In the Matter of B.

[Indexed as: B. (Re)]

Ontario Reports

Ontario Superior Court of Justice

Conway J.

December 10, 2020

153 O.R. (3d) 237 | 2020 ONSC 7563

Case Summary

Securities regulation — Investigations — Evidence — Privilege — Applicant refusing to answer questions in securities investigation of employer based on confidentiality clause of employment agreement — Applicant could have asserted claim of privilege but instead gave blanket refusal — Information not protected from disclosure under case-by-case privilege — Improper for applicant to refuse to answer relevant questions — Applicant required to attend examination and answer all questions subject to assertion of claim of privilege.

B's employer was investigated by the Ontario Securities Commission, and B was served with a summons to give evidence in the investigation. B's employment agreement contained a non-disclosure and confidentiality clause. B's counsel suggested that the Commission obtain an order confirming that B could answer questions without breaching the employment agreement. The Commission refused. The examination proceeded with B answering questions relating only to name, birth date, contact information and education, while refusing to answer any questions relating to employment. B applied for directions as to whether there was an obligation to answer questions on information covered by the confidentiality clause, and in the alternative for a declaration that the information was privileged and could not form the basis of compelled testimony. The Commission brought a cross-application for declarations regarding B's obligation to respond to the summons.

Held, the application should be dismissed; the cross-application should be allowed.

The information was not protected from disclosure under case-by-case privilege and could be the subject of compelled testimony. Upon receiving the summons B was required to attend and answer questions, subject to a right to assert a claim of privilege. Instead of asserting a claim of privilege over any particular question, B gave a blanket refusal on the basis of the confidentiality clause. That was not appropriate. B's conduct risked a contempt finding and delayed the investigation unnecessarily. Although there was no question that the information at issue was subject to the confidentiality provisions of the clause, the clause was broadly worded and the employer could not reasonably have expected that an employee would maintain that confidence if required by law to disclose. Further, there was no evidence to establish that the element of confidentiality was essential to the full and satisfactory maintenance of the relation between the parties. The Commission's public interest role in protecting the investing public far exceeded any potential damage to the employer-employee relationship.

The Commission was granted a declaration that B was required to attend an examination and answer all questions arising from the investigation order, subject to any claim of privilege. The Commission was also granted a declaration that it was improper for B to refuse to answer relevant questions arising from the investigation order, regardless of any confidentiality obligations owed under the employment agreement, again subject to any claim of privilege.

Slavutych v. Baker, 1975 CanLII 5 (SCC), [1976] 1 S.C.R. 254, [1976] 1 R.C.S. 254 (S.C.C.), apld

Other cases referred to

A.M. v. Ryan, 1997 CanLII 403 (SCC), [1997] 1 S.C.R. 157, [1997] S.C.J. No. 13 (S.C.C.); R. v. Gruenke, 1991 CanLII 40 (SCC), [1991] 3 S.C.R. 263, [1991] 3 R.C.S. 263, [1991] S.C.J. No 80, [1991] A.C.S. no. 80 (S.C.C.); St. Elizabeth Home Society v. Hamilton (City), (2008), 2008 ONCA 182, 89 O.R. (3d) 81; Wilder v. Ontario Securities Commission (2000), 2000 CanLII 29062 (ON SCDC), 47 O.R. (3d) 361, [2000] O.J. No. 758

Statutes referred to

Income Tax Act, R.S.C., 1985, c. 1 (5th Supp.), s. 231.2(1) [as am.]

Securities Act, R.S.O. 1990, c. S.5, ss. 11 [as am.], (1)(a), 13 [as am.], (1) [as am.], (2) [as am.], 16 [as am.], 17 [as am.]

APPLICATION AND CROSS-APPLICATION for directions and declarations regarding the answering of questions in a securities investigation.

Jocelyn Howell and Victoria Wicks, for B applicant/respondent by cross-application.

Rikin Morzaria and Derek Ferris, for Ontario Securities Commission respondent/applicant by cross-application.

