 25 C.C.L.T. (2d) 49, 38 C.P.C. (3d) 292 (Q.B.); Toronto (City) v. Canadian Union of Public Employees, Local 79 (2001), 2001 24114 (ON CA), 55 O.R. (3d) 541 (C.A.) (sub nom. Toronto v. C.U.P.E., Local 79) Statutes referred to Class Proceedings Act, 1992, S.O. 1992, c. 6 Competition Act, R.S.C. 1985, c. C-34, s. 52 Securities Act, R.S.O. 1990, c. S.5, s. 127(1)

Paul J. Martin and David A. Hausman, for respondent. Brian A. Grosman, Q.C., and John R. Martin, for appellants.

[1] TALIANO J.: -- This is an appeal from the decision of Cumming J. dated January 26, 2001 in which he dismissed the appellant's motion to strike out certain evidence from an affidavit filed on behalf of the respondent in support of a motion for class certification under the Class Proceedings Act, 1992, S.O. 1992, c. 6.

[2] The main action is a class proceeding wherein the representative plaintiff alleges that she invested moneys as a result of fraudulent representations, breach of fiduciary duty, conspiracy and breach of s. 52 of the Competition Act, R.S.C. 1985, C-34 by the appellants. She further alleges that the appellants manipulated the stock market and resold the stock at mark-ups ranging from between 56 per cent to 324 per cent.

[3] The challenged evidence consists of three documents arising from the successful prosecution of the appellants before the Ontario Securities Commission (hereafter the "Commission") for breach of trust contrary to s. 127(1) of the Securities Act, R.S.O. 1990, c. S.5. Those documents are:

(a) the statement of allegations (found at Tab 8(b) of the Appeal Record) filed by staff of the Commission against the appellants;

(b) the settlement agreement (found at Tab 8(c) of the Appeal Record) between staff of the Commission and the appellants, containing certain admissions upon which the Commission adjudicated; and

(c) the reasons for decision of the Commission (found at Tab 8(e) of the Appeal Record).

[4] The admission of the order of the Commission (found at Tab 8(d) of the Appeal Record) is not objected to.

[5] All of the challenged evidence was released to the public by the Commission in accordance with statutory enactments governing the Commission's operations.

[6] On the basis of admissions made by the appellants and contained in the settlement agreement, the Commission found that the appellants failed to "deal fairly, honestly and in good faith with their clients" and thereby contravened the Act and its regulations. The findings of the Commission related to trades in the securities of 13 companies to clients of the appellants. It is those same clients who are the proposed class plaintiffs in this proceeding.

[7] Both in this court, and before Cumming J., counsel for the appellants made the following submissions:

1. While the fact of a conviction of offences under the Securities Act is admissible in subsequent civil proceedings, the Commission's reasons for conviction and findings are not admissible

2. The settlement agreement before the Commission is protected by settlement privilege and is therefore inadmissible on the certification motion; and

3. The settlement agreement before the Commission was expressly stated to be "for the purpose of this proceeding only" and is therefore inadmissible in the class proceeding.

[8] Counsel for the appellants relied heavily on the Ontario Court of Appeal decision of Potter v. Swain, 1945 343 (ON CA), [1945] 4 D.L.R. 4, [1945] O.W.N. 514, which held that neither reasons for judgment nor an admission by his counsel in a criminal proceeding is admissible against an accused person in a subsequent civil action. However, Potter must now be read in light of the decision of the Supreme Court of Canada in English v. Richmond, 1956 8 (SCC), [1956] S.C.R. 383 at p. 387, 3 D.L.R. (2d) 385, where Kerwin C.J. stated:

The note of that decision is not a full report, but if it purports to decide that an admission by Counsel in the form of a plea of guilty to a charge of crime, or what is known as a provincial crime, in the presence of the accused is not admissible, I am unable to agree with it.

[9] Since that decision, any doubt on this issue was resolved by the Ontario Court of Appeal in Re Charlton (1968), 1968 477 (ON CA), [1969] 1 O.R. 706, 3 D.L.R. (3d) 623, which held that a guilty plea in a criminal trial is admissible in evidence in a subsequent civil proceeding arising from the same facts, although it is not conclusive of the issue.

[10] The appellants also relied on Edwards v. Law Society of Upper Canada (1995), 40 C.P.C. (3d) 316 (Ont. Gen. Div.). In Edwards, a proposed class proceeding was brought on behalf of investors in a gold delivery scheme against a number of defendants, including several traders. The plaintiffs claimed damages against the traders and corporations through which they operated, alleging negligence, fraud, misrepresentation, breach of contract, breach of trust and conspiracy. The plaintiffs also claimed against the Law Society of Upper Canada as a result of the conduct of one defendant, who was a solicitor. As evidence on the certification motion, the representative plaintiff filed an affidavit, which incorporated the reasons for judgment of the Ontario Provincial Court, which found several of the individual traders and corporations guilty of violations of the Securities Act.

