Decisions
Keywest Resources Ltd., et. al. [Ruling]
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BCSECCOM #:
2003 BCSECCOM 331
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Document Type:
Ruling
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Published Date:
2003-05-21
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Effective Date:
2003-05-20
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Details:
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2003 BCSECCOM 331
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2003 BCSECCOM 331
COR#03/080
Ruling
Keywest Resources Ltd.
John Walter Scott Roeder
Section 171 of the Securities Act, RSBC 1996, c. 418
Keywest Resources Ltd.
John Walter Scott Roeder
Section 171 of the Securities Act, RSBC 1996, c. 418
Hearing
Panel Brent W. Aitken Vice Chair
Joan L. Brockman Commissioner
Robert J. Milbourne Commissioner
Date of Hearing February 06, 2003
Date of Decision May 20, 2003
Appearing
James Sasha Angus For Commission staff
Sean K. Boyle
Mark L. Skwarok For Wade Nesmith
Stephen M. Zolnay
Allan McDonell, Q.C. For Robert S. Fleming
John H. Frank For John Walter Scott Roeder
Introduction
¶ 1 Following a hearing in late 1994, the Commission issued a decision on April 4, 1995 in the matter of Keywest Resources Ltd. and others, including John Roeder. In the decision, the Commission found that Roeder, while president of Keywest:
· “managed Keywest as his own company and casually shuffled payments back and forth among his personal accounts and those of Keywest”
· failed to disclose material changes and issued false and misleading new releases, and
· after arranging a sale of control of Keywest and receiving the proceeds, “despite the fact that he was still president and a director of Keywest, effectively abandoned Keywest”
¶ 2 The Commission ordered that the exemptions in the Act not apply to Roeder, and that Roeder be prohibited from acting as a director or officer of any reporting issuer. Both sanctions were for 17 years and will expire in April 2012.
¶ 3 Roeder wrote the Commission on October 20, 2000 stating his “intention to apply” under section 171 of the Securities Act, RSBC 1996, c. 418 to have the orders against him revoked. We are treating Roeder’s letter as an application under that section. Roeder alleges that in the 1994 hearing, Nesmith and Fleming were acting in conflict of interest in representing Commission staff in proceedings against him. Roeder also alleges abuse of process on the basis that he was misled by Nesmith and Fleming.
¶ 4 In support of his section 171 application, Roeder applied for an order to examine various individuals currently and formerly employed by the Commission. On November 18, 2002 the Commission held a hearing to determine how the application for examination should proceed. At that hearing, Commission staff argued that Roeder’s section 171 application should be dismissed as frivolous and vexatious, and on the grounds of undue delay. The Commission determined that it would first make a determination as to whether the application should be dismissed for undue delay, which was the purpose of this hearing.
Background
¶ 5 In the late 1980’s, Roeder was represented on various securities law matters by a lawyer named Edward Bence. In early 1994, Roeder called Bence to ask him to represent him in the Keywest hearing. Bence, it turned out, had changed firms and was now employed by the same firm as Nesmith, who was acting on the Keywest matter for the Commission. Bence therefore declined to act for Roeder.
¶ 6 Roeder believed that his prior relationship with Bence should have disqualified Nesmith’s firm from acting for the Commission because of the possibility that Nesmith may learn information from Bence that Bence learned from Roeder while representing him in the 1980’s.
¶ 7 Roeder obtained new counsel, Devlin Jensen, and asked Brian Markus of that firm to pursue the conflict of interest issue with Commission staff. On May 12, 1994, Markus wrote Nesmith about the conflict of interest issue, saying:
- On a different point, we are very concerned about your continued involvement in this particular matter on behalf of the British Columbia Securities Commission. Mr. Roeder has advised us that he has previously been represented, in both a personal capacity and in a corporate capacity, by Mr. Ted Bence of your firm. More particularly, we understand that Mr. Bence represented Mr. Roeder personally in the sale of Spiral Engineering to the Hollyoke Group of California in or about the summer of 1987. Clearly Mr. Bence, in the course of his conversations with, or whilst taking instructions from Mr. Roeder, may have obtained information of a confidential nature about his client, and with you acting as prosecutor against him in these proceedings, there is in our view a real risk that this information could be used to prejudice our client, based upon the Reasons for Judgment of the Supreme Court of Canada in MacDonald Estate v. Martin, [1991] 1 WWR 705.
