© 2015 Cassels Brock & Blackwell LLP. Cassels Brock and the CB logo are registered trademarks of Cassels Brock & Blackwell LLP. All rights reserved. 1 “Untapped” – The Risk of Wiretap Evidence Falling into the Hands of Civil Litigants A. Introduction In the aftermath of the global financial crisis and growing public mistrust, the investigation and prosecution of corporate misconduct has become a renewed focus and priority globally for law enforcement agencies. This has led to a dramatic shift in the use of aggressive investigative techniques to detect and prosecute corporate wrongdoing, especially in the area of financial and market crimes, and in broadening the scope of corporate liability. Canadian and US police agencies and regulators are using (or have announced their intention to use) a broader range of aggressive investigative tools, traditionally reserved for serious criminal offences such as narcotics and organized crime offences, including wiretaps, search warrants and wired informants, to investigate and prosecute financial crimes. The increasing use of such aggressive investigative techniques raises serious concerns regarding what use can be made of the fruits of the state investigation in parallel civil or regulatory proceedings. While the risk that criminal evidence could be used in parallel civil or regulatory proceedings is not new, the recent Supreme Court of Canada decision in Imperial Oil v Jacques (et al)1 Of concern for corporations is the prevalence of parallel class action proceedings in close proximity to external investigations of corporate misconduct and the increased risk following Imperial Oil that such evidence will be available to class counsel before its admissibility has been tested in the criminal context, notwithstanding the significant privacy rights of corporate defendants and third parties. Further, putting select and untested evidence of private conversations into the hands of private civil litigants at such an early stage allows them the benefit of extraordinary and highly intrusive state powers, creates the opportunity for unfair leverage in such proceedings and complicates the difficult strategic issues relating to managing parallel civil and criminal proceedings. (“Imperial Oil”) has opened the door to allow private civil litigants access to state-obtained wiretap evidence at an earlier stage of a criminal proceeding, prior to any ruling on the admissibility or legality of such interceptions, and appears to have shifted the balance away from the protection of the strong privacy interests at stake and other public interest considerations. These issues are increasingly significant given other recent developments, including the commitment of Canadian law enforcement and regulatory agencies to seek expansion of the enumerated offences under the Criminal Code of Canada2 1 2014 SCC 66 [Imperial Oil]. (the “Criminal Code”), for which the use of enhanced investigative tools, such as wiretaps, is permitted and the expansion of criminal and quasi-criminal investigations and prosecutions of corporate misconduct by other regulatory agencies. 2 RSC 1985, c C46 [Criminal Code] May 2014 By Wendy Berman and Jonathan Wansbrough This paper was prepared with the assistance of Belinda Chiu, articling student at Cassels Brock & Blackwell LLP. “Untapped” – The Risk of Wiretap Evidence Falling into the Hands of Civil Litigants © 2015 Cassels Brock & Blackwell LLP. Cassels Brock and the CB logo are registered trademarks of Cassels Brock & Blackwell LLP. All rights reserved. 2 B. The Canadian Wiretap Regime The use of wiretap and other electronic surveillance is recognized as a highly intrusive form of government investigation in Canada and elsewhere. In Canada, the regime for the interception of private communications through the use of wiretaps is governed by Part VI of the Criminal Code titled "Invasion of Privacy" 3 , evolved from telephone-related and privacy legislation and was modeled after US wiretap laws.4 Wiretap interceptions were originally only authorized for narrowed designated serious offences such as murder, hostage taking, drug trafficking5 and terrorism6 and were subsequently expanded to include the investigation of “less egregious” offences such as: criminal interest rates, corruption, fraud, false messages, certain anti-trust violations, unlawful sales of tobacco; offences that, without electronic surveillance, are very difficult to investigate and prosecute.7 Recently, Canadian securities regulators have indicated a desire to seek amendments to the Canadian criminal regime to include insider trading, tipping and other capital marketrelated offences as designated offences for which wiretaps can be authorized and to employ more aggressive investigative techniques, including electronic surveillance. 8 In addition, the Ontario Securities Commission has created a specialized unit in partnership with certain police authorities, the Joint Serious Offences Team9 , to investigate and prosecute criminal and quasi-criminal violations of securities laws including through the use of criminal investigative techniques such as wiretaps. 10 3 Criminal Code; other Canadian laws have relevant provisions such as: (i) the Canadian Security Intelligence Service Act, RSC 1985, c C-23 at s 23, and (ii) the Ontario Telephone Act, RSO 1990, c T 4, but are not as frequently used and are not as relevant as the Criminal Code for the purposes of insider trading. 