Taub v. Investment Dealers Association of Canada et al.; Mutual Fund Dealers Association of Canada, Intervenor

[Indexed as: Taub v. Investment Dealers Assn. of Canada]

98 O.R. (3d) 169

Court of Appeal for Ontario,

Feldman, R.P. Armstrong and MacFarland JJ.A.

August 28, 2009

Securities regulation -- Discipline -- Ontario Securities Commission dismissing appeal from ruling of hearing panel of Investment Dealers Association of Canada that it had jurisdiction over former member of IDA who had resigned before disciplinary proceedings were instituted -- Commission finding that s. 21.1(3) of Securities Act did not limit disciplinary jurisdiction of IDA to current members -- Standard of review of Commission's decision being reasonableness -- Decision reasonable -- Securities Act, R.S.O. 1990, c. S.5, s. 21.1(3).

Section 20.7 of a by-law of the Investment Dealers Association of Canada (the "IDA"), dealing with discipline, provides that Members and Approved Persons remain subject to the jurisdiction of the IDA for five years after they cease to be a Member or Approved Person. The respondent was formerly an Approved Person under the IDA's by-laws. A year after he resigned from his position with a brokerage firm and from the IDA, the IDA instituted disciplinary proceedings against him. The respondent moved before the discipline tribunal for an order declaring that the IDA had no jurisdiction over him because his status as a registered representative had expired before the proceedings were instituted. The IDA hearing panel concluded that it retained jurisdiction over the respondent. On appeal to the Ontario Securities Commission (the "OSC"), the decision of the IDA panel was upheld. The OSC held that s. 21.1(3) of the Securities Act, which provides that a recognized self-regulatory organization ("SRO") shall r egulate the operations and the standards of practice and business conduct of its "members", did not limit the disciplinary jurisdiction of the IDA to current members. The Divisional Court allowed the respondent's appeal. The majority held that the OSC's interpretation of the governing legislation was unreasonable and that the IDA did not retain jurisdiction over the respondent after he resigned. The IDA and the OSC appealed.

Held, the appeal should be allowed.

The standard of review of the OSC's decision was reasonableness. In concluding that the OSC's interpretation of the governing legislation was unreasonable, [page170] the Divisional Court neither assessed the process of reasoning used by the OSC to reach its decision, nor considered whether its interpretation was within a range of reasonable interpretations of the statutory provision in issue. Instead, the majority conducted its own analysis of the provision and came to its own conclusion about its correct interpretation. In taking that approach, the majority erred in law.

The OSC's decision that s. 21.1(3) of the Securities Act did not limit the disciplinary jurisdiction of the IDA to current members was a reasonable one. The OSC's reasons for decision were clear and understandable, and they justified the result reached. The decision was within a range of acceptable outcomes. The language of s. 21.1(3) is not jurisdictionally limiting. The provision sets out the statutory obligations of an SRO but does not state that those are its only obligations or powers. Section 21.6 of the Act specifically provides that a recognized SRO may "impose additional requirements within its jurisdiction". Because s. 21.1(3) does not limit the jurisdiction of the SRO to regulate only current members, s. 21.6 effectively enlarges the power of the SRO to enact rules to fulfill its regulatory mandate. Even if s. 21.1(3) does limit the IDA's jurisdiction to regulate and discipline only current members, it is not clear that such a limitation refers to the timing of the discipline, as oppose d to the timing of the misconduct. Finally, in making its decision on the proper interpretation of s. 21.1(3), the OSC applied its expertise in the securities industry and considered whether it was consistent with the purposes and objects of the legislative and regulatory scheme for SROs to have the authority to discipline former members for misconduct they are alleged to have engaged in while they were members. The OSC concluded that not only did its interpretation serve the interests of protecting the public, but also that it would be contrary to those interests if former members were allowed to resign from the association in order to avoid discipline.

APPEAL from the order of the Divisional Court (Carnwath, Pierce and Hackland JJ.) (2008), 2008 35707 (ON SCDC), 91 O.R. (3d) 490, [2008] O.J. No. 2778 (Div. Ct.), allowing the appeal from decision of the Ontario Securities Commission.

