Court of Appeal for Ontario

Date: 2017-04-04 Docket: C62121

Judges: Juriansz, Lauwers and Hourigan JJ.A.

Between

Ontario Securities Commission Respondent

and

MRS Sciences Inc. (formerly Morningside Capital Corp.), America Derosa, Ronald Sherman, Edward Emmons, Ivan Cavric and Primequest Capital Corporation Appellants

Counsel

Peter-Paul E. DuVernet, for the appellants

Scott C. Hutchison, Samuel Walker and Derek J. Ferris, for the respondent

Heard: March 28, 2017

On Appeal

On appeal from the decision of the Divisional Court (Justices Anne M. Molloy and David L. Corbett, Regional Senior Justice Robbie D. Gordon dissenting), dated November 26, 2016, with reasons reported at 2015 ONSC 6317, affirming the decisions of the Ontario Securities Commission, dated December 6, 2011, December 5, 2013 and June 4, 2014.

By the Court:

A. Introduction

[1] The Rules of Procedure of the Ontario Securities Commission (the "Commission") contemplate two phases in a proceeding before it: (1) a merits hearing, where the Commission makes findings about alleged breaches of the Securities Act, R.S.O. 1990, c. S.5; and (2) a sanctions hearing, where the Commission decides what sanctions and costs, if any, are appropriate.

[2] The issue on this appeal is whether these two hearings are each part of a single, quasi-judicial proceeding that must be presided over by the same decision-maker, or if each hearing is a distinct proceeding that can be presided over by different decision-makers should the circumstances warrant it. The Commission adopted the latter view.

[3] On appeal, the Divisional Court was unanimous that the Commission's decision should be reviewed on a reasonableness standard, but it split on the outcome. The minority held that the merits hearing and sanctions hearing were two phases of a single proceeding that should have the same decision-maker. The majority held that, while the minority's interpretation was a reasonable one, it was not the only reasonable interpretation. They concluded that the Commission's interpretation was also reasonable and, accordingly, dismissed the appeal.

[4] For the reasons that follow, we dismiss the appeal of the Divisional Court's order.

B. Background

[5] In 2007, the Commission issued a notice of hearing against MRS Sciences Inc. and the individual appellants alleging various breaches of the Securities Act arising from a scheme to sell shares in a high return venture fund.

[6] The merits hearing took place in 2009 before Commissioners Patrick LeSage and Carol Perry. On February 2, 2011, the panel released its decision holding that the appellants had sold securities without being registered as dealers and traded securities without a prospectus. The Commissioners dismissed all other allegations.

[7] On February 10, 2011 and February 14, 2011 respectively, Commissioner LeSage's and Commissioner Perry's five-year appointments to the Commission expired. In May 2011, the Secretary to the Commission informed the parties that the Commissioners' terms had expired and that neither would be scheduled to preside over the sanctions hearing.

[8] The appellants objected and brought a preliminary motion challenging the jurisdiction of the differently constituted sanctions panel to preside over the sanctions hearing. That motion was dismissed by the Commission on December 6, 2011.

[9] In January 2012, the appellants filed a notice of appeal and a notice of application for judicial review of the Commission's decision on the panel composition issue. In December 2012, the Divisional Court dismissed the appeal and quashed the application for judicial review as premature.

[10] The sanctions hearing proceeded over four days in late 2013 and early 2014. Commission staff adduced transcripts of the merits hearing before the sanctions panel. The appellants objected, arguing that the transcripts should be excluded. The sanctions panel admitted the transcript evidence in a decision dated December 5, 2013.

[11] The sanctions panel released its sanctions decision on June 4, 2014. It ordered 10-year trading bans, 10-year director and officer bans, reprimands, administrative penalties and costs against the appellants.

C. Divisional Court Judgment

[12] The appellants appealed the 2011 panel composition decision, the 2013 decision to admit transcript evidence from the merits hearing in the sanctions hearing, and the 2014 sanctions decision to the Divisional Court.

[13] Gordon R.S.J., writing in the minority, rejected the appellants' submission that the standard of review was correctness and held that the applicable standard of review was reasonableness.

[14] Gordon R.S.J. proceeded to hold that the Commission's decision was unreasonable. In his view, the merits hearing and the sanctions hearing were both part of a single, quasi-judicial process initiated by a notice of hearing. As such, s. 4.3 of the Statutory Powers Procedures Act, R.S.O. 1990, c. S.22 ("SPPA") operated to extend the Commissioners' terms of office until the entire proceeding was concluded. That section provides:

4.3 If the term of office of a member of a tribunal who has participated in a hearing expires before a decision is given, the term shall be deemed to continue, but only for the purpose of participating in the decision and for no other purpose.

[15] Gordon R.S.J. also held that the principles of procedural fairness supported the view that a new panel ought not to be appointed when the merits panel continued to be available.

[16] Gordon R.S.J. dismissed the appellants' appeal from the sanctions decision, holding that the decision revealed that the sanctions panel received the parties' positions, considered the aggravating and mitigating factors, and explained why it imposed the sanctions it did for each party. He likewise dismissed the ground of appeal that it was unfair to put the merits hearing transcripts before the sanctions panel.

