bulletin 2010-17 - auc 2010-17.pdf · 2018. 1. 24. · bulletin 2010-17 april 23, 2010 consultation...

Bulletin 2010-17

April 23, 2010

Consultation on Market Surveillance Administrator (MSA) Proceedings

Before the Alberta Utilities Commission (AUC or Commission)

1 Background and scope of consultation 1. In Bulletin 2009-15 the Commission initiated a consultation process to facilitate a discussion on the potential regulatory treatment of procedural fairness and due process issues

associated with proceedings brought before the Commission by the MSA.

2. The consultation process included written and oral representations by a number of parties who were asked to discuss various issues, including those identified by K. Jull.

1 Jull raised a

preliminary question of whether the administrative penalty proceedings were criminal or civil in

nature. This question impacts the level of procedural fairness protections accorded parties

accused of contraventions2 by the MSA. The jurisprudence cited by Jull indicates that these

administrative penalty proceedings are civil in nature.

3. Although the parties did not spend much time on this question, the Commission addresses it as follows. Out of fairness to the parties, the Commission had already decided to allow some of

the protections normally reserved for criminal proceedings for the parties accused of

contraventions, as discussed in section 2.2 below. Additionally, the Commission notes that the

roles of the Commission and the MSA are clearly delineated by the legislation with respect to

proceedings brought before the Commission by the MSA. The MSA is the applicant for the

imposition of an administrative or specified penalty and the Commission is the independent,

impartial decision maker. The MSA and the Commission are independent of each other.

4. The Commission is an independent quasi-judicial tribunal. It is bound by the rules of natural justice and procedural fairness. The Commission governs its own process and establishes

its own rules of practice and procedure. Rule 001, Rules of Practice (Rule 001) is an example of

this.

5. The MSA is mandated under Part 5 of the Alberta Utilities Commission Act to investigate circumstances that may constitute contraventions of various laws. Then, if satisfied that a

contravention has occurred, the MSA may bring them forward for determination by the

Commission. The Commission serves in the role of adjudicator.

1 See his discussion paper dated June 30, 2009, attached to Bulletin 2009-16.

2 In this bulletin, the term contravention refers to any matter addressed in subsection 51(1) of the Alberta Utilities

Commission Act.

6. The other party before the Commission is the alleged contravener.

7. The Commission’s objective is to adopt a transparent process for the adjudication of MSA applications. The Commission sought the views of market participants and other parties

regarding a number of issues relating to MSA proceedings to assist in its consultations.

8. These issues included: (1) standard and burden of proof, (2) availability of defences, (3) the quantum of penalty, (4) the divesting of economic benefits, (5) the nature of hearings, (6) the

admissibility of evidence, (7) the standard of disclosure, and (8) various issues related to

proceedings where the MSA is seeking to impose a specified penalty.

9. In addition to these eight specific issues, an overarching question was asked, namely whether the Commission should enact specific rules for each of the issues or whether the

Commission should take a ‘common law’ approach to deciding these matters.

10. After two roundtable meetings and two rounds of consultations and feedback, the Commission is ready to provide its views on the various issues. In doing so, the Commission is

mindful of the concerns expressed by the various parties, and wishes to remind the parties that its

views here should be seen as a starting point rather than a final determination. The AUC’s role in

adjudicating proceedings initiated by the MSA has only existed for two years. The Commission’s

views, therefore, are meant to initiate a framework in which AUC can operate and from which

the law and relationships among the parties can evolve.

11. The discussion will proceed as follows: Section 2 will address the overarching question of common law versus rules, with six other subsections that will address the issues identified in

paragraph eight above. Section 3 will address specified penalties, and a similar set of questions

will be dealt with in its subsections.

2 Common law or rules? 12. The overarching question that the Commission considered in this consultation was whether the Commission should enact additional rules to address the treatment of procedural

fairness and due process issues associated with MSA proceedings, or whether the Commission

should continue to decide MSA proceedings by applying common law principles and making its

decisions on a case-by-case basis.

13. Some participants took the position that it was premature to create additional rules as there have not been many MSA proceedings to date, and Rule 001 provides a starting point for

these proceedings.3 Also, a case-by-case approach provides flexibility and the matters raised in

the consultation did not lend themselves to a generic set of rules.4

14. Maintaining the status quo, i.e. the case-by-case approach, ensures that a proceeding is tailored to the issues brought forward by the parties, and that the Commission is able to make

decisions as the need arises. For example, the Commission has not made any determination as to

whether or not some contraventions may fall within the absolute liability category, because the

MSA has not brought forward such a case.

3 TransAlta and TransCanada.

4 TransAlta, AESO, MSA.

15. Other participants were in favour of the Commission enacting additional rules that would prescribe the standard of proof, available defences, and quantum of penalties by type of

contravention.5 These participants opined that rules provide certainty to parties in advance of a

hearing and ensure consistency of Commission decisions across hearings or proceedings. These

participants, nonetheless, also submitted that the Commission should retain a broad discretion to

allow additional defences and submissions on quantum of penalty even in the face of rules in any

given case.