Cases referred to Dunsmuir v. New Brunswick, [2008] 1 S.C.R. 190, [2008] S.C.J. No. 9, 2008 SCC 9, 329 N.B.R. (2d) 1, 64 C.C.E.L. (3d) 1, 164 A.C.W.S. (3d) 727, EYB 2008-130674, J.E. 2008-547, [2008] CLLC Â220-020, 170 L.A.C. (4th) 1, 372 N.R. 1, 69 Imm. L.R. (3d) 1, 291 D.L.R. (4th) 577, 69 Admin. L.R. (4th) 1, 95 L.C.R. 65, apld Abdoulrab v. Ontario (Labour Relations Board) (2009), 95 O.R. (3d) 641, [2009] O.J. No. 2524, 2009 ONCA 491, [2009] CLLC Â210-033, [2009] OLRB Rep. May/June 480, 251 O.A.C. 28; Chalmers v. Toronto Stock Exchange (1989), 1989 4122 (ON CA), 70 O.R. (2d) 532, [1989] O.J. No. 1839, 40 Admin. L.R. 311, 17 A.C.W.S. (3d) 975 (C.A.), consd Other cases referred to Air Canada v. International Assn. of Machinists and Aerospace Workers, [1978] O.J. No. 1053, 78 CLLC Â14,164 at 189 (Div. Ct.); Birch v. Union of Taxation Employees, Local 70030 (2008), 93 O.R. (3d) 1, [2008] O.J. No. 4856, 2008 ONCA 809, 243 O.A.C. 6, [2009] CLLC Â220-006, 305 D.L.R. (4th) 64 [Leave to appeal to S.C.C. refused [2009] S.C.C.A. No. 29]; Dass v. Investment Dealers Assn. of Canada, [2008] B.C.J. No. 1987, 2008 BCCA 413, 302 D.L.R. (4th) 354, [2009] 2 W.W.R. 654, 261 B.C.A.C. 157, 85 B.C.L.R. (4th) 53, 170 A.C.W.S. (3d) 663; Morgis v. Thomson Kernaghan & Co. (2003), 2003 5999 (ON CA), 65 O.R. (3d) 321, [2003] O.J. No. 2504, 174 O.A.C. 104, 35 B.L.R. (3d) 14, 19 C.C.L.T. (3d) 238, 123 A.C.W.S. (3d) 1166 (C.A.); Peachtree II Associates -- Dallas L.P. v. 857486 Ontario Ltd. (2005), 2005 23216 (ON CA), 76 O.R. (3d) 362, [2005] O.J. No. 2749, 256 D.L.R. (4th) 490, 200 O.A.C. 159, 10 B.L.R. (4th) 45, 140 A.C.W.S. (3d) 650 (C.A.); Ripley v. Investment Dealers Assn. (Business Conduct Committee), [1991] N.S.J. No. 452, 108 N.S.R. (2d) 38, 30 A.C.W.S. (3d) 344, 294 A.P.R. 38 (C.A.); [page171] Toronto (City) v. C.U.P.E., Local 79, [2003] 3 S.C.R. 77, [2003] S.C.J. No. 64, 2003 SCC 63, 232 D.L.R. (4th) 385, 311 N.R. 201, J.E. 2003-2108, 179 O.A.C. 291, [2003] CLLC para. 220-071, 17 C.R. (6th) 276, 59 W.C.B. (2d) 334, REJB 2003-49439, 120 L.A.C. (4th) 225 Statutes referred to Securities Act, R.S.B.C. 1996, c. 418 Securities Act, R.S.O. 1990, c. S.5, ss. 8(3), 21.1, (1), (3), 21.6 [as am.], 21.7 [as am.] Toronto Stock Exchange Act, 1982, S.O. 1982, c. 27

Christopher D. Bredt and Andrew Werbowski, for Investment Dealers Association of Canada. Yvonne B. Chisholm, for appellant Ontario Securities Commission. Robert Brush, Anna Markiewicz and Clarke Tedesco, for respondent. Hugh Corbett, for intervenor Mutual Fund Dealers Association of Canada.

The judgment of the court was delivered by

FELDMAN J.A: -- I. Introduction

[1] The respondent, Stephen Taub, was formerly a registered representative, designated as an "Approved Person" under the by-laws of the Investment Dealers Association of Canada (the "IDA") from June 1988 until he resigned from his position with a brokerage firm and from the IDA in September 2004. In October 2005, the IDA instituted disciplinary proceedings against him alleging four counts of conduct unbecoming in relation to his trading activity for clients and in his dealing with his own member firm before his resignation.

[2] When the respondent originally applied for registration with the IDA, he signed an application wherein he agreed to be bound by and to observe and comply with the by-laws, rulings, rules and regulations of the IDA and to submit to its jurisdiction. Section 20.7 of IDA By-law 20, dealing with discipline, provides that Members and Approved Persons remain subject to the jurisdiction of the IDA for five years after they cease to be a Member or an Approved Person.

[3] Nevertheless, the respondent moved before the discipline tribunal for an order declaring that the IDA had no jurisdiction [page172] over him because his status as a registered representative had expired in September 2004, before the proceedings against him were instituted.

[4] The IDA hearing panel concluded that it retained jurisdiction over the respondent. On appeal to the Ontario Securities Commission (the "OSC"), the decision of the IDA panel was upheld. On further appeal to the Divisional Court, the decision was overturned by a majority. The majority held that the OSC's interpretation of the governing legislation was unreasonable and concluded that the IDA did not retain jurisdiction over the respondent after he had resigned. The IDA and the OSC appeal the decision of the Divisional Court with leave.

[5] For the reasons that follow, I would allow the appeals. III. Facts

[6] The IDA is a voluntary, self-regulating organization ("SRO") recognized by the OSC pursuant to s. 21.1 of the Securities Act, R.S.O. 1990, c. S.5 (the "Act").

[7] The relevant portions of s. 21.1 read:

Self-regulatory organizations

21.1(1) The Commission may, on the application of a self- regulatory organization, recognize the self-regulatory organization if the Commission is satisfied that to do so would be in the public interest. . . . . .

Standards and conduct

(3) 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 by-laws, rules, regulations, policies, procedures, interpretations and practices.

