Taub v. Investment Dealers Assn. of Canada, 2008 ONSCDC 35707

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

91 O.R. (3d) 490

Ontario Superior Court of Justice,

Divisional Court,

Carnwath, Pierce and Hackland JJ.

July 15, 2008

Securities regulation -- Jurisdiction -- By-laws of Investment Dealers Association permitting it to discipline former members -- Association recognized by Ontario Securities Commission pursuant to s. 21.1 of Securities Act -- Recognition making Association subject to limitations and obligations of Securities Act -- Securities Act not providing for regulation of former members -- Decision of Ontario Securities Commission that Association retained jurisdiction over former members unreasonable -- Securities Act, R.S.O. 1990, c. S.5, s. 21.1.

Securities regulation -- Ontario Securities Commission -- Standard of review -- Standard of review of decision of Ontario Securities Commission that Investment Dealers Association had jurisdiction to discipline former members being that of reasonableness.

The Investment Dealers Association ("IDA") is a voluntary self-regulating organization recognized by the Ontario Securities Commission pursuant to s. 21.1 of the Securities Act. The by-laws of the IDA permit it to discipline former members for a period of five years from the date when membership ceased. More than a year after the applicant ceased to be a member of the IDA, the IDA began disciplinary proceedings against him. The appellant challenged the IDA's jurisdiction to discipline him. The panel ruled that it had such jurisdiction based on its by-laws. The Ontario Securities Commission affirmed that decision. The appellant appealed.

Held, the appeal should be allowed.

Per Pierce J. (Hackland J. concurring): The standard of review of the Commission's decision was that of reasonableness. Recognition of a self-regulatory organization under the Act makes the organization subject to the limitations and obligations of the Act. That legislative intent is reflected in s. 21.6 of the Act, which requires that by-laws of self- regulatory organizations must not contravene Ontario securities law. Section 21.1(3) of the Act 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...". There is no provision in the section for regulation of former members. "Members" and "former members" are not interchangeable terms. The [page491] Commission's decision was unreasonable. The IDA did not have jurisdiction to discipline the appellant.

Per Carnwath J. (dissenting): The Commission's decision was reasonable. The Securities Act empowers the Commission, in its supervisory capacity, to "make any decision with respect to any by-law, rule, regulation, policy, procedure, interpretation or practice" of a recognized self-regulatory organization. By implication, the Commission must be deemed to have approved the by-law which provides for discipline of a former member. Moreover, the language of s. 21.1(4) is sufficiently broad to justify the Commission's construction of the by-law. The Commission's finding that s. 21.1(3) did not limit the IDA's jurisdiction was not only reasonable, it was correct. To interpret s. 21.1(3) otherwise would undermine the IDA's ability to discipline its members and would be inconsistent with its obligations to protect the public interest.

APPEAL from the decision of the Ontario Securities Commission affirming the decision of the disciplinary panel of the Investment Dealers Association. [page492]

