On December 31, 2018, the Ontario Superior Court of Justice dismissed an application by Harrington Global Opportunities Fund (Harrington) for a Norwich order against the Investment Industry Regulatory Organization of Canada (IIROC). Harrington sought the order to compel IIROC to provide information that would identify parties which had allegedly been involved in manipulating the market price of shares of a reporting issuer, to permit it to determine the viability of a civil action against them.
Justice Perell’s decision highlights the fact that the issuance of a Norwich order is “a rarely exercised extraordinary discretion”. “[T]he protection of privileges and confidences and the interests of the innocent target of the order”, in this case a securities regulator operating under the public law regime, are “powerful forces” against the issuance of such an order.
This decision sends a clear message that applications for a Norwich order against other regulatory bodies operating in the public law sector will likely be an uphill battle.
Between 2016 and 2018, Concordia International Corp. (Concordia) experienced a significant drop in share price, resulting in a loss of approximately $3.9 billion dollars of its market capitalization. Harrington, a sophisticated investor, believed that Concordia was a victim of a short-selling conspiracy involving a group of traders using social and mainstream media to disseminate misleading information designed to manipulate the market. In order to pursue a conspiracy claim against the alleged conspirators, Harrington applied for a Norwich order to compel IIROC to disclose certain identifying information about the suspected conspirators and certain trade reports generated by IIROC from data provided by investment dealers and trading venues. Investigations by IIROC into the alleged wrongdoing had led it to conclude that no manipulation had occurred.
The court dismissed Harrington’s application. While Justice Perell agreed that Harrington appeared to have a valid cause of action for unlawful means conspiracy, it did not satisfy any of the remaining criteria for a Norwich order. In particular:
- Harrington failed to satisfy “perhaps the most important criterion for a Norwich order”, the existence of a connection or relationship between the target of the order (IIROC) and the wrongdoer or the wrongdoing. The issue was whether or not IIROC, operating in the public law sector, ought to have a duty to disclose trading information to an investor thinking of bringing a private law tort claim.
Justice Perell determined that it did not. IIROC did not have a relationship with wrongdoing or wrongdoers in the industry that it regulates that would impose a duty upon it in equity to disclose information to victims of the alleged wrongdoing. Further, how IIROC carried out its obligation to investigate potential misconduct, and what information to disclose before, during or after its investigation was for IIROC to decide.
- The necessity requirement was not satisfied. Harrington already had a prospective action for civil conspiracy against a particular short seller and others that it believed may have conspired to short and distort the sale of Concordia shares.
- Balancing the interests of IIROC against the interests of Harrington tipped the balance against granting the order. IIROC’s duties of keeping confidences and protecting privacy interests, and its interest in maintaining its relationship with other regulators such as FINRA, stood against making the order. FINRA would be less likely to share client and broker data with IIROC in the future if IIROC could be required to disclose such data.
- The interests of justice did not favour the granting of the Norwich
- Norwich orders are intrusive and should only be granted in extraordinary situations. It is not a means to search out and investigate speculative actions; and
- In general, regulators like IIROC are under no equitable duty to disclose information to parties interested in pursuing a private law remedy against suspected wrongdoers under its jurisdiction.
The authors would like to thank Travis Bertrand, Articling Student, for his contribution to this article.