[8] Section 21.6 of the Act grants recognized SROs the authority to impose additional requirements within their jurisdiction, provided that these additional requirements do not contravene the Act. Section 21.6 reads:

Contravention of Ontario securities law

21.6 No by-law, rule, regulation, policy, procedure, interpretation or practice of a recognized stock exchange, recognized self-regulatory organization, recognized quotation and trade reporting system or recognized clearing agency shall contravene Ontario securities law, but a recognized stock exchange, recognized self-regulatory organization, recognized quotation and trade reporting system or recognized clearing agency may impose additional requirements within its jurisdiction.

[9] The IDA admits to registration a number of bodies and persons in various capacities, all of which are included either as [page173] Members or Approved Persons. All Members and Approved Persons admitted to registration with the IDA sign a contract agreeing to be bound by its rules and by-laws.

[10] The by-laws relevant to this appeal are IDA By-laws 19 and 20. By-law 19 provides for investigations of the conduct of all registrants relating to compliance with the by-laws and applicable securities regulations. By-law 20 provides for disciplinary hearings, penalties and enforcement.

[11] Of central concern in this appeal is By-law 20.7(1), which provides the IDA with continuing jurisdiction over former Members and Approved Persons for a period of five years from the date on which they cease to be a Member or Approved Person. It reads:

20.7 Former Members and Approved Persons

(1) For the purposes of By-law 19 and By-law 20, any Member and any Approved Person shall remain subject to the jurisdiction of the Association for a period of five years from the date on which such Member or Approved Person ceased to be a Member or an Approved Person of the Association . . . Instant case

[12] The respondent became an Approved Person as a registered representative of the IDA in June 1988. From 1988 to 2004, he was employed in the securities industry. In September 2004, he ceased being a registered representative of the IDA. Since then, he has not resumed registration with the IDA and has indicated in his sworn material that he has no intention of returning to an occupation regulated by the IDA.

[13] On October 21, 2005, IDA staff commenced disciplinary proceedings against the respondent, alleging that from November 1998 to June 2003, he contravened IDA By-law 29.1 by engaging in conduct unbecoming. IDA staff alleged, among other things, that the respondent facilitated "trading activity that appeared to be or was consistent with market manipulation or deception" and circumvented rules of the IDA and the U.S. Securities and Exchange Commission ("SEC") by "opening accounts and accepting orders from clients outside his jurisdiction of registration". The respondent was also alleged to have improperly disclosed and used confidential client information and to have misled his Member firm regarding involvement in accounts of certain individuals. The disciplinary proceedings against the respondent began more than a year after he ceased to be a registered representative of the IDA.

[14] On June 12, 2006, the respondent brought a motion to the hearing panel of the District Council seeking a declaration that the IDA lacked jurisdiction to proceed against him because he was no longer a registered representative. He claimed that [page174] (i) the IDA's continued assertion of jurisdiction over former members and approved persons in By-law 20.7 conflicts with s. 21.1 of the Act and is therefore of no force or effect in Ontario; and (ii) the IDA cannot rely on a private contract with its registrants to extend its jurisdiction in Ontario beyond that granted to recognized SROs by the legislature. III. The Decisions Below

[15] On August 1, 2006, the District Council rejected the respondent's motion, concluding that the IDA had jurisdiction to proceed. It found that although the IDA is recognized by the OSC as an SRO under the Act, such recognition does not confer jurisdiction on the IDA. Rather, its jurisdiction is based on the contract between it and its Members. [See Note 1 below] The District Council found that the respondent accepted the rules of the IDA when he applied and was accepted as a member, and that such acceptance by him was a valid and binding contractual obligation. Further, the District Council concluded that By-law 20.7 provided the IDA with jurisdiction over former members for a five-year period from cessation of membership and was not ultra vires any statute. The District Council reasoned that to allow a person to escape disciplinary sanctions by voluntarily ceasing to be a member was contrary to public policy, the preservation of confidence in the IDA and the integrity of the securities industry and markets.

Ontario Securities Commission

[16] Section 21.7 of the Securities Act provides a right of application to the OSC for a hearing and review of the decision of a district council. On May 17, 2007, the OSC dismissed the respondent's application, finding that the District Council made no error in law which would warrant its interference and concluding that the IDA was entitled to discipline former members under the terms of its by-laws. In particular, the OSC found: -- section 21.1(3) of the Act requires the IDA to "regulate the operations and 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". It does not in any way attempt to define [page175] or restrict the provisions of such by-laws, rules, regulations or other regulatory requirements; and -- to interpret s. 21.1(3) as limiting the disciplinary jurisdiction of the IDA to current members would undermine the IDA's ability to discipline its members and would be inconsistent with its obligations to protect the public interest.

[17] The respondent appealed the OSC decision to the Divisional Court. The majority allowed the appeal. Applying the factors enunciated by the Supreme Court of Canada in Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190, [2008] S.C.J. No. 9, the majority concluded that the appropriate standard of review to be applied to the OSC's decision was the reasonableness standard. However, applying that standard, it held that the OSC's finding that the IDA could discipline former members was an unreasonable one.

