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Securities - Securities Act
MORE CASES
Part 2
. Gong v OSC
In Gong v OSC (Div Court, 2023) the Divisional Court considered (and granted as premature) the quashing of an appeal, here of the interlocutory denial of evidence-constraining orders [ie. 'Wagg process' orders] (by the Capital Markets Tribunal) which the appellant sought within OSC-brought s.127 Securities Act ['Orders in the public interest'] proceedings. In these quotes the court considers a mandatory statutory (as opposed to discretionary 'common law') form of prematurity, in that Securities Act 10(1) only allowed appeals from 'final' orders:Analysis
[6] Subsection 10(1) of the Securities Act permits appeals only from “final” decisions of the Tribunal, and states as follows:10(1) The Chief Executive Officer of the Commission or a person or company directly affected by a final decision of the Tribunal may appeal to the Divisional Court within 30 days after the later of the making of the final decision or the issuing of the reasons for the final decision. [7] In Cheng v. Ontario Securities Commission, 2018 ONSC 2502 (Div. Ct.), this court considered the predecessor provision to the current s. 10(1), which dealt with appeals from decisions of the OSC acting in its adjudicative capacity. In Cheng, the appellant appealed an OSC decision on a motion for a stay of proceedings or the exclusion of evidence on the ground of solicitor and client privilege. This Court quashed the appeal on the basis that the decision was interlocutory and not final. In coming to this conclusion, the Court determined that a “final” decision under the Act was a final determination of “the allegations made against [the defendant], including any sanction if the allegations are proven.”: Cheng, at para. 11.
[8] In Law Society of Upper Canada v. Kivisto, 2016 ONSC 1400 (Div. Ct.), this court interpreted “final” in the Law Society Act, R.S.O. 1990, c. L.8, to mean after a determination as to whether professional misconduct had occurred. This court emphasized the importance of the expeditious resolution of administrative proceedings as follows (at para. 24):The hearing process would soon grind to a halt if mid-hearing rulings were generally subject to immediate appeal. Seized panels would be unable to fulfill their responsibilities in a timely and effective way. This has implications for the public, members of the profession, and the Society. This is especially so when it is remembered that a full hearing on the merits may make the appeal academic, and that there is an appeal from the final decision following the disciplinary hearing. [9] In Ontario (Attorney General) v. Ontario Secondary Schools Teachers Federation, 2015 ONSC 2438 (Div. Ct.), in the context of an application for judicial review, this court declined to rule on the issue of whether the Wagg procedure applied in arbitral proceedings based on the courts’ reluctance to review interim or interlocutory decisions of administrative decision-makers.
[10] In this case, the issue that the Tribunal determined was whether the Wagg process applies to documents produced by the OSC that the OSC intends to tender as evidence at the hearing. No merits hearing has been held. The Decision is not a final decision because it does not dispose of a defence or right that, if upheld, would have finally disposed of the proceeding against the appellant. Because the decision at issue is not final, the appeal is premature and this court lacks jurisdiction to hear it. . Gong v OSC
In Gong v OSC (Div Court, 2023) the Divisional Court considered (and granted as premature) the quashing of an appeal, here of the interlocutory denial of evidence-constraining orders [ie. 'Wagg process' orders] (by the Capital Markets Tribunal) which the appellant sought within OSC-brought s.127 Securities Act ['Orders in the public interest'] proceedings:[3] On June 13, 2022, the OSC commenced a proceeding before the Tribunal against the appellant under s. 127 of the Securities Act (the “Act”). A hearing on the merits of the allegations has not yet been scheduled. On November 10, 2022, the appellant brought a motion seeking an order that the OSC be constrained in the use of certain evidence until the process outlined by the Court of Appeal in D.P. v. Wagg (2004), 2004 CanLII 39048 (ON CA), 71 O.R. (3d) 229, CanLII 39048 (C.A.) had been complied with. The appellant argued that under the Wagg process, the OSC was required to obtain the consent of the Attorney General or a court order before materials included in the disclosure provided to him in the criminal matter could be used in the proceeding before the Tribunal.
