IIROC Rules: Respondent use of complainant interview in related proceeding is in the public interest
In Re Malic [PDF], 2020 IIROC 37, a decision released on October 6, 2020, the IIROC Hearing Panel (Alberta District) (the “Hearing Panel”) ruled for the first time on the issue of whether the public interest outweighs any prejudice that would result to IIROC, or to a registered firm client, from permitting use of IIROC information in a court application.
In Re Malic, the Hearing Panel granted the respondent’s motion to permit the use of the transcript of IIROC’s staff’s interview of the complainant in a related civil proceeding. The Hearing Panel specifically held that the public interest favouring the motion outweighed any resulting prejudice.
This case is consistent with the approach taken by the courts where discovery material in one action is sought to be used in another action with similar parties and issues and with IIROC Rule 8420(5), which gives blanket permission to use information obtained in an IIROC proceeding “to impeach the testimony of a witness in another proceeding”.
Gordon Albert Malic (“Malic”), a Registered Representative at Mackie Research Capital Corp. in Alberta, is the Respondent in an IIROC disciplinary proceeding. He is also the defendant in a civil action commenced by his former client, HW. HW is also a complainant in the IIROC proceeding. The allegations in the IIROC proceeding are that Malic failed to report and address a material conflict of interest, which arose when his clients invested in Malic’s outside business activities, and that Malic failed to inform his employer of these outside business activities and misled them about his involvement in them. Two of the clients who invested in Malic’s outside business activities lost a significant portion of their investments. The Statement of Allegations can be found here [PDF].
Pursuant to the disclosure requirements in IIROC Rule 8417(1), IIROC staff provided Malic with certain documents that were attached as Exhibits A and B to the affidavit of Malic filed in support of the motion before the Hearing Panel. Exhibit A is a copy of the complaint letter to IIROC, prepared by HW’s counsel, and Exhibit B is a copy of the transcript of HW’s interview with IIROC staff (collectively, the “IIROC Information”).
Malic brought a motion to seek permission from the Hearing Panel, under IIROC Rule 8420(6) [PDF], to use the IIROC information for the purpose of making an application in the civil action. The purpose of the application in the civil action would be to request the court’s permission to use HW’s transcript from the civil action in the IIROC proceeding.
The main issue on the motion was whether the public interest outweighed any prejudice that would result to IIROC, or to HW, from permitting Malic to use the IIROC information in the civil application. There were no previous IIROC decisions on this issue.
Counsel for Malic submitted that the relative weight of the public interest and resulting prejudice are reflected by IIROC Rule 8417(1), which requires disclosure of everything “relevant to the respondent’s ability to make full answer and defence” and especially, by Rule 8420(5), which gives blanket permission to use information obtained in the IIROC proceeding “to impeach the testimony of a witness in another proceeding”.
Counsel for IIROC staff submitted that the motion prejudiced IIROC because it delayed the IIROC proceeding, which conflicts with the purpose of the IIROC Rules to secure “fair and efficient proceedings” emphasized in Rule 8401. HW’s counsel submitted that the deemed undertaking in Rule 8420(3), together with other provisions in IIROC’s Rules, intend to protect the privacy of complainants and witnesses. Counsel also submitted that the IIROC information was not necessary to the civil application, which the Hearing Panel did not accept.
The Hearing Panel granted the motion to permit the use of the transcript of HW’s interview, produced as part of the disclosure in this proceeding, to be used for the purposes of an application to the Court of Queen’s Bench of Alberta, pursuant to Rule 5.33(1)(a) of the Alberta Rules of Court. The Panel held that the public interest favouring the motion outweighed any resulting prejudice, in light of the purpose of the civil application and IIROC Rule 8420(5).
According to the Hearing Panel, Rule 8420(5) codifies the common law, as it applies within IIROC’s limited sphere. Specifically this Rule attaches significant weight to the public interest value of what the Alberta courts have described as “protecting the integrity of the oath”. The Panel quoted Jomha v. McAllister, 2008 ABQB 597, to demonstrate the correspondingly insignificant weight to the resulting prejudice (at para 20):
[A]ny possible “injustice” to the Plaintiff can only be the potential for the Defendant to test inconsistencies or inaccuracies in the Plaintiff’s evidence at trial. This is not the type of “injustice” which would justify the court’s protection.
The Hearing Panel drew an analogy to an order for production of a discovery transcript from another action, which the courts have held “should be almost automatic”, specifically because “it is the possibility of there being inconsistent statements which triggers the special reason for the production of the discovery transcript” (Jomha at paras 9-10).
In recent years, IIROC has gained increased enforcement powers in several provinces, including Alberta, as discussed here. On June 25, 2020, the CSA reviewed the current regulatory framework for IIROC and identified benefits and issues of the current SRO system, as discussed here. One of the identified issues was that of public confidence in the regulatory framework, as some stakeholders perceived the SROs as being dominated by the industries they are supposed to regulate. The targeted outcome identified by the CSA is a regulatory framework that promotes a clear, transparent public interest mandate.
IIROC has now set a precedent that providing complainant transcripts to a respondent for use in a related action is “so clearly in the public interest”. This may discourage complainants from reporting breaches to IIROC and may also conflict with the recent trend in securities law towards incentivizing whistleblower tips. This decision sheds further light on IIROC’s approach to its public interest mandate and may assist the CSA in pursuing improvements to the SRO framework.