Would you please confirm that you are prepared to withdraw as counsel for the British Columbia Securities Commission in this particular matter.
¶ 8 Nesmith responded a few days later, on May 18, as follows:
- With respect to your concerns regarding what you perceive to be a conflict, we are somewhat at a loss. In the circumstances, we see no basis for a conflict. The matter to which you refer is 7 years old and is totally unrelated to the matter presently in issue. Perhaps you could enlighten us by more particular reference either to the facts of that old matter or the ratio of the Supreme Court decision in Martin.
¶ 9 Markus responded the same day, reiterating his demand that Nesmith withdraw, and saying that the fact that the matter was seven years old, and did not relate directly to the matter in issue, was irrelevant as a matter of law.
¶ 10 That is the end of the correspondence trail on the conflict issue. In an affidavit sworn in November 2001, Markus says:
- Sometime after June 10, 1994, but well prior to the Hearing, I believe I was advised either by letter or a telephone call, that Mr. Nesmith was withdrawing as commission staff counsel in the within matter, but that he was not withdrawing because he was in a conflict of interest as I had alleged. While my recollection is that this information came from Mr. Nesmith, it is possible it came from Mr. Fleming.
- I believe I received this advice because I recall walking into [a colleague’s] office and advising him of Nesmith’s position and “poked fun” at the assertion that his withdrawal had nothing to do with my allegation that he was acting in conflict of interest.
- I was not aware that Nesmith had acted for Commission staff in this matter . . . until the fall of 2000.
¶ 12 Andrew Chamberlain is the lawyer who represented Keywest in general corporate matters at the relevant time. In an affidavit sworn in November 2001, Chamberlain says:
- In the weeks before the hearing commencing November 29, 1994, I had numerous conversations with Mr. Fleming, [a Commission staff investigator], and Mr. Markus dealing with various pre-hearing matters.
During one of those conversations I took the opportunity to confirm that Mr. Nesmith was no longer acting for Commission staff in this matter. I was informed that Mr. Nesmith was no longer acting for Commission staff, that his withdrawal was not related to the allegation that he was acting in conflict of interest, and that as a result of his withdrawal, the allegation that Mr. Nesmith was acting in conflict of interest was no longer in issue.
With the passage of time, I cannot specifically remember whether this conversation took place with [the Commission staff investigator], Mr. Fleming or Mr. Markus, however, my recollection is that it took place with Mr. Fleming.
¶ 14 Fleming says, in an affidavit dated October 2, 2002:
- At no time did I advise . . . Markus, or anyone else that . . . Nesmith had withdrawn from the proceedings. I believe that at the time of the hearing, Markus was aware that I had been an associate of Lang Michener.
Chamberlain suggests that prior to the hearing I might possibly have advised him that . . . Nesmith was no longer acting for the Commission staff in the Proceedings. Mr. Chamberlain is mistaken. I certainly did not tell him that because . . . Nesmith had not withdrawn.
¶ 15 Nesmith says, in an affidavit dated September 30, 2002:
- Robert Fleming assumed primary responsibility for the conduct of the Proceedings on behalf of the Commission Staff in or about November 1994. I decided to delegate the matter to Mr. Fleming so that I could attend to other matters, and not because I believed that I was subject to any conflict.
I believe I spoke with Markus by telephone to advise him that Mr. Fleming would be appearing at the hearing on behalf of Commission staff. However, I did not advise Markus at any time that I had or would be withdrawing as counsel for the Commission staff and would have no further involvement in the Proceedings.
¶ 16 On November 9, 1994, Fleming wrote to Chamberlain and Markus about various matters relating to the hearing. The letter begins, “I act as counsel for the Staff of the British Columbia Securities Commission . . . in this matter.” At the time of writing this letter, Fleming was a sole practitioner, although he had been associated with Nesmith’s firm for some months during 1994. Roeder says that Chamberlain told him “within days of the commencement of the hearing” that Fleming had accompanied Nesmith at a hearing and review in January 1994 of freeze and cease trade orders that the Commission had previously made against Keywest. Roeder goes on to say:
- After discussing the issue with Mr. Markus, a decision was made not to pursue the matter because Fleming appeared to be a junior lawyer who practiced on his own and did not appear to have any relationship, directly or indirectly, with Mr. Bence.
