Respondents’ cross-examination rights in securities enforcement proceedings: First Global Data Ltd (Re)

The Ontario Capital Markets Tribunal (CMT) recently considered the limits to a respondent’s right to cross-examine another respondent in a CMT hearing. In First Global Data Ltd (Re),[1] Staff of the Ontario Securities Commission (OSC) alleged that CA$4.46 million in debentures of the public company First Global Data Ltd. (First Global) were fraudulently distributed by unregistered actors. In its reasons, the CMT Panel elaborated on its mid-hearing ruling addressing the limits on the respondents’ rights to cross-examine each other.

Background

OSC Staff alleged that the First Global debentures were illegally distributed (i.e., sold without a prospectus or an exemption from the prospectus requirement) by three unregistered fundraisers: Global Bioenergy Resources Inc. (GBR Ontario) and its two principals. Staff further alleged that the respondents committed securities fraud by misleading investors regarding the intended uses of their capital, the prospect of returns, and the risk profile of the investment. The CMT Panel ultimately held that all of these allegations had been proven.

Rights of co-respondents to cross-examine each other

During the hearing, the Panel considered the rights of co-respondents to cross-examine each other. The Panel held that co-respondents are generally entitled to cross-examine each other on all issues but that each issue should be analyzed to determine the type of cross-examination questions permitted. The Panel provided the following guidance on the nature of questions that may be posed when one respondent cross-examines another:

1. On issues where respondents are adverse in interest, leading questions may be posed.
2. On issues where respondents are aligned in interest, only non-leading (open-ended) questions may be posed.
3. On issues where it is unclear whether respondents are adverse or aligned in interest, leading questions may be posed, but the questioning party bears the risk of the resulting answer being given less weight if it ultimately becomes clear that the parties were aligned in interest.

The rationale for these rules is that leading questions are designed to challenge or discredit a witness’s evidence, and this objective is absent where the examiner and examinee are aligned in interest. In this context, leading questions only serve to improperly bolster the witness’s testimony, thereby detracting from the search for truth.

Procedure where respondents wish to cross-examine each other

The Panel then described a practical procedure that may be followed when co-respondents exercise their right to cross-examine each other:

1. A respondent ought to be cross-examined by their co-respondents first before OSC Staff.
2. The examining party ought to advise the Panel when their questioning is about to deal with a different issue so that the Panel can determine whether leading questions on that issue will be permitted.
3. After Staff’s cross-examination of a party witness is complete, re-examination by co-respondents is permissible to address a new matter raised in cross-examination, but only with respect to issues on which the questioner and the witness are aligned.

Interestingly, the Panel confined its ruling as applicable to respondents cross-examining each other but suggested that the same principles may apply where one respondent wishes to cross-examine a non-party witness called by another respondent.

Conclusion

The First Global decision emphasizes the need for respondents to be alert to the evidentiary rules governing cross-examination by one respondent of another. Respondents who are, or may be, aligned in interest on certain issues need to ensure that they avoid asking leading questions that may be immediately objected to or later given less weight. In multi-respondent litigation, like OSC Staff, respondents must also be alert to the questions posed by other co-respondents with an aligned interest that is adverse to their own to ensure their position is not prejudiced by answers provided to improper leading questions.

For additional information, please contact the Litigation and Dispute Resolution group at Dentons.

[1] 2022 ONCMT 25.