Where the Charter Ends: Supreme Court Will Not Hear Appeal on International Cooperation by Securities Regulators
If there’s one thing that most non-lawyers know about being questioned by the authorities, it’s that “anything said can and will be used against [you] in court”. And, if you’re already in court, then you can “take the Fifth” and refuse to answer a question whose answer may incriminate you.
Right? Not quite.
The privilege against self-incrimination operates differently in Canada than it does in the United States. Here, there is no “Fifth” for a witness to “take”. Unlike the Fifth Amendment to the U.S. Constitution, the Canadian Charter of Rights and Freedoms does not permit a witness to answer some questions but not others. Instead, it protects the accused from being compelled to testify in a criminal proceeding and prevents a witness’ evidence in one proceeding from being used to incriminate him in another.
But what about when compelled testimony in a Canadian proceeding could potentially be used against the witness in a criminal prosecution in another country? Must the witness testify?
The Supreme Court of Canada might have addressed that question in Beaudette v. Alberta (Securities Commission). Instead, it denied leave to appeal. The result is that, in Alberta at least, securities regulators may compel a witness to give evidence in a Canadian investigation without providing assurances that the compelled testimony will not be handed over to the authorities in the United States without notice or an opportunity to object.
Because of the distinctions between the Fifth Amendment and the Charter, the Alberta Court of Appeal decision leaves an inter-jurisdictional grey area between our countries’ respective constitutions. As the Court of Appeal for Ontario has stated:
[I]n 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.
In the context of cross-border securities regulation, these two variations on the privilege against self-incrimination do not fit neatly together. Between them lies the possibility that American investigators will attempt to do an end-run around the Fifth Amendment by relying on their Canadian colleagues to compel answers to questions that, if asked in the United States, would be greeted with constitutionally protected silence.
With leave to appeal denied, it will now be for U.S. courts, in U.S. proceedings, applying U.S. law, to decide whether and how the privilege against self-incrimination applies in that scenario. For the time being, that determination is beyond the reach of the Charter.
From June 2009 until February 2012, Scott Beaudette was the sole director and officer of Sunpeaks Ventures, Inc. (“Sunpeaks”), a Nevada corporation and a reporting issuer in the United States. Beaudette owned nearly two-thirds of Sunpeaks’ issued and outstanding shares. He listed his home address in Calgary as Sunpeaks’ business address.
In February 2012, pursuant to a share exchange transaction between Sunpeaks and a Delaware corporation, Beaudette cancelled 200,000,000 of his common shares of Sunpeaks and resigned as a director and officer.
Sunpeaks shares began to trade in the United States on March 8, 2012. Their price reached a high of US$2.28 per share on April 17. On April 19, the Alberta Securities Commission (the “ASC”) issued an order launching an investigation into Sunpeaks and Beaudette for possible violations of the Alberta Securities Act (the “Act”). By May 17, Sunpeaks’ share price had fallen to $0.10 per share.
The ASC subsequently served Beaudette with a Summons to a Witness, pursuant to s. 42 of the Act. The Summons required Beaudette to attend to give evidence and to produce documents relating to his involvement with Sunpeaks, among other things.
Beaudette refused to attend unless the ASC provided him with written assurances that the ASC would not share any evidence compelled from him with U.S. law enforcement agencies without notice and an opportunity to challenge the disclosure. The ASC refused. On the date he was summonsed to testify, Beaudette was a no-show. The ASC commenced proceedings in the Court of Queen’s Bench seeking various orders against Beaudette, who in turn brought an application challenging the constitutionality of ss. 42 and 46 of the Act.
Section 42 of the Act empowers the ASC to compel the attendance of witnesses, the giving of evidence, and the production of information and documents in an investigation. Section 46 allows the ASC’s Executive Director to share information obtained in an investigation with other agencies and authorities, “in Canada and elsewhere”, where “it would not be prejudicial to the public interest to do so”. Unlike similar statutes in other provinces, the Act does not require the Executive Director to provide notice to the witness before information is shared.
Madam Justice Anderson of the Court of Queen’s Bench dismissed Beaudette’s Charter application at first instance. Beaudette appealed.
A unanimous panel of the Alberta Court of Appeal dismissed Beaudette’s appeal this past January. My colleagues René Sorell, Andrew Matheson, and Trevor Courtis have written elsewhere about that decision and its implications for securities regulators across the country. Now that the Supreme Court of Canada has denied leave to appeal, the Court of Appeal’s reasons are worth revisiting, for three reasons.
First, the privilege against self-incrimination has all but vanished as an operative principle of fundamental justice in the context of a regulatory investigation. This confirms a trend in the case law two decades in the making.
