In IIROC v. Crandall, 2020 NBCA 76 (Crandall), the New Brunswick Court of Appeal overturned a 2019 decision of the Financial and Consumer Services Tribunal (the Tribunal) in which the Tribunal found that the Investment Industry Regulatory Organization of Canada (IIROC) had breached its duty of fairness owed to one of its members by failing to disclose documents in the possession of the member’s former employer during enforcement proceedings.
The Court of Appeal’s decision is significant for two reasons. First, the decision establishes that the obligation of regulators to produce documents in the possession of third parties in enforcement proceedings is different from the obligation to produce documents in their own possession and control. Second, it reiterates that it is not the role of an administrative tribunal to bring and adjudicate motions on its own initiative. To do so, and to decide issues without giving the parties an opportunity to be heard, constitutes a breach of the duty of procedural fairness.
The IIROC Enforcement Proceedings
Robert Crandall was an investment advisor. In 2013, IIROC received a complaint about Crandall regarding excessive trading without approval, prompting an investigation. During the investigation, and subsequent enforcement proceedings, Crandall maintained that his former employer possessed records, including notebooks, notepads and other records, that he needed for his defence. IIROC made repeated requests for documents from the former employer and disclosed the relevant documents provided by it. However, no notebooks or notepads were found. Crandall ultimately chose not to testify in his own defence, insisting that he was unable to do so without his notes.
In a decision dated May 26, 2016, an IIROC panel concluded that Crandall had (1) engaged in excessive trading; (2) engaged in unauthorized discretionary trading; and (3) made unsuitable recommendations. On October 3, 2016 IIROC imposed, among other things, a $150,000 fine on Crandall and a prohibition from re-registering with IIROC for five years.
The Tribunal Review Proceedings
Crandall sought a review of the IIROC panel’s decisions by the Tribunal pursuant to s. 44 of the New Brunswick Securities Act, SNB 2004, c S-5.5 (the Securities Act).
On September 21, 2017, the Tribunal held a pre-hearing conference, at which it raised and adjudicated its own motion regarding the disclosure provided to Crandall and ordered IIROC to produce the totality of its disclosure to Crandall if it had not already done so. The Tribunal then issued an amended Notice of Hearing of its own motion concerning whether the former employer should be required to produce additional documents to Crandall. At the hearing of the motion, a witness for the former employer testified that it had not found any additional documents.
On January 19, 2018, on its own initiative, the Tribunal ordered that Crandall’s ground of review dealing with disclosure would be severed and heard prior to any “remaining grounds of review.”
On June 7, 2019, the Tribunal released a decision “rescinding” IIROC’s decisions on the merits and with respect to sanctions and ordered a stay of proceedings. The Tribunal held that the documents sought from the former employer were relevant to the allegations against Crandall, and that the failure to provide these documents during the IIROC proceedings was a breach of IIROC’s duty of procedural fairness.
The Court of Appeal’s Decision
The Court of Appeal allowed IIROC’s appeal and overturned the Tribunal’s decision.
Lack of Procedural Fairness to IIROC
The Court of Appeal found that the process that led to the Tribunal’s decision was flawed in two respects, which, when combined, created a reasonable apprehension of bias against IIROC.
First, the Tribunal brought its own motion and then adjudicated it. Nothing in the Securities Act or the Tribunal’s Rules authorized the Tribunal to do so.
Second, the Tribunal’s direction, on its own initiative, and without any notice to the parties or an opportunity to be heard, that a single ground of review (as reformulated by the Tribunal) be determined before the other grounds of review amounted to a clear violation of the principles of procedural fairness.
Together, these two procedural flaws raised a reasonable apprehension that the Tribunal was partial to the position of Crandall and did not decide the matter fairly.
Error Regarding Obligation to Disclose
The Court of Appeal determined that the Tribunal erred in law in holding that the duty of fairness owed by IIROC to Crandall imposed an obligation to disclose materials not in IIROC’s possession.
The Tribunal erred with respect to the duties owed by IIROC at each of the investigative and adjudicative stages.
First, the Tribunal incorrectly determined that during the investigative stage, IIROC had an obligation to obtain and preserve relevant documents for Crandall’s defence that may have been in the possession of Crandall’s former employer. The extent of the duty of procedural fairness at the investigative stage of an enforcement proceeding must be determined contextually on a case-by-case basis. IIROC did not have an obligation to obtain and produce documents that it was told either never or no longer existed, or could not be found. IIROC satisfied its obligations to Crandall by making repeated requests to his former employer for the documents at issue, and disclosing the relevant documents that were provided to it.
Second, the Tribunal erred by holding IIROC to a higher standard of disclosure at the adjudicative stage than required of the Crown in the context of criminal proceedings. Applying the Stinchcombe and O’Connor principles regarding Crown disclosure obligations, IIROC’s obligation at the adjudicative stage was to disclose to Crandall all relevant, non-privileged information in its possession or control, whether inculpatory or exculpatory. IIROC also had an obligation to disclose relevant information obtained from third parties, but it had no duty to disclose documents in the exclusive possession of any third party. The information from the former employer fell into this category. The fact that the employer was also subject to IIROC’s regulatory regime did not make IIROC responsible for the possible loss or destruction of documents by it.
Finally, the Court of Appeal found that the employer’s failure to produce the requested documents did not warrant a stay of proceedings because Crandall could not establish that the loss or destruction of the documents was done for the purpose of obstructing the proceedings or otherwise caused Crandall actual prejudice. Any prejudice to Crandall due to the missing documents was mere speculation because he chose not to testify in his own defence.
Crandall reminds administrative tribunals of the importance (1) of staying in their own lane, and leaving it to the parties to determine which issues should be the subject of a motion, and (2) of the dangers of deciding issues without providing notice to the parties and an opportunity to be heard.
Crandall also confirms that although regulators like IIROC have disclosure obligations akin to those of the Crown in criminal proceedings, the obligation is subject to certain limitations, particularly as it relates to documents in the possession of third parties.
The author would like to thank Kevin Acuna, articling student, for his contributions.