[4] The OSC opposed the motion. The OSC argued that the Wagg process applies where a party in a civil action receives Crown disclosure and seeks to disclose or otherwise use that material in the civil action. The OSC further argued that the Wagg process is not applicable to the facts in this case because the OSC conducted the investigation, collected the documents, and gave them to the Crown for the criminal proceeding. Moreover, the OSC disclosed those documents in the proceeding before the Tribunal in accordance with its disclosure obligations.
The Decision
[5] In the decision dated February 3, 2023, the Tribunal concluded that the materials did not come to the OSC through disclosure to the OSC by the Crown. Rather, the uncontroverted evidence was that the OSC obtained the documents through its own investigation. The Tribunal held that the Wagg procedure was therefore inapplicable. The OSC could use the documents, which it had obtained, in accordance with the mechanisms set out in the Act. The Tribunal further found that in the circumstances of this case, the concerns underlying the Wagg process, namely, the privacy interests of third parties identified in the disclosure and the public interest, as promoted and defended by the Attorney General, did not arise. . Sharpe and Sharpe v The Capital Markets Tribunal
In Sharpe and Sharpe v The Capital Markets Tribunal (Div Court, 2023) the Divisional Court considers (and grants) a motion to quash a JR brought against the Ontario Securities Commission from a ruling from the newly-named 'Capital Markets Tribunal', here for prematurity.
This quote addresses the remedial possibility of a Securities Act s.144.1 ['Revocation or variation of decision by Tribunal'] motion, what seems to be similar to a CJA set aside motion:[19] One of the applicants’ central submissions about the merits of the Disclosure decision is based upon R. v. Haevischer, 2023 SCC 11, which was released after the Disclosure decision. R. v. Haevischer addressed the threshold for a summary dismissal of an accused’s application for a stay due to an abuse of process. The Supreme Court held that the accused’s application for a stay should not be dismissed unless it is “manifestly frivolous”. The applicants submit that this recent case shows that the Tribunal applied the wrong test on the disclosure motion.
[20] The OSC submits that the applicants are free to raise R. v. Haevischer in the ongoing Tribunal proceedings, including not only the summonses motion and the stay motions, but also in an application to reconsider the Disclosure decision under s. 144.1 of the Securities Act.
[21] Beginning with s. 144.1, the applicants may apply to have the Disclosure decision revoked or varied. The OSC agrees that the applicants can put R. v. Haevischer forward as a reason for doing so although the OSC would then contest the application on its merits.
[22] I asked why the applicants had not yet applied under s. 144.1. The applicants explained that in their failed attempt to get an adjournment, the Tribunal made a comment that suggested they would not entertain those arguments. More specifically, the reasons on the adjournment say as follows: “Whether Haevischer has any implications for the Tribunal’s [Disclosure decision] is a matter for the Divisional Court hearing the [applicants’] judicial review.”
[23] Given that statement by the Tribunal, the applicants’ explanation is reasonable. However, I do not conclude that the Tribunal’s statement is a barrier to a s. 144.1 application. At the time of the adjournment decision, there was no s. 144.1 application underway. I therefore conclude that, in making the above statement about this Court, the Tribunal was not considering whether R. v. Haevischer could be raised under s. 144.1. The OSC not only submits that the applicants may do so, but that they must, before seeking any relief in this Court.
[24] Nor did the Tribunal comment on the ability to raise R. v. Haevischer on the summonses motion. According to the OSC, they were free to do so. The Tribunal did comment on the stay motions, as follows: “If the [applicants] regard Haevischer as pertinent to their stay motions before this Tribunal, they may advance that argument when the stay motions are heard.”
