Appeal from decision of Ontario Securities Commission finding appellants contravened Securities Act

Administrative law – Decisions of administrative tribunals – Securities Commission – Stock brokers – Professional governance and discipline – Competence – Investigations – Judicial review – Compliance with legislation – Evidence – Procedural requirements and fairness – Bias

Taylor v. Ontario (Securities Commission), [2013] O.J. No. 4988, 2013 ONSC 6495, Ontario Superior Court of Justice, October 31, 2013, H.E. Sachs, D.R. Aston and C.D. Aitken JJ.

The appellants were not registered with the Ontario Securities Commission (the “Commission”) in any capacity to trade in securities. Between 2001 and 2003, the appellants held meetings where individuals were persuaded to acquire shares in a corporation. The transactions for acquiring shares were structured as an interest-free loan to one of the appellants. Under the Securities Act, R.S.O. 1990, c. S.5, “good faith loans” are exempt from the definition of “trading.”

The appellants were charged with Securities Act violations. The Commission found the transactions involving interest-free loans were not good faith loans. The transactions were a scheme to sell shares in the “guise of a loan.”

The Securities Act, pursuant to s. 9, provides that a person directly affected by a final decision of the Commission may appeal to the Ontario Superior Court of Justice Divisional Court. The appellants appealed to the Divisional Court.

The appellants advanced numerous procedural and substantive arguments on appeal. The appellants argued the Commission erred in its interpretation of the agreements that formed the basis of the findings against the appellants; the Commission gave undue weight to hearsay evidence; the Commission erred in making findings concerning the source of the shares that were traded; the Commission erred in not granting a stay of proceedings; the Commission was biased; and the Commission’s finding of a common enterprise, in the absence of a pleading of that theory of liability, was a denial of due process. None of the arguments advanced were successful. In particular, the court held:

(i)  The appellants relied on cases involving disputes between parties to a contract in relation to the interpretation of the agreements in question.  However, the mandate of the Commission is not to adjudicate a contractual dispute, but to decide, in the public interest, whether the impugned transactions were loans made in good faith or transactions within the Securities Act’s regulatory scheme. The Commission had ample evidence to find the  transactions were a sale rather than a loan.

(ii)  Hearsay evidence is admissible under the Statutory Procedures Act, R.S.O. 1990, c. S.22. The Commission only relied on hearsay evidence where it was supported or corroborated by other evidence. It made no error.

(iii)  The appellants’ argument that the conduct of the Commission, taken cumulatively, justified a stay of proceedings was not accepted.

(iv)  The appellants argued the Commission was biased because the commissioner dealt with stays of proceedings differently when presiding as a Superior Court justice on criminal proceedings than in the matter before the Commission. There was no merit in this submission. A decision-maker’s decision in one case, in a different context, is not to be considered in light of his or her decision in another case.

(v)  The appellants argued they were denied due process because the statement of allegations that preceded the Commission hearing did not specifically plead a common enterprise basis for liability. In the context of the Commission’s public interest jurisdiction, it is inappropriate to treat statements of allegations as a criminal information or indictment. The specific words “common enterprise” were not required in the allegations for the Commission to use those words to describe the appellants’ actions.

The court dismissed the appeal. Because of the number of issues raised on appeal and the length of time it took to argue, the court ordered fixed costs to the respondent.

This case was digested by Joel A. Morris of Harper Grey LLP. If you would like to discuss this case further, please feel free to contact him directly at jmorris@harpergrey.com or review his biography at http://www.harpergrey.com.

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