¶ 18 During the hearing, Roeder was cross-examined by Fleming. During the course of the cross-examination, Fleming asked questions of Roeder relating to his past involvement in other companies, and the course of his answers, Roeder mentioned Spiral Engineering. Fleming then asked Roeder some questions about Spiral Engineering. Roeder says:
- These questions led me to wonder at the time whether Mr. Fleming had somehow obtained information relating to my retainer of Mr. Bence. In fact, after the cross-examination had concluded, I asked Mr. Fleming whether he had been speaking with Mr. Bence lately. He did not respond.
¶ 19 Of this incident, Fleming says:
- I believe that [Roeder] did indeed ask me whether I had been speaking to Bence, but I believe he is mistaken that I did not respond. I believe my response was very short, probably a simple ‘no’, because . . . I had never spoken to Bence about any of these matters.
¶ 20 The Commission rendered its decision on April 4, 1995.
¶ 21 On April 21, 1995, a little over two weeks later, a Commission investigator wrote Keywest, reminding it that the individuals who were formerly acting as directors of Keywest, including Roeder, must resign as directors. Devlin Jensen, and both Nesmith and Fleming, were shown as copied on that letter.
¶ 22 Roeder, along with the other respondents, sought leave to appeal. Devlin Jensen represented all of the respondents on the leave application.
¶ 23 In connection with the appeal, Fleming wrote Devlin Jensen on May 16, 1995. The letter opens as follows: “I act, along with Wade Nesmith of Lang Michener, as counsel for the British Columbia Securities Commission . . . in this matter”. An Appearance Notice of the same date filed in the Court of Appeal showed Nesmith and Fleming as solicitors of record.
¶ 24 Correspondence on various issues took place over the next few months. Fleming wrote letters to Devlin Jensen in 1995 on June 8, June 26, July 17 and September 1, and a letter to the Commission, copied to Devlin Jensen, on August 17. Nesmith was shown as copied on all these letters.
¶ 25 The leave application was refused on July 25, 1995.
¶ 26 Following the leave application, Keywest applied to the Commission for relief from a previously-issued freeze order against Keywest. In correspondence related to that, Fleming wrote to the Commission on February 15, 1996. Both Devlin Jensen and Nesmith were shown as copied on that letter.
¶ 27 On March 11, 1996 Fleming wrote Devlin Jensen, stating that he acted as counsel for staff of the Commission. Nesmith was shown as copied on the letter.
¶ 28 Devlin Jensen wrote back March 12, the next day. That letter included the following:
- We note you have been copying Mr. Wade Nesmith of Lang Michener & Shaw in your correspondence. It is our understanding that Mr. Nesmith has potential problems of conflict and had previously withdrawn from the matter as a result thereof. . . . We question why Mr. Nesmith is involved at this time and why he is being copied.
¶ 29 In a response dated March 15, 1996, Fleming wrote:
- Mr. Wade Nesmith is now and has always been senior counsel for the Staff in this matter, as well as the related proceedings of the Roeder Hearing . . . . There has never been any conflict which prevented Mr. Nesmith from being involved in this fashion.
¶ 30 Roeder says that Devlin Jensen ceased to act for him after July 25, 1995 and that he knew nothing of this letter:
- At no time did . . . Devlin Jensen inform me of any of the contents of Fleming’s letter of March 15, 1996 to Peter Jensen. I had not seen the letter nor was I aware of its contents until . . . May 2001.
Had I known that Wade Nesmith continued to act for Commission staff after he had represented that he had withdrawn, or that Robert Fleming had been previously associated in the practice of law with Edward Bence, I would have immediately reinitiated my complaint against them.
¶ 31 In August 2000, Roeder received a costs order issued by the Commission (which the Commission had sent to the respondents in September 1998) showing Nesmith’s involvement in the hearing. Roeder says that is the first time he learned that Nesmith in fact did not withdraw from the file in mid-1994. On October 20, 2000 Roeder filed his section 171 application with the Commission. For the purposes of this ruling, we have assumed that August 2000 was the first time that Roeder acquired personal knowledge of Nesmith’s involvement in the hearing.