[25] The applicants may make what they can from this recent Supreme Court of Canada decision, including in an application that they may still bring under s. 144.1 of the Act and in the ongoing proceedings before the Tribunal. Indeed, administrative law principles may also require them to do so. . Eley v. Ontario Securities Commission
In Eley v. Ontario Securities Commission (Div Court, 2023) the Divisional Court considered an appeal to the Ontario Securities Commission [now the Capital Markets Tribunal] from two 'reviews' conducted by the Investment Industry Regulatory Organization of Canada (IIROC) of decisions regarding a member's conduct. These quotes give a flavour for IIROC, CMT and Divisional Court review and appeal procedures, which rarely make it to this court level:[1] This is an appeal from the decision of the respondent Ontario Securities Commission[1] (“OSC”) (2021 ONSEC 19) dismissing a review of two decisions of the respondent Investment Industry Regulatory Organization of Canada (“IIROC”): the “Merits Decision” dated January 28, 2020 [2019 IIROC 35] and the “Sanctions Decision” dated October 6, 2020 [2020 IIROC 35]. IIROC found that the Appellant (“Eley”) engaged in conduct and practices unbecoming a member of IIROC and detrimental to the public interest and it imposed various sanctions. IIROC found Eley liable for improper alterations to client documents made after those documents had been signed by the clients. This was Eley’s second offence for this kind of conduct.
Summary
[2] This case turns on findings of fact. Those findings – that Eley altered, directed the alteration of, or was willfully blind as to the alteration of, client documents after they had been signed by the clients – are reasonable and are rooted in the record below. The OSC’s findings to this effect are reasonable. The conclusions drawn from these findings by both IIROC and the OSC – that Eley engaged in conduct unbecoming a member of IIROC and detrimental to the public interest – are likewise reasonable. While there were some fact-finding imperfections at the IIROC, the OSC concluded that these imperfections did not render the IIROC proceedings unfair or undermine the reasonableness of IIROC’s core factual findings grounding liability. This conclusion of the OSC Panel is reasonable. The sanctions imposed disclose no error in principle and are likewise reasonable. Therefore, for the reasons that follow, the appeal is dismissed.
Background
(a) The IIROC Decisions
[3] On November 22, 2018, IIROC issued a Notice of Hearing and Statement of Allegations alleging that the Appellant: “[b]etween May 2015 and November 2015… altered previously signed client documents, contrary to Dealer Member Rule 29.1.” Evidence presented at the hearing showed alterations to various client documents, including “Managed Account Agreements”, “Switch Tickets” and “Dealer Rep. Change Forms.” The alterations established on the evidence at the hearing included:a. Managed Account Agreements:
i. Changes or additions to the advisor name / advisor code and signature dates;
ii. Changes to account objectives and amount risk tolerances;
iii. Deletion of a joint account holder name and change of date beside the remaining account holder name; and
iv. Additions of management fee.
b. Switch Tickets:
i. Photocopied mutual fund switch tickets for clients with altered trade instructions; and
ii. Previously signed mutual fund switch tickets altered to add or amend trade instructions.
c. Dealer Rep Change Forms:
i. Multiple instances in which the Appellant’s code and email address replaced previous Reps’ codes and addresses.
ii. Some instances where the changes described in (i) were made more than once on the same form [4] Altered Managed Account Agreements were sent to the Appellant’s dealer and thence to the dealer’s carrying broker, enabling the managed accounts to be opened. Altered Switch Tickets were, in some cases, sent to third party mutual fund companies. Altered Dealer Rep Change Forms were sent to third party fund companies.
[5] The Appellant acknowledged altering Managed Account Agreements and Switch Tickets, and he acknowledged that his handwriting appeared on various of the altered documents. He denied making other changes.
[6] Evidence at the IIROC Merits Hearing included multiple versions of the altered documents, such as unsigned copies sent to clients, signed versions returned by clients, and altered versions after the clients had signed the documents. In most cases, the Appellant had sent or received each of the multiple versions of the documents.