[18] The majority reasoned that although the IDA is a voluntary organization, its character changed when it was recognized under s. 21.1 of the Act, as did its contractual relationship with its members. The majority found that s. 21.1(3) limited the disciplinary jurisdiction of an SRO to current members, and that the provision could not be stretched to include the discipline of former members without doing violence to the meaning of the Act. In dissenting reasons, Carnwath J. agreed with the majority's conclusion that the standard of review was reasonableness, but concluded that the OSC's finding that s. 21.1(3) did not limit the IDA's jurisdiction was both reasonable and correct.

Issues (1) Is reasonableness the correct standard of review of the decision of the OSC? (2) If so, is the OSC decision that s. 21.1(3) of the Securities Act does not limit the disciplinary jurisdiction of the IDA to current members a reasonable one? (3) Did the Divisional Court err by ordering the OSC to issue a declaration? Analysis (1) Standard of review

[19] Although the respondent seeks to uphold the result reached by the majority of the Divisional Court, he submits that the court erred in its determination of the standard of review. He [page176] submits that the issue the OSC was determining was an issue of jurisdiction that must be reviewed on the correctness standard. He acknowledges that the issue was not, however, the OSC's own jurisdiction, but rather the OSC's determination of the jurisdiction of the IDA over its former members that was in issue. That acknowledgment is fatal to his argument.

[20] In Dunsmuir, the court made it clear that issues of "true jurisdiction" "arise where the tribunal must explicitly determine whether its statutory grant of power gives it the authority to decide a particular matter" (at para. 59). Here on the appeal to the OSC, the OSC had the authority to interpret and apply s. 21.1(3) of the Securities Act to determine whether that section limited the jurisdiction of the IDA, once it had become a recognized SRO, to discipline only current members. The issue on standard of review was whether the OSC's interpretation had to be the correct one, or only a reasonable one.

[21] I agree with the Divisional Court that following the decision of the Supreme Court of Canada in Dunsmuir, supra, the standard of review of the decision of the OSC is one of reasonableness. In this case, the issue that was determined by the OSC was the interpretation of its home statute, the Securities Act, a subject that falls squarely within its expertise. The majority of the Divisional Court described it this way, at para. 28:

The question before the Securities Commission was a question it was entitled to decide in fulfilling the mandate given to it by the Legislature. The answer to the question invokes the Commission's expertise as a regulator. We therefore conclude that the standard of review on this appeal is one of reasonableness.

[22] In Dunsmuir, after stating that it was simplifying the standard of review analysis process by reducing the standards to two only, correctness and reasonableness, the Supreme Court then discussed the two standards and the process for determining which standard to apply in any particular case.

[23] The court explained that reasonableness is a deferential standard. The reviewing court defers to the decision-making process of the tribunal and to the reasonableness of the outcome. I observe that this is not deference to a discretionary decision which is accorded because the decision maker is in the best position to make the decision and for reasons of judicial economy. Rather, deference is accorded out of respect for the expertise and experience of the decision- making tribunal, where the process it used is justified, transparent and intelligible, and where the decision "falls within a range of possible, acceptable outcomes which are defensible in respect of the facts and law" (at para. 47). [page177]

[24] It has been said that where the standard of review is not correctness, on issues within its expertise an administrative tribunal has "the right to be wrong": e.g., Air Canada v. International Assn. of Machinists and Aerospace Workers, [1978] O.J. No. 1053, 78 CLLC Â14,164 at 189 (Div. Ct.), at para. 11. In my view, Dunsmuir has made it clear that if this was ever true, it no longer is. Where there is a question that is reviewable on the reasonableness standard, a decision that is found to be unreasonable will in virtually every case for that reason be wrong. If a decision deserves deference because of the process by which it was reached and because the result is a reasonable one, then it will not be wrong. As I stated above, the administrative law concept of deference is not accorded on the basis of deference to an exercise of quasi-judicial discretion, but on the basis of respect for an experienced decision-maker with particular expertise who has engaged in a process and reached an outcome that has been demonstrated to warrant that deference.

[25] In contrast, there is no deference when applying the correctness standard. In that case, the court conducts its own analysis of the issue and determines the correct answer.

[26] In Dunsmuir, the court also explained the process for determining which of the two standards to apply. There are three factors for consideration that lead to the application of the reasonableness standard (at para. 55): (a) a privative clause; (b) a discrete and special administrative regime in which the decision-maker has special expertise, e.g., labour relations; (c) the nature of the question of law -- one that is of "central importance to the legal system . . . and outside the . . . specialized area of expertise" of the administrative decision-maker "will always attract a correctness standard" (reference to Toronto (City) v. C.U.P.E., Local 79, 2003 SCC 63, [2003] 3 S.C.R. 77, [2003] S.C.J. No. 64, at para. 62). In contrast, other questions of law may still be "compatible with a reasonableness standard where the two above factors so indicate".

[27] The Supreme Court recognized the difficulty that courts may have in applying the reasonableness standard of review to a question of law, since traditionally courts are used to deciding questions of law and statutory interpretation on the basis that the interpretation must be correct. Referring to the three factors listed above, the court stated (at para. 56): [page178]

If these factors, considered together, point to a standard of reasonableness, the decision maker's decision must be approached with deference in the sense of respect discussed earlier in these reasons. There is nothing unprincipled in the fact that some questions of law will be decided on the basis of reasonableness. It simply means giving the adjudicator's decision appropriate deference in deciding whether a decision should be upheld, bearing in mind the factors indicated.