Discussion and Analysis
Applicable law
¶ 32 The application before us is to dismiss Roeder’s section 171 application for undue delay.
¶ 33 The law is clear that a party with concerns about a conflict of interest must raise them at the earliest opportunity. If the party fails to do so, it may be denied a remedy. This is so even if the party establishes prior to trial that there is in fact a conflict of interest and that there is a risk that the party’s confidential information will be used to his prejudice. If the party could have raised the matter sooner, the courts will refuse to grant any remedy.
¶ 34 In Lafarge Construction Materials Precast Division v. Lawson Lundell Lawson & McIntosh, [1995] B.C.J. No. 2292 (B.C.S.C.), the parties were in disagreement about whether counsel for the plaintiff was in a conflict of interest. Like this case, the lawyers exchanged correspondence on the matter but no agreement or conclusion was reached. Thirteen months after the end of that correspondence, the defendant applied to have plaintiff’s counsel removed before the trial. The court refused on the basis of delay.
¶ 35 In Crystal Heights Co-Operative Inc. v. Barban Builders Inc., [1987] O.J. No. 1518 (Ont. Dist. Ct.), the application to remove counsel came two years after the conflict was first alleged. Even though the court found that the conflict in question created “at the very least an appearance of impropriety and unfairness and an apprehension of prejudice to the applicant”, it dismissed the application on the basis of delay. In Ramsbottom v. Morning, [1991] O.J. No. 3460 (Ont. G.D.), the court went further. It found that the law firm acting for the plaintiff had knowledge about the defendant by reason of having acted for it in the past that “would give [the firm] an unfair advantage if acting against [the defendant].” The court still refused the defendant’s application to have the law firm removed because the defendant had failed to act on its conflict allegations for two years.
¶ 36 In R. v. Joyal (1990), 55 C.C.C. (3d) 233 (Que. C.A.) (leave to appeal to SCC denied), that court said (at p. 240):
- The case law is consistent that . . . such grounds must be raised as soon as it is noticed that there may be some doubt as to the impartiality of the person one would wish disqualified, or as soon as there is an apparent possibility of prejudice to the right to a fair hearing.
¶ 37 In Bains v. Bhandar, [2000] B.C.J. No. 1677 (Q.L.) (leave to appeal to SCC denied), the plaintiff successfully sued the defendant for fraudulent misrepresentation. In proceedings that took place five years later, the defendant contended that the plaintiff, before the trial, had entered into a settlement agreement with another individual in order to conceal evidence that would have been harmful to the plaintiff’s case. The defendant argued that this constituted fraud and an abuse of process, and that the original judgment should be set aside and a new trial ordered. After noting the authorities requiring a party to exercise due diligence in actions to set aside prior decisions of a court, the court said (at para. 53):
- In my view, it is apparent that [the plaintiff] cannot succeed . . . if the only delay which is considered is the delay between the time [the defendant] actually knew of the impugned terms of the Settlement Agreement and the time he commenced his action. . . . In considering the issue of due diligence, however, the question is not simply what [the defendant] knew, but what he ought to have known had he exercised reasonable diligence.
¶ 38 The decisions cited above relate to civil and criminal proceedings, but the courts have applied the same standards to administrative tribunals, holding that delay must not be detrimental to good administration. In Crommer v. Workers’ Compensation Board (1992), 98 Sask. R. 213 (Q.B.) the Court said (at p. 220):
- Each case must be considered on its own merits and a long unexplained delay of any kind will jeopardize the making of the application. This is so even where granting the relief sought would not cause substantial hardship and where, as here, there is no prejudice shown. To grant this application, in my view, one would be acting in a manner detrimental to good administration which would open the door for future abuses in respect to the timeliness of the application.
19 In this case the decision of the Board of Revision was five years ago and there has been no satisfactory explanation for the delay.
20 In my view a delay of this magnitude would be detrimental to good administration and therefore in the exercise of my discretion I refuse to entertain the application. The application is therefore dismissed.