21 years ago, in British Columbia Securities Commission v. Branch, the Supreme Court considered the constitutionality of testimonial compulsion in an investigation under British Columbia’s Securities Act. Writing for the majority, Justices Sopinka and Iacobucci concluded that the impugned statutory provision did not offend s. 7 of the Charter. In doing so, they determined that, in a securities investigation, “the predominant purpose of [the] inquiry at which a witness is compelled to attend” is “the goal of protecting our economy”. They said:
Clearly, this purpose of the Act justifies inquiries of limited scope. The Act aims to protect the public from unscrupulous trading practices which may result in investors being defrauded. It is designed to ensure that the public may rely on honest traders of good repute able to carry out their business in a manner that does not harm the market or society generally. An inquiry of this kind legitimately compels testimony as the Act is concerned with the furtherance of a goal which is of substantial public importance, namely, obtaining evidence to regulate the securities industry.… Hence, the predominant purpose of the inquiry is to obtain the relevant evidence for the purpose of the instant proceedings, and not to incriminate Branch and Levitt. More specifically, there is nothing in the record at this stage to suggest that the purpose of the summonses in this case is to obtain incriminating evidence against Branch and Levitt…. The proposed testimony thus falls to be governed by the general rule applicable under the Charter, pursuant to which a witness is compelled to testify, yet receives evidentiary immunity in return.
In the absence of evidence that an investigation’s true purpose is to obtain evidence for subsequent use in a criminal proceeding, there is no basis upon which to grant an extraordinary “constitutional exemption” from the obligation to testify. Still, the Branch majority held, the “inquiries” that the investigation’s regulatory purpose permits are “of limited scope”. This limitation follows from the premise that, in a securities investigation, it is not the privilege against self-incrimination itself that is constrained, but rather its application in the circumstances. The regulator may thus compel testimony in “inquiries of limited scope” for the purpose of “obtaining evidence to regulate the securities industry”.
In Beaudette, the Court of Appeal applied the reasoning of the majority in Branch to arrive at a similar conclusion:
[T]he terms of s[.] 42 of the [Alberta Securities Act] in light of the Act as whole strike a balance between the privilege against self-incrimination and the principle that relevant evidence should be available in a search for the truth…. The chambers judge found as a fact that, in issuing the Summons, the ASC had no predominant purpose in the nature of a criminal investigation….
Indeed, … the process of elucidating the content and scope of a particular principle of fundamental justice must be attentive to the context in which it is said to arise.
In using the language of “balance” and “context”, the Court of Appeal situated its decision in a long line of cases that have considered the public interest in maintaining the integrity of a regulatory scheme to outweigh the public interest in protecting individuals against undue state compulsion. By emphasizing in general terms that “[t]he objectives of securities regulation … could not be achieved without the ASC having such powers” of compulsion and information sharing, the Court of Appeal’s decision now effectively creates a presumption that, in a securities investigation, s. 7 of the Charter will not protect a witness from being compelled to testify.
Whether this should be considered an extension, rather than an application, of precedent remains to be seen. In denying leave to appeal, the Supreme Court may have signalled that it views it as the latter.
Second, the “reasonable hypothetical” – so central to the Supreme Court’s recent Charter jurisprudence – appears only to thrive in certain constitutional habitats.
The Court has held that, in assessing whether a mandatory minimum sentence constitutes cruel and unusual treatment or punishment and thus infringes s. 12 of the Charter, “a court may look not only at the offender’s situation, but at other reasonably foreseeable situations where the impugned law may apply”. In determining whether a hypothetical is reasonable, the court is to apply its “experience and common sense”, while excluding “far-fetched or remotely imaginable examples”. Similarly, in determining whether a law infringes s. 7 of the Charter because it is “overbroad”, the Court has considered what are effectively reasonable hypothetical cases of persons and conduct to whom and which the impugned law could apply, as derived from the Court’s interpretation of the statutory provision(s) at issue.
Here, however, the Alberta Court of Appeal declined to invalidate ss. 42 and 46 of the Act despite the hypothetical situation in which Beaudette’s compelled evidence is handed over to American authorities and used in a criminal prosecution there. For a reasonable hypothetical to constitute “a permissible reasoning exercise” in Charter analysis, the Court of Appeal stated, “the law [must] predictably apply in the manner which is established to be unconstitutional”. Because Beaudette had not “clearly invoked the triad of principles of fundamental justice limiting criminal law legislation which affect liberty – namely, that such laws should not be arbitrary, overbroad, or have consequences that are grossly disproportionate to their object”, and because there was no evidence to displace the presumption that the legislative objective of the provisions (and of the ASC in using them) was anything but “appropriate and lawful”, there was no reasonable hypothetical available to assist Beaudette’s argument.