4 Robert W. Hubbard, Peter M. Brauti & Scott K. Fenton, Wiretapping and Other Electronic Surveillance: Law and Procedure, (Aurora: Canada Law Book Inc., 2000) at Chapter 1 [Hubbard]. 5 Ibid at 1.2.2. 6 Canada’s Anti-Terrorism Act, SC 2001, c 41 amended the Criminal Code made wiretap authorization more accessible for terrorism and terrorist-related offences, and extended the duration such electronic surveillance. 7 Hubbard at 1.2.2. 8 OSC, Notice, Notice 11-770, “Notice of Statement of Priorities for Financial Year End to March 31, 2015” (26 June 2014), online: at page 10. 9 .JSOT is a partnership between the OSC, the Ontario Provincial Police (“OPP”) Anti-Rackets Branch and the RCMP’s Financial Crime program. Upon formation, JSOT was staffed with 20 people, including former police officers, former Crown attorneys and forensic accountants. Certain JSOT investigators are designated as special constables and authorized to obtain wiretap evidence and other electronic surveillance evidence. See Howard Wetston, OSC Priorities for Today’s Capital Markets (Speech delivered at the Toronto Region Board of Trade, 27 March 2014), online: Ontario Securities Commission, online: . [Wetston speech] 10 OSC, Notice, Notice 11-770, “Notice of Statement of Priorities for Financial Year End to March 31, 2015” (26 June 2014), online: at page 10. “Untapped” – The Risk of Wiretap Evidence Falling into the Hands of Civil Litigants © 2015 Cassels Brock & Blackwell LLP. Cassels Brock and the CB logo are registered trademarks of Cassels Brock & Blackwell LLP. All rights reserved. 3 By way of comparison, other jurisdictions such as the US, the United Kingdom, and Australia have similar safeguards in place concerning the authorization of wiretaps and electronic surveillance.11 While similar in terms of when wiretaps may be used in the course of a criminal investigation, Canada, the US and Australia permit the admission of wiretap evidence and intercepted communications in court12 whereas the UK prohibits such admissibility, including any questions, assertions or disclosure in proceedings that result from lawful interception or would reveal that lawful interception was used.13 The UK’s approach derives from the historic purpose of surveillance as an investigative and intelligence tool to detect crime rather than as an evidentiary rule for the prosecution of criminal wrongdoing.14 The recent attraction of Canadian police and regulatory authorities to the use of wiretaps, is likely driven by the success of the US Department of Justice in employing similar investigative techniques in a recent high profile insider trading ring investigation. 15 Access to and use of such investigative tools, together with increased collaboration, cooperation16 11 The US Federal Wiretap Act, commonly known as “Title III,” 18 USC §§ 2510-2522 (“Title III”); Australia’s Telecommunications (Interception and Access) Act 1979, No. 114, 1979 (“TIA”); and the UK’s Regulation of Investigatory Powers Act, 2000 (c. 23) (“RIPA”). and the consolidation of resources between law enforcement agencies, will likely increase the prevalence of wiretap authorizations in investigations and prosecutions of corporate misconduct. The Imperial Oil decision concomitantly raises the spectre of increased disclosure requests by civil litigants for the fruits of such wiretap authorizations. 12 In Canada and the US, criminal judges hold hearings to determine the admissibility of wiretap evidence and any constitutional implications and in Australia an “evidentiary certificate” must be provided to the court, in accordance with the TIA. 13 UK, Home Office, Privy Council Review of intercept as evidence: report to the Prime Minister and the Home Secretary (Independent report, Cm 7324) (Norwich: The Stationary Office, 2008), online: at para 20. 14 Attorney General’s Reference No. 5 of 2002,  1 AC 167 at 174. 15 In 2009, US Department of Justice, regulatory and police entities launched “Operation Perfect Hedge”; an enforcement effort targeting hedge funds suspected of committing insider trading offences. Central to Operation Perfect Hedge was the increased use of wiretaps and wired informants. The operation resulted in a number of high-profile convictions for insider trading offences, including billionaire hedge fund manager Raj Rajaratnam (Galleon Management) and head of McKinsey Consulting Rajat Gupta. In June 2014, the US Supreme Court declined to consider Mr. Rajaratnam’s challenge to the admissibility of the wiretap evidence used to obtain his conviction, suggesting that wiretaps will continue to feature as an enforcement tool in the US into the near future. 16 In addition to the formation of JSOT and increased cooperation with IMET, the Competition Bureau and the OSC announced on November 25, 2014 that they have signed a Memorandum of Understanding to increase interagency cooperation, including in the areas of information sharing and providing assistance in investigations, litigation and enforcement actions. “Untapped” – The Risk of Wiretap Evidence Falling into the Hands of Civil Litigants © 2015 Cassels Brock & Blackwell LLP. Cassels Brock and the CB logo are registered trademarks of Cassels Brock & Blackwell LLP. All rights reserved. 