Confidentiality provisions can be tricky. The criteria for when a regulator can disclose confidential information are often complex. Improper disclosure of otherwise confidential information can discredit the regulator, impact its enforcement proceedings and, in an extreme case, lead to civil or even quasi-criminal liability. A recent Ontario Divisional Court decision indicates that mistaken disclosure can, however, be excused.
Sharpe v Ontario Securities Commission, 2026 ONSC 1394 (CanLII) involved allegations of serious misconduct, including fraud, against a couple. During the investigation, the couple were compelled to give evidence. That compelled evidence could not be used against the couple in other proceedings without permission from the Tribunal. However, the regulator used that evidence in a receivership application to protect investor funds. The receivership application resulted in broad public disclosure of the compelled evidence. The regulatory staff mistakenly thought that they did not need permission from the Tribunal to use the evidence obtained from the couple in those regulatory-related proceedings. The couple brought a motion to stay the enforcement proceedings as an abuse of process because of that confidentiality breach. The Tribunal refused to grant the stay and imposed significant sanctions on the couple in the enforcement proceedings.
The couple sought extensive disclosure of the regulator’s internal communications to help establish their abuse of process arguments, requesting “broad production of all communications relating to their compelled testimony between the Commission, the receiver and potential witnesses, all internal correspondence, investigation notes, and memoranda regarding the receivership or cease trade orders before and after the receivership, as well as communications with the media.” However, the Court agreed with the Tribunal that the couple had not established the “tenable case” or the “reasonable prospect of success” required to enable them to obtain the documents to “explore the question of bad faith.”
The Court agreed with the Tribunal that the enforcement proceedings should not be stayed. The breach of confidentiality occurred because of a mistaken interpretation of the confidentiality provisions. It was conceded that, absent any new evidence obtained through the disclosure motion, there was no evidence of bad faith on the part of the regulator. In fact, an amendment of the legislation that was not yet in force would have permitted its disclosure in this manner without permission from the Tribunal. In any event, if permission had been sought, it likely would have been granted in these circumstances. The fairness of the enforcement proceedings was not materially compromised and the evidence of prejudice to the couple was weak. Finally, the alleged violations of the securities law were so grave that there was a strong public interest in proceeding with them to protect investors.
This decision is an example of when an accidental breach of confidentiality by a regulator does not constitute an abuse of process.