1The Applicant's employer is being investigated by the Ontario Securities Commission (the "OSC"). Staff of the OSC ("Staff") served the Applicant with a summons pursuant to s. 13 of the Securities Act, R.S.O. 1990, c. S.5 (the "Act") to attend and give evidence in the investigation (the "Summons").

2Given the highly confidential nature of the investigation and the risk of disclosing the Applicant's identity, I am using the gender neutral pronouns "they/them" when referring to the Applicant.

3The Applicant's employment agreement contains a non-disclosure and confidentiality clause (the "Confidentiality Clause"). The Applicant takes the position that the information protected by the Confidentiality Clause (the "Information") is privileged. They bring this Application for directions on whether they are obliged to answer Staff's questions with respect to the Information covered by the Confidentiality Clause. Alternatively, they seek a declaration that the Information is privileged and cannot form the basis of compelled testimony pursuant to the Summons.

4The OSC brings a Counter-Application seeking various declarations with respect to the Applicant's obligations to respond to the Summons.

Factual and Procedural Background

5On March 2, 2020, the Commission issued an order under s. 11(1)(a) of the Act authorizing an investigation into whether the Applicant's employer engaged in conduct contrary to Ontario securities law (the "Investigation").

6On May 12, 2020, Staff served the Applicant with the Summons requiring the Applicant to attend before Staff for an examination on May 27, 2020. That date was rescheduled on consent to July 22, 2020.¹

7On July 10, 2020, the Applicant's counsel (Mr. Bieber) advised Staff that the Applicant was unable to answer any questions because of the Confidentiality Clause that precluded the Applicant from discussing matters related to their employment. Counsel suggested that Staff obtain an order, which the Applicant would not oppose, confirming that the Applicant could answer Staff's questions without breaching the employment agreement.

8Staff refused, on the basis that the Summons already compelled the Applicant to answer the questions regardless of the terms of their employment contract. Staff further advised that it intended to proceed with the Applicant's examination on July 22, 2020 and that Staff believed the Applicant would be in contempt of their obligations under s. 13 of the Act if they refused to attend or to answer relevant questions.

9On July 20, 2020, the Applicant's counsel emailed Staff and advised that the Applicant intended to apply to this Court for directions and an order granting the Applicant relief from the provisions of their employment agreement so that the Applicant could answer Staff's questions. Staff responded and reiterated its position that the Summons compelled the Applicant to attend the examination and a refusal to attend would place the Applicant in contempt.

10The examination proceeded on July 22, 2020. The Applicant only answered questions about their name, date of birth, contact information and education. They refused to answer any questions related to their employment, including the name of their current employer.

11The Applicant then filed a confidential application with the OSC, seeking an order directing that they could answer Staff's questions without violating their employment agreement. Vice-Chair Moseley dismissed the request for directions, holding that the OSC did not have the jurisdiction to provide the Applicant with directions, which could only be sought in this court. Vice-Chair Moseley issued an order under s. 17 of the Act authorizing the Applicant to disclose any necessary confidential information about the Investigation and the interview for the purposes of bringing an application for directions to this court.

12On September 24, 2020, the Applicant filed their Notice of Application in this court seeking (i) directions regarding the Applicant attending a compelled interview with Staff; (ii) in the alternative, a declaration determining whether the Summons supplants any contractual confidentiality obligations the Applicant may owe, and requires the Applicant to attend the interview and testify; and (iii) a declaration that the Applicant will not breach any private contract to which they may be a party by testifying in the interview pursuant to the Summons.

13The matter first came before me at a motion for a sealing order on October 14, 2020. At that hearing, the Applicant recast their concerns and raised a claim of privilege with respect to the information covered by the Confidentiality Clause (the "Privilege Claim") pursuant to s. 13(2) of the Act. The Applicant was going to apply to the OSC for a determination of the Privilege Claim but Staff determined (and the Applicant agreed) that the OSC did not have jurisdiction to consider that claim.

