Securities Commissions and the "Public Interest" at the SCC: Court to Rule on Inter-Provincial Reciprocal Orders and Limitation Periods
The Supreme Court of Canada agreed earlier this summer to hear the appeal in Patricia McLean v. Executive Director of the British Columbia Securities Commission, an interesting case that raises several legal issues relevant to provincial securities commissions and the extra-provincial reach of securities litigation. With the Court’s decision last week to dismiss the leave application in Torudag, McLean provides the Court with a unique opportunity to opine on extra-provincial issues in the securities regulation context. The specific issues in McLean deal with the scope of the “public interest” power of securities commissions as it relates to out-of-province settlements or findings. Provisions substantially identical to those in the B.C. Securities Act exist in all Canada’s common law jurisdictions.
Background and Decisions Below
The appellant Patricia McLean entered into a settlement agreement with the Ontario Securities Commission in September 2008 which included a cease-trade order, a reprimand and a ten-year restriction on acting as officer or director of any reporting issuer. In January 2010, the British Columbia Securities Commission notified Ms McLean that it would be seeking an order under s. 161(6) of the Securities Act, which extends the Commission’s enforcement power to include persons who have been breached the securities laws of other jurisdictions or are subject to orders or settlements with securities regulators of other jurisdictions. All enforcement orders under s. 161 – including reciprocal orders under s. 161(6) – require the Commission to provide the person with an opportunity to be heard before considering whether the order is “in the public interest.”
Ms McLean responded to the proposed order by making written submissions advancing a limitation defence. The limitation period under s. 159 of the Securities Act is 6 years “after the date of the events that give rise to the proceedings.” The Commission rejected the limitation period argument, without providing reasons but presumably having determined that the “events that gave rise to the proceedings” were the events of Ms McLean’s 2008 settlement, not the underlying conduct in 2000 and 2001 which was the subject of the settlement.
The Court of Appeal found that the standard of review for the Commission’s decision was correctness. It rejected the Executive Director’s claim that a “reasonableness” standard should apply to the Commission’s interpretation of the applicable limitation period. The Executive Director had argued that the interpretation of the limitation period in this context related to the “policy and application” of the Securities Act and thereby engaged the Securities Commission’s expertise. The Court of Appeal relied on the Supreme Court of Canada’s judgment in ATCO Gas & Pipelines Ltd. v. Alberta (Energy & Utilities Board) to find that the expertise of the decision-maker is evaluated in relation to the “specific nature of the issue before it” and not its “general expertise.” The Court of Appeal therefore found that the standard was correctness given that:
“The interpretation of a limitation period, as it involves a question of general law, is unlikely to engage the specialized expertise of the tribunal; a court will generally have more expertise on the issue.”
The Court of Appeal found that the Commission correctly interpreted the limitation period as being 6 years following the out-of-province settlement. It found that the reciprocal order power was only engaged once a conviction, finding, order, or settlement had been made and that therefore these were the “events” from which time began to run for the purposes of the s. 159 limitation period.
The Court of Appeal did allow the appeal, however, because the Commission had failed to provide reasons to explain how it considered the order to be “in the public interest.” The Court found that absent reasons, the Court could not ascertain whether the Commission’s discretion had been improperly fettered:
“The British Columbia order essentially replicates the substance of the Ontario order. Absent an explanation for the sanctions it imposes, there is a risk that the Commission merely reciprocally enforced the Ontario order, which would not be consistent with its mandate under s. 161 and which might amount to a fettering of discretion.”
The Court of Appeal therefore remitted the matter back to the Commission to provide a “brief explanation” for its reasons.
Ms McLean’s leave application was in respect of the limitation period issue.
Every common law jurisdiction in Canada has reciprocal enforcement provisions that are substantially identical to those in s. 161(6) of the B.C. Securities Act. All of these jurisdictions also have statutory limitations periods that are specific to the securities context. Despite this, McLean stands alone in terms of some judicial consideration of how reciprocal provisions work and, in particular, how they work alongside statutory limitation periods. The Supreme Court of Canada will therefore not only provide guidance on the narrow question of whether the “events in question” are the underlying conduct or the out-of-province settlement, but may provide more general direction on how reciprocal provisions operate.
Direction on reciprocal orders may prove significant given that provincial securities commissions have taken different approaches to their operation. The British Columbia Securities Commission in Re Waxman viewed reciprocal orders as being designed to “facilitate cross-border enforcement” and therefore based “solely on the fact that the other jurisdiction has made orders.” The Commission found that in considering whether to make a reciprocal order on the basis of an extra-provincial order:
“[The Commission] does not make any independent findings of fact or law, nor does it exercise any independent judgment as to the appropriateness of the orders made by the other jurisdiction. It reviews the orders made by the sanctioning jurisdiction and imposes corresponding orders.”
This view of s. 161(6) seems wholly inconsistent with the Court of Appeal’s concerns in McLean about the “risk” that the Commission may have improperly “fettered” its discretion in deciding whether to make a reciprocal order.
Both the Alberta Securities Commission and the Ontario Securities Commission have suggested that they must carefully consider the public interest in deciding whether or not to make a reciprocal order in given circumstances. In Re. Elliott, the Ontario Securities Commission found that the existence of an extra-provincial order “does not automatically lead to the conclusion that this Panel must make” a similar order. It found that the question of whether sanctions are necessary, and what they should be, depends on an analysis of what is necessary in the public interest at that time. Similarly, in Re. Leemhuis, the Alberta Securities Commission found that it will only exercise its reciprocal order power “when it is persuaded that doing so will be in the public interest” as that term has been interpreted in the context of the Alberta securities regime. It did note, however, that “the very nature of the misconduct found to have occurred in another Canadian jurisdiction will often suffice” to meet the public interest threshold.
It will be interesting to see whether the Supreme Court of Canada engages in any discussion of the degree to which an assessment of the “public interest” within a particular provincial legislative scheme necessitates a province-specific assessment. In the Reference re. Securities Act, the Court suggested that significant aspects of securities regulation – and the “trade or occupation” of those in the securities business – remained in many ways a local question.
In respect of the specific limitation period interpretation issue, the approach of the British Columbia Court of Appeal will force the Supreme Court of Canada to grapple with some difficult questions. The Court of Appeal’s finding would permit a securities commission to wait six years following an extra-provincial order or settlement before taking action. Given that the initial proceeding might have only commenced nearly six years after the underlying conduct, action by the second securities commission may only occur nearly a dozen years after the impugned conduct took place. That would create a de facto extended limitation period even if the securities commission in question had actual knowledge of the conduct at or shortly after the time it occurred. Similarly, if the triggering “event” for the limitations period is an order by a securities commission, it is not clear whether a reciprocal order made in the second (or third, or fourth) jurisdiction would effectively re-start the clock each time. This would seem to be an absurd result that would permit a series of cascading limitations periods, undermining the very notion of a limitation period at all.
Supreme Court of Canada Docket: 34593
Date of Decision: June 28, 2012
limitation period interpretation out-of-province settlements provincial securities commissions public interest reciprocal enforcement