[17] Molloy and Corbett JJ. agreed with Gordon R.S.J. that the standard of review should be reasonableness. They also agreed with him that "one possible, and reasonable" conclusion is that the merits hearing and the sanctions hearing are two stages of a single quasi-judicial hearing, such that s. 4.3 of the SPPA would be operative: see para. 40. However, the majority held that this was not the only reasonable interpretation and that the Commission's interpretation was also reasonable, as was its conclusion that the principles of procedural fairness had not been violated. In support of their finding of reasonableness, the majority cited the logistical challenges the Commission had identified, including that it has a limited number of members who are all appointed to fixed five-year terms.

[18] The majority concurred with the decision of Gordon R.S.J. on the transcript and sanctions issues.

D. Analysis

[19] On appeal to this court, the appellants submit that the Divisional Court erred in not finding that the standard of review is correctness. They argue that the issues before the Commission concerned true questions of vires and matters of general importance to the legal system as a whole within the Dunsmuir exception: see Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190, at paras. 59-60.

[20] We disagree. We are not satisfied that the issues in this appeal fall within one of the few recognized exceptional categories of cases where the presumption of reasonableness is rebutted.

[21] The issues surrounding the appointment of a sanctions panel is not an issue of true vires that attracts a correctness standard. Questions of true vires are exceedingly rare, and an administrative body's interpretation of its home statute is presumptively reviewed on a reasonableness standard: Alberta (Information and Privacy Commissioner) v. Alberta Teachers' Association, 2011 SCC 61, [2011] 3 S.C.R. 654, at para. 34. There is no doubt that the Commission had jurisdiction over the proceeding against the appellants. The decision on how the Commission chooses to allocate its adjudicative resources in constituting the sanctions panel is a matter that falls squarely within its expertise.

[22] We agree with the majority of the Divisional Court, who said at para. 43:

In this case, the sanctions panel considered the impact on the Commission and its procedures if the SPPA applied to extend the term of panel members who had participated in a merits hearing through to the end of the sanction hearing. Such an interpretation, in the view of the panel, would not be consistent with the makeup of the Commission and how it operates. Further, the panel concluded that such an interpretation of the SPPA was not mandated by the language of the SPPA itself. The panel held that the SPPA contemplates that a "hearing" and a "proceeding" are not synonymous, even within that statute. Likewise, the panel considered that there is a difference between the words "hearing" and "proceeding" within the Commission's own Rules of Procedure. In particular, rule 17.3(1) provides that, following the merits hearing, "Unless the parties to a proceeding agree to the contrary, a separate hearing shall be held to determine the matter of sanctions and costs."

[23] Nor is this a matter of general importance. Similar to the situation in McLean v. British Columbia (Securities Commission), 2013 SCC 67, [2013] 3 S.C.R. 895, the composition of a sanction panel is "a nuts-and-bolts question of statutory interpretation confined to a particular context": see para. 28.

[24] The appellants also renew their objection to the composition of the sanctions panel. They complain that the appointment of a new panel is not authorized by statute and is procedurally unfair.

[25] We would not give effect to this submission. We accept the reasoning of the majority that both the interpretation advanced by the appellants and the one adopted by the Commission are reasonable. In McLean, at paras. 37-39, the Supreme Court held that in some cases a statutory provision can be given two opposing but equally reasonable interpretations.

[26] We see no error in the majority's reasoning that, having regard to the scheme of the SPPA, the Securities Act, the Rules of Procedure of the Commission, and the legislated policy decision to maintain a Commission that is small in a number with a rotating composition, the Commission's interpretation was a reasonable one.

[27] There is also no procedural unfairness or breach of natural justice in constituting a different sanctions panel. Courts have frequently referred matters back to a different administrative tribunal for a decision on penalty and on occasion specifically indicated that a different panel should deal with those issues: Sussman Mortgage Funding Inc. v. Ontario (Superintendent of Financial Services), 205 O.A.C. 237, at para. 3; Seed (Re), 55 O.A.C. 161; and Banks v. Ontario (Securities Commission), 204 O.A.C. 290.

[28] Nor is the principle of audi alteram partem violated on the facts of this case. The panel that decided the issue of sanctions and costs did so based on the evidence and submissions that it heard on those issues.

[29] The appellants also assert two additional grounds of appeal that are closely related to the panel composition issue. First, they argue that the Commission should not have admitted the transcripts from the merits hearing. We disagree. There was no unfairness in admitting transcripts that were relevant to the issues before the sanctions panel. The appellants were free in the sanctions hearing to adduce evidence relevant to the determination of the sanctions and costs, as well as to contest opposing evidence.

[30] Finally, the appellants submit that the Commission's reasons were inadequate. There is no merit to this submission. The reasons were thorough, clearly articulated the panel's decision and the reasoning process behind the decision.

E. Disposition

[31] We dismiss the appeal. As agreed among the parties, the Commission is entitled to costs of the appeal in the amount of $16,000, inclusive of fees, disbursements, and H.S.T.

"R.G. Juriansz J.A."

"P. Lauwers J.A."

"C.W. Hourigan J.A."