14The Applicant then amended the Notice of Application to more clearly assert the Privilege Claim for adjudication by this court.

Statutory Provisions

15The relevant provisions of the Act are ss. 11 and 13, which read as follows:

Investigation order

11(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 or derivatives laws or the regulation of the capital markets in another jurisdiction.

Power of investigator or examiner

13(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 Superior Court of Justice 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 Superior Court of Justice as if in breach of an order of that court.

Rights of witness

(2) A person or company giving evidence under subsection (1) may be represented by counsel and may claim any privilege to which the person or company is entitled.

16The provisions of s. 13 of the Act are straightforward. Once Staff served the Applicant with the Summons, the Applicant was required to attend and answer Staff's questions under s. 13(1), subject to the Applicant's right to assert a claim of privilege under s. 13(2). Refusal to do so exposed the Applicant to a finding that they were in contempt of court.²

17When the Applicant received the Summons, they did not assert a claim of privilege over any particular questions posed by Staff. Rather, they gave a blanket refusal to answer any of Staff's questions related to the Applicant's employment on the basis of the Confidentiality Clause. The Applicant was concerned about termination or their potential liability under the employment agreement if they testified pursuant to the Summons. The Applicant tried several means to relieve them from any potential employment-related consequences of testifying pursuant to the Summons -- requesting Staff to obtain an order, requesting directions from the OSC, and seeking directions from this court.

18In my view, none of that was appropriate in light of the clear wording of s. 13. Unless and until the Applicant raised a claim of privilege, they were required to respond to the Summons and answer Staff's questions. The Applicant was not entitled to refuse to answer any questions or seek further orders or directions based on concerns the Applicant had about the Confidentiality Clause or any employment-related consequences, absent a claim of privilege. The Applicant did not assert any privilege claim until October, months after the Summons was served and months after the July interview occurred. The Applicant's conduct not only risked a contempt finding but had the effect of delaying the Investigation unnecessarily for several months.

19However, once the Applicant asserted the Privilege Claim in October 2020, the Applicant was entitled to have that claim adjudicated by this court.³ Section 13(2) contemplates that a person may claim privilege. The OSC concedes that the Applicant is entitled to have the Privilege Claim adjudicated and has responded to the substance of the Applicant's Privilege Claim accordingly.

Case-by-Case Privilege

20The Applicant asserts that case-by-case privilege should extend to all of the Information as it is covered by the Confidentiality Clause. The Applicant acknowledges that the employer has not been served with this Application due to the confidential nature of the Investigation under s. 16 of the Act. The Applicant submits that as the custodian of the Information, it is up to the Applicant to defend it based on their unequivocal promise of confidentiality.

21Case-by-case privileges, unlike class privileges, do not carry a presumption of inadmissibility. Instead, the court will consider, in any given case, whether a case-by-case privilege should be recognized, with reference to the four "Wigmore criteria", as adopted by the Supreme Court of Canada in Slavutych v. Baker, 1975 CanLII 5 (SCC), [1976] 1 S.C.R. 254, at p. 260:

(a) The communications must originate in a confidence that they will not be disclosed.

(b) This element of confidentiality must be essential to the full and satisfactory maintenance of the relation between the parties.

(c) The relation must be one which in the opinion of the community ought to be sedulously fostered.

(d) The injury that would inure to the relation by the disclosure of the communications must be greater than the benefit thereby gained for the correct disposal of litigation.

(Emphasis in original)

22These criteria are not "carved in stone". They are considerations, which provide a general framework within which policy considerations and the requirements of fact-finding can be weighed and balanced on the basis of their relative importance in the particular case before the court: R. v. Gruenke, 1991 CanLII 40 (SCC), [1991] 3 S.C.R. 263, at p. 290.

23Case-by-case privilege can apply in novel circumstances. The Supreme Court of Canada has recognized that the common law permits privilege in new situations where reason, experience and application of the principles that underlie the traditional privileges so dictate: M. (A.) v. Ryan, 1997 CanLII 403 (SCC), [1997] 1 S.C.R. 157, at para. 20.