4 C. Imperial Oil Raises the Risk of Wiretap and Other Surveillance Evidence Being Disclosed in Parallel Civil Proceedings As stated at the outset, of particular concern to corporations, and their directors and officers, is the practical reality that criminal, quasi-criminal and regulatory investigations increase the likelihood of parallel civil proceedings, including class actions. 17 Recent Canadian examples include the securities class action commenced against SNC-Lavalin Group Inc. amid allegations of foreign corrupt practices 18 and the securities class action commenced against Sino-Forest Corporation following publication of a short-seller research report and in close proximity to a securities regulatory fraud investigation and prosecution.19 The Imperial Oil case involved a class action which arose following an investigation launched by the Competition Bureau into a potential conspiracy to fix retail gas prices in certain parts of Québec (the “Octane Investigation”). During the course of its investigation, the Competition Bureau sought and obtained wiretap orders under the Criminal Code and ultimately intercepted and recorded over 220,000 private conversations. Criminal price fixing charges were subsequently laid against 54 individual and corporate defendants. Unfortunately, the Supreme Court’s decision in Imperial Oil raises additional complications in managing the difficult strategic issues relating to parallel civil and criminal proceedings. 20 Following the criminal charges, a parallel class action was commenced in Québec against certain of those charged and others, including Imperial Oil, for damages caused by the alleged illegal price fixing scheme. The class plaintiffs sought a third party disclosure order Imperial Oil was not charged but was a party to the class action. 17 According to The Wall Street Journal, an increased focus by the SEC in FY2014 on bringing accounting-fraud enforcement cases, up 46% from the prior year, correlated to a corresponding increase in the number of securities class actions alleging accounting fraud, with 69 cases filed in 2014, up from 47 in 2013. See Michael Rapoport, “ClassAction Lawsuits Follow SEC Interest in Accounting Issues,” The Wall Street Journal (31 March 2015), online: . 18 The class action was commenced after SNC-Lavalin announced in February 2012 that it was conducting an internal investigation into allegations that it bribed foreign public officials to secure contracts in a number of foreign countries. Since that time, the company has remained the subject of an ongoing investigation in Canada and several other countries over bribery allegations relating to activities in Libya, Bangladesh and elsewhere. In addition to charges laid against a number of former individuals connected with SNC-Lavalin, on February 19, 2015, SNC-Lavalin and two related entities were charged with one count of foreign corruption contrary to the Corruption of Foreign Public Officials Act and one count of fraud under the Criminal Code. 19 The securities class action was commenced against Sino-Forest Corporation in June 2011, after the publication of the now infamous report released by Muddy Waters Research that same month. The OSC subsequently commenced proceedings against Sino-Forest and certain of its former executives in May 2012; See OSC, News Release, “OSC Alleges Fraud Against Sino-Forest Corporation and Former Senior Executives” (22 May 2012), online: . 20 Imperial Oil at 2-3. “Untapped” – The Risk of Wiretap Evidence Falling into the Hands of Civil Litigants © 2015 Cassels Brock & Blackwell LLP. Cassels Brock and the CB logo are registered trademarks of Cassels Brock & Blackwell LLP. All rights reserved. 5 under article 402 of the Québec Code of Civil Procedure21 The Québec Superior Court granted the plaintiffs’ request and ordered the Competition Bureau and the DPP to provide class counsel and their experts with the wiretap recordings that had been disclosed to the accused in the criminal proceedings. to compel production from the Competition Bureau and the federal Director of Public Prosecutions (the “DPP”) of the wiretap evidence gathered in the course of the Octane Investigation. 22 This Court held that the Criminal Code23 The Court of Appeal for Québec dismissed the defendants’ motion for leave to appeal this decision but approved the reasons of the lower court. allows for production in civil proceedings and that the right of access to wiretap recordings must be weighed to strike an appropriate balance between the rights of the parties and the proper administration of justice. The importance and reliability of the wiretap evidence in the “search for truth” and the court’s view that the privacy rights were protect by the implied duty of confidentiality were important factors in this weighing exercise. 24 On appeal, the SCC considered, among other issues, whether the electronic communications intercepted during the course of a criminal investigation should be disclosed to the parties to the civil proceedings. The majority of the SCC upheld the decision of the Québec Superior Court and confirmed that: • neither the Criminal Code nor the Competition Act otherwise prohibit disclosure of wiretap recordings for use in civil proceedings • Courts have discretion under Québec’s procedural rules to order production of wiretap evidence from third parties, such as the Competition Bureau and the DPP, to aid in the “search for the truth.” Although such disclosure provisions are interpreted broadly, limits may be necessary to avoid harming the interests of third parties and to avoid “fishing expeditions.”25 • In exercising its discretion regarding disclosure, courts should consider, inter alia, the relevance of documents to the issues between the parties; the extent to which the 21 CQLR c C-25. 