[28] Finally, the court discussed the three narrow categories of cases where the correctness standard of review will apply. The first is a true question of the jurisdiction of the tribunal, i.e., "where the tribunal must explicitly determine whether its statutory grant of power gives it the authority to decide a particular matter" (at para. 59). The second is where there is a question of general law "that is both of central importance to the legal system as a whole and outside the adjudicator's specialized area of expertise" (at para. 60). The third is where there is a determination of jurisdiction between two competing tribunals (at para. 61).

[29] In Dunsmuir, because the question before the tribunal was a question of law within its expertise, the reasonableness standard of review applied. However, as did the majority in this case, the Supreme Court held that the tribunal's decision was unreasonable. It did so by finding that the adjudicator's reasoning process was "deeply flawed". The court held that the adjudicator's decision regarding discharge, which treated a non-unionized employee as a unionized employee, effectively ignored the private law context in which the dispute arose. Furthermore, the adjudicator "adopted a reasoning process that was fundamentally inconsistent with the employment contract, and thus, fatally flawed" (at para. 74). As a result, the decision was not one that fell within "the range of acceptable outcomes that are defensible in respect of the facts and the law" (at para. 74), and was therefore "simply unreasonable in the context of the legislative wording and the larger labour context in which it is embedded"

(at para. 76).

[30] In this case, the majority of the Divisional Court, having concluded that the issue of statutory interpretation before the tribunal was a question of law within the unique expertise of the OSC and was therefore reviewable on the standard of reasonableness, concluded that the OSC's interpretation was unreasonable. However, it did so neither by assessing the process of reasoning used by the OSC to reach its decision, nor by considering whether its interpretation was within a range of reasonable interpretations of the statutory provision in issue. Instead, the majority conducted its own analysis of the provision and came to its own conclusion about its correct interpretation. Some examples of the language used by the majority demonstrate [page179] its approach. For example, at para. 35, the majority states: "The court must decide whether the wording of s. 21.1(3) of the Securities Act is limiting, in the sense that it prescribes whom a self- regulated organization may regulate" (empha sis added). And, at para. 47, it states: "In view of our conclusion that the Securities Act does not authorize self-regulatory bodies recognized under the Act to discipline former members . . ." (emphasis added).

[31] In other words, the majority employed the approach that the Supreme Court described in Dunsmuir is only to be used when reviewing an administrative decision on the standard of correctness, where no deference is accorded and where the court conducts its own analysis of the issue in order to come to the correct decision. In taking this approach, the majority erred in law. (2) Is the OSC decision that s. 21.1(3) of the Securities Act does not limit the disciplinary jurisdiction of the IDA to current members a reasonable one?

[32] As discussed above, in order to determine whether the decision of the OSC in this case was reasonable, the first step is to consider the process the tribunal followed to reach its decision.

The OSC's reasoning process

[33] The OSC began its reasons with an overview, followed by a history of the respondent's employment, the disciplinary proceedings, the decisions under review and the issues to be determined on the review. The first issue was the standard of review. The OSC discussed its authority under s. 21.7 of the Act to conduct a "hearing and review" of a decision of a self- regulatory organization, and under s. 8(3) to make any decision it considers proper, i.e., to substitute its judgment for that of the SRO. However, the OSC noted that its practice when reviewing decisions of an SRO is to accord deference to factual determinations that are "central to the SRO's specialized competence", and only to interfere on one of the following grounds: (1) the SRO proceeded on an incorrect principle; (2) the SRO erred in law; (3) the SRO overlooked some material evidence; (4) new and compelling evidence is presented; [and] (5) the SRO's perception of the public interest conflicts with the OSC's. [page180]

[34] In other words, the OSC stated that it would not substitute its own view just because it would have reached a different conclusion in the circumstances. In this case, the appeal was based on an alleged error of law in the District Council's interpretation of s. 21.1. The Commission concluded that it would interfere only if it determined that the District Council of the IDA had made an error of law.

Reasonableness of the outcome

[35] The second step in reviewing a decision on the reasonableness standard is to consider the reasons of the tribunal to see whether they are "justified, transparent and intelligible".

[36] After deciding its standard of review, the OSC then turned to the merits of the legal question in dispute, first setting out the positions of the parties followed by legal analysis. The respondent acknowledged that the IDA is not a statutory body, but rather a voluntary association that derives its authority from its contract with its members and their agreement to abide by its by-laws, rules, regulations and other requirements. However, when the OSC recognized the IDA as an SRO, that recognition limited and restricted the IDA's pre- existing contractual jurisdiction.

[37] In particular, the respondent argues that s. 21.1(3) of the Act limits the jurisdiction of a recognized SRO to its members, meaning current members, not former members. Therefore, because s. 21.6 allows a recognized SRO to enact by- laws or other requirements, but only "within its jurisdiction", By-law 20.7, which allows the IDA to discipline former members, is ultra vires and therefore unenforceable.