24Case-by-case privilege need not be blanket or absolute. Courts have the power to impose partial privilege to the extent it is required to strike the proper balance between the interest in protecting the communication from disclosure and the interest in proper disposition of the litigation: Ryan, at paras. 18, 33.

Does the Information Attract Case-by-Case Privilege?

25The Applicant has not met the burden of satisfying the four Wigmore criteria to protect the Information from disclosure on the grounds of case-by-case privilege.

26The Applicant's evidence consists of an affidavit from a law clerk at their counsel's law firm. The affidavit states that the Applicant works as an administrative assistant for the employer company and attaches a copy of the employment agreement as an exhibit. The affidavit contains no contextual details about the employment relationship, the Applicant's duties, the type of Information the Applicant receives from the employer or the Applicant's responsibilities with respect to that Information. The evidence consists of little more than the employment agreement and the wording of the Confidentiality Clause.

27The Applicant submits that it would have been difficult to tender additional evidence to support the claim for case-by-case privilege because the evidence itself is subject to the Privilege Claim. I reject that submission. The Applicant could have described in general terms the nature of the Information over which privilege is being claimed and, if appropriate, provided the actual Information under seal to the court for its review.

28With respect to the first Wigmore criterion, that the communications must originate in a confidence that they will not be disclosed, there is no question that the Information is subject to confidentiality provisions of the Confidentiality Clause. That clause is broadly worded and does not exclude the disclosure of Information if required by law. However, in my view, the employer could not reasonably have expected that an employee would maintain that confidence if required to disclose the Information by law.

29In Tower v. Minister of National Revenue, 2003 FCA 307, at para. 41, the court held that accountants know, or should know, that their confidentiality is restricted by the power of the Minister to require disclosure pursuant to s. 231.2(1) of the Income Tax Act, R.S.C., 1985, c. 1 (5th Supp.). Therefore, the taxpayers in that case had not discharged their onus of showing that the relationship in issue carried with it an expectation of confidentiality sufficient to meet the first Wigmore principle.

30Likewise, while an employer can expect that an employee will adhere to its contractual obligations to maintain confidentiality, it cannot possibly expect that the employee will maintain that confidentiality in the face of a summons issued by the OSC pursuant to its statutory powers under s. 13 of the Act. To hold otherwise would encourage an employer to deliberately exclude the language "except for disclosure required by law" from the confidentiality provisions in an employment agreement, in order to insulate the employer from investigation by securities regulators. I cannot accept that position. The Applicant has failed to meet the first Wigmore criterion.

31With respect to the second Wigmore criterion, there is no evidence to establish that the element of confidentiality was essential to the full and satisfactory maintenance of the relation between the parties. The only evidence that the Applicant has provided is that there was the Confidentiality Clause in the employment agreement. In Tower, at para. 42, the court differentiated between confidentiality being desirable and the relationships depending on confidentiality for their existence. In this case, the Applicant has provided no evidence that the confidentiality element was integral to the relationship, that the employer would not have hired the Applicant without the Confidentiality Clause, that the Applicant actually received or dealt with confidential information, or that the clause included in the Applicant's employment agreement was anything more than a boilerplate term. The Applicant has failed to meet the second Wigmore criterion.

32The OSC concedes that the third criterion of the Wigmore test is met, namely that in general, the relationship between employer and employee is one which in the opinion of the community ought to be sedulously fostered.

33The fourth Wigmore criterion is that the injury to the relationship from the disclosure of the communications must be greater than the benefit gained for the correct disposal of the litigation. This is a balancing exercise for the court, as set out in Tower, at para. 46:

The Taxpayers have not shown that any public injury would occur should these tax accountant-client communications continue to be subject to review by the Minister. Innumerable tax accountant-client relationships have functioned fully in the past notwithstanding the Minister's opportunity to review their communications. Whatever the public injury feared by the Taxpayers may be, it has not precluded the full and satisfactory maintenance of those past relationships despite the Minister's powers of review. If tax accountant-client communications are subject to the spectre of case-by-case privilege, the harm done to the verification and enforcement of the Act would be considerable, and would outweigh whatever injury, if any, that would inure to such relationships. Overall, in my analysis, the balancing of public interests favours disclosure.