[11] On motion to strike, Winkler J. concluded that the fact of conviction was admissible in the class action, however, the reasons for judgment and findings of fact of the provincial court judge were not admissible. This was especially so, he held, where the parties to the civil action were not the same as the parties to the provincial court prosecution.

[12] In the case at bar, however, Cumming J. concluded that the parties were the same. In the proceeding before the Commission, the complainants were one and the same as the representative plaintiff in this class proceeding. Similarly, the nature of the allegations are the same (although there are admittedly some differences in specifics) in that the complaints in the class action and the representative plaintiff in this action, allege that the appellants breached their fiduciary duties as a result of which the representative plaintiff and the proposed members of the class proceeding have sustained losses. However, in Edwards, the Law Society was not a party to the Provincial Court proceedings and admission of the evidence from that criminal proceeding against the Law Society in the class proceeding would have been unfairly prejudicial. On both issue and party identity therefore, Edwards is distinguishable and there is ample evidence in the record to support Cumming J.'s conclusion in th at regard.

[13] However, there are other important distinctions between Edwards and this case, perhaps the most important being that the appellants in this case have agreed to the facts set out in the settlement agreement (see Appeal Record, Tab 8(c), p. 73). In other words, that which is contained in the settlement agreement is tantamount to a guilty plea, or an admission against interest. By contrast, the reasons and findings in Edwards followed a trial, a situation which the law treats differently from a plea or an admission against interest.

[14] Quite apart from the fact that the appellants had agreed that they would not take a public position contrary to their admissions in the settlement agreement, it is offensive to one's sense of justice and an affront to common sense to prevent the plaintiff from proving, on a motion to certify a class proceeding, that which the defendants have already admitted in a public forum before a statutory body acting in the public interest. We are fortified in this view by the recently released decision of the Ontario Court of Appeal in Toronto (City) v. Canadian Union of Public Employees, Local 79 (2001), 2001 24114 (ON CA), 55 O.R. (3d) 541 (C.A.).

[15] Finally, the appellants readily concede that the order of the Commission is admissible. However, when the order is examined, it is apparent that the operative parts of the order speak only to the imposition of penalties, without specifying what the penalties are for. Therefore, a meaningful understanding of the order requires, at the very least, an examination of the settlement agreement which is not only referred to in the preamble to the order but, indeed, is attached to the order. Accordingly, since the order itself can not be properly understood unless it is read in conjunction with and in the context of the issues and facts described the attached settlement agreement, common sense mandates that both documents should be admitted.

[16] Dealing with the admissibility of the reasons for the decision of the committee, the decision of Simpson v. Geswein, 1995 16110 (MB KB), [1995] 6 W.W.R. 233, 103 Man. R. (2d) 69 (Q.B.), is most persuasive. In Simpson, Krindle J. thoroughly reviewed the authorities on the admissibility of reasons and after examining the English decision in Hunter v. Chief Constable of West Midlands Police Force, [1982] A.C. 529, [1981] 3 All E.R. 727 (H.L.) concluded as follows [at p. 238 W.W.R.]:

It is obvious from a reading of the reasons for decision of the Court of Appeal and House of Lords that in some fashion those two levels of court in the civil action were made aware of what had occurred in the criminal trial. The courts refer to matters that go far beyond what would be apparent on the face of a certificate of conviction.

[17] Similarly, in reviewing and following the decision of Osler J. in Demeter v. British Pacific Life Insurance Co. (1983), 1983 1838 (ON SC), 43 O.R. (2d) 33, 150 D.L.R. (3d) 249 (S.C.), Krindle J. stated at p. 240 W.W.R.:

Whatever he [the motions court judge] may have had, he certainly had sufficient knowledge of what the pertinent evidence was on the criminal trial to permit him to assess the potential significance of what was intended to be adduced by Demeter at the civil trial.

[18] The Simpson decision was followed here in Ontario by Chapnik J. in F. (K.) (Litigation guardian of) v. White, [2000] O.J. No. 922, at para. 6. In F.(K.), the plaintiff commenced proceedings for damages arising from a sexual assault committed on her by the defendant. The plaintiff moved for summary judgment on the issue of liability, filing in support thereof a certificate of conviction, the transcripts of the earlier criminal trial proceedings and a transcript of the reasons for sentence of the trial judge. Her decision was upheld by the Ontario Court of Appeal on March 12, 2001 [now reported Franco v. White (2001), 2001 24020 (ON CA), 53 O.R. (3d) 391], although admittedly, admissibility of the transcripts and reasons for judgment was not apparently put into issue in either court.

