The Ontario Securities Commission won the right on Thursday to examine documents held by Deloitte and Touche as part on an investigation concerning one of the auditing firm’s clients, Philip Services Corp.
An Ontario appeals court has reversed a lower court ruling that went against the commission.
In May 1998, OSC staff opened an investigation into the circumstances surrounding a public offering made by Philip Services Corp. And, in February 1999, the commission expanded the inquiry to include the conduct of its auditors, Deloitte & Touche LLP.
During this investigation, OSC staff compelled Deloitte to produce documents, which it later sought to turn over to Philip after it began an enforcement action against Philip and several of its officers.
Deloitte opposed disclosure to the Philip respondents unless OSC staff could demonstrate the relevance of any document that it proposed to disclose. The commission decided that it was in the public interest to require disclosure. Deloitte appealed to the Divisional Court and won a majority decision setting aside the order of the commission.
On Thursday, the appeals court granted the OSC’s appeal of the lower court decision, ruling, “The commission exercises a broad discretion when deciding whether to order disclosure of compelled material. The exercise of that discretion engages the expertise of the commission and the courts should defer to the exercise of that discretion unless satisfied that the commission acted unreasonably.”
The court said that the commission’s actions could not be characterized as unreasonable. “Contrary to the holding of the Divisional Court, I think the commission did balance the interests of Deloitte against the purpose served by disclosure. Their conclusion that the latter outweighed the former was not unreasonable.”
However, it noted that it does not minimize Deloitte’s concerns about “box car” disclosure, whereby staff seek to turn over everything produced in the course of an investigation. “The commission was satisfied that staff was not engaged in that kind of irresponsible conduct. I have already said that I find nothing unreasonable in that assessment. The commission controls its own processes and can guard against unwarranted disclosure.”
The court noted that its decision does not mean that in another case where circumstances are different, or different arguments are made to the commission, that the commission could not take a different approach and tailor a more refined disclosure order.