34In this case, the OSC has provided the affidavit evidence of Michael Ho, a Senior Forensic Accountant in the Enforcement Branch of the OSC. He states that the OSC has compelled testimony from numerous employees in the course of conducting investigations and is not aware of a witness ever refusing to answer questions about their employment on the basis of confidentiality concerns. There is no evidence that the exercise of this power has caused injury to those employer-employee relationships in the past nor has the Applicant tendered any evidence that being compelled to answer Staff's questions will cause injury to the Applicant's employment relationship in this case. The potential injury of compelled disclosure in a Staff interview to the employer-employee relationship is not grounded in any evidence before the court and is entirely speculative.

35The Divisional Court has recognized the important public interest role that the OSC has in protecting both investors and the proper functioning of capital markets: Wilder v. Ontario (Securities Commission), 2000 CanLII 29062 (ON SCDC), 47 O.R. (3d) 361 (Div. Crt.), at para. 20. The court noted that ensuring proper disclosure and maintaining the integrity of its processes are an important part of the Commission's public interest role. I accept the OSC's submission that the integrity of the OSC's investigatory process, including compelled production of documents and evidence from witnesses, is important to this public interest role.

36I am satisfied that the balancing exercise weighs in favour of disclosing the Information. Based on the evidentiary record before me, the OSC's public interest role in protecting the investing public far exceeds any potential damage to the employer-employee relationship.

37The Applicant has failed to satisfy three of the four Wigmore criteria. The Information is not protected from disclosure under case-by-case privilege and can be the subject of compelled testimony pursuant to the s. 13 Summons.

Orders and Declarations

38The Application is dismissed.

39The OSC seeks two declarations, to send a message to those receiving a s. 13 summons that they should attend their examinations and answer all relevant questions rather than seek directions or declarations from this court. The Applicant takes no position on the declaratory relief sought by the OSC, although submits that the declarations are overly broad and do not incorporate the right of a person to claim privilege under s. 13(2). I agree. I am prepared to grant the requested declarations but have narrowed the wording provided by the OSC and have reflected the provisions of s. 13(2).

40I grant the following declarations:

(a) upon Staff serving the Applicant with a s. 13 summons, the Applicant was required to attend, and continues to be required to attend, an examination and answer all questions arising from the OSC's investigation order, subject to any claim of privilege to which the Applicant is entitled; and

(b) it is improper for the Applicant to refuse to answer relevant questions arising from the investigation order, regardless of any confidentiality obligations owed under the Applicant's employment agreement, subject to any claim of privilege to which the Applicant is entitled.

41Counsel have confirmed that neither party seeks costs of the Application or Cross-Application.

42In light of the ongoing Investigation and the confidentiality provisions of ss. 16 and 17 of the Act, the existing sealing order will continue in effect until further court order. The sealing order does not apply to these Reasons for Decision.

Footnotes

1. 1On June 5, 2020, Staff served the Applicant with a second summons requiring them to produce various documents concerning their employer. On June 18, 2020, the Applicant's counsel advised Staff that the Applicant had made a diligent search of their records and had no documents that were responsive to the summons. The second summons is not in issue before me.
2. 2Staff did not bring a contempt motion against the Applicant as it considered the Applicant was acting in good faith in seeking directions from the OSC and the court.
3. 3See St. Elizabeth Home Society v. Hamilton (City) (2008), 89 O.R. (3d) 81, 2008 ONCA 182, at para. 38, in which the Court of Appeal makes it clear that a person asserting privilege is entitled to have that claim adjudicated by the court before facing contempt proceedings.