CITATION: Deeb v. IIROC, 2012 ONSC 1014
DIVISIONAL COURT FILE NO.: 502/11
DATE: 20120215
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
BETWEEN:
PETER MICHAEL DEEB and HAMPTON SECURITIES LIMITED
Applicants
– and –
INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA also known as “IIROC”
Respondent
Peter W.G. Carey, for the Responding Parties/Applicants
Brian Gover and Frederick Schumann, for the Moving Parties/Respondents
HEARD at Toronto: February 9, 2012
REASONS FOR DECISION
Pepall, J.
Relief Requested
[1] The Respondent, Investment Industry Regulatory Organization of Canada (“IIROC”), moves to quash the application for judicial review brought pursuant to section 2(1) of the Judicial Review Procedure Act [^1] (“JRPA”) by the Applicants, Peter Michael Deeb and Hampton Securities Limited (“Hampton”).
Background Facts
a) IIROC
[2] IIROC is a self regulatory organization within the meaning of section 1(1) of the Ontario Securities Act [^2] (“OSA”). Among other things, it regulates investment dealers.
[3] The OSA defines a self regulatory organization as “a person or company that is organized for the purpose of regulating the operations and the standards of practice and business conduct, in capital markets, of its members and their representatives with a view to promoting the protection of investors and the public interest.”
[4] Pursuant to Section 21.1 of the OSA, the Ontario Securities Commission may, on the application of the self regulatory organization, recognize the self regulatory organization if the Commission is satisfied that to do so would be in the public interest. Such recognition shall be subject to such terms and conditions as the Commission may impose.
[5] Section 21.1(3) provides that “a recognized self regulatory organization shall regulate the operations and the standards of practice and business conduct of its members and their representatives in accordance with its bylaws, rules, regulations, policies, procedures, interpretations and practices.” Pursuant to subsection (4), the Commission may make any decision with respect to any by-law, rule, regulation, policy, procedure, interpretation or practice of a recognized self-regulatory organization.
[6] Section 21.7 of the OSA provides that a person or company “directly affected by, or by the administration of, a direction, decision, order or ruling made under a by-law, rule, regulation, policy, procedure, interpretation or practice of a …. recognized self regulatory organization …. may apply to the Commission for a hearing and review of the direction, decision, order or ruling.”
[7] The Investment Dealers Association of Canada (“IDA”) and Market Regulation Services Inc. had both been self-regulatory organizations that had been recognized by the OSC. They agreed to combine their operations into IIROC. IIROC was recognized by the OSC on May 16, 2008. A term of the recognition was that it continue to meet certain criteria for recognition one of which was that the process for discipline must be fair and transparent. IIROC receives its funding from its members and not from government.
[8] Rule 20 of IIROC’s Rules provides a code for disciplinary hearings, penalties and enforcement.
b) Peter Deeb and Hampton Securities Limited
[9] The Applicant, Hampton, is a dealer member of IIROC. The Applicant, Peter Michael Deeb, is the President and CEO of Hampton, is registered as an ‘Approved Person’ with IIROC, and is also the ‘Ultimate Designated Person’ at Hampton.
[10] Hampton and Mr. Deeb have entered into contracts agreeing to be bound by IIROC’s Rules and Bylaws and submitting to IIROC’s jurisdiction and that of its predecessor in title, the IDA.
[11] On April 28, 2008, in its membership application, Hampton stated that it:
submits to the jurisdiction of IIROC and, wherever applicable, its Board of Directors, District Councils, committees and panels thereof, and officers, and agrees that any approval granted may be revoked, terminated, suspended, or have conditions placed on it, at any time in accordance with the Bylaws and Rules of IIROC; …
agrees that IIROC is entitled to exercise such jurisdiction over the applicant and its Approved Persons with respect to any matter, facts, actions or circumstances existing or arising prior to, as at, or after the date the applicant became a Member.
(c) Proceedings
[12] In the latter part of 2009 and early 2010, the IIROC investigated the Applicants. According to Mr. Deeb, IIROC’s investigator stated that the investigation was commenced based on three anonymous letters. Although the Applicants were permitted to see the letters, they could not take copies of them.
[13] A Business Conduct Review of Hampton for 2010 was conducted by IIROC. According to Mr. Deeb, the subsequent interview revealed a few administrative matters but nothing serious was raised. Hampton was apparently commended for the quality of its operations. Later, the Business Conduct Report that was issued contained 3 pejorative matters that had not been discussed with the Applicants and which the Applicants state are false. Mr. Deeb states that he was advised that damage to the Applicants’ reputations was not IIROC’s concern and that IIROC had “overriding powers beyond the police.”
[14] On September 1, 2011, pursuant to IIROC’s Rules, IIROC issued a Notice of Hearing naming Mr. Deeb as the respondent in a disciplinary hearing. A set date hearing was fixed for September 20, 2011.