22 Belanger J. also ordered that the wiretap recordings be screened to protect the privacy of third parties having nothing to do with the class action. 23 Section 193 of the Criminal Code creates an offence for disclosure of information intercepted by electronic devices and provides certain exemptions from liability including for the purpose of giving evidence in any civil or criminal proceedings. 24 Imperial Oil at 6 and 13. The Québec Court of Appeal held that the Superior Court’s decision was not one from which an appeal would lie but approved the reasons that court had given. The Supreme Court of Canada held that it had jurisdiction to hear the appeal on its merits. 25 Imperial Oil at 31. “Untapped” – The Risk of Wiretap Evidence Falling into the Hands of Civil Litigants © 2015 Cassels Brock & Blackwell LLP. Cassels Brock and the CB logo are registered trademarks of Cassels Brock & Blackwell LLP. All rights reserved. 6 privacy of a party or of a third party to the proceedings is invaded and the importance of remaining sensitive to the duty to protect a person’s privacy that flows from the Charter and the Civil Code of Québec; 26 Interestingly, the Attorney General of Québec and the DPP supported the position that neither the Criminal Code nor any other rule of federal law prohibits the disclosure of wiretaps that would be relevant in the provincial civil proceedings. The Attorney General of Ontario took a more cautious approach to the protection of privacy and other interests and argued that the production of any wiretap evidence in the possession of a party to the civil proceedings should take place within the analytical framework established by the Ontario Court of Appeal in P.(D.) v. Wagg the efficient conduct of criminal proceedings and the accused’s right to a fair trial and proportionality. 27 While recognizing that rights to privacy and to a fair trial are fundamental rights, the SCC nonetheless rejected the notion that private communications intercepted by the state should be used only for the purpose for which they were obtained; that is, the investigation, prosecution and suppression of criminal conduct. The SCC focused on disclosure rights in the civil context, stating that “[t]he ultimate aim of any trial, criminal or civil, must be to seek and to ascertain the truth” and that in an adversarial system “the delicate task of bringing the truth to light falls first and foremost to the parties.” and where the state is in sole possession of the wiretap evidence the burden to justify disclosure should be much higher. 28 The relevance and probative value of the wiretap evidence29 Finally, the SCC did not adopt or recognize the analytical framework established in Wagg and in particular, the requirement for an additional heightened screening mechanism to in this case appears to overwhelm any privacy and fairness issues. There is little discussion of the underlying purpose and fundamentally confidential and protective nature of Canada’s wiretap regime designed to protect privacy and minimize intrusion by allowing for interception of private communications only for the narrow purpose of combating serious crime. The SCC gives little guidance on the factors or level of consideration to be given to balancing the privacy issues, social values and public interest at play in the context of the production of state intercepted private conversations, including the recording of potentially highly personal and intimate conversations, the impact on third parties potentially affected and the impact on the efficient conduct of ongoing criminal proceedings or the right to a fair trial. 26 Imperial Oil at 29. 27 (2004), 71 OR (3d) 229,  OJ No 2053 [Wagg]. 28 Imperial Oil at 25. 29 The majority of the SCC stated “Moreover, and particularly to the extent that the plaintiffs in the action in the instant case are trying to show that there was collusion among the defendants, there is every reason to believe that the recordings sought in the motion will be useful for the conduct of the proceedings.” “Untapped” – The Risk of Wiretap Evidence Falling into the Hands of Civil Litigants © 2015 Cassels Brock & Blackwell LLP. Cassels Brock and the CB logo are registered trademarks of Cassels Brock & Blackwell LLP. All rights reserved. 