Does privilege shield a regulator’s investigation file that has not been produced to a respondent? The Ontario Court of Appeal recently grappled with whether or not to compel a regulator to produce its investigation file of its member to plaintiffs in a class action against that member. There are important lessons in the Court’s determination that case-by-case privilege did not apply in the circumstances. Nevertheless, the Court held that plaintiffs did not need the regulator’s documents to prove their allegations in the class action, and on that basis declined to order production.

Background

In Philip Services Corp. v. Deloitte & Touche,[1] the representative plaintiffs in a class action sought the production of material from the Institute of Chartered Accountants of Ontario (the “Institute”). The plaintiffs allege that Deloitte & Touche (Deloitte) negligently prepared the 1995 and 1996 annual statements of Philip Services Corp. (Philip), a former public company.

The Institute is not party to the class action. Two years before the class action was initiated, the Institute started investigating Deloitte’s 1995 and 1996 audits of Philip. In 2007, the Institute charged Mr. Woodsford, a senior partner at Deloitte responsible for the Philip audits, and in 2008, found him guilty of professional misconduct.

The plaintiffs sought an order under Rule 30.10(1) of Ontario’s Rules of Civil Procedure requiring the Institute to produce its investigators’ report, witness statements, notes of interviews conducted and other documentation concerning the Institute’s investigation and discipline of Mr. Woodsford. The Institute and Deloitte successfully resisted a motion before a single judge of the Superior Court.

No unfairness to the plaintiffs without the investigation file

To compel document production from non-parties under Rule 30.10, a party must establish that (1) it would be unfair to require the party to proceed to trial without the material, and (2) the material sought is not privileged.

The Court of Appeal upheld the motion judge’s finding that it would not be unfair to require the plaintiffs to proceed to trial without the Institute’s documents. As a starting point, the Court of Appeal emphasized that Rule 30.10 assumes that it is not per se unfair to require a party to go to trial without the forced production of relevant documents in the possession of third parties.[2]

In this case, the Court found that the plaintiffs do not need the Institute’s investigation file to prove its allegations and defences against Deloitte. The plaintiffs already had all the information that Deloitte provided to the Institute’s investigators, and could question the principal actors involved at Deloitte during the discovery process.[3]

The Institute’s investigation documents are not privileged

Interestingly, the Court of Appeal ruled that the Institute’s claim for case-by-case privilege failed after applying the four-pronged Wigmore test[4] in evaluating the existence of a case-by-case privilege.

In assessing the first Wigmore criterion (i.e. did the communication originate in a confidence that they will not be disclosed?), the Court found it compelling that the Institute’s normal practice is to provide disclosure to the subject of a complaint when charges are laid, in fulfillment of its Stinchcombe disclosure obligations.[5] In this context, the Court was not impressed that the Institute negotiated a “unique” agreement whereby Mr. Woodsford and Deloitte would not accept the Institute’s disclosure that was available to them. The Court noted that but for this “tactical ploy”, the material at issue would have been in the hands of Mr. Woodsford and Deloitte and likely compellable by the plaintiffs.[6]

In assessing the second Wigmore criterion (i.e. is the confidentiality essential to the full and satisfactory maintenance of the relation between the parties?), the Court found it compelling that the Institute had obtained the disclosure it required from Deloitte to fulfill its regulatory function before it entered into the agreement.[7] The Court explained:

In my view, where a member is required to cooperate with its self-regulating body, where the self-regulating body has an obligation to provide disclosure to the member at or before the time charges are laid, and where the governing framework does not provide an assurance as to confidentiality, confidentiality after charges are laid would usually not be found to be “essential to the full and satisfactory maintenance of the relation between the parties.”[8]

In my view, after charges were laid, confidentiality was not essential to the full and satisfactory relationship between the Institute (qua regulator, with a public duty to investigate, to promote and protect the public interest and maintain the credibility of the profession as a self-regulatory body) and Mr. Woodsford. Confidentiality – in this case and at this stage – is not “essential to the full and satisfactory maintenance of the relation between the parties.”[9]

The Court determined that “tactical cooperation between the regulator and a member”, as had occurred, did not satisfy the third (i.e. is the relation one which in the opinion of the community ought to be sedulously fostered?) and fourth Wigmore criteria (i.e. does disclosure cause greater injury to the relation than the correct disposal of litigation?).[10]

The Court concluded that the Institute’s investigation file was not protected by case-by-case privilege. Nevertheless, since the plaintiffs had failed to demonstrate that it would be unfair to require them to proceed to trial without discovery of the Institute’s investigation file, the documents remained sealed with the Institute.

Takeaways

Parties cooperating with a regulator should not assume that the regulator’s investigation file is confidential from third parties. The Court will consider the following factors when third parties seek production of a regulator’s investigation file:

whether the governing framework provides any assurance as to confidentiality: In the case at bar, section 61 of the Chartered Accountants Act, 2010, S.O. 2010, c. 6, Sch. C., 2010, which was enacted after the relevant period, renders material relating to professional discipline proceedings involving the Institute inadmissible in most civil proceedings. Many regulatory frameworks have similar provisions, but not all do. whether the party was obligated to cooperate with the regulator: The Court may be sympathetic to a party obligated to cooperate with the regulator, particularly in circumstances where the regulator provides some assurance of confidentiality. The Court may be less sympathetic to a party claiming confidentiality when that party willingly provided documents to the regulator. whether the regulator has laid charges against the party: After charges are laid, documents subject to Stinchcombe disclosure obligations will likely not be protected by privilege. whether the regulator’s normal practise is to disclose to the party the material that is subsequently sought by a third party: The Court will scrutinize any “unusual” arrangement between a party and a regulator that is tactically used to thwart production obligations in other proceedings.

Case Information

Philip Services Corp. v. Deloitte & Touche, 2015 ONCA 60

Docket: C59046

Date of Decision: January 30, 2015