[38] After reviewing the positions of the parties, the OSC then began its analysis with a discussion of the voluntary, non-statutory authority of the IDA. The OSC quoted from a decision of the Nova Scotia Court of Appeal, Ripley v. Investment Dealers Assn. (Business Conduct Committee), [1991] N.S.J. No. 452, 108 N.S.R. (2d) 38 (C.A.), at para. 21:

The Investment Dealers Association (IDA), as explained at some length in the appellant's factum, is an unincorporated association which oversees the investment and brokerage business in Canada, serving as the professional organization of, and regulating, member brokerage houses and their employees. It is not specifically empowered under any statute, although its existence is recognized in some securities legislation. It has its own constitution, by-laws and regulations to which its members bind themselves by contract to comply. The IDA establishes requirements for capitalization, procedures for purchase, sale and registration of securities for clients, audit procedures and other matters that govern the internal and external operations of national and local investment firms. The IDA also sets standards of qualifications for, and for the discipline of, persons engaged in the industry. [page181] Its authority does not extend to regulating the actual issuance of securities: that is vested in provincial securi ties commissions and the various stock exchanges sold. The sale of securities is regulated by statute in all Provinces. It is the persons and the firms who sell the securities that are regulated by the IDA.

[39] The OSC then referred to s. 21.1(1) of the Act, which empowers the OSC to recognize an SRO if it is satisfied that to do so would be in the public interest, and to s. 21.1(3), which provides:

21.1(3) 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 by-laws, rules, regulations, policies, procedures, interpretations and practices.

[40] The OSC noted that the IDA was recognized pursuant to those provisions on December 14, 1994 and was renewed up to and after October 31, 1995. The OSC referred to the decision of this court in Morgis v. Thomson Kernaghan & Co. (2003), 2003 5999 (ON CA), 65 O.R. (3d) 321, [2003] O.J. No. 2504 (C.A.), at para. 12, where the court held that the terms and conditions of recognition "require the IDA to enforce compliance by its members with the rules of the IDA, as a matter of contract and without prejudice to any discipline by the Commission under Ontario securities law". The court also pointed out that recognition of the IDA is part of a statutory securities scheme designed to protect investors and to foster fair and efficient capital markets (at para. 32).

[41] The OSC referred to the constitution of the IDA and to its public interest mandate, including adopting and enforcing high standards of business conduct among its members. In particular, s. 2(b) and (c) of the constitution provide as among the IDA's objectives: (b) To encourage through self-discipline and self- regulation a high standard of business conduct among Members and their partners, directors, officers and employers and to adopt, and enforce compliance with, such practices and requirements as may be necessary and desirable to guard against conduct contrary to the interests of Members, their clients or the public; (c) To establish, and enforce compliance with, standards and requirements relating to capital market participants for the protection of Members, their clients and the public;

[42] The OSC found that in enacting By-law 20.7, extending its disciplinary jurisdiction to former members for five years after they ceased to be members for misconduct committed while they were members, the IDA was fully within the authority granted to a recognized SRO under s. 21.6 of the Act, i.e., to "impose additional requirements within its jurisdiction". Accordingly, the OSC found that the by-law was neither in contravention [page182] of s. 21.1(3), nor beyond the jurisdiction of the IDA. Specifically, the OSC found that s. 21.1(3) neither defines nor restricts the by-laws that a recognized SRO may enact in order to fulfill its mandate.

[43] The OSC distinguished this court's decision in Chalmers v. Toronto Stock Exchange (1989), 1989 4122 (ON CA), 70 O.R. (2d) 532, [1989] O.J. No. 1839 (C.A.), which held that it was beyond the jurisdiction of the Toronto Stock Exchange to enact a by-law that allowed it to discipline former members. The court held that the Toronto Stock Exchange was a creature of statute that depended on the Toronto Stock Exchange Act, 1982, S.O. 1982, c. 27 for its existence and powers. In contrast, the OSC noted that the IDA is a voluntary association not created by statute and not dependent on a statute for its powers or existence. Instead, it regulates its members by contractual agreement whereby they agree to be bound by its by-laws and other rules and regulations.

[44] Finally, the OSC concluded that as a matter of policy, because the by-laws and other rules of the IDA constitute "part of the fabric of securities regulation" in Ontario, "it would be contrary to the public interest to allow the applicant to avoid such regulation by simply resigning his membership in the IDA". The OSC agreed with the submission of IDA staff that the respondent's interpretation would undermine the IDA's ability to discipline its members and in that way would be inconsistent with its duty to protect the public interest.

[45] The OSC therefore concluded that the District Council made no error of law, i.e., its interpretation of the Act was correct.

[46] In my view, the OSC's reasons for decision are clear, they are understandable and they justify the result reached. The reasons focus on the issues raised and address the reasons why the OSC agreed with the decision of the District Council, namely, that s. 21.1(3) of the Act authorizing a recognized SRO to regulate the conduct of its "members" does not limit a recognized SRO's jurisdiction to current members only.

Is the decision of the OSC within a range of acceptable outcomes?

[47] The final step for a court in reviewing a decision of a tribunal on the reasonableness standard is to decide whether the result reached falls within a range of acceptable, defensible outcomes. I now turn to that analysis.