This reasoning leaves essentially no room to deploy a reasonable hypothetical in the s. 7 context where the privilege against self-incrimination is at issue. In order for a reasonable hypothetical to be available, the Court of Appeal said, the Charter applicant must first establish, on the basis of evidence, that the operation of the impugned statutory provisions would “necessarily” lead to the privilege’s being undermined:
The appellant points to a Memorandum of Understanding that the ASC is said to have entered into with the American Securities and Exchange Commission (“SEC”) which, he says, makes it unlikely that the ASC would withhold from the SEC the information acquired. The chambers judge was well aware of this and of the lack of clear evidence that any such sharing with the SEC would necessarily be further extended to the United States Department of Justice (“DOJ”) for some form of criminal prosecution.
So, in order for an applicant even to use a reasonable hypothetical to establish that statutory provisions run afoul of the privilege against self-incrimination in a cross-border securities investigation, he must lead “clear evidence” that: (1) the Canadian securities regulator will share information obtained from the compelled testimony with their American counterparts; (2) those American counterparts will in turn share that information with U.S. federal prosecutors; and (3) this inter-agency information sharing in the United States will be for the purpose of criminal prosecution against him. By the time he reaches that evidentiary threshold, the appellant will have all but eliminated the need for any sort of hypothetical in the first place. He will also need to establish that the use of his evidence in U.S. criminal proceedings is even capable of grounding a Charter violation in the first place. As discussed below, the Alberta Court of Appeal has all but foreclosed this argument, as well.
Beaudette argued that the Act is unconstitutional because it permits the ASC to compel his evidence and then hand it over to the SEC without any assurance that it will not be used against him in a U.S. criminal proceeding. Not only did the Court of Appeal dismiss this submission as “[s]peculation” and a “mere assertion”, but it also closed the door to such an argument’s succeeding in the future, absent evidence that such a hypothetical scenario is “likely”. It said:
[T]he fact that there may, in the future, be lawful means available for United States criminal prosecution authorities to seek access to the information or documents thus acquired in Canada does not mean the impugned Canadian securities laws here are constitutionally suspect ab initio.
It will take another case, in another context, to test the utility of reasonable hypotheticals beyond s. 12 and the overbreadth analysis within s. 7 of the Charter.
Third, the next major development in this area of the law will come from the United States. This is because, as the Court of Appeal stated, “Canadian courts are not authorized, let alone instructed, by the Charter to arrogate the jurisdiction to evaluate, let alone to control, the investigative or judicial processes of friendly foreign rule of law democracies”. It will be for a U.S. court to decide whether testimony compelled from a witness in a Canadian securities investigation is admissible to incriminate that witness in an American criminal proceeding.
The Supreme Court has held that the Charter may limit Canadian state actions whose foreign consequences would “shock the conscience” of Canadians. As both the Court of Appeal’s reasons and those of the chambers judge in this case confirm, this will only be the case where the Canadian state actions at issue would breach Canada’s international human rights obligations or amount to Canadian complicity in fundamental human rights violations by the foreign state. The possibility that compelled testimony will be admitted as incriminatory evidence in a criminal proceeding does not meet this standard.
The result, to quote an earlier decision of the Alberta Court of Queen’s Bench, is that:
If prosecutors in the U.S. were to use testimony obtained in Canada against the Respondents and do something that would infringe their Charter rights, they are not Canadian prosecutors. Therefore, no Charter breach is possible in the circumstances of this case. Compelled testimony in Canada does not infringe the Respondents right not to incriminate themselves and if either face prosecution in Canada, they are protected from self-incrimination in that proceeding.
American authority suggests that the Fifth Amendment will bar the use (including the derivative use) of inculpatory evidence compelled from a witness by foreign officials in another country – by ASC investigators in Alberta, for example – in a criminal prosecution in the United States. Precisely how these precedents will apply to a cross-border securities investigation remains to be determined.
The bottom line
Beaudette confirms that the privilege against self-incrimination will not prevent a Canadian securities regulator from compelling a witness to testify during an investigation, even if the regulator is authorized to share information obtained from compelled testimony with foreign authorities, and even if it is hypothetically possible that such evidence could be used to incriminate the witness in a foreign criminal proceeding. The ASC has made clear that it intends to use this authority; as Cynthia Campbell, the ASC’s Director, Enforcement, said in a statement, “[t]he Supreme Court of Canada's decision to deny leave in this case confirms our ability to use these statutory powers in an effort to protect investors and the Alberta capital market.”
Cross-border investigations will only become a more pronounced feature of the securities-regulation landscape. It will now be for American courts to decide how evidence obtained by statutory compulsion in Canada may or may not be used in U.S. prosecutions. In the meantime, individuals who find themselves subject to investigation by a Canadian securities regulator must be aware that, no, they do not have the right to remain silent – and that anything they say may be admissible against them in a U.S. court of law.