16. The submissions reveal to the Commission that the participants’ main concern is that there be certainty with respect to the rules that they will be facing, while also allowing for a level

of flexibility and pragmatism for the Commission.

17. The Commission, therefore, after considering the differing positions concludes that, at this time, there is no need for the enactment of specific rules on the topics discussed in this

Consultation.

18. The Commission arrived at this position due to a number of factors. First, there have only been a limited number of MSA initiated proceedings, and the Commission has yet to hold a

hearing for an administrative penalty proceeding.6

19. Second, the Commission is of the opinion that a case-by-case approach is more flexible and enables the Commission to adapt more quickly to developments in case law when they

occur.

20. Last, while the Commission is aware that process inefficiencies may result from this approach, because a party will have to raise process issues by way of preliminary motion in a

specific proceeding, a ruling on a preliminary motion will allow each party to frame its case and

decide on the evidence it wants to file in support of its position.

21. As a result, after careful consideration of the submissions and discussions of the participants in the Consultation, the Commission has concluded that it will continue to address

procedural and substantive issues associated with MSA proceedings by way of the common law

and make decisions on a case-by-case basis.

22. Having made this determination, the Commission responds to those parties whose submissions revealed a strong desire for certainty regarding the rules of the game, by reassuring

them that the Commission is committed to the highest principles of fairness. To date, the

Commission has afforded all parties fairness in the conduct of the proceeding, as discussed

below.

23. When making a decision, the Commission will weigh the evidence and the submission of the parties. The Commission has to be satisfied that a contravention took place and that the

amount of the administrative penalty to be imposed is in keeping with the circumstances of the

case.

5 ENMAX, Independent Power Producers Society of Alberta, Capital Power Corporation, and AltaLink.

6 See for example, Proceeding 269. This was an administrative penalty proceeding, however, a settlement

agreement was submitted for approval as a resolution to this matter.

24. While the Commission wishes to make clear that, for reasons of administrative and procedural fairness, any decision it makes on a procedural or substantive issue will be made at

the time the issue arises and will be based on the particular facts before it, the Commission is

prepared to offer the following comments in response to the issues identified in the

Consultation.7

2.1 Standard of proof and availability of defences

25. In the specified penalty proceedings8 and the administrative penalty proceeding9 brought before the Commission, it was agreed that the burden of proof of the “actus reus”

10 of a

contravention lies with MSA. This was further acknowledged in the Consultation.

26. The issues presented in this section centre on the applicable standard of proof and the categorization of administrative penalties.

27. Some participants in the Consultation argued that the standard of proof was ‘on a balance of probabilities’ as administrative penalty proceedings were civil cases, while others contended

that the standard was ‘beyond a reasonable doubt’ as the contraventions were effectively

regulatory prosecutions.

28. The Commission will continue its practice of applying the standard of ‘balance of probabilities’ as the standard of proof. This practice has been developed in a series of decisions.

29. For example, in Decision 2009-144, the Commission referred to the Supreme Court of Canada’s decision in F.H. v. McDougall, which decided,

that there is only one civil standard of proof at common law and that is

proof on a balance of probabilities. Of course, context is all important and

a judge should not be unmindful, where appropriate, of inherent

probabilities or improbabilities or the seriousness of the allegations or

consequences. However, these considerations do not change the standard

of proof.11

30. The Supreme Court of Canada went on to state, “in civil cases[,] there is only one standard of proof and that is proof on a balance of probabilities. In all civil cases, the trial judge

7 The issues are set out in the same order as in discussion paper prepared by K. Jull dated June 30, 2009, attached

to Bulletin 2009-16. 8 See Decision 2008-114, Confirmation of a Specified Penalty Issued to EPCOR PPA Management Inc.,

November 19, 2008; Decision 2008-126, Confirmation of a Specified Penalty Issued to TransCanada Energy

Ltd., December 16, 2008; Decision 2009-144, Confirmation of a Specified Penalty Issued to Syncrude Canada

Ltd., September 22, 2009. 9 See Application No. 1605352 Proceeding ID. 269, Application by the Market Surveillance Administrator for an

Order Imposing an Administrative Penalty on ENMAX Corporation, ENMAX Energy Corporation and ENMAX

Energy Marketing Inc. (collectively ENMAX). 10

See page one of Decision 2008-114 where the Commission states that the specified penalties proceeding is a

regulatory proceeding, not a criminal or quasi-criminal one. The term is used because it is a convenient term for

distinguishing between the act (objective conduct) and the mental or subjective element of a breach. 11

[2008] S.C.J. No. 54 at para. 40.

must scrutinize the relevant evidence with care to determine whether it is more likely than not

that an alleged event occurred.”12

31. In Proceeding 269,13 ENMAX raised a number of preliminary matters by way of motion regarding the burden of proof. On the applicable standard of proof to be met by the MSA

regarding the actus reus, the parties agreed that the alleged contraventions were strict liability

offences and that the defence of due diligence was available to ENMAX on a balance of

probabilities. ENMAX, however, argued that the alleged contraventions were “regulatory

offences” whose governing legal framework is addressed in R. v. City of Sault Ste. Marie (Sault

Ste. Marie),14

and, as such, the MSA must prove the contraventions beyond a reasonable doubt.

