Ontario Securities Commission reaffirms confidentiality of investigation proceedings: Katanga Mining Limited

Is a document production order issued by a foreign court sufficient to ground authorization by a Canadian securities commission to release relevant but confidential commission investigation records? Recently, the Ontario Securities Commission (the Commission) said no.¹

The application

Katanga Mining Limited and certain officers and directors had been the subject of a confidential Commission investigation.² Katanga was a reporting issuer with shares listed on the Toronto Stock Exchange. The investigation resulted in a Commission-approved settlement agreement in 2018.³

In 2020, Katanga became a wholly owned subsidiary of Glencore plc. Glencore was a defendant in a United Kingdom lawsuit in which it was alleged Glencore had made material misleading statements and omissions in its public disclosure. The UK court had issued an order that certain confidential records generated during the investigation be produced in the UK proceedings.

As an interim measure, the Commission authorized Katanga to share certain confidential investigation records with Glencore’s UK legal counsel for the sole purpose of a review for relevance to the issues raised in the UK proceedings.⁴ Glencore’s counsel concluded that all but one of the records were relevant and producible under the UK court order.

Glencore applied in the UK proceedings to vary the production order, relying on expert evidence about confidentiality under the Securities Act (the Act).⁵ That application was adjourned pending an application made by Katanga to the Commission for permission to produce the confidential records.

Katanga applied to the Commission pursuant to section 17 of the Act for permission to produce investigation records in the UK proceedings.⁶ Katanga provided notice to individuals who had provided compelled testimony that appeared in the records of the investigation. Two individuals objected, and one took the position that he had expected his testimony to remain confidential.

The issue

The issue before the Commission was whether it was in the public interest to authorize disclosure of the confidential records for use in the UK legal proceedings.

Public interest in this context refers to the Commission’s mandate to protect the integrity of Canadian capital markets; it does not concern assisting private litigants in recovering losses alleged to have arisen from breaches of securities laws.

The decision and the Commission’s reasoning

The Commission held that disclosing information deemed confidential under section 16 of the Act is “generally not in the public interest”; that a court order requiring production of such information “cannot alone satisfy the public interest analysis”; and that, despite the investigation being concluded, there were still “privacy concerns and policy considerations that weigh[ed] against … disclosure …” The Commission stated: “Ontario’s public policy, consistent with other jurisdictions with modern securities legislation, is that confidentiality is essential to the integrity and effectiveness of regulatory investigations.”

Disclosing the existence or nature of an investigation risks impairing market integrity. Maintaining confidentiality protects the investigative process, as well as commercial and personal privacy interests. While section 13 of the Act allows investigators to compel testimony and document production, witnesses may invoke section 9 of the Ontario Evidence Act⁷to protect their compelled answers from use in any civil proceeding or prosecution under any Ontario legislation.⁸

The Commission cited the Supreme Court of Canada decision in Deloitte for the proposition that the Commission “is obligated to order disclosure only to the extent necessary to carry out its mandate under the Act.” An order under section 17 “will be appropriate only in the ‘most unusual circumstances’ where the public interest clearly outweighs the confidentiality provisions provided in the Act.”

That the records were relevant to the issues raised in the UK proceedings was not determinative: “Materials obtained by a Commission investigator would always be relevant to private civil litigation arising form the same or related subject matter.” Nor was the UK court order determinative: (i) the court order was not grounded in the purposes of the Act; (ii) “principles of comity cannot displace the statutory framework”; and (iii) disclosure based only on a foreign court order would transform the narrow exceptions to confidentiality into something much broader, not contemplated by the Act.

That said, the Commission emphasized there is no blanket rule against disclosure of confidential investigation records for use in private litigation. Each case must be determined on its merits in reference to the purposes of the Act. In the context of confidential investigation information, the purpose of the Act is “to enable the Commission to conduct fair and efficient investigations and to give those investigated assurance that investigations will be conducted with due safeguards to those investigated, thus encouraging their cooperation in the process.”⁹

Takeaways

Canadian securities commissions will rarely grant permission to disclose confidential investigation records for use in civil legal proceedings, even where the proceedings relate to the subject matter of the investigation. Permission will turn on the purposes of Canadian securities laws, and not on the purposes of the civil proceedings. Commissions will consider the interests of third parties, such as those who gave compelled testimony in the context of a confidential investigation. Commissions will assess whether the public interest in disclosure outweighs the public interest in maintaining confidentiality – again, where the public interest is assessed in terms of the purposes of Canadian securities laws.

Parties to civil lawsuits in which confidential investigative records may be relevant must be mindful of the ongoing confidentiality provisions of Canadian securities legislation, and the high bar to authorization for disclosure.