[15] An Alert concerning the Notice of Hearing was emailed by IIROC to its members and available through IIROC’s website and was subsequently redacted at the Applicants’ request so as to remove the name of clients. The Applicants state that they provided to IIROC letters from clients that completely exonerated them. The Applicants maintain that the IIROC staff members have simply ignored irrefutable evidence that establishes that the IIROC’s allegations are false. For its part, IIROC has requested thousands of documents of the Applicants, the production of which is consuming much time and money. In addition, according to Mr. Deeb, Hampton’s insurance premiums have gone up; a bank has refused to open an account for Mr. Deeb until the IIROC matter has been resolved; Convergex, an equities trading platform, has refused to renew Hampton’s contract; an institution in Norway has withdrawn participation in a deal; four investment advisers have left Hampton; and competitors are soliciting Hampton’s employees.
[16] On November 3, 2011, Mr. Deeb and Hampton commenced a Divisional Court application for judicial review under section 2(1) of the JRPA. They request an order:
(a) quashing the Notice of Hearing issued by IIROC;
(b) compelling IIROC to retract the Business Conduct Report;
(c) compelling IIROC to produce three anonymous letters; and
(d) setting aside the “close supervision” to which Mr. Deeb had consented.
[17] Thereafter, the parties agreed to a timetable for the application although IIROC subsequently decided to bring a motion to quash and the IIROC hearing was adjourned. Mr. Deeb believes that the motion to quash was influenced by the Applicants’ request for all of IIROC’s internal correspondence relating to the investigation and that the investigation was motivated primarily by malice.
[18] The Applicants advised IIROC that they would withdraw Hampton’s application on a without prejudice basis if the IIROC Hearing Panel would confirm that it had jurisdiction to hear the relief sought in Hampton’s court application. Counsel for IIROC confirmed that the panel did not have jurisdiction to grant all of the relief requested by Hampton and explained why IIROC was taking the position it has.
[19] The Applicants brought a motion before the IIROC Panel to remove the Notice of Hearing from its website. On January 23, 2012, the Panel indicated that it was refusing to grant the motion with Reasons to follow. These have not yet been released.
Positions of Parties
[20] The Moving Party IIROC submits that the application for judicial review should be quashed because there is no jurisdiction to hear the application under Section 2(1) of the JRPA. IIROC submits that the IIROC disciplinary investigation steps, which are the subject matter of the application for judicial review, arise out of contractual powers and not statutory powers or other public authority. Secondly, the application for judicial review is premature. IIROC complains that the Applicants seek relief by proceeding directly to Divisional Court without pursuing any relief before the IIROC Hearing Panel.
[21] In brief, the Applicants’ position is that IIROC has behaved in an unfair and secretive fashion as described in the affidavits filed by the Applicants. They submit that this Court does not have all of the evidence required to comprehend the nature of the issues because IIROC has not yet filed responding material to the application and did not file any reply affidavit in response to the Applicants’ responding motion record on this motion.
[22] Secondly, they submit that IIROC derives its authority to regulate from the recognition order made by the Commission. Such orders provide that the disciplinary process must be fair and transparent. The Applicants submit that the relief requested is in the nature of mandamus, prohibition or certiorari and is properly the subject matter of an application for judicial review. The exercise of a statutory power of decision is not required. IIROC is not a private body but part of the machinery of Government governing the regulation of persons selling securities and has powers delegated by the OSC which itself is subject to the prerogative writs. Furthermore, IIROC has admitted that it does not have jurisdiction to grant all of the relief requested in the application for judicial review and, as such, the application cannot be said to be premature.
Issue
[23] The test on a motion to quash is whether it is plain and obvious that the application cannot succeed: Adams v. Canada, 2011 ONSC 325. Is it beyond doubt that the application for judicial review will fail?
[24] There are two elements to this inquiry: (i) is there jurisdiction to hear the application under section 2(1) of the JRPA and (ii) even if there is, should the application be quashed because it is premature?
Discussion
[25] As a preliminary matter, I should say that in my view it is unnecessary for a party moving to quash an application for judicial review to file materials responding to that application in advance of the hearing of the motion to quash. Indeed, such a requirement would diminish the utility of orders to quash. In addition, such materials were unnecessary for the hearing of this motion to quash. IIROC filed an affidavit in support of its motion and it was not required to respond to the application for judicial review itself.
[26] Turning to the other issues, in my view, the plain and obvious test has been met by the moving party for the following reasons.
(i) Jurisdiction under section 2(1) of the JRPA
[27] Section 2(1) of the JRPA provides that an application for judicial review may request any relief that the applicant would be entitled to in any one or more of the following:
Proceedings by way of application for an order in the nature of mandamus, prohibition or certiorari.