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, consd Other cases referred to Cartaway Resources Corp. (Re), [2004] 1 S.C.R. 672, [2004] S.C.J. No. 22, 2004 SCC 26, 238 D.L.R. (4th) 193, 319 N.R. 1, [2004] 8 W.W.R. 62, J.E. 2004-954, 195 B.C.A.C. 161, 28 B.C.L.R. (4th) 1, 14 Admin. L.R. (4th) 190, 130 A.C.W.S. (3d) 192; 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.) [Leave to appeal to S.C.C. refused (1990), 71 O.R. (2d) x, 105 N.R. 398n, 37 O.A.C. 399n, 40 Admin. L.R. xxiii]; Committee for the Equal Treatment of Asbestos Minority Shareholders v. Ontario (Securities Commission), [2001] 2 S.C.R. 132, [2001] S.C.J. No. 38, 2001 SCC 37, 199 D.L.R. (4th) 577, 269 N.R. 311, J.E. 2001-1203, 146 O.A.C. 201, 29 Admin. L.R. (3d) 1, 14 B.L.R. (3d) 1; Investment Dealers Assn. of Canada v. MacBain, [2007] S.J. No. 292, 2007 SKCA 70, 299 Sask. R. 122, 159 A.C.W.S. (3d) 763; 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.) [Leave to appeal to S.C.C. refused [2003] S.C.C.A. No. 400]; Pezim v. British Columbia (Superintendent of Brokers), 1994 103 (SCC), [1994] 2 S.C.R. 557, [1994] S.C.J. No. 58, 114 D.L.R. (4th) 385, 168 N.R. 321, [1994] 7 W.W.R. 1, J.E. 94-1082, 46 B.C.A.C. 1, 92 B.C.L.R. (2d) 145, 22 Admin. L.R. (2d) 1, 14 B.L.R. (2d) 217, 4 C.C.L.S. 117, 48 A.C.W.S. (3d) 1279; 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 (C.A.) Statutes referred to Constitution Act, 1867 (U.K.), 30 & 31 Vict., c. 3, s. 96, reprinted in R.S.C. 1985, App. II, No. 5 Securities Act, R.S.A. 2000, c. S-4, s. 64(5) Securities Act, R.S.O. 1990, c. S.5, ss. 1.1 [as am.], 2.1 [as am.], 9(1) [as am.], (5), 21.1 [as am.], (4) [as am.], 21.6 [as am.] Securities Amendment Act, 2007, S.S. 2007, c. 41, s. 21(5.1) Toronto Stock Exchange Act, R.S.O. 1990, c. T.15

Robert Brush, for appellant. Andrew P. Werbowski, for respondent Investment Dealers Association of Canada. Yvonne Chisholm, for respondent Ontario Securities Commission.

PIERCE J. (HACKLAND J. concurring): -- Introduction

[1] This appeal presents two issues:

(1) What is the applicable standard of review in considering a decision of the Ontario Securities Commission in which its jurisdiction is questioned?

(2) Does the Investment Dealers Association retain jurisdiction to discipline former members?

[2] The facts are not in dispute. Stephen Taub, who was part of the securities industry, became a registered representative of the Investment Dealers Association ("IDA") in 1988. He ceased membership in September 2004. Mr. Taub has not resumed membership since that time and states that he does not intend to return to an occupation regulated by the IDA.

[3] The IDA is a voluntary self-regulating organization recognized by the Ontario Securities Commission, pursuant to s. 21.1 of the Securities Act, R.S.O. 1990, c. S.5. IDA members enter into a contract with that organization to follow its rules and by-laws.

[4] In October of 2005, the IDA began disciplinary hearings against Mr. Taub, alleging breaches of the IDA's rules and by- laws. This process began more than a year after Mr. Taub ceased to be a member of the association.

[5] Mr. Taub challenged the IDA hearing panel's jurisdiction to discipline him on the basis that he was no longer a member of the IDA. The panel ruled that it had jurisdiction to take disciplinary proceedings pursuant to its by-laws, which specified the association could discipline former members for five years after they ceased membership.

[6] The Ontario Securities Commission exercises statutory oversight over the self-regulating organizations it recognizes. Mr. Taub next asked the Commission to review the IDA decision. The Commission panel determined it would intervene in the IDA's decision only if it had made an error of law. The Commission concluded the IDA was entitled to discipline former members under the terms of its by-laws and dismissed Mr. Taub's application. It is from this decision that Mr. Taub appeals. [page493]

The Litigants' Positions

[7] Before this decision could be issued, the decision of the Supreme Court of Canada in Dunsmuir v. New Brunswick, [2008] S.C.R. 190, [2008] S.C.J. No. 9, 2008 SCC 9 was released. The panel then invited counsel for the parties to make further submissions on the applicable standard of review in light of Dunsmuir. In doing so, counsel reiterated their respective positions which are set out below. The appellant argues that correctness remains the appropriate standard of review. The respondents contend that reasonableness is the measuring stick by which the decision below is to be judged.

[8] The objects of the IDA are set out in its constitution. Some of these objects are:

-- To promote and regulate high standards of business conduct among its members; and

-- to protect the public and members by establishing and enforcing standards of conduct in the capital markets.

[9] When Mr. Taub was admitted to membership in the IDA, he signed a contract agreeing to be bound by the by-laws and rules of the IDA. The IDA constitution provides that it may investigate complaints against members and impose discipline for a period of five years from the date when membership ceased.

