An Alberta court has upheld an investigation order issued by the Alberta Securities Commission, allowing the ASC to gather evidence from third party tax advisors.

Earlier this year the ASC issued an investigation order directing its staff to investigate matters relating to a number of companies, including Merendon Mining Corp. Ltd. (MMC). Following the order, one of the investigators issued a summons on KPMG LLP ordering it attend an interview and disclose documents relating to work for MMC.

In its decision released on April 28, the Court of Queen’s Bench said that MMC takes the position that the ASC and its investigators are not entitled to obtain all of the documentation in the possession of KPMG for a number of reasons, including concerns about the order, and claims that these documents are protected by solicitor-client privilege and/or litigation privilege.

Notably, the court said that the ASC issued an earlier order and summons that was “attacked for various deficiencies by MMC”. And, it said that “apparently those complaints resonated with the ASC”, as it amended that initial order in response.

“Given the admitted deficiency in the wording of the earlier order, I understand MMC to be concerned not only that this may be, once again, a misstated order which fails to accurately plead its legislative genesis, but might also suggest that the director or the ASC are either uncertain regarding why MMC should be investigated – thus suggesting a somewhat whimsical approach in discharging their responsibilities – or that there may be some unjustified fishing expedition on the part of the ASC or at the behest of some other regulatory agency,” the court decision explained.

However, the judge sided with the ASC, noting that “Notwithstanding that I share some of MMC’s concerns regarding the deficiencies in the earlier set of materials… I am not persuaded of their concerns [with the amended order].”

“Given the necessity of appropriate vigilance and scrutiny of securities activities in order to protect the public and all legitimate participants in all activities governed by securities law it would seem vital that the director be empowered to commence any investigation for any purpose as may fall within the broad mandate of… the Act,” it said.

Additionally, it concludes that neither of the claims of privilege are valid. “Given the fact that solicitor-client privilege has evolved to a rule of substantive law, it is not surprising that the scope of the privilege has been clearly drawn and narrowly defined to include lawyers and those who are employed by the lawyer as her agents in the ordinary course of her practice. To expand that scope to include KPMG, in the circumstances of this case, would be a stunning development in the law,” it said.

It also ruled against the argument that litigation privilege applies, saying that the company failed to prove that the documents in KPMG’s possession “were created for the dominant purpose of use in contemplated or pending litigation. Indeed, the cross-examination satisfies me that they were not created with contemplated or pending litigation in mind at all.”

“I am not satisfied that either solicitor-client privilege or litigation privilege has been established to prevent the documents in KPMG’s possession from being produced,” the judge ruled.

IE