32. Additionally, ENMAX argued that section 63 of the Alberta Utilities Commission Act is similar to section 64 of the Alberta Utilities Commission Act, the offence section of the Act. It

follows, therefore, that if section 64 is a regulatory offence, then so is an administrative penalty.

The MSA countered that alleged contraventions are administrative in nature, and hence the

applicable standard of proof is the balance of probabilities.

33. On October 21, 2009, the Commission issued a ruling in this proceeding. In reaching its determination, the Commission referred to Decision 2009-144, which stated that the standard of

proof in civil cases is a balance of probabilities and cited F.H. v. McDougall in support of this

finding. As well, the Commission considered that sections 63 and 64 of the Alberta Utilities

Commission Act are not synonymous.

34. The Commission further found that the balance of probabilities standard should be applied in proceedings before an administrative agency. The Commission also found that it is a

commonly accepted principle that regulatory tribunals are to be treated distinctly from courts and

to require the MSA to prove the actus reus of the contravention beyond a reasonable doubt

would liken the proceedings to a criminal proceeding.

35. Therefore, in sum, the Commission will continue to follow its decisions, such as in Decision 2009-144, and hold the MSA to a ‘balance of probabilities’ standard of proof.

36. That being said, the Commission notes that once the MSA proves the contravention, the Commission’s practice to date has been to allow the alleged contravener to bring a defence of

due diligence.

37. For example, in Decision 2008-114, an agreed statement of facts was filed, which proved the actus reus of the breach. The Commission observed that, once the MSA has established on

the balance of probabilities that the act was committed in a strict liability contravention, the due

diligence defence was available. In that decision, indeed, the main issue before the Commission

was whether the alleged contravener had exercised due diligence in relation to the contravention.

38. In Decision 2008-114, the parties agreed that the alleged contravener had the burden of proof on a balance of probabilities to show that it took steps to prevent the breaches sufficient to

12

Ibid at para. 49. 13 The Commission issued Decision 2010-14, Request for a Consent Order Pursuant to Section 54 of the Alberta Utilities Commission Act, Application for an Order Imposing an Administrative Penalty Against ENMAX,

March 31, 2010. 14

[1978] 2 S.C.R. 1299.

satisfy the due diligence defence. The Commission stated that the starting point for any

consideration of the due diligence defence was the Supreme Court’s case of Sault Ste. Marie.

39. The Commission stated that it will use the following principles derived from Sault Ste. Marie and subsequent jurisprudence when deciding whether the alleged contravener met its

burden:

a) The due diligence defence relates to the standard of reasonable care, as

expressed in tort law, with respect to the offence alleged. It asks whether the

accused (or, as here, respondent) has taken all steps that were reasonable in the

circumstances to prevent the breach.

b) The first consideration is foreseeability: the respondent cannot be expected to

have taken steps to prevent an event that was not reasonably foreseeable. Thus if

the event was not reasonably foreseeable, the defence is made out without further

inquiry.

c) Defining what it is that is foreseeable or not is important. The issue is whether

the respondent could have foreseen an event of the type that occurred, as opposed

to the exact event in all of its particularity.

d) Generally speaking, human error is foreseeable. Thus a respondent must guard

against the effects of human error on its operations.

e) The degree of care to be taken, or, put another way, the extent of the measures

the respondent is expected to take, depends on a number of factors, including:

i) The gravity of the potential harm.

ii) The likelihood of harm.

iii) The alternatives that are available to the respondent.

f) Where possible, the respondent must put procedures in place that address

foreseeable breaches of laws, regulations and applicable rules.15

40. The Commission is satisfied that these factors are still valid for the purpose of future MSA proceedings.

41. The Commission continues to see the burden of proof being on the MSA to show that the contravention took place, and that the standard of proof for this is the ‘balance of probabilities’.

Where the MSA has met its burden, the Commission will then give the accused party an

opportunity to prove on a ‘balance of probabilities’ that it had exercised due diligence. The

Commission will look to the factors outlined above when deciding whether the alleged

contravener has met its burden.

15

Decision 2008-114 at page 14. The Commission subsequently referred to these principles in Decision 2008-126

in making its decision as to whether the alleged contravener had exercised due diligence in each case, as the

contraventions in all the specified penalties proceedings were strict liability contraventions, as agreed to by the

parties.

42. Based on existing case law, the Commission will continue to apply the standard of proof of ‘balance of probabilities’ on the MSA with respect to proving the actus reus.

43. The Commission, however, is also mindful that context, including the seriousness of the allegations or consequences, is all important. Although the standard of proof is ‘balance of

probabilities’ nonetheless, depending on the seriousness of the contravention and possible

penalty, the Commission will ensure a level of fairness that takes the seriousness into account.

This consideration will also be addressed further in section 2.5, which deals with the

admissibility of evidence.

44. It is also worth noting that the notions of due process and the requirements of procedural fairness are present and strengthened by the separate roles adopted by the Alberta Electric System

Operator (AESO), the MSA and the AUC in contravention hearings or proceedings. Each of

these bodies is independent of the other, thus separating the functions of complainant,

investigator, prosecutor and adjudicator.