[10] Mr. Taub submits this provision conflicts with the jurisdiction prescribed in s. 21.1(3) of the Securities Act for self-regulatory organizations.

[11] Mr. Taub argues that the IDA cannot enlarge its jurisdiction to discipline former members by passing a by-law when the authorizing statute limits regulation to current members of the self-regulatory organization.

[12] The IDA contends that its power to discipline members and former members rests on a contractual foundation and not on the statute: that members contract with the IDA to be bound by its rules. Those rules include the power to discipline for up to five years after ceasing membership. The IDA submits that the statute allows for regulation of membership within the organization's by-laws.

[13] The IDA and the Commission submit the standard of review is one of reasonableness. They contend that the Commission's decision is discretionary in nature and invokes its expertise going to the heart of its statutory mandate. In those circumstances, they argue that deference is owed to the tribunal, such that the appeal court should only intervene if the Commission's decision is unreasonable. [page494]

[14] Mr. Taub says that the issue for appeal is a purely legal interpretation, attracting the correctness standard of review. It is his position that the Commission has no greater expertise than the court when it comes to statutory interpretation. Therefore, he suggests no deference is owed to the tribunal.

How is the Standard of Review to be Determined?

[15] In Dunsmuir, the Supreme Court of Canada held, at para. 62, that the reviewing court need not enter into a review in each case to determine the standard of review if the jurisprudence has resolved the degree of deference to be afforded the tribunal in light of the question before it.

[16] The court in Dunsmuir contrasted the kinds of issues that will demand deference to the decision maker (and therefore a reasonableness standard) and issues requiring a more exacting standard of correctness, where no deference is owed.

[17] Among the factors pointing to a reasonableness standard on review, the court cited [at paras. 52-55]:

-- The existence of a privative clause;

-- questions involving fact, discretion or policy;

-- questions where legal and factual issues are inter-related "and cannot be readily separated";

-- a interpretation of the tribunal's own statute or statutes that are closely connected to its functions, and about which the tribunal is familiar;

-- questions invoking the tribunal's expertise in applying general common law or civil law in a statutory context;

-- a specialized administrative regime that gives rise to expertise by the decision maker; and

-- where the question to be answered is not of central importance to the legal system and is within the expertise of the decision maker.

[18] Correctness, as the Supreme Court suggests, is a more rigorous standard that will apply in a narrower context. At paras. 58-61, the court set out these principles for application of the correctness standard:

-- Because s. 96 courts have a unique role in interpretation of the Constitution, questions of division of powers between [page495] Parliament and the provinces and other constitutional questions will attract a correctness standard;

-- true questions of jurisdiction must be correctly decided. This means that the tribunal must correctly determine whether the statute authorizes it to decide a particular question;

-- where the question is of central importance to the legal system as a whole and outside the adjudicator's area of expertise, the reviewing court may substitute its own views for that of the tribunal; [and]

-- where an issue arises as to jurisdictional boundaries between two or more competing specialized tribunals, the correctness standard will also apply.

Is There a Privative Clause?

[19] Here, the appellant has a statutory right to appeal the Commission's decision to the Divisional Court pursuant to s. 9(1) of the Securities Act. Section 9(5) of the Act authorizes the appeal court to direct the Commission to make any decision the Commission is empowered to make under the Act or regulations. Thus, there is no privative clause.

The Nature of the Question Before the Tribunal

[20] The issue before the Securities Commission in this case involves fact, discretion and policy within the expertise of the Commission: does the Investment Dealers Association retain jurisdiction to discipline former members? By its nature, the question involves an interpretation of the Securities Commission's "home statute" with which it is intimately familiar.

The Expertise of the Tribunal

[21] The Supreme Court of Canada acknowledged the expertise of the Ontario Securities Commission in Committee for the Equal Treatment of Asbestos Minority Shareholders v. Ontario (Securities Commission), 2001 SCC 37, [2001] 2 S.C.R. 132, [2001] S.C.J. No. 38, 199 D.L.R. (4th) 577.

