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This Week's Focus - Ontario appeal hearing will be affected by Radler's decision in U.S.

|Written By Julius Melnitzer - Law Times

Thepending guilty plea on fraud charges from Conrad Black associate David Radleramid rumours that he is "ratting out" his long-time friend and businessassociate has changed the landscape of an important appeal from an OntarioSuperior Court decision.

'Once the cat's out of the bag, it's going to scamper across the border and that will be a big problem for our clients,' says Don Jack.
'Once the cat's out of the bag, it's going to scamper across the border and that will be a big problem for our clients,' says Don Jack.
The May 31 decision of Justice Colin Campbell in Catalyst Fund General Partner 1 Inc. v. Hollinger Inc. requires Black, Radler, and John Boultbee, the principal officers and directors of Hollinger Inc., to answer questions under oath posed by Peter Griffin of Lenczner Slaght Royce Griffin of Toronto, counsel to Ernst & Young (E&Y), the court-appointed inspector of Hollinger Inc.

The directors resisted the inspector's application on the basis that they were facing criminal investigation before a grand jury in the state of Illinois. They maintained that their testimony under oath in Canada would deprive them of the protection against self-incrimination found in the Fifth Amendment.

The directors appealed. At press time, the hearing was set for Sept. 6 in the Court of Appeal.

But, in what amounts to a remarkable irony, it seems that Radler will now be telling the Court of Appeal that he doesn't want to be examined because it will undermine the integrity of the prosecution's investigation.

"The U.S. attorney doesn't want Radler testifying anywhere before the main event," says Don Jack of Lerner's Toronto office, counsel to Boultbee.

Black and Boultbee, of course, are sticking to their original argument.

At first instance, Campbell ruled against the directors. Implicit in his reasoning was the fact that none of the directors had at the time been charged with a criminal offence in Canada or the United States. Campbell described the directors' reticence to co-operate as "an affront not only to the public shareholders they were bound to serve, but also to this court."

According to Jack, Radler's imminent indictment and plea strengthens his client's case.

"We'll be asking the court to hear new evidence, and I believe the court will do so because we had no way of knowing when charges would actually be laid before Campbell ruled," Jack told Law Times.

Jack maintains that the indictment of other directors is "beyond peradventure," since they appear as unnamed co-conspirators in the indictment.

The cross-border dilemma arises because of Canadian legislation designed to help U.S. investigators gather information from outside their borders. U.S. prosecutors and the Securities and Exchange Commission (SEC) can now resort to the Mutual Legal Assistance in Criminal Matters Act (MLAC) to gather evidence in Canada for use in legal proceedings south of the border.

The statute allows U.S. prosecutors to route requests to gather evidence through the U.S. Department of Justice's office of international affairs. The department, after clearing the request, forwards it to the Canadian minister of Justice.

If the minister approves the request, the U.S. Justice Department hires Canadian lawyers to apply for an order before a judge of the province in which the evidence or some of the evidence is located.

The application for such an order is ex parte. The judge hearing the application may make an order if he has reasonable grounds to believe that an offence has been committed and that relevant evidence is available in Canada.

In other words, there is no explicit requirement for a Canadian judge to consider whether a U.S. court will honour any protective order against self-incrimination that attaches to the evidence. And that's a problem because the United States and Canada treat the right against self-incrimination differently.

Although both nations have raised the right to a constitutional principle, the differences in their rules can be a trap for the unwary.

"In the United States, a person can refuse to answer a question under oath on the ground that he might incriminate himself," said Michael Code of Toronto's Sack Goldblatt Mitchell, Radler's counsel. "But in Canada, a witness must answer the incriminating question. And although Canadian courts will grant immunity against the use of the self-incriminating evidence against the witness, American courts don't recognize that immunity."

Catalyst has raised the issue squarely.

The case's origins date to August 2003, when a special committee investigating fraud at Hollinger International and led by former SEC chair Richard Breeden, accused Black, Boultbee, and Radler of presiding over a "corporate kleptocracy," where "ethical corruption was a defining characteristic of the leadership teams."

The Breeden report alleges the three men and others received $88 million in "sham non-compete payments" from Hollinger International, engaged in "textbook money laundering" with the proceeds of the payments, and "affirmatively misrepresented" their compensation plans to the audit committee.

In December 2003, Black responded to a subpoena from the SEC by invoking the Fifth Amendment and declining to testify. Eleven months later, the SEC filed a securities fraud complaint in Chicago.

The complaint alleged that Black and Radler fraudulently diverted cash and assets from International. About the same time, the U.S. attorney's office in Chicago commenced a criminal investigation dealing with the allegations in the Breeden report.

Meanwhile, Catalyst, a shareholder in Hollinger Inc., had in October 2004 persuaded Ontario Superior Court Justice Colin Campbell to order an inspection involving various transactions at the parent company. These included the sale of three corporate jets; management fees paid to Black's personal holding company; non-competition payments received by Hollinger Inc. amounting to $16.5 million; and real estate transactions at Inc.'s subsidiary Domgroup Ltd.

Campbell's order appointed E&Y to investigate whether anyone benefited improperly from "related party" transactions between the company and Black, Radler, or Boultbee. It also authorized E&Y to examine witnesses under oath if that was necessary to its investigation.

E&Y believed that it was, and in early January 2005, Griffin sought an order to examine the three men under oath.

In opposition, the directors relied on the evidence of Barry Bohrer, a partner in the New York firm of Morvillo Abramowitz Grand Iason & Silberberg. Bohrer, testifying as an expert on U.S. law, concluded it was "highly unlikely" that a protective immunity order would shield incriminating testimony from disclosure in the United States.

Jack puts it more plainly: "Once the cat's out of the bag, it's going to scamper across the border and that will be a big problem for our clients."

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