45. Finally, the Commission is likely to accept an agreement of the parties on the categorization of a contravention as strict liability and that the due diligence defence is available

based on its previous decisions. If the Commission accepts an argument that a contravention

should be classified as strict liability, then it would follow that the alleged contravener has the

opportunity to invoke the due diligence defence.

46. The Commission further notes that where there is no agreement between the parties on these matters, it is open to parties to bring forward a preliminary motion for a ruling respecting

such a matter under Rule 001.

47. Also, where there is no agreement, the Commission will hear the parties on whether the contravention should be categorized as absolute liability or strict liability. The Commission may

in the future have to determine whether a contravention is absolute liability or strict liability

based on the analysis in Sault Ste. Marie.

48. The Commission notes, however, given that it has chosen to operate under the guidance of Sault Ste. Marie as it relates to the availability of defenses to regulatory offenses, its successor

case Re B.C. Motor Vehicle Act16

means that the circumstances would have to be extraordinary

to merit the finding of a contravention being an absolute liability contravention. The Commission

assures the market participants that ample opportunity will be given to the alleged contravener to

argue the case legally and factually.

2.2 Quantum of penalty

49. The Commission has the authority to establish a rule setting out a range of penalties or a maximum penalty for different types of contraventions. Without restricting the Commission’s

discretion to decide the matter in an actual case, it appears that, notwithstanding the express

direction in section 52(7) of the Alberta Utilities Commission Act to enact specified penalties for

breaches of the Independent System Operator’s (ISO) rules and reliability standards, there is

broad power in section 76(1) and paragraph 76(1)(f), in particular, to make a rule which provides

16

[1985] 2 S.C.R. 486.

for ranges of administrative penalties or a maximum administrative penalty for certain types or

categories of contraventions.

50. It is the Commission’s view that the development of a meaningful rule on quantum of penalty requires some experience considering the variety of contraventions that may be the

subject of an administrative penalty under section 63 of the Alberta Utilities Commission Act.

Without evidence from parties involved in proceedings or experience drawn from a body of

cases, the enactment of a rule in this area may not necessarily provide the certainty or

predictability sought by the proponents of a quantum of penalty rule.

51. The market participants argued that a rule on quantum of penalty helps ensure consistency and predictability of Commission decisions. The position is that market participants

in similar circumstances would be liable for a similar level of administrative penalty. The

Commission notes, however, that there may be circumstances in a particular case which call for

the imposition of a certain penalty while similar circumstances may not exist in another case.17

52. In addition, consistency and predictability of Commission decisions may be achieved in part without a rule. It is noteworthy that administrative tribunal members sitting on a case are

allowed in law to discuss legal and policy issues with the other tribunal members.18

There are

some restrictions on this principle, the main one being that the sitting panel must and does have

the responsibility to make the final decision to be applied to the case before it. However, the

purpose of the principle is to have consistent and sound policy and legal outcomes reflected in

tribunal decisions, subject to the particular circumstances before each panel.

53. Furthermore, the context is all important. Hence, the amount and quality of evidence and the degree of care required to find for or against a party will be commensurate with the

seriousness of the alleged contravention and possible penalty.

54. To date, the Commission has not assessed quantum in an administrative penalty proceeding. At this time, it intends to consider administrative penalties on a case-by-case basis.

This involves reviewing the evidence and the submissions on the amount of the administrative

penalty by the MSA and alleged contravener. The use of the criteria in Rule 013 preserves the

Commission’s discretion in making decisions on quantum of penalty and gives the parties

guidance regarding the matters that the Commission will consider.

2.3 Divesting of economic benefit

55. Section 63(2)(b) of the Alberta Utilities Commission Act states:

(2) An administrative penalty imposed under subsection (1) may require the person to whom it is

directed to pay either or both of the following:

…

(b) a one-time amount to address economic benefit where the Commission is of the opinion that

the person has derived an economic benefit directly or indirectly as a result of the contravention.

17

Rule 013, Rules on Criteria Relating to the Imposition of Administrative Penalties (Rule 013), outlines the

factors that the Commission will consider when determining an administrative penalty. 18

IWA v. Consolidated-Bathurst Packaging Ltd., [1990] 1 S.C.R. 282.

It is the view of the Commission that the purpose of requiring a person to divest an economic

benefit (disgorgement) is to nullify the value of financial gains resulting from a contravention. In

other words these gains would not have accrued but for the contravention. Disgorgement, which

is an equitable remedy, is therefore not punitive in nature.

56. The finding that an alleged contravener has derived an economic benefit from a contravention and the amount of the benefit will be determined based on the evidence before the

Commission in each case.

57. Currently, under section 7 of Rule 013, if the Commission finds that a person has derived an economic benefit, the Commission shall order that person to disgorge the benefit. Further,

section 8 of Rule 013 provides that the mitigating factors set out in Rule 013 only apply to

administrative penalties ordered under section 63(2)(a) of the Alberta Utilities Commission Act,

not disgorgement payments under section 63(2)(b) of the Alberta Utilities Commission Act.