[22] In that case, the minority shareholders asked the Ontario Securities Commission to remove the trading exemptions accorded to the Province of Quebec and its Crown corporation that affected the price of certain shares. The Commission declined to make this order, and a series of appeals were undertaken. At para. 49, the Supreme Court characterized the Commission's decision as being discretionary in nature and falling within the core of its expertise: [page496] to intervene in and protect the public interest. Against that factual background, the court concluded that the appeal court owed the Commission a high degree of deference. The court found that reasonableness was the appropriate standard of review.

[23] The legislative purpose of the Securities Act can be found in s. 1.1 of Act:

1.1 . . . (a) to provide protection to investors from unfair, improper or fraudulent practices; and (b) to foster fair and efficient capital markets and confidence in capital markets.

[24] The courts have recognized that the regulation of capital markets and the protection of the public require expertise which is exercised by securities commissions.

[25] There can be no doubt that the Commission is a specialized administrative regime designed to regulate the securities industry.

Is the Question to be Answered of Central Importance to the Legal System?

[26] The content of the organization's functions, including discipline, constitutes policy decisions that attract the special expertise of a supervising tribunal such as the Securities Commission. The implementation of these functions answers the questions "How does the organization function?" and "What does it do?" When a tribunal exercises its supervisory capacity over these functions, it invokes its expertise. Frequently, the choices made by the supervising tribunal are discretionary; invariably, they are policy-laden. It is to this expertise that the reviewing court owes deference. When an organization wears its "policy hat", the reviewing court must find the decision unreasonable before it interferes.

[27] In Cartaway Resources Corp. (Re), 2004 SCC 26, [2004] 1 S.C.R. 672, [2004] S.C.J. No. 22, 238 D.L.R. (4th) 193, the British Columbia Court of Appeal varied a maximum penalty imposed by the British Columbia Securities Commission in its policy role. The Supreme Court recognized that parity with other offenders was not an overriding consideration in setting the penalty. It held that the Commission was entitled, in its responsibility to protect the public, to impose a maximum fine in order to establish general deterrence. The court determined that the imposition of discipline was part of the Commission's core function and was therefore entitled to deference by the British Columbia Court of Appeal. The Supreme Court concluded, on those facts, that reasonableness was the appropriate standard of review. [page497]

[28] In this case, the issue is whether the Investment Dealers Association has jurisdiction to discipline former members. The question involves an interpretation of the Securities Act as it applies to the by-laws of the IDA. This issue is not of central importance to the legal system as a whole. It does, however, fall within the expertise of the Securities Commission.

[29] The question on this appeal is not the narrow issue of constitutional interpretation described in Dunsmuir. 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.

Does the Investment Dealers Association Have Jurisdiction to Discipline Former Members?

[30] The question of membership, and therefore control of members, goes to the heart of the question before us. This is the "who" question. Who can be regulated? Membership defines an organization and sets up the framework within which the organization functions. In determining the membership issue, the tribunal's decision must be reasonable.

[31] The Commission found the IDA could discipline former members under its by-laws. In our view, the Commission was unreasonable in reaching this conclusion.

[32] The constitution of the IDA authorizes its board of directors to pass, amend or repeal by-laws for the administration of the Association. These powers include determining eligibility for membership, investigating complaints and disciplining members.

[33] IDA by-law 20.7 states:

(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 . . . .

[34] The IDA is a voluntary association. However, its character changed when it sought and received recognition under s. 21.1 of the Securities Act. This section permits the Ontario Securities Commission to recognize self-regulatory organizations when it is in the public interest to do so. The Act also permits the Commission to impose terms and conditions on a self-regulatory organization as a term of recognition: see s. 21.1(2).

