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Third Party Ordered To Produce Documents To Respondent In Ontario Securities Commission Proceeding

Author(s): Christopher Naudie, Alexander Cobb

Sept 6, 2012

In a recent decision, the Ontario Superior Court of Justice has ordered a third party – a receiver appointed pursuant to a court order – to disclose documents to a respondent in a proceeding before the Ontario Securities Commission (the OSC), in order to permit the respondent to make full answer and defence.  SA Capital Corp. v. Mander Estate has the potential to expand the circumstances in which a non-party to an OSC proceeding may have to respond to document requests.

Mander arises out of an alleged Ponzi scheme carried out through various corporations.  RSM Richter Inc., now Duff & Phelps Canada Restructuring Inc. (the Receiver), was appointed as receiver of one company and the individual alleged to have been the driving force behind the Ponzi scheme.  The Receiver was subsequently appointed, pursuant to the Securities Act, as receiver of a second group of companies whose principal was Dr. Peter Sbaraglia.  Dr. Sbaraglia was named as the respondent in a proceeding, commenced in February, 2011, pursuant to s.127 of the Securities Act.  It is alleged that Dr. Sbaraglia acted contrary to the public interest by, among other things, misleading investors, misappropriating funds and misleading OSC Staff (Staff).

Dr. Sbaraglia received full disclosure from Staff of all relevant, non-privileged information in the Staff’s possession or control.  The right of an accused to receive full disclosure from the Crown in a criminal prosecution is established in the Supreme Court of Canada’s decision in R. v. Stinchcombe, and it is well established that Staff may have an obligation to make Stinchcombe-level disclosure in administrative hearings before the OSC.

However, Dr. Sbaraglia also sought access to documents that were not in Staff’s possession or control; namely, documents that the Receiver had gathered in the course of carrying out its duties under the Court orders appointing it.  During the course of its investigation, the Receiver had interviewed a number of people, assembled paper records and recovered deleted computer files.  Dr. Sbaraglia applied to the Court for an order compelling the Receiver to produce this material to him in order that he could make full answer and defence to the charges against him.

In R. v. O’Connor, the Supreme Court of Canada held that in a criminal case, a third party may be ordered to produce information where the accused cannot obtain the information elsewhere and the information is likely relevant to the case against the accused, and after considering a number of other factors.  Dr. Sbaraglia applied to the Court for an order requiring the Receiver to produce records in its possession, applying the O’Connor principles to the s.127 proceeding.

The Court accepted that the O’Connor principles could be applied to the s.127 proceeding, and ordered the Receiver to make production of certain of the records requested.  The Receiver objected, in particular because it was under a duty to use information gathered solely for the purposes of the proceeding in which it was appointed.  The Court did not accept this argument, holding that the O’Connor principles “are of general application to records held by all third parties, regardless of whether they are private citizens, government agencies or court officers.”

This decision, which is currently under appeal, may well give rise to an increase in OSC respondents seeking production of documents from third parties, particularly given the Court’s apparent wholesale adoption of the O’Connor principles in the context of the s.127 hearing1.  Given the Court’s broad interpretation of the applicability of O’Connor, auditors, receivers, consultants and many others may find themselves responding to applications for the production of records in their possession.  Although the onus on the party seeking production from a non-party is high, respondents who are dissatisfied with Staff’s disclosure may start bringing O’Connor applications more frequently in light of the Mander decision.

1 There is precedent for the application of the O’Connor principles in a criminal prosecution under the Securities Act: see R. v. Gouveia, [2005] CarswellOnt 5173 (Ont. Ct. Jus.).  However, Mander appears to be the first reported decision in which the O’Connor principles have been applied in an administrative hearing under s.127.