[7] The IIROC Hearing Panel found:Despite the [Appellant’s] denials, there is compelling circumstantial evidence indicating that it would have been difficult for Mr. Eley not to have been aware of the changes. His testimony at the hearing was that he was unaware that the changes had been made and did not know how the changes were made or who could have made them. The documents speak for themselves; the identically formed and placed signatures on multiple documents and clear obliterations are clearly visible despite the fact that they were electronic copies and not originals. The alterations on documents presented to the Panel were clearly apparent to the three panelists who examined them and compared them at the hearing. In some cases, multiple versions of the same document, with identical signatures, had been used. (IIROC Merits Decision, para. 67) [8] Taking all the evidence into account, the IIROC Hearing Panel concluded;The evidence before the Panel leads to the inescapable conclusion that either Mr. Eley made the changes, that he instructed others to make the changes, or that others made them with his knowledge. At the very least, he turned a blind eye with implicit approval. Once he was registered, he allowed the altered documents to stay in the client files that he took over…. (IIROC Merits Decision, para. 77) The IIROC Hearing Panel concluded that this was “conduct unbecoming” contrary to Dealer Member Rule 29.1, as alleged.
[9] A Sanctions Hearing was held September 14, 2020, and the IIROC Sanctions Decision was released October 6, 2020. The IIROC Panel ordered the following sanctions (IIROC Sanctions Decision, para. 48):a. Suspension of the Appellant’s registration for 12 months, during which the Appellant be precluded from employment in any capacity with an IIROC Dealer;
b. Requirement that the Appellant be under “close supervision” for eighteen months after his suspension expires;
c. Payment of a fine of $50,000; and
d. Payment of costs of $50,000. [10] This was Eley’s second offence. It happened shortly after the period of close supervision ended for Eley’s first offence. IIROC staff sought a permanent ban. In the Sanctions Decision, the IIROC Panel found that “the nature of the misconduct in this case, although egregious, is not of itself deserving of the permanent bar requested by IIROC Staff.” The IIROC Panel held that the sanctions imposed “must be heavy enough to have the necessary deterrent effect to deter both Eley and others working in the public markets” (IIROC Sanctions Decision, para. 43).
(b) OSC Decision
[11] The Appellant sought review of both the IIROC Merits and Sanctions Decisions. The OSC dismissed the review application on March 5, 2021 and issued its reasons for this decision on August 20, 2021. The OSC summarized its findings as follows:In our view, the IIROC Panel neither erred in law nor proceeded on an incorrect principle, nor misapprehended or otherwise overlooked material evidence. The IIROC Panel applied the appropriate onus of proof…, properly considered all material evidence and excluded irrelevant evidence. The IIROC Panel appropriately relied on direct evidence of Eley making certain alterations to previously signed client documents as well as circumstantial evidence of other alterations in determining that Eley was responsible for the improper alterations to client documents.
The IIROC Panel’s approach to determining sanctions appropriately considered the relevant factors and circumstances and was consistent with applicable principles, guidelines and prior decisions. (OSC Decision, paras. 8-9) Jurisdiction and Standard of Review
(a) The Appeal in this Court
[12] The Securities Act, RSO 1990, c. S.5, s.10(1), provides for an appeal to the Divisional Court for persons affected by a final order of the OSC.[2] An “appellate standard” of review applies to the appeal to this court: Quadrexx Hedge Capital Management Ltd. v. OSC, 2020 ONSC 4392, paras. 74-81 (Div. Ct.), applying Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65. That is, to quote from Quadrexx (at paras. 77-81 [authorities other than Baker omitted]):[77] Where a ground of appeal raises an issue of law alone, the standard of review is correctness.
[78] Where the ground of appeal raises a question of fact, the appellate court must pay substantial deference to it…. Before it may properly interfere, the appellate court must conclude that the submitted error amounts to a "palpable and overriding error". The word "palpable" means "clear to the mind or plain to see", and "overriding" means "determinative" in the sense that the error "affected the result". The Supreme Court has held that other formulations capture the same meaning as "palpable error": "clearly wrong", "unreasonable" or "unsupported by the evidence".
[79] Examples of palpable error include (a) findings made in the complete absence of evidence (this could also amount to an error in law); (b) findings made in conflict with accepted evidence; (c) findings based on a misapprehension of the evidence; (d) findings of fact, drawn from primary facts, that are a result of speculation rather than inference; and (e) findings of fact based on evidence that has no evidentiary value because it has been rejected by the trier of fact.