58. The Commission is not convinced at this time that there is a need to change these provisions of Rule 013 or to set out any details on the manner in which the economic benefit is

determined, particularly in light of the fact that there have not been any proceedings in which the

Commission has required a person to pay a onetime disgorgement payment.

2.4 Nature of hearings

59. As noted above, the Commission has not held a hearing on an administrative penalty proceeding but has conducted a few specified penalty proceedings. These specified penalty

proceedings have been public, oral and presided over by a Commission panel of three members.

There have been no interrogatory processes leading up to the oral hearings.

60. Parties granted standing in the proceedings have been restricted to the MSA and the alleged contravener. The contravening parties have been permitted to file written evidence in

advance of the oral hearing; and where possible, the MSA and the alleged contravener have filed

an agreed statement of facts.

61. Although the Commission has not held a hearing on an administrative penalty proceeding, the Commission issued a ruling on October 21, 2009 in Proceeding 269. This

administrative penalty proceeding conformed to the Commission’s specified penalty proceedings

practice of holding a public, oral proceeding before a panel of three Commissioners, permitting

the filing of an agreed statement of facts, permitting the alleged contravener to file evidence,

providing confirmation that both the MSA and the alleged contravener would have the

opportunity to cross-examine witnesses in accordance with the Commission’s Rules of Practice

and declining the request of the MSA that it be given the opportunity to conduct a written

interrogatory process of the alleged contravener’s evidence.

62. The participants in the consultation identified certain matters related to the procedural aspects of an administrative penalty proceeding that have not yet been employed by the

Commission such as: (1) providing for an interrogatory process; (2) conducting the proceeding in

camera; (3) opening up standing to include interveners who are not named parties; (4) allowing

for written proceedings; and (5) permitting proceedings to be presided over by a Commission

panel of one member.

63. Most of these same matters have also been identified as matters for consideration for specified penalty proceedings. The Commission’s views regarding these matters in relation to

specified penalty proceedings have been set out in the consultation on specified penalty section

of this bulletin.

64. The comments that follow respecting these matters are specific to an administrative penalty proceeding.

2.4.1 Providing for an interrogatory process

65. As noted above, the Commission’s Rule 001 establishes the procedures applicable to the hearing of any proceeding before the Commission, including an administrative penalty

proceeding. However, the nature of a rate proceeding or a facility proceeding is quite different

from that of an administrative penalty proceeding. Because the various types of proceedings

before the Commission can be different in nature, section 7 of Rule 001 permits the Commission

to “dispense with, vary or supplement all or any part of these Rules”.

66. An administrative penalty proceeding arises at the request of the MSA pursuant to section 51 of the Alberta Utilities Commission Act, and only after the MSA has conducted an

investigation of the alleged contravention with the assistance of the investigatory authority

granted to it under the Alberta Utilities Commission Act.

67. While the alleged contravener may file written evidence in advance of the oral proceeding, the MSA will be given full opportunity to examine that additional evidence through

cross examination during the oral proceeding. Likewise, the alleged contravener is also given full

opportunity to examine the evidence that the MSA has filed to prove its case through cross

examination during the oral hearing. In the latter circumstance and in most instances, the

evidence of the MSA will have been sourced from the alleged contravener and as such, the

alleged contravener would be intimately familiar with it.

68. It is unlikely that the Commission will include an interrogatory process (written information requests) as part of the process in an administrative penalty proceeding. Should

either the MSA or the alleged contravener consider it necessary, that party may request a ruling

from the Commission that it be permitted to ask written interrogatories by filing a motion, copies

of the draft information requests and an explanation as to why the information requests are

needed.

2.4.2 Conducting the proceeding in camera

69. The Commission is part of the system of administration of justice and must uphold an open public system. Applications are filed on the public record and hearings are open to the

public to ensure the transparency of the Commission’s process from the inception of any matter.

70. The Commission is cognizant that there are situations where certain information within a proceeding may be treated as confidential. These situations are explained in subsections

13(2)-(4) of Rule 001 and sections 4 and 5 of Rule 014, Public Disclosure of Market

Surveillance Administrator Records in a Hearing or Other Proceeding (Rule 014) and set out the

nature of the matters and the test to be met by a party requesting confidentiality. The

Commission issued a ruling in Proceeding 415 to this effect in response to a request to hold

settlement agreement documents as confidential.

71. The Commission considers that its procedural rules are sufficiently robust in order to address circumstances where information may need to be treated as confidential and a party may

request a ruling from the Commission on the matter by filing a motion. The Commission further

adds that its rules and practice on this matter are similar to that of the Ontario Securities

Commission. See for example, Rule 8 to the Ontario Securities Commission Rules of Procedure,

which provides that a hearing shall be open to the public unless the panel is of the view that the

interests of protecting the disclosure of intimate financial or other personal matters outweighs the

desirability of adhering to the principle that hearings be open to the public. The onus is on a

party seeking to have an in camera hearing to bring forward its request at the commencement of

the hearing.