Proceedings by way of an action for a declaration or for an injunction, or both, in relation to the exercise, refusal to exercise or proposed or purported exercise of a statutory power.
[28] As noted by the moving party in its factum, judicial review jurisdiction is limited to exercises of “state power” under section 2(1)1 and “statutory power” under section 2(1)2. The prerogative writs are limited to “the public law sphere”, “state power”, and “public powers”, while a “statutory power” requires “a power or right conferred by or under a statute”. As stated by Molloy, J. in Adams v. Canada[^3]:
The Divisional Court has no jurisdiction under Section 2 of the JRPA to judicially review any decision outside the public law sphere. The prerogative writs were limited to the control of state power, and there is no reason to interpret the JRPA as having changed the nature of those remedies when it conferred power on the Divisional Court to grant them. On the contrary, the power of the Divisional Court to grant declaratory or injunctive relief was expressly limited to situations involving the exercise of a statutory power. The absence of those express words in the section dealing with the prerogative writs is, in my view, merely a recognition that those remedies were already limited to the exercise of public powers and to say so expressly would therefore be redundant.
[29] IIROC is not created by and does not derive its authority from statute. IIROC does not exercise state power but for narrow delegated powers that, in my view, are not engaged in this case. The IIROC’s disciplinary jurisdiction over Hampton flows from the contractual commitment made on applying for membership or, in Mr. Deeb’s case, on registration as an Approved Person. See also in this regard Ripley v. Investment Dealers Association (Business Conduct Committee)[^4] and Taub v. Investment Dealers Association of Canada[^5]. In the latter decision, Feldman J.A. wrote at paragraph 29: “…this court affirmed that the IDA’s duties are not determined by statute and that recognition by the OSC does not transform the IDA into a government actor.”
[30] IIROC hearing panels remain subject to the duty of procedural fairness but that duty is enforceable in applications to the hearing panels themselves. In my view, the fact that the OSC has recognized IIROC as a self regulatory organization under Section 21.1 of the OSA does not confer jurisdiction nor alter IIROC’s private character. Recognition by the OSC does not make certiorari and the other prerogative writs available. Accordingly, there is no jurisdiction to hear the application under section 2(1) of the JRPA because the disciplinary and investigative steps of which the Applicants complain arise out of contractual powers and not statutory powers or other public authority.
(ii) Prematurity
[31] Even if I am wrong in respect of the foregoing issue, the application for judicial review should be quashed because there are ongoing proceedings before a constituted IIROC Hearing Panel and the application for judicial review is premature.
[32] All the issues raised by the application should either be determined at first instance by an IIROC Hearing Panel, or alternatively, they are not ripe for such determination. As mentioned, there are four requests made in the application for judicial review which are outlined in paragraph 16 of these Reasons. The Hearing Panel should decide at first instance the merits of any request to quash the Notice of Hearing and to produce copies of the three complaint letters. I accept the submission of IIROC that the Business Conduct Report is in the nature of an administrative matter or investigative step and in any event, it is open to the Hearing Panel to stay the proceedings for abuse of process if appropriate. The fourth request made in the application for judicial review is that the Close Supervision of Mr. Deeb be overturned however there is no decision to be reviewed in this regard as the Close Supervision here was on consent and was a condition of IIROC approving Mr. Deeb as Hampton’s Ultimate Designated Person.
[33] Lastly, there are no exceptional or extraordinary circumstances that cause me to exercise my discretion to permit the hearing of the Applicants’ judicial review application. In this regard, although not an exhaustive list, I have considered the type of circumstances that might constitute exceptional circumstances as outlined in Ackerman v. Ontario (Provincial Police)[^6] and none is applicable in this case.
[34] For these reasons, the moving party’s motion to quash the application for judicial review is granted. Consistent with the agreement of the parties, the Applicants are to pay the moving party $15,000 in costs, inclusive of disbursements and HST, all on a partial indemnity scale. These costs are to be paid within 30 days.
Pepall J.
Released: February 15, 2012
CITATION: Deeb v. IIROC, 2012 ONSC 1014
DIVISIONAL COURT FILE NO.: 502/11
DATE: 20120215
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
PETER MICHAEL DEEB and
HAMPTON SECURITIES LIMITED
Applicants
– and –
INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA
Respondent
REASONS FOR DECISION
Pepall J.
Released: February 15, 2012
[^1]: RSO 1990, c.J.1 as amended. [^2]: RSO 1990, c.S.5. [^3]: 2011 ONSC 325, 2011 ONSC325 at para. 40 [^4]: (1991), 108 SNSR (2nd) 38. [^5]: 2009 ONCA 628. [^6]: 2010 ONSC 910, 2010 ONSC910