¶ 40 Roeder seeks to focus our attention on the point in time when he says he personally became aware of these issues of conflict. However, the law is trite that knowledge of the client’s counsel is attributed to the client. As noted in Heath v. Darcus, [1990] B.C.J. No. 1005 (Q.L.)(B.C.S.C.):
- Knowledge imparted to the solicitor has long been attributed to the client who employs him. . . . In my judgment knowledge attributed to the client through the solicitor is as full and perfect as the solicitor’s knowledge itself. It is not a degree of knowledge less than the solicitor’s.
¶ 41 Accordingly, even though for the purposes of this hearing we have assumed that Roeder was not personally aware of Nesmith’s involvement in the file during the hearing until August 2000, Roeder is deemed to know anything that Devlin Jensen knew while acting for him.
Alleged conflict of Nesmith
¶ 42 It seems clear that there was a misunderstanding between counsel in 1994. We know from what actually happened that Nesmith did not in fact withdraw from the file, but had delegated the conduct of the hearing to Fleming.
¶ 43 Markus, Chamberlain, Fleming and Nesmith have all sworn affidavits that speak to the events of the summer of 1994. Some caution is prudent in considering these affidavits, since they have all been sworn more than seven years after the events took place. This is reflected in the equivocating language found in all of them, which is not surprising considering the passage of time.
¶ 44 Markus, for example, is not sure whether he spoke with Nesmith or Fleming. In these circumstances, we can certainly not be confident that Nesmith, or Fleming, used the exact words, “withdrawing as staff counsel”. Markus may only have been told that Nesmith was not intending to appear at the hearing on behalf of the Commission, which Markus took to mean a complete withdrawal from the case. There is no way to know.
¶ 45 However, if Markus’ recollection is accurate, Nesmith did made it clear that his position was that there was no conflict of interest.
¶ 46 Similarly, Chamberlain acknowledges that his recollection may simply be what Markus told him. Even if he did hear about the issue from Fleming or the Commission staff investigator, he also says that Nesmith’s position was that he had no conflict of interest.
¶ 47 The Nesmith and Fleming affidavits are confirmed in part by what we know in fact happened: Nesmith continued to act for the Commission along with Fleming, although only Fleming attended the hearing. However, there is nothing in their affidavits that conclusively establishes who told what to whom in the summer of 1994 before the hearing began.
¶ 48 From the conduct of the parties, however, we can infer that whatever Markus was told, Nesmith’s withdrawal from the hearing led Markus and Roeder to believe that they did not need to pursue the conflict of interest question any further. (Roeder says he was misled, which is the basis of his allegation of abuse of process.) Markus and Roeder therefore went through the hearing with the impression that Nesmith had withdrawn entirely. Considering how Fleming drafted his letter advising Markus of his role on the file, we can understand why Markus concluded that Fleming was acting alone. This misunderstanding could have easily been averted had Nesmith and Fleming taken greater care at the time to clarify Nesmith’s role. It is surprising they failed to do so, especially since they knew how important the issue was to Roeder.
¶ 49 However, Devlin Jensen was alerted to Nesmith’s continued involvement very soon after the hearing concluded. The firm was copied on staff’s April 21, 1995 letter to Keywest, and Nesmith and Fleming were shown as copied on the same letter.
¶ 50 Even if that letter was overlooked, Fleming’s May 16, 1995 letter stated, simply and unambiguously, that Fleming was acting, “along with Wade Nesmith of Lang Michener” as counsel for the Commission in the matter. Devlin Jensen was also copied on five more letters bearing dates between June 8 and September 1 of that year, all showing copies being sent to Nesmith. Three of these letters are dated before July 25, the date after which Roeder says Devlin Jensen ceased to act for him.
¶ 51 The May 16 letter related to the leave application. However, the re-appearance of Nesmith’s name in connection with the matter ought to have raised questions. It is clear from the evidence that Roeder was extremely concerned about the potential transfer of privileged information between Bence and anyone at Lang Michener acting for Commission staff.
¶ 52 It stands to reason that Roeder would be just as concerned about the conflict on the leave application as he was on the original hearing. The leave application was the next step in the litigation, and could have led to an appeal on the decision and perhaps a rehearing of the matter before the Commission. The risk to fairness posed by conflict of interest situations is that opposing counsel may be in possession of privileged information about the client, which creates the opportunity for that knowledge to be used unfairly against the client. That potential exists whether opposing counsel is acting on an evidentiary hearing or on an appeal.
