Universal Settlements International, Inc. v. Ontario Securities Commission

67 O.R. (3d) 670

[2003] O.J. No. 4274

Court File No. 99/03

Ontario Superior Court of Justice

Divisional Court

Then, Somers and Greer JJ.

October 27, 2003

Administrative law -- Boards and tribunals -- Authority -- Ontario Securities Commission ordering investigation of vendor of "viatical settlement purchase program" -- Ontario Securities Commission having jurisdiction to compel testimony and production of documents in aid of investigation where party under investigation is neither a reporting issuer nor a registrant under Securities Act -- Securities Act, R.S.O. 1990, c. S.5, s. 11.

USI, which was not a reporting issuer nor a registrant under the Securities Act, was in the business of selling to Ontario residents a financial product known as a "viatical settlement purchase program" which involved a person with a life insurance policy selling the benefits under the policy to a purchaser. The policyholder gets the money while still alive and the purchaser receives the benefits when the policyholder dies. The Ontario Securities Commission asked USI to provide information about its business to the Commission, and when USI refused to do so, the Commission made an investigation order pursuant to s. 11(1)(a) of the Securities Act. USI then applied under s. 144 of the Act seeking to quash the investigation order. On January 31, 2003, the Commission refused USI's application.

USI applied for judicial review for an order in the nature of certiorari quashing the Commission's investigation order and the subsequent decision upholding the investigation order.

Held, the application for judicial review should be dismissed.

The Commission has wide powers under s. 11 of the Securities Act to investigate any matter it "considers expedient" for the due administration of Ontario securities law or the regulation of the capital markets in Ontario, or to assist in the due administration of the securities laws or the regulation of capital markets in another jurisdiction. The Divisional Court has the authority to hear an application for judicial review of a decision made in the exercise of a statutory power. Applying the principles for the standard of review set out in Dr. Q. v. College of Physicians and Surgeons of British Columbia and Law Society of New Brunswick v. Ryan, the standard of review in the immediate case was one of reasonableness. In this case, the Commission did not exceed its jurisdiction in compelling testimony and production of documents in aid of an investigation. Even though USI was neither a reporting issuer nor a registrant under the Act, it was still subject to the parameters of the Act and must co-operate with the Commission in its investigation. Further, it did not matter that viatical settlements were not distinctly described under the Act. The Commission has the power to order such investigations that it deems are in the public interest, and it is not expanding its authority in doing so. Accordingly, the application for judicial review should be dismissed.

APPLICATION for judicial review.

Cases referred to Ainsley Financial Corp. v. Ontario Securities Commission (1994), 1994 2621 (ON CA), 21 O.R. (3d) 104, 121 D.L.R. (4th) 79 (C.A.), affg (1993), 1993 5552 (ON SC), 14 O.R. (3d) 280, 106 D.L.R. (4th) 507, 10 B.L.R. (2d) 173 (Gen. Div.); British Columbia (Securities Commission) v. Branch, 1995 142 (SCC), [1995] 2 S.C.R. 3, 4 B.C.L.R. (3d) 1, 123 D.L.R. (4th) 462, 180 N.R. 241, [1995] 5 W.W.R. 129, 27 C.R.R. (2d) 189, 97 C.C.C. (3d) 505, 38 C.R. (4th) 133; [page671] Canadian Pacific Air Lines Ltd. v. Canadian Air Line Pilots Assn., 1993 31 (SCC), [1993] 3 S.C.R. 724, 108 D.L.R. (4th) 1, 160 N.R. 321, 93 CLLC 14,062, [1993] S.C.J. No. 114 (QL) (sub nom. Canadian Pacific Airlines Ltd. v. CALPA); Committee for the Equal Treatment of Asbestos Minority Shareholders v. Ontario Securities Commission, [2001] 2 S.C.R. 132, 199 D.L.R. (4th) 577, 269 N.R. 311, 2001 SCC 37, 14 B.L.R. (3d) 1; Dr. Q. v. College of Physicians and Surgeons of British Columbia, [2003] 1 S.C.R. 226, 223 D.L.R. (4th) 599, 302 N.R. 34, [2003] 5 W.W.R. 1, 2003 SCC 19, 11 B.C.L.R. (4th) 1, [2003] S.C.J. No. 18 (QL); Glick, Trustee for the Albert Blick Revocable Trust v. Sokol, 149 Ohio App. 3d 344 (2002); Law Society (New Brunswick) v. Ryan, [2003] 1 S.C.R. 247, 2003 SCC 20, 257 N.B.R. (2d) 207, 223 D.L.R. (4th) 577, 302 N.R. 1, 674 A.P.R. 207, 31 C.P.C. (5th) 1, [2003] S.C.J. No. 17 (QL); Pezim v. British Columbia (Superintendent of Brokers), 1994 103 (SCC), [1994] 2 S.C.R. 557, 92 B.C.L.R. (2d) 145, 114 D.L.R. (4th) 385, 168 N.R. 321, 14 B.L.R. (2d) 217, [1994] S.C.J. No. 58 (QL) (sub nom. Ivany v. British Columbia); Pushpanathan v. Canada (Minister of Citizenship and Immigration), 1998 787 (SCC), [1998] 1 S.C.R. 1222, [1998] S.C.J. No. 77, 11 Admin. L.R. (3d) 130, amending 1998 778 (SCC), [1998] 1 S.C.R. 982, 160 D.L.R. (4th) 193, 226 N.R. 201; Walmsley v. Ontario (Attorney General) (1997), 1997 3017 (ON CA), 34 O.R. (3d) 611 (C.A.) Statutes referred to Insurance Act, R.S.O. 1990, c. I.8, ss. 39, 115, 441(2) Judicial Review Procedure Act, R.S.O. 1990, c. J.1, ss. 2(1), 6(1) Securities Act, R.S.O. 1990, c. S.5, ss. 1.1(a), 11, 13, 25, 53, 144 Authorities referred to Alboini, V.P., Securities Law and Practice, 2nd ed., looseleaf (Toronto: Carswell, 1984)

