Ontario Court of Appeal rules that officers of Canadian corporation called before court-appointed fact-finding inspector charged with gathering information about officers' receipt of generous payments from company cannot refuse to answer by invoking protection against self-incrimination under Canadian Charter of Rights and Freedoms even though U.S. Securities and Exchange Commission is also looking into similar payments to same officers from counterpart company in U.S.
On a petition by Catalyst Fund General Partner I Inc., a share holder, the Ontario Superior Court of Justice in September 2004 appointed Ernst & Young, Inc. as an Inspector under Section 229 of the Canadian Business Corporations Act (CBCA). The Inspector could inquire under oath into certain questionable corporate payments to former senior officers and directors of Hollinger, Inc., a Canadian public corporation. The individuals under inquiry include Lord Conrad Black, John A. Boultbee, and F. David Radler (appellants).
The targets of the enquiry complained that the order would require them to incriminate themselves in violation of Section 7 and 13 of the Canadian Charter of Rights and Freedoms. They further noted that the U.S. Securities and Exchange Commission is also looking into various dubious activities related to International Hollinger, Inc. an American corporation; the parties, therefore, additionally argued that the inquiry would impair their Fifth Amendment rights under the U.S. Constitution in those proceedings.
When the first instance judge upheld the Section 229 order, the individual and corporate parties sought appellate review. For one thing, the appellants are asking the Ontario Court of Appeal for a declaration that the lower court's order compelling them to submit to questioning is premature because the Inspector has not exhausted other sources of information. They also request the Court to set aside and dismiss the order to compel them to answer questions or, in the alternative, to stay the order pending the outcome of any U.S. criminal proceedings. In a unanimous opinion, however, the Court dismisses the appeal.
The Court first outlines the differences between Canadian and U.S. law on the right against self-incrimination. "In both Canada and the United States, the right to protection from self-incrimination is an important right that is safeguarded. The difference between how that right is protected in Canada and in the United States lies at the heart of this 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 except in a prosecution for perjury or for the giving of contradictory evidence. 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." [¶ 4]
The Court then turns to the prematurity contention. "The appellants' first submission is that the order of the lower court permitting a notice of examination to be served on them is premature in light of its initial order authorizing an examination of documentary evidence and evidence from other sources. The appellants submit that they can be examined only after the inspector has exhausted all other sources of information. This submission can be dealt with summarily."
"The step-by-step approach of [the lower court's] earlier order recognized that the appellants were contemplating the motion now under appeal but enabled the Inspector to go forward in the interim. Properly construed, the order did not require the Inspector to exhaust all other sources before having recourse to the best source of evidence, namely, the appellants, who were the directing minds of Hollinger Inc."
"In addition, the Inspector has now indicated that the records of Hollinger Inc. are in disarray, that current management lacks knowledge about a number of matters, and that the only way in which the Inspector can do a thorough report is to examine the appellants." [¶ 6]
The Court then rejects appellants' chief claim that they are entitled to a constitutional exemption from answering any of the Inspector's questions. "They are only entitled to a constitutional exemption if their evidence would be used against them in a criminal prosecution here. A constitutional exemption is not appropriate in the circumstances of this case as the purpose of the inquiry being conducted under the Canada Business Corporations Act is fact-finding only and not prosecutorial." [¶ 7]
"Further, ... counsel for Lord Black candidly acknowledged that at least some of the questions the Inspector wished to ask would not be a violation of the appellants' rights against self-incrimination in the United States. We therefore decline to set aside the order [below]." [¶ 8]
The Court next addresses whether it should stay the order until the scope of the U.S. investigations becomes clear. "There are at present no outstanding criminal charges against Lord Black or Mr. Boultbee. Subsequent to the hearing of this appeal, Mr. Radler has pled guilty to the charges that were outstanding against him. The appellants seek protection in a factual vacuum and boldly assert that no measures imposed by any judge or taken by the Minister of Justice could protect them once they have been compelled to answer questions in Canada." [¶ 9]
"[The lower court] set up a procedure specifically to deal with the anticipated conflict in how Canada and the United States approach protection from self-incrimination, however. That procedure is designed to enable the parties to make submissions as a result of which the Court will craft a protective mechanism tailored to the situation.
The parties have yet to engage this process. As a result, no one knows yet what protective mechanism will be crafted. We cannot decide that Charter rights will be infringed in a vacuum or engage in speculation. The particular Order that is before us under appeal does not as yet lead us to conclude that the appellants' Charter rights will be violated." [¶ 10]
"Further, while there is an overlap between the criminal investigation in the United States and the investigation in Canada being conducted by the Inspector under the CBCA insofar as non-compete payments to the appellants respecting both Hollinger Inc. (the Canadian Company) and Hollinger International (the U.S. Company) are concerned, in other areas there is no overlap. For example, the management fees paid by Hollinger Inc. to the appellants do not appear to be the subject of any proceedings in the United States at this time." [¶ 11]
"The protection under the Charter is witness-specific and fact-specific. The balancing of potential prejudice to a particular appellant against the necessity of obtaining the evidence must be undertaken in context. For example, by his plea of guilty in the United States, Mr. Radler may be in a different position in some respects than the other two appellants and may not need protection from the use that can be made of his answers - at least in respect of the matters to which he has already pled guilty."
"[The judge below] indicated that he was prepared to rule on whether the appellants should be compelled to answer specific questions and we regard that as the appropriate context in which to consider the appellants' rights. Also, ... we are not persuaded that Canada is completely powerless to protect those under its jurisdiction. Having regard to the contextual approach proposed by [the judge below], we would decline to order a stay of his order. Accordingly, the appeal is dismissed." [¶¶ 12-14]
Citation: Catalyst Fund General Partner, Inc. v. Hollinger Inc., Dockets: C43639, C43642, C43643; [2005] O.J. No. 4666 (Ont. Ct. App. Nov. 1).
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