7 assess “whether there is a prevailing social value and public interest in non-disclosure in the particular case that overrides the public interest in promoting the administration of justice through full access of litigants to relevant information.”30 In respect of the serious infringement on privacy rights, the SCC drew a distinction between the interception of private communications and communications that have already been intercepted, with the latter being subject to disclosure in civil proceedings to serve other legitimate purposes, such as truth-finding, procedural fairness and ensuring the efficiency of the judicial process. The majority’s decision places significant emphasis on the importance of civil litigants being able to ascertain the “truth” during the trial process; however, it fails to balance this against the interests (including privacy interests) of the accused. Disclosing this wiretap evidence prior to the criminal trial and any challenge to its admissibility or authenticity, puts essentially untested evidence of private intercepted conversations into the hands of civil litigants, notwithstanding that the targets may later be vindicated in the criminal proceeding, and arguably gives such litigants unfair leverage in any resolution discussions. Moreover, allowing civil litigants access to the fruits of the state’s invasive investigative arsenal at a such an early stage in the criminal process seems fundamentally at odds with the underlying foundation of protection of privacy for the creation of Canada’s wiretap regime and the extensive confidentiality safeguards included in the regime. Prior to any determination of legality of the wiretap evidence in the criminal proceedings, a civil court is likely unable to adequately and properly balance the public interest in discovery against the relevant privacy interests. The fruits of such invasive state intrusion should remain available only for the purpose of suppressing criminal conduct and the safeguards should remain intact until a later stage in the criminal proceeding. It is small solace and a fine distinction to say that the foundational purposes and protections fall away once the wiretap recording is made. The privacy rights and the rights of the accused to a fair trial are somewhat illusory if they do not exist at least until the legality and admissibility of the wiretap evidence has been tested and upheld in the criminal proceeding.31 In her dissent, Justice Abella succinctly highlights the serious implications of the majority’s approach, stating that “to permit litigants in a civil case to get disclosure of 30 Wagg at 17. 31 In the US case involving Rajaratnam relating to the Operation Perfect Hedge, the Second Circuit Court of Appeals granted a stay of the SEC’s motion for production of wiretap evidence obtained by the FBI and DOJ until the conclusion of the suppression hearings challenging the legality of the wiretap authorization were completed. The Second Circuit Court held that the SEC had a right to discovery of the wiretap recordings from Rajaratnam but that the civil judge would not be able to properly balance the public interest against the privacy interests prior to the legal of the wiretaps being determined by the criminal court. (SEC v. Rajaratnam, 622 F.3d, 166 (2d Cir.2010). “Untapped” – The Risk of Wiretap Evidence Falling into the Hands of Civil Litigants © 2015 Cassels Brock & Blackwell LLP. Cassels Brock and the CB logo are registered trademarks of Cassels Brock & Blackwell LLP. All rights reserved. 8 communications intercepted in the course of a criminal investigation before a challenged interception is found to be lawful, allows those litigants to benefit indirectly from an extraordinary investigative technique that they are otherwise not legally entitled to.”32 Justice Abella’s suggestion that disclosure of intercepted communications take place after they have already been made public in a criminal trial or with the consent of the targets of the interception33 The decision in Imperial Oil leaves many questions unanswered. For one, because the SCC allowed the disclosure of wiretap evidence before its use in a parallel criminal proceeding, it remains to be seen what would happen if a criminal court later ruled the evidence was obtained illegally and inadmissible. Arguably it remains open for the civil judge to make an independent judgment on admissibility at the civil hearing. is a more cautious approach that would likely better balance the rights of the accused and the privacy rights of third parties. 34 Conclusion However, once disclosed, the wiretap recordings “are out of the bag” and the corporate defendants are left to deal with the prejudice regardless. The potential implications of the Imperial Oil decision in the current environment of heightened enforcement and use of aggressive investigative techniques by law enforcement agencies are significant. The decision effectively puts the extensive investigative arsenal of the state in the hands of civil litigants (including class counsel) from the moment the wiretap recording is made and prior to any determination of the legality of the wiretap. The potential impact of the decision on the rights of the accused as well as the privacy rights of third parties is troubling especially in light of the lack of any clear guidance by the Supreme Court on what might constitute a sufficient infringement to warrant nondisclosure of the requested information. Given the potential advantage of obtaining the fruits of the state’s investigation file, we can expect such disclosure motions to become commonplace in class action proceedings with parallel regulatory, quasi-criminal and criminal investigations. 32 Imperial Oil at 104. 33 Imperial Oil at 96. 34 Andrew P. Atkins, “New Methods of Financial White-Collar Criminal Investigation and Prosecution,” (2013) 33:2 Pace Law Review 716 at 740.