Randy Bennett, for applicant. Yvonne B. Chisholm, for respondent.

[1] GREER J.: -- The applicant, Universal Settlements International, Inc. ("USI" or "the applicant"), seeks judicial review of a decision of the respondent, Ontario Securities Commission ("the Commission" or "the respondent"), regarding the jurisdiction of the Commission to compel testimony and production of documents in aid of an investigation in circumstances where the party under investigation is neither a reporting issuer nor a registrant under the Securities Act, R.S.O. 1990, c. S.5, as amended, ("OSA") and where there is no determination that party is engaged in securities transactions.

[2] USI makes Application for an Order in the nature of certiorari, quashing and setting aside the Commission's investigation Order dated July 18, 2002 and its subsequent decision dated January 31, 2003, upholding the investigation Order.

Background

[3] On February 26, 2001, the Superintendent of Financial Services ("the Superintendent") issued a Notice of Proposed Cease [page672] and Desist Order pursuant to s. 441(2) of the Insurance Act, R.S.O. 1990, c. I.8 (Ontario). USI, and Derek O'Brien and Tony Duscio, its principals, were named in the Notice. The Notice was based on Investigative Findings alleging that USI was contravening s. 115 of the said Insurance Act, by trafficking in insurance policies, while not licensed as an insurer or while not the duly authorized agent of an insurer. USI was in the business of selling to Ontario residents a financial product known as a "viatical settlement purchase program". Essentially, this involves a person with a life insurance policy selling the benefits under that policy to the purchaser. The policyholder gets the money while still alive and the purchaser receives the benefits when the policyholder dies. The price is based on the value of the benefits received. These purchases are made from policyholders in Ontario, in Canada and internationally, we are told. USI is said to be the facilitator of these settlements with persons who are terminally ill and dying. This includes policyholders who, for example, have HIV, AIDS or a terminal illness.

[4] The issue then was whether this sale amounted to "insurance undertaken in Ontario", within the meaning of s. 39 of the said Act. The Financial Services Tribunal held a hearing on the matter on December 6, 2001, and found that USI's viatical settlement purchase programme does not constitute "insurance undertaken in Ontario", and held that the Superintendent's Notice of Proposal was of no force or effect.

[5] Notwithstanding this finding, the Commission asked USI to provide certain information regarding its business to the Commission so that it could determine whether the OSA applied to USI's business. USI refused to provide the information. Therefore, the Commission made an investigation order pursuant to s. 11(1)(a) of the OSA. On January 31, 2003, the Commission made a decision whereby it refused USI's application under s. 144 of the OSA seeking to quash the investigation order, to quash a summons issued pursuant to s. 13 of the OSA and to vary its Staff Notice 44. The Staff of the Commission had determined that these viatical products were "securities" and thus subject to the OSA.

