Who decides whether responding to summons would violate employment contract? The OSC says ‘not us’

Enforcement Staff of Canadian capital markets regulators have broad powers to compel the attendance of witnesses and to require those witnesses to provide information relevant to matters under investigation. An individual who receives a summons in the course of a formal statutory  investigation by Staff, such as those authorized under s. 11 of the Ontario Securities Act (the “Act”), is required by law to comply or else face sanction. However, individuals who are subject to such summons commonly face challenges in responding to the summons when doing so conflicts with other legal obligations. In a recent application, In The Matter of B, the Ontario Securities Commission (the “OSC, or when referring to the tribunal, the “Commission”) considered an instance in which a party argued that complying with a summons would contravene obligations they had pursuant to an employment agreement. In addressing the applicant’s concerns, the Commission  held that it did not have authority to provide directions on this issue, and it directed the applicant to seek directions from the court.

Background

In this case, the applicant, B, received a summons under s. 13 of the Act requiring B to testify in an examination. Concerned that doing so would violate B’s employment contract (which contained a confidentiality provision), B sought assurance from the Commission that testifying in response to the summons would not breach the employment contract. If the Commission could not provide that assurance, B sought an order authorizing disclosure to the Superior Court of Justice of the existence of the investigation and the summons, in order to seek such assurance from the Court. Staff took the position that B was required under the Act to answer the summons and that the employment contract was no impediment to doing so.

Commission’s decision

According to the Commission, since the Act does not contain any provision that grants the Commission declaratory authority, it could not make any binding declarations as of right between B and B’s employer. The Commission therefore rejected B’s submission that it has the authority to resolve disputes about appropriate questions on an examination pursuant to a summons. It pointed to the fact that s. 13(1) of the Act “explicitly provides a different mechanism for resolving disputes about the propriety of questions put to a summonsed individual”, i.e., a contempt application before the Superior Court of Justice.

The Commission also rejected both Staff and B’s suggestion that s. 154 of the Act offers protection to B. Section 154 provides that a person who discloses information to the Commission in good faith and “in compliance with Ontario securities law” does not breach any contractual provision to which the person is subject. According to the Commission, a person who answers questions in response to a summons is not doing so in compliance with “Ontario securities law” since the Act does not directly require the person to answer the questions, nor can a s. 13 summons be considered a “decision” of the Commission.

What does this decision mean for witnesses going forward?

This decision comes in the midst of a modernization review of capital markets regulation, which has included an examination  of some of the mechanisms currently available in OSC investigations and examinations to resolve issues more efficiently and fairly. The current regulatory regime in Ontario does not provide an avenue for a respondent or recipient of a summons in an OSC investigation to seek advice or directions from the Commission on matters relating to the information requested. In the recent Capital Markets Modernization Taskforce Consultation Report [PDF] (which we have discussed in a previous blog post), the Taskforce recommends creating a process by which persons or companies subject to OSC summons can apply to an OSC adjudicator for clarification or advice relating to the summons or examination. Absent such a process, however, parties seeking clarification about a summons do not have recourse to any procedure within the OSC but must instead seek directions from the courts.

These issues are of great importance to Staff and market participants alike. Watch this Blog for updates and continuing commentary.

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Editors

Lawrence E. Ritchie

Partner, Litigation

Alexander Cobb

Partner, Litigation

Shawn Irving

Partner, Litigation

Kevin O’Brien

Partner, Litigation

Lauren Tomasich

Partner, Litigation

Malcolm Aboud

Associate, Litigation