On April 4, 2012 the Ontario Superior Court of Justice - Divisional Court dismissed an application for judicial review brought by Deutsche Bank Securities Limited (“DBSL”) of a decision of the Ontario Securities Commission (“OSC”) dismissing DBSL’s application for a hearing and review of a decision of a Hearing Panel of the Investment Industry Regulatory Organization of Canada (“IIROC”). In doing so, the Divisional Court paved the way for IIROC to proceed with its hearing against DBSL in regards to DBSL’s role in the asset-backed commercial paper (“ABCP”) market. The Divisional Court’s decision is significant for two reasons – first, it confirms that IIROC has the jurisdiction to proceed with a hearing arising out of a Notice of Hearing that is the result of a joint investigation between IIROC and other regulators; and second, it notes that IIROC does not irretrievably lose jurisdiction to bring proceedings as a result of its inability to compel non-Member witnesses to attend at IIROC hearings.
DBSL sought in its initial motion before the IIROC Hearing Panel to quash or stay the Notice of Hearing issued against it by IIROC in regards to its role in the ABCP market on the basis that DBSL would be denied procedural fairness at its hearing because IIROC cannot compel the attendance of witnesses who are not IIROC employees or members. DBSL argued that it could not make full answer and defence to the allegations contained in the Notice of Hearing as a result of its inability to compel witnesses. DBSL took the position that although IIROC has a right to participate in a joint investigation with other regulators, as the “inferior forum” to the OSC it has no jurisdiction to hold a hearing into the allegations. DBSL argued that the OSC was the appropriate forum for determining the issues at hand given that the OSC has the power to summons witnesses to attend at a hearing.
The Divisional Court ultimately agreed with both the IIROC Hearing Panel and the OSC in finding that DBSL’s motion to stay the Notice of Hearing was premature. In doing so, the Divisional Court made some important findings with respect to IIROC’s jurisdiction in matters where it has co-operated or obtained information from the OSC or other regulators. The Divisional Court dismissed DBSL’s argument that IIROC had no jurisdiction to proceed with the hearing because it obtained information during the course of its investigation through the OSC’s summonsing powers, finding that IIROC’s by-laws specifically contemplate that it will cooperate with and share information with other regulators for the purposes of investigation and enforcement litigation; and further that an IIROC investigation may be instituted at the request of a securities commission having jurisdiction. The Divisional Court found that having executed a membership agreement with IIROC, DBSL agreed to be bound by IIROC’s rules and by-laws.
The Divisional Court further agreed with both the OSC and the IIROC Hearing Panel that DBSL’s motion for a stay of proceedings was premature as the appropriate time to determine whether DBSL is denied procedural fairness as a result of its inability to call key witnesses is at the hearing itself. The Divisional Court notably found that there was no merit to DBSL’s argument that the IIROC Hearing Panel has irretrievably lost jurisdiction because of its inability to compel non-member witnesses. This is a key finding for IIROC – had the Divisional Court found otherwise, IIROC staff’s ability to take enforcement proceedings against its Members and Approved Persons would have been open to challenge each time a respondent wished to call a non-member witness to testify at a hearing.