Main Phone No: (416) 869-5500
Jonathan G. Katz, Secretary
Our law firm is writing to express its concern about proposed Part 205 and to support the submissions made in the letter dated December 6, 2002 of the Law Society of Upper Canada and the letter dated December 18, 2002 on behalf of approximately 75 prominent U.S. law firms.
As articulated at much greater length in those letters our principal concerns with proposed Part 205 are two-fold, specifically: (i) that the serious risk of "regulatory chill" may deter clients from engaging counsel in discussions concerning disclosure issues, and (ii) the risk that such legislation may place lawyers qualified and practicing in Canadian jurisdictions in the untenable position of facing conflicting duties under U.S. securities laws and the rules of Canadian law societies.
We share the deep concern expressed in the submission of the U.S. law firms that, once understood by clients, the net effect of proposed Part 205 may well be to create a reluctance on their part to engage outside counsel in discussions about difficult disclosure issues. While in our experience most clients are responsive to the guidance and inputs provided by counsel, they do not wholly abdicate to counsel the decision as to whether particular items are or are not material. The reason for this is obvious, while competent lawyers generally have a good sense of materiality they do not have the absolute foresight of some hypothetical infallible financial analyst. Faced with the menu of either at potentially surrendering the ultimate decision on a disclosure issue to counsel or facing the seriously adverse publicity associated with a "noisy withdrawal", issuers may choose simply not to involve outside counsel in the decision-making process at all. In our view, this would be an unfortunate development.
Even if the Commission is not persuaded to proceed slowly by this concern we would urge the Commission not to apply proposed Part 205 to counsel not qualified to practice U.S. law. Our firm has lawyers qualified to practice under the laws of the provinces of Alberta, British Columbia, Ontario and Quebec, the four largest provinces in Canada. As was outlined in more detail in the Law Society of Upper Canada's submission, if applicable to non-U.S. lawyers proposed Part 205 would constitute an abrogation of the solicitor-client privilege which is codified under the rules of the various provincial law societies in Canada. As was outlined in their submission, recent federal Canadian legislation which also would have abrogated solicitor-client privilege is currently the subject of judicial challenge as to its constitutionality (and the application of such legislation has been suspended pending ultimate judicial determination of that challenge). Accordingly, we would urge the Commission not to adopt proposed Part 205 in such a way as to apply to foreign lawyers which, at least in the Canadian context, would place Canadian counsel in the invidious position of choosing between complying with provisions of U.S. securities law, whose constitutionality under Canadian law may be questionable, or complying with applicable rules enshrining the principle of solicitor-client privilege adopted by their provincial law societies.
In this respect, we would note that the principle of respecting solicitor-client privilege was expressly recognized in the analogous civil liability provisions for continuous disclosure under the Securities Act (Ontario) enacted on November 26, 2002 (although not yet proclaimed in force). In particular, the specific "whistle-blower" safe harbour (to be contained in section 138(15)) of that Act provides as follows:
Finally, we echo the sentiment in the submissions from the U.S. law firms that while the Commission must do what is required by the statute to do, we would urge the Commission to exercise caution and restraint in going beyond that point.