[35] Recognition of a self-regulatory organization, such as the IDA, affects the organization's contractual relationship with its members. This alteration in relationship was discussed by the [page498] Ontario Court of Appeal 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. 32. The court first observed that recognition of the IDA did not make it a statutory tribunal, but added:

. . . it does not follow that the functions and responsibilities of the IDA are divorced from any statutory context. The IDA's relationship with the Commission and its recognition as a self-regulatory organization under s. 21.1 of the Act link its activities to a statutory securities scheme which, under s. 21.1 of the Act, is designed to provide protection to all investors in Canada from unfair, improper or fraudulent practices and to foster fair and efficient capital markets and confidence in capital markets. As well, at the time of the incidents relevant to this action, the conduct of the IDA's affairs and the nature of its regulatory functions were not exclusively self-selected. They were subject to the terms and conditions imposed by the Commission as a condition of recognition as a self-regulatory organization under s. 21.1 of the Act. In my view, those factors inform the analysis of the IDA's status and duties as a regulator, notwithstanding that its relationship with its members is contractual in nature.

[36] The self-regulating organization, though voluntary, is coloured by recognition under the Act. 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.

[37] Section 21.1(3) of the Act states:

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. There is no provision in the section for regulation of former members.

[38] The Act continues, at s. 21.6:

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.

[39] The IDA submits it is entitled to rely on its by-laws permitting it to discipline former members; that its jurisdiction to do so flows from its by-laws and not from the Act. It says that by doing so, it does not contravene the Securities Act. It also submits that s. 21.1(3) only imposes on the IDA an obligation to regulate; it does not statutorily limit who can be regulated.

[40] With respect, we do not agree.

[41] Recognition of a self-regulatory organization under the Act makes the organization subject to the limitations and obligations [page499] of the Act. This legislative intent is reflected in s. 21.6 of the Act which requires that by-laws of self-regulatory organizations must not contravene Ontario securities law. Regulation of "members" rather than "former members" is such a limitation.

[42] The wording of the Ontario statute can be compared with similar securities legislation in Alberta and Saskatchewan where discipline of former members of self-regulatory organizations is specifically provided for in legislation.

[43] In Alberta, the Securities Act, R.S.A. 2000, c. S-4 permits the Securities Commission to recognize self-regulatory organizations and allows the organizations to regulate its members in accordance with its by-laws, and various rules, practices and regulations. Section 64(5) of that Act provides:

64(5) The authority of a self-regulatory organization to regulate the operations and the standards of practice and business conduct of its members and their representatives under subsection (4) extends to (a) any former member, (b) any former representative of a former member . . .

with respect to that person's operations and conduct while a member of the self-regulatory organization or a representative of a member of the self-regulatory organization.

[44] Saskatchewan has recently passed legislation, titled Securities Amendment Act, 2007, S.S. 2007, c. 41 which also establishes time frames for the regulation of former members of self-regulated organizations. Section 21(5.1) states:

21 (5.1) A self-regulatory organization may commence proceedings to regulate the standards and business conduct of a person or company with respect to that person's or company's operations and conduct while the person or company was a member or a representative of a member of the self- regulatory organization pursuant to subsection (5) within a period of two years after the date that: (a) in the case of a person who or company that was a member, the person or company ceased to be a member; or (b) in the case of an individual who was a representative, the individual ceased to be a representative of a member. Ontario has not adopted a clear statutory provision that permits self-regulated organizations to discipline former members, unlike Alberta and Saskatchewan.

[45] In our view, the plain meaning of s. 21.1(3) of the Act cannot be stretched to include the discipline of former members without doing violence to the meaning of the statute. "Members" and "former members" are not interchangeable terms. Such an interpretation of the governing statute is unreasonable. [page500]

[46] The appellant also relies on Chalmers v. Toronto Stock Exchange (1989), 1989 4122 (ON CA), 70 O.R. (2d) 532, [1989] O.J. No. 1839 (C.A.) in arguing that there is no common-law jurisdiction in a domestic tribunal to discipline former members. In Chalmers, the Ontario Court of Appeal considered the position of an employee of a member of the Toronto Stock Exchange whom the Exchange sought to discipline after he resigned his employment and withdrew from the brokerage business. The court concluded the Exchange had lost jurisdiction to discipline the member after his resignation.

[47] The IDA contends that Chalmers should be distinguished on the basis that the Toronto Stock Exchange was a creature of the Toronto Stock Exchange Act, R.S.O. 1990, c. T.15, and the Act did not permit the Exchange to discipline former members. In Chalmers, the Exchange had enacted a by-law that purported to exercise jurisdiction over former members.