Beaudette v Alberta (Securities Commission), 2016 ABCA 9
 Miranda v. Arizona, 384 U.S. 436, 469 (1966); see also Law & Order, 1990-2010.
 Section 11(c) of the Charter protects an accused from being compelled to testify in a criminal proceeding against himself. Section 13 guarantees “use immunity”; it guarantees a witness – not just an accused – the right not to have his evidence used to incriminate him in any other proceeding, “except in a prosecution for perjury or for the giving of contradictory evidence”. Section 7, meanwhile, incorporates the privilege against self-incrimination as a principle of fundamental justice: see generally L. Dufraimont, “The Patchwork Principle against Self-Incrimination under the Charter” (2012), 57 S.C.L.R. (2d) 241. It also provides for both “derivative use immunity” – that is, the exclusion of evidence in a criminal trial that could not have been obtained but for the accused’s prior compelled testimony in another proceeding: see British Columbia Securities Commission v. Branch,  2 S.C.R. 3 [“Branch”], at para. 5; R. v. S. (R.J.),  1 S.C.R. 451 [“S. (R.J.)”], at p. 454, per Iacobucci J. – and a “constitutional exemption”, which is “a form of complete immunity from testifying where proceedings are undertaken or predominately used to obtain evidence for the prosecution of the witness”: Application under s. 83.28 of the Criminal Code (Re), 2004 SCC 42,  2 S.C.R. 248 [“Application”], at para. 71; see also Branch, at paras. 7-10.
 Beaudette v. Alberta (Securities Commission), 2016 ABCA 9 [“Appeal Reasons”].
 Catalyst Fund General Partner I Inc. v. Hollinger Inc. (2005), 79 O.R. (3d) 70 (C.A.), at para. 4.
 See, e.g., Securities Act, R.S.O. 1990, c. S.5, s. 17; see also Appeal Reasons, at para. 54.
 Beaudette v. Alberta (Securities Commission), 2015 ABQB 57 [“Queen’s Bench Reasons”].
 The Court of Appeal’s analysis focused on the privilege as a principle of fundamental justice s. 7 of the Charter. Though Beaudette advanced arguments with respect to ss. 11(c) and 13 at first instance, he did not pursue these on appeal: see Appeal Reasons, at para. 5.
 Branch, at para. 34.
 Branch, at para. 35 (emphasis added).
 See Application, at para. 71; Branch, at paras. 7-10; see also R. v. Jarvis, 2002 SCC 73,  3 S.C.R. 757 [“Jarvis”], at paras. 96-98.
 See Branch, at para. 33; see also R. v. Fitzpatrick,  4 S.C.R. 154 [“Fitzpatrick”], at paras. 30-32. Note, however, that where the Branch majority stated that “[t]he liberty interest is engaged at the point of testimonial compulsion” (at para. 33), the Alberta Court of Appeal, at para. 22 of its reasons in Beaudette, suggested the contrary: “Liberty is not assailed merely by the application, as here, of the administrative and regulatory requirements of the [Securities Act].”
 Appeal Reasons, at paras. 42-43 (citations omitted).
 See Jarvis, para 68; R. v. White,  2 S.C.R. 417, at para. 48; Fitzpatrick, at para. 27; S. (R.J.), at para. 108, per Iacobucci J.
 Appeal Reasons, at para. 40.
 Nur, at para. 74.
 Nur, at para. 75.
 See, e.g., R. v. Safarzadeh-Markhali, 2016 SCC 14, at para. 53; Carter v. Canada, 2015 SCC 5,  1 S.C.R. 331, at paras. 85-88; Canada (Attorney General) v. Bedford, 2013 SCC 72,  3 S.C.R. 1101, at para. 142.
 Appeal Reasons, at para. 25.
 Appeal Reasons, at para. 26.
 Appeal Reasons, at para. 33 (internal quotation marks omitted).
 Appeal Reasons, at para. 34 (emphasis added); see also Alberta (Securities Commission) v. Brost, 2008 ABQB 161, 442 A.R. 116 [“Brost”], at paras. 39 and 54-55.
 Appeal Reasons, at para. 21.
 Appeal Reasons, at para. 49.
 Appeal Reasons, at para. 52; Queen’s Bench Reasons, at paras. 71-72.
 Brost, at para. 44.
 See Brief of Defendants-Appellants at 96-125, United States v. Allen, No. 16-898(L) (2d Cir. July 6, 2016).
 Alberta Securities Commission, Press Release, “Supreme Court of Canada denies leave to appeal ASC’s powers to compel and share evidence” (July 4, 2016).
Canadian Charter of Rights and Freedoms charter cross-border securities regulation fifth amendment