[6] USI argues that any such investigation is a very intrusive step in its business operations. It says that there is no evidence to support the Commission's position and that it is basing its investigation on the fact that "it may be a security", and this is not enough. USI says that it only becomes involved after the viatical settlement is done and only deals with purchasers here in Canada. USI gets a commission from the purchase of the contract. [page673]

[7] The Commission says that USI has its head office in Ontario, has customers in Ontario, Nova Scotia, British Columbia and Alberta. It further notes that USI's sales to Ontario residents alone amount to about $1.5 million per annum and that USI's activities in Ontario are entirely unregulated. The Commission says it issued the investigation order because it is unclear exactly what USI is selling, to whom USI's products are being sold, which agents are selling USI's products, what representations are being made in respect of USI's products, and what disclosure, if any, is made regarding the nature of USI's products and risks of investing in USI's products.

The Court's Jurisdiction and Standard of Review

[8] The Divisional Court has the authority to hear an application for judicial review of a decision made in the exercise of a statutory power under ss. 2(1) and 6(1) of the Judicial Review Procedure Act, R.S.O. 1990, c. J.1.

[9] The parties do not agree on the standard of review in the case before us. USI argues that s. 11 of the OSA is a "jurisdiction-limiting provision" and the standard of review would therefore be one of correctness. The Commission says that s. 11 is not a jurisdiction-limiting provision but is instead a regulatory provision and thus the standard of review would be reasonableness. The Supreme Court of Canada held in Pezim v. British Columbia (Superintendent of Brokers), 1994 103 (SCC), [1994] 2 S.C.R. 557, [1994] S.C.J. No. 58 (QL) where there is no privative clause and where there is a statutory right of appeal". . . the concept of the specialization of duties requires that deference be shown to decisions of specialized tribunals on matters which fall squarely within the tribunal's expertise." The court also noted that while the Commission's primary role is to administer and apply the Securities Act in that province, it also plays a policy development role. This, said the court, is an additional basis for deference to the decision of the Commission. Therefore, decisions of the Commission, falling within its expertise, warrant judicial deference.

[10] In Dr. Q v. College of Physicians and Surgeons of British Columbia, [2003] S.C.J. No. 18, 2003 SCC 19, the court notes that it applies the pragmatic and functional approach, where a statute delegates power to an administrative decision- maker. The court says in para. 22 (QL) that this approach calls on the court to weigh a series of factors in an effort to discern whether a particular issue before the administrative body should receive exacting review by a court, undergo a "significant searching or testing" or be left to the near exclusive determination of the decision-maker. In para. 26, the court says that the [page674] standard of review is determined by considering four contextual factors, namely:

. . . the presence or absence of a privative clause or statutory right of appeal, the expertise of the tribunal relative to that of the reviewing court on the issue in question; the purposes of the legislation and the provision in particular; and the nature of the question -- law, fact or mixed law and fact. The factors may overlap. The overall aim is to discern legislative intent, keeping in mind the constitutional role of the courts in maintaining the rules of law.

See also: Pushpanathan v. Canada (Minister of Citizenship and Immigration), 1998 778 (SCC), [1998] 1 S.C.R. 982, 160 D.L.R. (4th) 193.

[11] Notwithstanding those principles, USI insists that the appropriate standard of review is that of correctness, relying on Walmsley v. Ontario (Attorney General) (1997), 1997 3017 (ON CA), 34 O.R. (3d) 611 (C.A.).

[12] A standard or review based on deference to a specialized tribunal's decision was confirmed in Committee for the Equal Treatment of Asbestos Minority Shareholders v. Ontario Securities Commission, 2001 SCC 37, [2001] 2 S.C.R. 132, 199 D.L.R. (4th) 577, where the court found that the Commission is a specialized tribunal with a wide discretion to intervene in the public interest and that the protection of the public interest is a matter falling within the core of the Commission's expertise. The court looked to the Commission's relative expertise in the regulation of capital markets and the purpose of the OSA as a whole, all militating in favour of a high degree of curial deference. The court found that an intermediate standard of review is dictated. We, in applying the principles set out in Dr. Q., supra, and in Law Society (New Brunswick) v. Ryan, [2003] 1 S.C.R. 247, [2003] S.C.J. No. 17 (QL), 2003 SCC 20, conclude that the standard of review in the case before us is one of reasonableness.