2.4.3 Opening up standing to include interveners who are not named parties

72. When determining the matter of standing in any proceeding before the Commission, the Commission is generally guided by the principle that standing should be granted to parties who

may be directly and adversely affected by a decision of the Commission. With respect to an

administrative penalty, the nature of this type of a proceeding is such that the only parties

directly impacted by the outcome of the Commission’s finding are the MSA who had brought the

alleged contravention before the Commission and the alleged contravener.

73. While other parties may be interested in presenting their views, particularly on the matter of the determination of the administrative penalty to be imposed, the Commission will be guided

by the particular facts before it and by Rule 013.

74. The Commission will continue the practice of limiting standing in administrative penalty proceedings to the MSA and the alleged contravener. Nonetheless, parties not named may

request standing by showing that they may be directly and adversely affected by the decision in

the matter.

2.4.4 Allowing for written proceedings

75. As an administrative penalty proceeding may result in the imposition of severe financial consequences on an alleged contravener, assessing the credibility of witness testimony is likely

to be a critical function. As such, it is the Commission’s preference to hear an administrative

penalty proceeding through an oral hearing.

2.4.5 Permitting proceedings to be presided over by a Commission panel of one member

76. Further to section 13 of the Alberta Utilities Commission Act, the Commission Chair may designate any one or more members of the Commission to preside over a proceeding.

77. While it is permissible to have a single Commissioner preside over a matter before the Commission, the nature of an administrative penalty proceeding is likely to involve serious,

complex and contentious issues. It is unlikely, therefore, that the Commission would assign a

single Commissioner to preside over an administrative penalty proceeding.

2.5 Admissibility of evidence

78. The participants in the Consultation have suggested that, due to the nature of an administrative penalty proceeding, particularly when an alleged contravener may be facing

severe consequences, the Commission should adopt a more judicial approach to admitting

evidence.

79. Suggestions included: (1) developing guidelines discouraging irrelevant evidence, evidence from unreliable sources and evidence that is highly prejudicial; (2) only admitting

evidence if it would be admissible in a court; and (3) broadening the grounds for confidential

treatment under section 13 of Rule 001.

80. Section 20 of the Alberta Utilities Commission Act specifically provides that the Commission is not bound in the conduct of its hearings by the rules of law concerning evidence

that are applicable to judicial proceedings.

81. Similar arguments were made by a party appealing an adverse finding against it by the Alberta Securities Commission to the Alberta Court of Appeal.

19 The court of appeal dismissed

the claim that the Alberta Securities Commission was required under its legislation to receive

into evidence all relevant evidence regardless of any other concerns raised by the evidence,

including its unreliability or prejudicial nature.

82. The following pronouncements by the court of appeal are, therefore, instructive on this issue:

[14] It seems to me that inherent in the Commission’s suggested approach is the

conclusion that a Commission panel has the right, and arguably the legal

obligation, to consider the admissibility of evidence. It is neither appropriate nor

necessary, in my view, for this Court to attempt to set out a laundry list of

situations in which a panel can or should exercise that right. I would not limit it to

those circumstances described by the Commission in argument on this appeal. It

is a matter of discretion.

…

[16] The discretion inherent in this approach to the provisions is … essential to

the efficient and effective conduct of Commission hearings. Sub-section 29(f) [of

the Alberta Securities Act] says that the Commission is not bound by the rules of

evidence; it does not say that it is obliged to ignore them entirely and I would not

read s. 29(e) so as to compel that result.

[17] It does not follow that Commission panels are required to hold a voir dire as

a matter of course to determine the admissibility of evidence. That is not required

by the legislation or by the principles of procedural fairness. As the chambers

judge noted … “in a regulatory context the admission of hearsay or compelled

testimony or the lack of opportunity to cross-examine will not necessarily breach

procedural fairness”…. It is clear from the Securities Act that panels are to

employ less formal procedures than would be required in a court. It is therefore

open to a panel to admit, for example, hearsay evidence without holding a voir

dire. By the same token, a panel has the discretion to refuse evidence; for

example, evidence that it considers to be inherently flawed. The provisions of the

19

Lavallee v. Alberta (Securities Commission), 2010 ABCA 48.

statute must be read so as to give effect to the legislative intent that relevant

evidence will be generally admissible, while at the same time honouring the

requirements of procedural fairness and giving the Commission control over its

own process.

[18] In my view, the Commission retains a discretion under s. 29(e) as to the

relevant evidence it will admit in a hearing. ….

83. Consistent with the above findings, the Commission will continue to determine the admissibility of evidence on a case-by-case basis. The weight that will be accorded to the

admitted evidence is dependent on the extent to which parties have had an opportunity to test and

to refute evidence that is adverse to the party’s position.20

84. The court of appeal’s decision combined with the Supreme Court of Canada’s F. H. v. McDougall makes it clear that section 20 of the Alberta Utilities Commission Act is not to be

interpreted to mean that the Commission can ignore the rules of evidence entirely and that the

rigor of evidentiary scrutiny will be affected by the context, i.e. the seriousness of the allegations

or consequences.

85. In accordance with the jurisprudence, in proceedings where the allegations are serious and the potential penalties are large the Commission will not disregard the rules of evidence with

respect to the admissibility of evidence and the admissible evidence will be subjected to a high

level of scrutiny.