[48] In view of our conclusion that the Securities Act does not authorize self-regulatory bodies recognized under the Act to discipline former members, we do not find it necessary to deal with this additional argument.

Conclusion

[49] For the reasons given, the appeal is allowed.

[50] This court:

(1) declares that the Ontario Securities Commission erred in concluding that the Investment Dealers Association retains jurisdiction over former members and former representatives of members; and

(2) directs the Commission to declare that the Investment Dealers Association does not have jurisdiction over former members and former representatives of members.

[51] The Commission does not seek costs of the appeal. On consent, the Investment Dealers Association shall pay the appellant, Stephen Taub, his costs fixed at $7,500 inclusive of disbursements and GST.

[52] CARNWATH J. (Dissenting): -- I agree with the majority's conclusion that the standard of review is reasonableness. I find the Commission's decision to be reasonable in every respect.

[53] In Dunsmuir v. New Brunswick, [2008] 1 S.C.R. 190, [2008] S.C.J. No. 9, 2008 SCC 9, above, the Supreme Court defined "reasonableness" at para. 47: [page501]

Reasonableness is a deferential standard animated by the principle that underlies the development of the two previous standards of reasonableness: certain questions that come before administrative tribunals do not lend themselves to one specific, particular result. Instead, they may give rise to a number of possible, reasonable conclusions. Tribunals have a margin of apapreciation within the range of acceptable and rational solutions. A court conducting a review for reasonableness inquires into the qualities that make a decision reasonable, referring both to the process of articulating the reasons and to outcomes. In judicial review, reasonableness is concerned mostly with the existence of justification, transparency and intelligibility within the decision-making process. But it is also concerned with whether the decision falls within a range of possible, acceptable outcomes which are defensible in respect of the facts and law.

The Statutory Scheme

[54] The Securities Act, R.S.O. 1990, c. S.5 (the "Act") provides:

Purposes of Act

1.1 The purposes of this Act are, (a) to provide protection to investors from unfair, improper or fraudulent practices; and (b) to foster fair and efficient capital markets and confidence in capital markets.

Principles to consider

2.1 In pursuing the purposes of this Act, the Commission shall have regard to the following fundamental principles: 1. Balancing the importance to be given to each of the purposes of this Act may be required in specific cases. 2. The primary means for achieving the purposes of this Act are, i. requirements for timely, accurate and efficient disclosure of information; ii. restrictions on fraudulent and unfair market practices and procedures; and iii. requirements for the maintenance of high standards of fitness and business conduct to ensure honest and responsible conduct by market participants. . . . . . 4. The Commission should, subject to an appropriate system of supervision, use the enforcement capability and regulatory expertise of recognized self-regulatory organizations. . . . . .

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. [page502]

(2) A recognition under this section shall be made in writing and be subject to such terms and conditions as the Commission may impose.

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.

Commission's powers

(4) The Commission may, if it is satisfied that to do so would be in the public interest, make any decision with respect to any by-law, rule, regulation, policy, procedure, interpretation or practice of a recognized self-regulatory organization.

[55] It may be seen from the above sections of the Act that in carrying out its legislated purpose, the Commission is directed to use the enforcement capability and regulatory expertise of the IDA and to supervise the IDA's enforcement capability.

[56] It may also be seen that the Act empowers the Commission, in its supervisory capacity, to "make any decision with respect to any by-law, rule, regulation, policy, procedure, interpretation or practice" of a recognized self- regulatory organization. By implication, the Commission must be deemed to have approved the impugned by-law 20.7(1) of the IDA's by-laws, which provides persons like Mr. Taub remain subject to the possibility of sanction by the IDA for a period of five years after they cease to be a member.

[57] Moreover, the language of s. 21.1(4) is sufficiently broad to justify the Commission's construction of by-law 20.7(1) of the IDA quite apart from the deference owed to the Commission.

[58] In Pezim v. British Columbia (Superintendent of Brokers), 1994 103 (SCC), [1994] 2 S.C.R. 557, [1994] S.C.J. No. 58, above, the Supreme Court of Canada discussed the role of provincial Securities Commissions, at pp. 591-94 S.C.R., 406-407 D.L.R.. The court concluded that the primary goal of securities legislation was the protection of the investing public, that courts have come to accept that they may not be as well- qualified as a given agency to provide interpretations of that agency's constitutive statute, and that a securities commission has a broad discretion to determine what is in the public interest.