[80] Matters of mixed fact and law lie along a spectrum; where the error of the decision-maker can be traced to a clear error in principle, it may be characterized as an error of law and subjected to a standard of correctness; where the legal principle is not readily extricable, then the matter is subject to standard of palpable and overriding error.
[81] The standard of review for issues of procedural fairness is sometimes stated to be "correctness". It is also characterized as a review as to "whether the rules of procedural fairness or the duty of fairness have been adhered to". These formulations of the standard of review are generally taken to mean the same thing: there is discretion and flexibility respecting process before administrative tribunals, and so it cannot be said there is always a single "correct" view of the procedures to be followed. However, administrative discretion must be exercised in a way that is procedurally fair. In assessing procedural fairness in a particular case, the court uses the factors set out in Baker v. Canada (Minister of Citizenship and Immigration), 1999 CanLII 699 (SCC), [1999] 2 SCR 817. (b) The Review at the OSC
[13] The Securities Act and its related regulations, rules and policies, are a comprehensive scheme for regulation of the securities markets in Ontario, including regulation of professions engaged in business in those markets. The purposes of the Act include (s. 1.1):a. to provide protection to investors from unfair, improper or fraudulent practices;
b. to foster fair, efficient and competitive capital markets and confidence in capital markets;
b.1. to foster capital formation; and
c. to contribute to stability of the financial system and reduction of systemic risks. [14] The Act provides (at s. 2.1(4)) that (among principles to which the OSC is to have regard):[t]he [OSC] should, subject to an appropriate system of supervision, use the enforcement capability and regulatory expertise of recognized self-regulatory organizations. [15] A self-regulatory organization recognized by the OSC (“SRO”) is required to:regulate the operations and the standards of practice and business conduct of its members and their representatives in accordance with its by-laws, rules, regulations, policies, procedures, interpretations and practices (Act, s. 21.1(3)). [16] IIROC was recognized as an SRO by an OSC Recognition Order, which contains compliance terms and conditions, including a requirement that IIROC establish rules designed to “ensure compliance with securities laws”, “foster fair, equitable and ethical business standards and practices” and “promote the protection of investors” (2021) OSCB 2557).
[17] A person affected by a decision of an SRO (including IIROC) may apply to the OSC for a “hearing and review” (Act, ss. 8(3) and 21.7). The OSC may confirm the decision of the SRO or make such other decision as the OSC considers proper.
[18] A “hearing and review” is broader than an appeal, but the OSC takes a “restrained approach” – applicants must meet a “high threshold” to show that an SRO decision ought to be overturned: Northern Securities Inc. (Re), 2013 ONSEC 48, paras. 48-49, 54, 56-57.
[19] On a hearing and review before it, the OSC only interferes with an SRO decision on one or more of the following grounds (Canada Malting Co. (Re) (1986), 9 OSCB 3565, para. 24; Locke v. IIROC, 2022 NSCA 31, paras. 13-20):(a) the SRO has proceeded on an incorrect principle;
(b) the SRO has erred in law;
(c) the SRO has overlooked material evidence;
(d) new and compelling evidence is presented to the Tribunal that was not presented to the SRO;
(e) the SRO’s perception of the public interest conflicts with that of the OSC. [20] As noted by the Nova Scotia Court of Appeal in Locke (at para. 15), the “presumption of a reasonableness review arises whether the reviewing body is a court or an administrative tribunal” (citing Bryun v. Alberta Dental Association and College, 2021 ABCA 272, para 22). The Nova Scotia Court of Appeal went on to conclude that the standard of review below, in the context of securities matters, “is expressed through the Canada Malting test” (para. 20). I agree.
[21] In this court, the appellate review of the OSC decision is based on a standard of correctness in respect to the standard of review applied by the OSC: did the OSC correctly state and apply the standard of review. Factual findings of the OSC are reviewed in this court on a standard of palpable and overriding error.
[22] It bears emphasizing that the focus of appeal in this court is the OSC Decision and not the underlying IIROC decisions. The substance of the fact-grounded appeal is set out in paras 23-44, it is also revealing of Securities Act procedures.
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