[48] The essential argument of the respondent is that s. 21.1(3) of the Act, which refers to the obligation of the IDA to regulate the business conduct of its members, effectively limits the jurisdiction of the IDA to discipline members for such misconduct only [page183] while they continue to be members, but not after they have resigned. In my view, this argument does not withstand scrutiny.

[49] First, as both the District Council and the OSC have said, the language of s. 21.1(3) is not jurisdictionally limiting. The provision sets out the statutory obligations of a recognized SRO, but does not state that those are its only obligations or powers. In Dass v. Investment Dealers Assn. of Canada, 2008 BCCA 413, [2008] B.C.J. No. 1987, 85 B.C.L.R. (4th) 53 (C.A.), the British Columbia Court of Appeal was faced with the same issue pursuant to the Securities Act, R.S.B.C. 1996, c. 418 regarding the jurisdiction of the IDA to discipline former members. The court pointed to the error in the reasoning of the majority of the Divisional Court in the instant case that recognition of an SRO under the Act somehow transforms the character of the association and affects its contractual relationship with its members. The British Columbia Court of Appeal attributed this error to a misunderstanding of this court's decision in Morgis, supra. In particular, in Dass, the court refe rred [at para. 55] to paras. 31-32 of Morgis, where 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. The British Columbia Court of Appeal concluded that the decision of the British Columbia Securities Commission that the IDA could discipline former members was a reasonable one.

[50] Second, s. 21.6 of the Act specifically provides that a recognized SRO may "impose additional requirements within its jurisdiction". Because s. 21.1(3) does not limit the jurisdiction of the SRO to regulate only current members, s. 21.6 effectively enlarges the power of the SRO to enact rules to fulfill its regulatory mandate.

[51] I also raise a third consideration, but only as an alternative. Even if s. 21.1(3) did limit the IDA's jurisdiction to regulate and discipline only current members, it is not clear that such a limitation refers to the timing of discipline, as opposed to the timing of the misconduct. In other words, as long as the discipline relates to misconduct that occurred while the person was a member, that may be sufficient to comply with any limits that could be said to be imposed by the provision. The timing of instituting disciplinary proceedings is a procedural rather than a substantive matter that is not addressed in the language of the section.

[52] Finally, in making its decision on the proper interpretation of s. 21.1(3), the OSC applied its expertise in the securities industry and considered whether it was consistent with the purposes and objects of the legislative and regulatory scheme for SROs to [page184] have the authority to discipline former members for misconduct they are alleged to have engaged in while they were members. The OSC concluded that not only did its interpretation serve the interests of protecting the public, but also that it would be contrary to those interests if former members were allowed to resign from the association in order to avoid discipline.

The mootness issue

[53] The OSC's analysis and conclusion are certainly prima facie reasonable. However, it would have been helpful had the OSC considered and addressed the issue of mootness, i.e., that once the member resigns, he or she has pre-empted the ultimate penalty, expulsion, and made the discipline proceeding effectively moot. This issue was raised by the parties and had been discussed by Finlayson J.A. in Chalmers, supra.

[54] In Chalmers, as discussed earlier, this court held that the Toronto Stock Exchange derived its authority from statute and that the authority was over current members only. Although the court's decision was made based on statutory interpretation and jurisdiction, the court believed the result was appropriate because of the mootness problem. Finlayson J.A. concluded that without statutory enforcement authority, membership and therefore subjection to the authority of the Exchange was voluntary, and therefore, the ultimate and only sanction for which the Exchange had unilateral recourse was expulsion. However, once a member resigned, the member could no longer be expelled as a sanction. Consequently, any further disciplinary proceeding was essentially moot. The court noted that although fines could be imposed, they could not be recovered without a civil suit.

[55] In my view, the efficacy of any potential sanction is an important factor in the discussion of disciplinary jurisdiction over former members of an SRO. It addresses the somewhat anomalous circumstance created where both members and former members are subject to the same discipline process, but not the same sanctions if found guilty of professional misconduct.

[56] One positive factor raised in oral argument is that along with the penalty of non-membership, the former member who is found guilty of misconduct will also bear the stigma of that finding and the SRO will be seen in the investment community as having acted to protect the public interest. However, if a former member has nothing tangible or financial at stake, such a person may choose not to participate in a discipline hearing, e.g., for financial reasons. In such a case, a finding of misconduct may not carry the same weight as it would where the former member had participated in the hearing. [page185]

[57] Another factor raised in oral argument as a benefit of discipline of former members was that if a person can resign as a member in order to avoid discipline, then the person could later reapply to become a member unimpaired with any finding of misconduct on his or her record. In my view, this argument is weak at best. An application to become an Approved Person could ask whether a person was previously a member, the circumstances of the person's resignation and whether there were any allegations of professional misconduct against the person. If, in the face of that information, the person were to be readmitted to membership, the IDA could reassert its jurisdiction over the person for the past misconduct.

