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The recent publication of  model national securities legislation brings into sharp focus the lack of an effective mechanism for protecting the rights of Canadians against self-incrimination when evidence compelled from them is shared with foreign regulators.

Charter protections

A person who is compelled to testify pursuant to an investigation order made by a provincial securities commission has the protection of s. 13 of the Canadian Charter of Rights and Freedoms, which prevents the witness’s testimony from being used to incriminate him in a subsequent proceeding (use immunity) and also from having evidence derived from that testimony used against him (derivative use immunity).

In Ontario, the witness can claim the protection of s. 9 of the Ontario Evidence Act to prevent his compelled testimony from being used to establish his liability in a subsequent civil or regulatory proceeding.

These protections were described by the Supreme Court of Canada in R. v. Noel, [2002] S.C.J. No. 68 as an important “quid pro quo” between state and witness. The state prevents the subsequent use of compelled testimony against the witness, in exchange for the witness’s full and frank testimony.

This bargain between state and witness falls apart when a securities regulator can turn the individual’s testimony over to a foreign regulator that does not recognize use and derivative use immunity. Unlike Canadian law, in the U.S. a witness may “take the Fifth [Amendment]” and refuse to answer a question because the answer is incriminating.

By obtaining testimony that has already been compelled under Canadian securities laws, the U.S. Securities and Exchange Commission (SEC) can avoid the fifth amendment. Use of the testimony in proceedings south of the border may deprive the witness of the Charter protections of use and derivative use immunity.

Ontario Securities Act

Section 16 of the Ontario Securities Act requires that testimony compelled pursuant to an investigation order remain confidential and can only be disclosed by order of the Ontario Securities Commission  under s. 17. Section 17 mandates that the Commission give notice to the person who gave the testimony before making a disclosure order, and an opportunity for that person to make submissions.

Section 17 also requires the written consent of the witness to the disclosure of his testimony to any authority responsible for the enforcement of the criminal law of Canada or of any other jurisdiction. However, there are no statutory provisions limiting the use that can be made of the testimony once disclosed to another regulator.

Section 17 was recognized by Justice Colin Campbell in A. v. Ontario Securities Commission, [2006] O.J. No. 1768 as providing some measure of protection against the disclosure of compelled testimony to the SEC in circumstances where there might be a loss of the witness’s protection against self-incrimination. In A., Justice Campbell denied an application to quash a commission summons issued to A., who argued that there was a risk that his testimony would be shared with the SEC and used against him by American authorities without regard for his Charter protections.

Justice Campbell considered that the Commission’s independence from and duty to supervise staff also provided a layer of Charter protection. To the extent that further protection might be appropriate in relation to the examination of A., the court could be approached to intervene.

Model legislation

The model national securities legislation (the Model Act) by the Hockin Expert Panel, which appears to mirror similar provisions in the Alberta Securities Act, contains no restrictions like those found in s. 17, nor any other protective mechanism. There is no requirement that notice or an opportunity to be heard be provided to the witness prior to the disclosure of his testimony, nor any prohibition on the release of compelled testimony to police agencies. The decision to release compelled testimony would be made by the executive director of the Commission, who is described in the Model Act as “the chief administrative officer” of the Commission, and not by the Commission itself.

Lack of protection

In Alberta (Executive Director of Securities Commission) v. Brost, [2008] A.J. No. 250, the Alberta Court of Queen’s Bench decided that the Alberta legislation’s lack of protections like those found in s. 17 does not jeopardize a witness’s Charter rights, because the Charter does not apply to proceedings outside Canada where the incriminatory use of the evidence might occur.

This decision is wrong. Surely Canadian securities commissions have an obligation to conduct investigations and make decisions about the sharing of evidence in a manner that respects Charter rights. Although few would quarrel with the Supreme Court of Canada’s characterization of inter-jurisdictional cooperation among securities regulators as “indispensable” (see Global Securities Corp. v. British Columbia (Securities Commission), [2000] S.C.J. No. 5), the provisions of the Model Act dealing with information sharing are a step in the wrong direction.

Rather than leaving it to courts and regulators to develop protections on an ad hoc basis, guarantees for witnesses should be built into Canadian securities legislation. At a minimum, securities legislation should expressly prohibit the disclosure of compelled testimony to another authority absent an undertaking by the receiving authority that it will not use the testimony in a manner inconsistent with Canadian Charter and Evidence Act protections.

Linda Fuerst is a partner at Lenzcner Slaght Royce Smith Griffin LLP in Toronto, with significant experience in securities litigation and regulatory issues.