2.6 Standard of disclosure

86. To date the Commission has not made any determination on the applicable standard of disclosure in administrative penalty proceedings, as the issue has not arisen. In the consultation,

other than the MSA, the participants submitted that the standard should be relevance. The MSA

advanced that the standard of disclosure should be reliance.

87. The Commission notes that the relevance standard is used in criminal proceedings and is described in R. v. Stinchcombe.

21 In that decision, the Supreme Court held that the Crown has a

legal duty to disclose all relevant information to the defence. The fruits of the investigation,

which are in its possession are not the property of the Crown for use in securing a conviction but

the property of the public to be used to ensure that justice is done. The obligation to disclose is

subject to discretion with respect to the withholding of information and to the timing and manner

of disclosure. Crown counsel has a duty to respect the rules of privilege and to protect the

identity of informers. Discretion must also be exercised with respect to the relevance of

information.

88. The Crown's discretion is reviewable by the trial judge, who should be guided by the general principle that information should not be withheld if there is a reasonable possibility that

this will impair the right of the accused to make full answer and defence. The absolute

withholding of information, which is relevant to the defence can only be justified on the basis of

the existence of a legal privilege which excludes the information from disclosure. This privilege

20

See, for example, the Commission’s findings in Decision 2009-09 at Appendix 6. 21

[1991] 3 SCR 326.

is reviewable, however, on the ground that it is not a reasonable limit on the right to make full

answer and defence in a particular case.

89. The Commission observes that the reliance standard would require the disclosure of all records that the MSA intends to rely on at the hearing. In May v. Ferndale Institution,

22 the

Supreme Court held that it is important to bear in mind that the Stinchcombe principles were

enunciated in the particular context of criminal proceedings where the innocence of the accused

was at stake. Given the severity of the potential consequences the appropriate level of disclosure

was quite high.

90. For cases where the impugned decision is purely administrative, these cases do not involve a criminal trial and innocence is not at stake. Consequently, the Stinchcombe principles

do not apply in the administrative context. In the administrative context, the duty of procedural

fairness generally requires that the prosecuting party discloses the information he or she relied

upon. The requirement is that the individual must know the case he or she has to meet. If the

decision-maker fails to provide sufficient information, his or her decision is void for lack of

jurisdiction.

91. The Commission notes that the Alberta Securities Commission uses a relevance approach, which accords with the principles in Stinchcombe, as do other provincial securities

regulators, in its administrative penalty proceedings.23

The Alberta Securities Commission

requires the enforcement staff to disclose to respondents all information, whether inculpatory or

exculpatory, gathered during the staff’s investigation and in their possession or control, if that

information is relevant to the issues raised by a notice of hearing.

92. The Commission is aware that the Rules of Practice of the Competition Tribunal also set out a standard of relevance.

24

93. In contrast, the Ontario Energy Board decided that the Stinchcombe did not apply to a compliance matter before it.

25 However, it decided that as a matter of fairness, the respondent

was entitled to frame its defence as it sees fit and to obtain documents necessary to argue its

defence.

94. The Commission believes it is important that parties have an opportunity to argue as to which standard of disclosure best achieves the balance of interests in each case keeping in mind

that the proceedings are administrative in nature.

95. The Commission notes that an alleged contravener may bring a motion asking that the MSA provide it with additional information, in accordance with Rule 001. The Commission will

hear submissions from the parties and determine whether the information should be filed. The

Commission is of the view that the motion approach will result in decisions which tailor the

standard to the facts of each proceeding as needed.

22

[2005] SCC No. 84. 23

See Arbour Energy Inc., Re, 2010 ABASC 11, paragraphs 42, 43, 44 and 45. Also see Deloitte & Touche LLP v.

Ontario (Securities Commission) 2003 SCC 61 which found that the application by the Ontario Securities

Commission of the relevance standard from Stinchcombe was reasonable. 24

See section 60 of the Competition Tribunal Rules SOR/2008-141, May 1, 2008. 25

See Decision on Motion for Production and Disclosure by Toronto-Hydro-Electric System Limited in EB-2009-

0308, dated October 14, 2009.

3 Consultation on specified penalty process

96. The focus of the consultation on specified penalty process was the process employed in specified penalty cases that are disputed or not paid.

97. The Commission will not propose new rules or amendments to existing rules, but provides the following comments as guidance in relation to the process for specified penalty

proceedings before the Commission.

3.1 Oral versus written proceedings

98. It is the Commission’s preference to hear a specified penalty proceeding through an oral hearing; however, the Commission may, in its discretion, direct a written proceeding.

3.2 Information requests

99. The need for information requests may not exist in all cases, and may depend on the nature of the case, the complexity of the subject matter and the nature of evidence filed.

100. The Commission will continue its practice of not including written information requests as part of the process in a specified penalty proceeding. Should the named party in a specified

penalty proceeding or the MSA identify the need for written information requests in a particular

proceeding, that party may request additional process by filing a motion, copies of the draft

information requests and an explanation as to why the information requests are necessary. The

Commission will issue its ruling on the motion.