[58] To me the most significant issue is whether there is any legal impediment on the IDA preventing it from imposing fines on non-members who are found guilty of professional misconduct, as it can on members. The IDA's by-laws provide for significant fines which a discipline panel may impose upon a finding of misconduct. Whether the fines can be enforced by civil action is, however, another matter. Clearly the imposition of a fine is a penalty. However, it is a penalty that each member voluntarily agrees to in applying for membership in the association.

[59] In Birch v. Union of Taxation Employees, Local 70030 (2008), 2008 ONCA 809, 93 O.R. (3d) 1, [2008] O.J. No. 4856 (C.A.) (leave to appeal dismissed [2009] S.C.C.A. No. 29), this court recently considered the enforceability of such fines. The issue was whether a union could enforce a provision in its constitution that authorized the imposition of fines against its members for crossing a picket line. The court was asked to revisit the common-law rule against the enforcement of penalty clauses. The court determined that it was not necessary to do so, however, because the amount imposed was unconscionable and therefore relief from forfeiture was the appropriate remedy. However, the court referred to an earlier decision, Peachtree II Associates -- Dallas L.P. v. 857486 Ontario Ltd. (2005), 2005 23216 (ON CA), 76 O.R. (3d) 362, [2005] O.J. No. 2749 (C.A.), where the court made obiter comment in favour of merging the two concepts of penalty clause and relief from forfeiture. The idea was to treat penalty clauses on the basis that relief can be granted where the penalty is unconscionable, but that otherwise, the penalty that had been agreed to by contract would be enforced.

[60] If the IDA is able to impose the same significant fines when disciplining former members as it can when disciplining members and if those fines are legally collectable, then expulsion or removal of a person from membership in an SRO would not be the ultimate or necessarily the only significant disciplinary penalty that could be imposed on former members. This would make discipline [page186] proceedings against a former member as effective and relevant as proceedings against a current member and would address the mootness issue and the concern that Finlayson J.A. raised in Chalmers about the efficacy of disciplining former members. (3) Conclusion and the effect of the decision of the Commission for the future

[61] In my view, the conclusion of the OSC is reasonable and should be upheld. I would therefore set aside the decision of the majority of the Divisional Court and affirm the decision of the minority.

[62] I note that, in his dissenting reasons in the Divisional Court, Carnwath J. found that the decision of the OSC was not only reasonable, it was correct. Carnwath J. may have had two purposes for making this comment, which was clearly beyond the scope of the question before the court on appeal. The first may have been to praise the OSC by saying that although the standard of review is only reasonableness, it did better than come to a reasonable conclusion, it came to the right conclusion.

[63] The second reason is potentially more jurisprudentially significant. If the decision of the OSC is correct, it means that it is precedential, binding on the OSC in future cases, subject to the OSC's own jurisprudence on stare decisis.

[64] Having said that, the issue of whether the effect of the OSC's decision when it is interpreting its home statute as a matter of law is precedential is an important one. Although the court reviews the decision on the reasonableness standard, the OSC has determined as a matter of law the correct interpretation of a provision of its home statute.

[65] The issue was recently raised in this court by Juriansz J.A. in Abdoulrab v. Ontario (Labour Relations Board), (2009), 95 O.R. (3d) 641, [2009] O.J. No. 2524, 2009 ONCA 491 (C.A.), where it was argued that the OLRB had developed two conflicting lines of authority interpreting the same statutory provision. It was argued that even if each on its own could be found to be reasonable, it would not be reasonable for a court to uphold both. Juriansz J.A. stated the problem this way, at para. 48:

From a common sense perspective, it is difficult to accept that two truly contradictory interpretations of the same statutory provision can both be upheld as reasonable. If two interpretations of the same statutory provision are truly contradictory, it is difficult to envisage that both would fall within the range of acceptable outcomes. More importantly, it seems incompatible with the rule of law that two contradictory interpretations of the same provision of a public statute, by which citizens order their lives, could both be accepted as reasonable. [page187]

[66] In the result, Juriansz J.A. found it unnecessary to resolve the issue because he found there were not two conflicting lines of authority.

[67] I agree with Juriansz J.A. that it accords with the rule of law that a public statute that applies equally to all affected citizens should have a universally accepted interpretation. It follows that where a statutory tribunal has interpreted its home statute as a matter of law, the fact that on appeal or judicial review the standard of review is reasonableness does not change the precedential effect of the decision for the tribunal. Whether a court has had the opportunity to declare the decision to be correct according to judicially applicable principles should not affect its precedential status. As in Abdoulrab, it is not necessary to decide the issue in this case. However, I note that the intervenor, the Mutual Fund Dealers Association, another SRO recognized under the Act, supported the appeal on the basis that the result would apply to it as well. (4) Ordering the OSC to make a declaration

[68] In light of the result, it is not necessary to address this issue. IV. Conclusion

[69] I would allow the appeal, set aside the decision of the Divisional Court and affirm the decision of the Ontario Securities Commission. Costs of the appeal to the IDA. The OSC does not seek costs. If the parties are unable to agree on the amount payable by the respondent, they may make brief written submissions, the appellant's within ten days of release of these reasons and the respondent's within seven days thereafter.

Appeal allowed.

Notes

Note 1: Although the decisions below sometimes use the term "Member" in connection with the respondent, the record indicates that he was an Approved Person as a registered representative.