Securities Regulation: The Supreme Court of Canada Speaks Again

Written By William S. Osler, Usman M. Sheikh and James T. McClary

The Supreme Court of Canada recently issued its decision in McLean v British Columbia (Securities Commission).¹  

The case is the first by the Court to address inter-provincial cooperation in relation to securities regulation since its 2011 decision in the Securities Reference.² It is also the first to be rendered by the Court since the announcement in September 2013 by the finance ministers of Canada, Ontario and British Columbia to create a new national cooperative securities regulator. [see the Bennett Jones Corporate Finance Update, "Federal, Ontario and BC Governments Announce New Securities Regulator," September 2013]

The Court's decision underscores the importance of inter-provincial cooperation in the effective and efficient enforcement of securities laws and also has significant implications for administrative law generally.

Summary of Proceedings

On September 8, 2008, the Appellant, Patricia McLean, entered into a settlement agreement with the Ontario Securities Commission in respect of misconduct that occurred in Ontario, in 2001 or earlier. As part of the settlement, the OSC issued an order barring McLean from trading in securities for five years and banning her from acting as an officer or director of any reporting issuer or registrant in Ontario for ten years. In 2010, the British Columbia Securities Commission issued a reciprocal order against McLean which was substantially identical to the OSC's order.

Reciprocal orders, also known as secondary proceedings, allow a securities regulator, such as the BCSC, to issue protective orders against a respondent based on findings of securities-related misconduct by a securities regulator in another province or territory. Reciprocal order provisions have been enacted by all 13 provincial and territorial legislatures in Canada.

McLean challenged the BCSC's reciprocal order, arguing that the limitation period in the BC Securities Act prohibited any order issued more than six years after the underlying misconduct. As McLean's misconduct occurred between 2000 and 2001, she argued that the BCSC proceeding commenced against her in 2010 was time-barred and that the BCSC should have initiated proceedings in 2007, before the 2008 settlement agreement with the OSC was concluded. The BCSC dismissed the argument without reasons and issued the reciprocal order.

The British Columbia Court of Appeal reviewed McLean's legal argument on a standard of review of correctness and dismissed the challenge (remitting the matter to the BCSC solely to provide brief reasons on why the order was in the public interest). McLean appealed the Court of Appeal decision and, in June 2012, the Supreme Court of Canada granted leave.

Decision of the Supreme Court of Canada

A seven-member panel of the Supreme Court of Canada dismissed McLean's appeal. In its decision, the Court held that:

• The standard of review of the BCSC's interpretation of limitation periods in the BC Securities Act is reasonableness, not correctness; and
• The BCSC's interpretation of the limitation period in the BC Securities Act was reasonable.

Implications of the Decision

The reasoning of the Court has significant implications for inter-provincial securities regulatory cooperation and administrative law.

For securities regulators:

• The Court Affirmed the Importance of Inter-Provincial Cooperation. The Court's decision follows its ruling in the Securities Reference which struck down draft federal legislation intended to create Canada's first national securities regulator. In McLean, the Court has affirmed the importance of interprovincial cooperation in the enforcement of securities laws in Canada, noting that such cooperation is "indispensable" and that the BCSC interpretation was reasonable as it furthered the legislature's manifest goal of improving such cooperation.
• The Court Confirmed the Desirability of Issuing Reciprocal Orders, Without Inefficient Parallel and Duplicative Proceedings. The Court noted that McLean's arguments could require each province or territory to commence its own proceeding in respect of misconduct that is being investigated by another province or territory, resulting in overlapping cases that "clog up the legal system and overburden the securities commissions" and "place a high burden on the target of the proceedings, who could well face multiple proceedings all across the country".
• The Court Acknowledged BC's Efforts to Improve Inter-Provincial Cooperation By Enacting Secondary Proceedings Legislation. The Court examined the history of BC's secondary proceedings legislation, noting that it arose out of the Provincial/Territorial Memorandum of Understanding Regarding Securities Regulation signed by all provinces and territories (other than Ontario) in 2004 and that it was specifically designed as a "solution to the challenges inherent in the decentralized structure of securities regulation in Canada." In doing so, the Court appears to have given support to the continued development of similar ad hoc solutions to such challenges.
• The Court Provided Guidance on What is "Reasonable" When Issuing Reciprocal Orders. The Court addressed a number of hypothetical concerns with the BCSC's interpretation of the limitations period, including that a cascading series of secondary proceedings, piggy-backing on each other, could effectively extend the limitations period to 74 years. The Court recognized that a regulator acting in such a manner would likely be distorting the purpose of secondary proceedings provisions. The Court noted, however, that any such order would be the subject of appellate review on a reasonableness standard and, without deciding the issue, endorsed as "good sense" the following propositions put forward by the BCSC in relation to issuing reciprocal orders:
  1. The date that "starts the clock" for the purposes of BC's limitation period on secondary proceedings is the date that the relevant action first occurred (i.e., the date a settlement agreement is entered into or the date of a conviction, judicial finding or enforcement order);
  2. A secondary proceeding may not be commenced if the period of the original order (i.e., the order issued by the primary jurisdiction) has already lapsed; and
  3. A reciprocal order must be based on an original proceeding in the primary jurisdiction (rather than on another reciprocal order).
   

For administrative law, and particularly on the issue of the standard of review, the Court:

• Provided Guidance on the "Exceptions" to the Presumption of Deference that is to Apply to a Tribunal's Decision. McLean argued that the BCSC's decision should be reviewed on a correctness standard, relying upon the few exceptions to the presumption of deference that otherwise applies to a tribunal's decision (see the Court's decision in Alberta Teachers' Association³). One such exception is where the issue raises a question of law that is of central importance to the legal system as a whole and outside the adjudicator's specialized expertise. Continuing its trend towards deference, the Court refused to apply the exception, noting that securities regulators may arrive at differing, but reasonable, interpretations of similar statutory provisions and that the exercise of that interpretive discretion is part of an administrative decision maker's expertise.
• The Court Further Extended Deference to Decisions Issued by a Tribunal Without Reasons. The Court noted that, while the BCSC failed to give reasons for its interpretation, it "impliedly decided that the proceeding was not time-barred". While the Court would have preferred the BCSC to have provided written reasons, it noted that a reasonable basis for the decision was "apparent from the arguments advanced by the [BCSC]" in court and that nothing would be gained by requiring the BCSC to reconsider its decision on remand. A similar approach was taken recently by the Court in Agraira.⁴

Usman M. Sheikh, a litigator at Bennett Jones LLP, served as co-counsel to the Ontario Securities Commission in the appeal.

Notes

1. 2013 SCC 67.
2. Reference re: Securities Act (Can.), 2011 SCC 66.
3. Alberta v Alberta Teachers' Association, 2011 SCC 61.
4. Agraira v Canada (Public Safety and Emergency Preparedness), 2013 SCC 36 (see para. 58).