3.3 Panel or individual commissioner

101. The Commission acknowledges the input of participants that specified penalty proceedings should continue to be decided by a panel of three commissioners, and that

settlement or consent hearings might be a reasonable opportunity for a single commissioner to

decide a specified penalty proceeding.

102. The Commission chair will continue to determine the composition and size of the panel of the Commission as circumstances warrant.

3.4 Limitation period

103. The Commission has the authority to determine the limitation period by which the MSA must issue a notice of specified penalty pursuant to section 52(7)(c) of the Alberta Utilities

Commission Act.

104. There was considerable discussion regarding whether to lengthen the period or shorten it. Many market participants wanted to shorten the time period. They argued that there was a lot of

uncertainty as to whether the MSA would bring a complaint against them. Hence, the shorter the

limitation time period, the less uncertainty they had.

105. The MSA countered by arguing that a shorter limitation period would mean that they would spend less time scrutinizing the cases they bring and focus on bring the cases faster in

order to beat the shorter deadline. They suggested that the market participants would be worse

off, as they might be subject to more complaints.

106. While some parties noted that a standstill agreement could be entered into, there was some uncertainty over whether the parties and the MSA could do this. While the Commission

has the authority to enact limitation periods for specified penalty type proceedings under section

52(7)(c), the wording of section 65 of the Alberta Utilities Commission Act may limit the scope

of the Commission’s discretion.

107. In that section, the limitation period for administrative penalty type proceedings are jurisdictional, in that the Commission may not impose a “penalty … nor may a prosecution be

commenced after” three years of the MSA knowing of the infraction or six years from when it

happened.

108. The same wording is used in Rule 019 (3)(4). The Commission could change this language to mirror the wording in statute of limitation legislation, which suggest that parties to a

lawsuit could indeed bring a standstill agreement that suspends the limitation period, but at this

stage, none of the market participants made a convincing case that the Commission had the

authority to do so.

109. Hence, given the ambiguity over whether the parties could contract around such limitation periods, and given the MSA’s note that shortening the period may cause more

discomfort to the parties, the Commission does not see the need to change the current limitation

periods.

110. Therefore, there is no compelling reason to alter or eliminate the limitation periods that are currently identified in AUC Rule 019 as two years and four years. The Commission will not

amend the limitation periods currently identified in AUC Rule 019 at the present time.

3.5 Involvement of other persons/private proceedings

111. There appeared to be general consensus from parties that:

the Commission should continue its practice of limiting the direct involvement in specified penalty hearings to the MSA and the market participant that has been named

in the notice of specified penalty;

the Commission should continue its practice of conducting specified penalty proceedings that are open to the public;

the Commission should be prepared to consider, and grant in very limited circumstances, applications by such other persons for direct participant status;

other persons should continue to be permitted to register as interested parties and monitor the public proceedings without accessing information that the AUC decides

should remain confidential;

in camera proceedings should be limited to circumstances that deal with sensitive information as determined by the Commission panel on a case-by-case basis; and

the Commission should be prepared to consider requests for confidentiality in accordance with AUC Rule 014.

112. The Commission will continue to hear specified penalty proceedings in keeping with the general consensus items listed above. Also, the MSA should file its application on a confidential

basis to allow the respondent a reasonable opportunity to request confidentiality.

3.6 Generic schedule

113. The discussion paper regarding specified penalty proceedings included a generic schedule for a specified penalty proceeding, and noted that the development of a generic schedule is only

a guide. The final determination of any hearing process will be determined by the Commission

on a case by case basis.

114. The generic process schedules as identified in Bulletin 2009-30 will be posted to the Commission website with an accompanying explanation that: (a) they are only a guide; and (b)

that the final determination of any hearing process will be determined by the Commission on a

case by case basis. Any request for additional procedural protection must be raised with the

Commission in the form of a motion in accordance with the Commission’s Rules of Practice.

3.7 Procedural protection

115. The subject of procedural protection was raised by participants and discussed at both roundtable meetings.

116. A number of factors were identified that might impact the required procedural protection regarding specified penalty proceedings:

size of the penalty;

corporate or personal reputation; and

precedential characteristics of the case.

117. The Commission’s process for hearing specified penalty proceedings is intended to be fair, relatively inexpensive, relatively speedy, and sufficiently flexible to allow for additional

procedure if required. The Commission considers its Rules of Practice to be sufficiently robust

and does not consider it necessary to address this matter further.

3.8 Alternate dispute resolution (ADR)

118. The Commission notes that the nature of a specified penalty proceeding is more of an adjudication process as opposed to a dispute between two parties. The Commission will not

consider ADR with respect to specified penalty proceedings and directs parties to consider the

settlement provisions found in sections 44 and 54 of the Alberta Utilities Commission Act as an

alternative means of addressing a specified penalty.

119. The Commission thanks stakeholders for their participation in this process and for taking the time to review and provide comments with regard to this consultation.

If you have any questions regarding this consultation, please contact Doug Larder at

(403) 592-4520 or [email protected] or John Esaiw at (403) 592-4479 or

[email protected].

(Original signed by)

Robert D. Heggie

Chief Executive
mailto:[email protected]:[email protected]

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