[19] In any event, with regard to the Commission's reasons, since they set out exactly the offences for which the appellants were being punished, the reasons are similar to a plea to a specific offence in a criminal court, or a certificate of conviction, both of which are clearly receivable in evidence in a subsequent civil trial as previously noted. Accordingly, we would not disturb Cumming J.'s decision not to strike the reasons for decision on this ground.

Settlement Privilege

[20] The appellants also rely on the well-established rule that settlement negotiations and settlement agreements are privileged whether or not a settlement is reached. This rule is founded on the public policy of encouraging litigants to settle their differences rather than litigate them to a finish. Litigants are encouraged to freely and frankly put their cards on the table without fear that statements or offers made in the course of negotiations for settlement may be brought before the court of trial as admissions on the question of liability. (See Rush and Tompkins Ltd. v. Greater London Council, [1988] 3 All E.R. 737 (H.L.).) Such evidence is therefore excluded in subsequent proceedings, even though this may have the effect of excluding evidence that might otherwise be both relevant and probative. Because of this rule, litigants in a civil dispute have a legitimate expectation that their discussions are private and privileged.

[21] However, that expectation does not arise within the context of proceedings before the Commission; quite the opposite. When the appellants were charged under the Securities Act, they knew that they were involved in a proceeding before a quasi-criminal, statutory tribunal and that they were subject to a process that was defined by legislative enactment with ground rules quite unlike those that accompany the resolution of private disputes. The Practice Guidelines for Settlement Procedure before the Commission provide that after a proposed settlement is approved by the Commission, the settlement agreement and any related order will be published in the OSC Bulletin. Section 68 provides that "no party to this agreement will make any public statement inconsistent with this agreement". Section 71 provides that "any obligations of confidentiality shall terminate upon approval of this settlement by the Commission".

[22] The appellants entered into the settlement agreement with full awareness that what was being admitted to would be made public. They knew that an order would be made and that the order would also be made public. Therefore, they must be taken to have expressly waived any claim to privacy or to privilege, since both of these characteristics would be entirely inconsistent with the process with which they were involved. When they agreed to the facts set out in the statement of allegations, they knew that an order would issue and they saw, in advance, the nature and wording of that order. They also knew that the whole process was a public one. In our view, the essence of what occurred before the Commission was a plea of guilty to provincial offences which constituted admissions against interest. In the circumstances, we doubt whether the rule respecting settlement agreements has any application whatever. We therefore agree with Cumming J. when he said that any expectation to privacy or privilege was lost whe n the settlement was approved by the Commission.

Agreed Statements of Fact "For the Purpose of this Proceeding Only"

[23] In this regard, the appellants rely on para. 3 of the settlement agreement, which provides as follows:

Staff and each of the respondents agree with the facts set out in this Part III for the purpose of this proceeding only.

[24] Cumming J. interpreted this clause to mean that the agreement as to the facts reached by the parties was for the purpose of the Commission proceeding only and not any other possible Commission proceeding that might be initiated under the Securities Act. In our view, that is a correct interpretation of para. 3.

[25] It must be remembered that the parties to the agreement were the appellants and the Commission. The Commission has no capacity to initiate proceedings in a civil or criminal court against the appellants. The Commission's powers are regulatory and proceedings are quasi-criminal in nature, exercisable as a tribunal under the Securities Act. The Commission has no compensatory powers, and could not order restitution to the complainants. Accordingly, insofar as the Commission was concerned, the clause would have no relevance outside of those proceedings and it would make no sense to give the clause any broader meaning or application.

[26] Viewed from the appellants' perspective, it is not clear how the appellants could have entered into a public agreement to admit wrongdoing in a public forum and later claim that their admissions should be protected from civil consequences. Their admissions are now in the public domain and the expectation that the respondent and other members of the proposed class would not be at liberty to rely on their admissions in a subsequent civil proceeding is patently unreasonable. We say unreasonable because the respondent and members of the proposed class were not signatories to the settlement agreement nor did they have standing before the Commission. That being the case, their rights could not be adversely affected by the unilateral or bilateral actions or words of either the appellants or the Commission.

[27] However, we see no basis in law for the admission of the statement of allegations, which contains mere allegations. Allegations have no evidentiary value. What is admissible, is what the appellants admitted to doing, not what they are alleged to have done.

[28] Accordingly, we would uphold the decision of Cumming J. with that minor variation.

[29] In accordance with submissions received from counsel, we award the respondent costs of the leave application fixed in the sum of $3,500 and costs of this hearing fixed in the sum of $5,000, all payable forthwith.

Appeal allowed in part.