Analysis

[13] The Commission has wide powers under s. 11 of the OSA to investigate any matter it "considers expedient", for the due administration of Ontario securities law or the regulation of the capital markets in Ontario, or to assist in the due administration of the securities laws or the regulation of the capital markets in another jurisdiction. Subsection 11(3) of the OSA sets out in detail what inquiries can be made. In this instance, the Commission says that its Chair issued the investigation order on the basis that it appeared that USI's products may be securities under the Act, and thereby subject to the registration and prospectus requirements of the Act, including ss. 25 and 53. The Commission points out that those requirements are designed to ensure that sales agents meet standards of honesty and fitness, [page675] and that all features of a security, including its risks, are transparent and disclosed to potential investors.

[14] USI disagrees with the position taken by the Commission. USI says that the Commission should have to establish conclusively that USI deals in a "security" as defined by the Act, before it issues an investigation order. The term "security" as defined in the Act is very broad, indeed. The USI is asking the court to stop its investigation at the outset, before any information, at all, is released by USI. It says that the court must read s. 11(1)(a) concurrently with s. 13, since the legislation gives the Commission extraordinary powers.

[15] The Commission argues that this approach is wrong, as the whole purpose of a s. 11 investigation order is to "ascertain facts". The Commission takes its role as the protector of the public, in such cases, very seriously. It can be argued that the sector of the public involved in these viatical settlements, is the most vulnerable, that is people who are ill, many of whom are dying and in need of money. Subsection 1.1(a) of the Act says that one of its purposes is "to provide protection to investors from unfair, improper or fraudulent practices".

[16] Under s. 13 of the OSA, the person making the investigation has broad powers to summon and enforce the attendance of any person and to compel that person to testify under oath. That person will be required to "produce documents and other things". Further, if that person fails to attend, he or she or the company may be liable to be committed for contempt by the court as if in breach of an order of that court. There are also broad powers of search and seizure set out in s. 13.

[17] The Commission also argues that the implications of granting the relief being requested by USI, would be "serious and indeterminate". On the other hand, USI says that the Ontario investors are protected by the law of the United States. It even has a wholly-owned subsidiary of USI in Florida. The USI's marketing materials provide the following:

At policy maturity, principal plus profit is guaranteed to be "paid in Full" and is a legal right protected by law.

[18] The protection so provided, says the Commission, is the "Insurance Act in the US". This does not give the Commission much comfort that the OSA in Ontario is not being breached.

[19] The Commission, however, takes the position that USI's standard procedure is such that it involves a number of intermediaries, including USI itself, which are interposed between the Ontario investor and the U.S. viator. The Commission does not accept USI's statement that the prospective purchasers of these [page676] viatical settlements "receive extensive disclosure material". The disclosure document presented by USI to the Commission is a single page with 5 short paragraphs. The Commission is therefore no further ahead. The Commission sets this problem out in some detail in its Factum. Finally, USI concedes that the viatical settlements are illiquid and based on imprecise life expectancy estimates, and that there is variability in the investment, as each is related to the specific facts of the insured person's policy, his or her health and other unknown factors.

[20] USI points to Canadian Pacific Air Lines Ltd. v. Canadian Air Line Pilots Assn., 1993 31 (SCC), [1993] 3 S.C.R. 724, [1993] S.C.J. No. 114 (QL), when examining these extraordinary powers under the Act, which in its view places a constraint on the principles of individual liberty. In para. 14 it notes:

The characterization of the power in question cannot proceed without reference to the exorbitant nature of the penalties which are available to secure compliance. In light of the judicial nature of the power, an extension of the power so that it would be exercisable in an administrative context would be an exception enlargement of its application. The power cannot be envisaged to be so broad in the absence of clear wording to that effect.

[21] The role of the Commission is examined in Ainsley Financial Corp. v. Ontario Securities Commission (1993), 1993 5552 (ON SC), 14 O.R. (3d) 280, 106 D.L.R. (4th) 507 (Gen. Div.), where Mr. Justice Blair sets out on p. 289 O.R., the role and jurisdiction of the Commission, noting that it has no statutory jurisdiction of a general discretionary nature, and that even though it has a broad discretionary jurisdiction, the specific sections of the Act, itself, delegate to the Commission a particular task in the exercise of its regulatory function in the securities industry. In our view, however, Ainsley does not apply to the case at bar, as it is based on a completely different fact situation. Further, Ainsley was adjudicated upon before the OSA was amended. The Commission is a specialized tribunal with a wide discretion to intervene in the public interest and to protect the public interest. See: Asbestos, supra, at p. 152 S.C.R., p. 592 D.L.R.