¶ 53 Furthermore, Nesmith had made it clear that his position was that there was no conflict of interest that prevented his acting on the matter.
¶ 54 When Devlin Jensen received the May 16, 1995 letter, they were made aware that Nesmith was on the file. Devlin Jensen knew of Roeder’s prior concern over Nesmith’s involvement, and also knew that Nesmith’s position was that he was not in a conflict of interest. Knowing these things, the exercise of reasonable diligence by Devlin Jensen would have required that they ask questions about what Nesmith’s role had been and was intended to be. Had they exercised that reasonable diligence, they would have discovered that Nesmith had been involved throughout and could have taken appropriate action.
¶ 55 Devlin Jensen raised the issue again in 1996, and the response to that inquiry was as clear as can be. Fleming wrote them on March 15, 1996 that Nesmith “is now and has always been senior counsel for Commission staff in this matter” (emphasis added) and again denied the existence of any conflict of interest.
¶ 56 Roeder says that had he seen this letter, he would have immediately reinstated his complaint against Nesmith, and indeed would have commenced a complaint regarding Fleming, had he known that Fleming had also worked at Lang Michener.
¶ 57 Roeder says that this correspondence is not relevant because Devlin Jensen was not acting for him at that time. Devlin Jensen knew that this issue was of importance to Roeder as a result of their previous retainer by him. Having come by this knowledge, it is reasonable to expect that they would have taken steps to inform him, and seek instructions, but there is no evidence before us as to whether or not they did so. In any event, it is not clear that in these circumstances we can attribute to Roeder Devlin Jensen’s knowledge of the March 15, 1996 letter.
¶ 58 However, we do not need to do so to reach our ruling. Roeder misunderstood Nesmith’s role during the hearing, but he had the opportunity, no later than May 16, 1995, to raise the matter before the Commission and failed to do so. He could have raised the issue in his application for leave to appeal, but did not.
¶ 59 Roeder’s section 171 application was filed October 20, 2000, about five and a half years after Devlin Jensen was provided with information that, with the exercise of reasonable diligence, would have led them to discover the true state of affairs. Applying the authorities cited above to these facts, we find that this constitutes undue delay.
Alleged conflict of Fleming
¶ 60 In the case of Fleming, Roeder had an even earlier opportunity to deal with the issue. He says he became aware of Fleming’s potential conflict “within days of the commencement of the hearing”. He discussed it with his counsel and they chose not to pursue the matter, although given Fleming’s participation with Nesmith at the hearing and review, it would have been a simple matter, and consistent with the exercise of reasonable diligence, to inquire into the relationship between Nesmith and Fleming.
¶ 61 Roeder had a second opportunity to deal with the issue after the conclusion of his cross-examination, which, he says, led him to “wonder . . . whether Mr. Fleming had somehow obtained information relating to my retainer of Mr. Bence.” We do not know whether or not Roeder discussed this with his counsel, but in any event, he did not pursue the matter.
¶ 62 Roeder’s application follows the event complained of by some six years. Again, applying the authorities cited above, we find that this constitutes undue delay.
Ruling
¶ 63 In this hearing we restricted the issue to the matter of delay, and have not considered the merits of the application; the authorities show that the courts will strike down an application such as Roeder’s on the basis of delay even if the application is sound on its merits.
¶ 64 The case law is also clear that unjustified delay is usually fatal, even if the relief sought would not cause substantial hardship or there is no prejudice shown.
¶ 65 However, there would be prejudice to the effectiveness of the Commission’s adjudication process if all of its decisions were subject to re-examination years after the fact by the bringing of applications that, with the exercise of reasonable diligence, could have been dealt with at or near the time of the original hearing. This is so particularly when the remedy applied for is the revocation of enforcement orders made in the public interest.
¶ 66 In weighing this concern against the delay in this case, we are of the view that the public interest would not be served to entertain this application after so many years have passed.
¶ 67 Roeder’s section 171 application is therefore dismissed for undue delay.
¶ 68 May 20, 2003
¶ 69 For the Commission
Brent W. Aitken
Vice Chair
Joan L. Brockman
Commissioner
Robert J. Milbourne
Commissioner