In Beaudette v. Alberta (Securities Commission), 2016 ABCA 9, the Alberta Court of Appeal confirmed that the Alberta Securities Commission (the “ASC”) may share information compelled from Alberta residents with authorities abroad such as the Securities and Exchange Commission (the “SEC”) and the US Department of Justice (the “DOJ”).

Background

The governing statutes of the ASC and other securities commissions in Canada grant powers to compel testimony and documents through summonses.[1] These compulsion powers are meant to serve the regulatory function of securities commissions, they are not meant to assist criminal investigations.

To avoid infringing Charter protections against self-incrimination,[2] compulsion powers under securities legislation are restricted in two principal ways. First, the compulsion must be directed towards a legitimate regulatory purpose, not for the predominant purpose of obtaining evidence from the testifier that will be used against him/her in criminal proceedings.[3] Second, a testifier is provided with “use immunity”, which protects against the compelled testimony being used against him/her in a separate proceeding, and “derivative use immunity”, which protects against the use of evidence derived from the compelled testimony against him/her.[4]

In 2014, the Alberta legislature passed Bill 3 which broadened the ability of the ASC to exchange information with other authorities. Section 46(1) of the Alberta Securities Act[5] (the “Act”) authorizes enforcement staff to provide information to governmental or regulatory authorities in Canada and elsewhere, unless “it would not be in the public interest to do so.” Notably, the ASC is not required to enter into any agreement with the receiving authority before providing this information.[6]

Use Immunity (Canada) vs. The Right to Silence (U.S.)

The protection against self-incrimination takes on a very different form in Canada and the United States, as described by the Ontario Court of Appeal:

In Canada, a person has the right not to have any incriminating evidence that the person was compelled to give in one proceeding used against him or her in another proceeding …. Thus, in Canada, a witness cannot refuse to answer a question on the grounds of self-incrimination, but receives full evidentiary immunity in return. In the United States, a witness can claim the protection of the Fifth Amendment and refuse to answer an incriminating question. Once the answer is given, however, there is no protection.[7]

An individual summonsed to give evidence to a Canadian securities regulator, in circumstances where the information may also be of interest to the SEC, is in a very tenuous position. Under Canadian law, the individual is generally not permitted to decline to answer the Canadian regulator’s questions. However, the compelled information may be shared with the SEC and/or the DOJ, who may use the information against the individual in criminal proceedings in the US because they are taken to have waived their Fifth Amendment right to silence.

The Circumstances in Beaudette

The ASC issued a summons to Mr. Beaudette to give evidence in connection with a possible stock manipulation of the securities of an issuer called Sunpeaks. Due to the fact that Sunpeaks was traded on the OTC Bulletin Board, any information regarding stock manipulation would potentially be of interest to the SEC. Mr. Beaudette did not appear in response to his summons and the ASC applied for a finding of civil contempt.

Mr. Beaudette challenged the use of the summons power as being contrary to section 7 of the Charter. Mr. Beaudette argued that the ability to share compelled testimony with foreign regulators, such as the SEC, without a guarantee that he would be afforded use and derivative use immunity in the United States was inconsistent with the principle of fundamental justice that protects against self-incrimination.

The Alberta Court of Queen’s Bench dismissed Mr. Beaudette’s Charter application[8] and he appealed.

Summons Power is Prima Facie Constitutional

The Alberta Court of Appeal upheld the constitutionality of the summons and information sharing powers under the Charter. The Court reinforced the following established legal principles:

  1. Legislation allowing securities regulators to compel testimony is not inherently inconsistent with the Charter, it is only when it is used improperly (i.e. compelling testimony for an improper purpose, such as use in a criminal proceeding) that a Charter breach may occur;[9] and
  2. The Charter does not apply to the actions of foreign regulators in investigating and prosecuting offences within their jurisdiction (i.e. whether they used compelled testimony against an accused in a foreign proceeding).[10]

Weighing in the balance was the fact that Mr. Beaudette did not have any evidence that 1) the ASC had any intention of turning over the compelled testimony to the SEC, or 2) the compelled testimony would actually be used by the SEC.[11] In addition, the possibility of the involvement of the DOJ, which would be responsible for laying any criminal charges, was entirely speculative.

How May These Provisions Be Used?

While the Alberta Court of Appeal decided in Beaudette that these provisions themselves do not prima facie violate the Charter, it did not provide much in the way of guidance as to how they may be used by securities regulators.

The Ontario Court of Appeal has observed in this context that the protection against self-incrimination under the Charter is witness-specific and fact-specific.[12] When Conrad Black challenged the authority of a corporate inspector to compel testimony, the Ontario Court of Appeal found that the dangers associated with self-incrimination in the U.S. were too speculative, notwithstanding that David Radler, an alleged co-conspirator, had pleaded guilty in the U.S.[13] The result in that case was partly influenced by the failure of the parties to follow a process aimed at attempting to resolve conflicts arising from the different approaches to self-incrimination in Canada and the U.S. that had been established by the judge below.[14] Under Ontario’s legislation, there may be room for creativity in attempting to address competing interests and conflicting foreign laws. Because provincial securities legislation varies in subtle but important ways, and the Charter analysis is highly dependent on the facts, advice must be carefully tailored.[15]

Interestingly, in the current draft of the Provincial/Territorial Capital Markets Act, which will likely be implemented in British Columbia, Ontario, Saskatchewan, New Brunswick, PEI and the Yukon in 2017 at the earliest, there is an express provision that requires regulators to enter into an agreement with that foreign authority setting conditions on the use of shared information.[16] The proposed statute does not prescribe what conditions must be included. However, Canadian regulators may wish to include a condition that provides them with the ability to exercise control over the use and derivative use of the information to ensure that witnesses are willing to testify without raising Charter challenges because their rights against self-incrimination are adequately protected.[17]

Conclusion

The Beaudette decision affirms the summons and information sharing powers in the Act. However, there are individual circumstances in which specially adapted protections may be warranted.