[22] The Commission says that what USI is really trying to do is to seek an exemption from the Act on a profoundly premature record. It says there are clear statutory construction cases to support its position. In British Columbia Securities Commission v. Branch, 1995 142 (SCC), [1995] 2 S.C.R. 3, 123 D.L.R. (4th) 462, the court notes in para. 59, that the Securities Act of British Columbia is ". . . essentially a scheme of economic regulation which is designed to discourage detrimental forms of commercial behaviour . . . the Act is really aimed at regulating certain facets of the economy and business." In para. 81, it further notes that one must ask whether [page677] such actions undertaken by such a regulatory agency, legitimately within its powers and jurisdiction and in furtherance of important public purposes, can be realistically achieved in a less intrusive manner. When they cannot, there is no Canadian Charter of Rights and Freedoms breach. We adopt this reasoning.

[23] Further, the Commission points out that the language of the Act changed in 1994, and USI is simply trying to read something into the Act that is not there. In Securities Law and Practice, 2nd ed., vol. 1, looseleaf (Toronto: Carswell, 1984), Victor P. Alboini sets out in para. 6.1.1 that the Commission's power to order investigations is critical to its role of regulating the securities industry. He says that the Commission has the power to order investigations in the following circumstances:

1. for the due administration of Ontario securities law;

2. for the regulation of the capital markets in Ontario; or

3. to assist in the due administration of the securities laws or the regulation of the capital markets in another jurisdiction.

[24] He also points out how broad and encompassing the legislation is. There [is] no requirement, he points out, for the Commission to believe that a contravention of the Ontario securities law has occurred or any improper securities-related activity has occurred or is about to occur. The Commission is not required to obtain judicial approval ahead of time for the searches it is allowed to conduct. Alboini adds"[a]n investigation proceeding is distinct from an enforcement proceeding in that the rules of natural justice do not generally apply except as may be specified in the Act."

[25] The Commission also says it is important that all risks are disclosed to the purchasers of viatical settlements and to the sellers, as well. The Commission knows that Mr. Duscio owns 50 per cent of the company and that there are two other persons involved in the ownership, Mr. Halas and Mr. Panos. Mr. Duscio, however, refuses to provide the Commission with any information about these persons except that each had previously worked in the securities industry. The documents provided do not refer to a specific viator or purchaser or group of purchasers or to any single transaction whatsoever. USI has, over the years, refused to disclose the names of any of its sales agents or anything about how such sales operate.

[26] There are some American authorities on the issue, which serve to illustrate that legislation is being put in place in some jurisdictions to regulate viatical settlements. The State of Ohio has enacted such legislation to include it [in] its definition of [page678] "security" and interest in a "life settlement". See: Glick, Trustee for the Albert Glick Revocable Trust v. Sokol, 149 Ohio App. 3d 344 (2002). However, in some States of the United States, such viatical settlements have been found to be neither insurance contracts nor securities. In other States, they have been found to be securities, depending on how they are structured. The law is by no means settled in the area. Further, in the case before us, it is hard to see how the Commission could make any finding one way or the other until it had all the material facts before it, which it does not have at this point in time.

Conclusion

[27] We find that the standard to be applied in the case before us is that of reasonableness. We cannot see that the Commission, in any way, exceeded its jurisdiction in compelling testimony and production of documents in aid of an investigation. In our view, even though USI is neither a reporting issuer nor a registrant under the Act, it is still subject to the parameters of the Act and must co-operate with the Commission in its investigation. Further, it matters not that viatical settlements are not distinctly described under the Act. We find that the Commission has the power to order such investigations that it deems are in the public interest, and that it is in no way expanding its authority in doing so. The decision of the Commission therefore stands. For the reasons set out herein, the application for judicial review is dismissed.

[28] If the parties cannot otherwise agree on Costs, we will receive brief written submissions on Costs, including those of the stay Order of Madam Justice Benotto. The respondent shall have 30 days from the date hereof to submit its written submissions and the applicant a further 20 days therefrom. If any reply is necessary, the respondent shall have five days from the date of the applicant's response.

Order accordingly.