[59] In Pezim, above, at p. 595 S.C.R., p. 408 D.L.R., the Supreme Court of Canada held, as follows:

It must also be noted that the definitions in the Act exist in a factual and regulatory context. They are part of the larger regulatory framework discussed above. They are not to be analyzed in isolation but rather in their regulatory context. This is something that requires expertise and thus [page503] falls within the jurisdiction of the Commission. This is yet another basis for curial deference.

[60] Finally, the court noted in Pezim, above, at p. 596 S.C.R., p. 409 S.C.R.:

Where a tribunal plays a role in policy development, a higher degree of judicial deference is warranted with respect to its interpretation of the law. . . . . .

In the case at bar, the Commission's primary role is to administer and apply the Act. It also plays a policy development role. Thus, this is an additional basis for deference.

[61] These observations of the Supreme Court of Canada strongly suggest that deference is owed to the Commission, given its role and purpose within the legislative scheme of the Act and the broad framework of securities regulation.

The Specific Issue Before the Tribunal

[62] The majority says the issue before the Commission is who determines who can be regulated. I respectfully disagree. The issue is whether the by-law extending Mr. Taub's capacity to be sanctioned following resignation carries out the purpose of the legislation, i.e., to protect investors from improper practices and to foster confidence in capital markets.

[63] The irony of the majority's conclusion is that it frustrates the purposes of the legislation. Allowing a member to resign and therefore escape sanction for improper acts committed while a member of an SRO can hardly be said to protect investors and foster confidence in capital markets.

[64] Moreover, the ability to so sanction carries with it elements of specific and general deterrence, not discussed in Chalmers v. Toronto Stock Exchange (1989), 1989 4122 (ON CA), 70 O.R. (2d) 532, [1989] O.J. No. 1839 (C.A.), leave to appeal to the S.C.C. dismissed (1990), 71 O.R. (2d) x, 105 N.R. 398n. Chalmers is discussed later in these reasons, but for the moment, I note that in Cartaway Resource (Re), 2004 SCC 26, [2004] 1 S.C.R. 672, [2004] S.C.J. No. 22, the Supreme Court of Canada found general deterrence to have a role to play in the policing of capital markets [at para. 55]:

In this appeal we are asked whether it is reasonable to decide that general deterrence has a role to play in the policing of capital markets. The conventional view is that participants in capital markets are rational actors. This is probably more true of market systems than it is of social behaviour. It is therefore reasonable to assume, particularly with reference to the expertise of the Commission in regulating capital markets, that general deterrence has a proper role to play in determining whether to make orders in the public interest and, if they choose to do so, the severity of those orders. [page504]

Was the Commission's Decision Reasonable?

[65] The Commission first identified the source of the IDA's authority as confirmed by provincial appellate courts. The Commission relied on the Nova Scotia Court of Appeal decision in Ripley v. Investment Dealers Assn. (Business Conduct Committee), [1991] N.S.J. No. 452, 108 N.S.R. (2d) 38 (C.A.), at p. 6 (QL):

[The IDA] 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.

[66] Similarly, the Ontario Court of Appeal in Morgis v. Thomson Kernaghan & Co. (2003), 2003 5999 (ON CA), 65 O.R. (3d) 321, [2003] O.J. No. 2504 (C.A.), leave to appeal to S.C.C. denied [2003] S.C.C.A. No. 400) held [at para. 10]:

Membership in the IDA is voluntary. It is based on the contractual commitment of members to abide by the constitution, regulations, rules and the by-laws of the association. The IDA is not created by nor does it derive its authority from statute. Rather, it operates under the authority of its own constitution and is recognized under some securities legislation.

[67] The Commission rejected the submission on behalf of Mr. Taub that Chalmers ousted the IDA's by-law.

[68] In Chalmers, the Toronto Stock Exchange derived its powers to regulate from the statute which incorporated it. As pointed out by Finlayson J.A., the statute gave the Exchange jurisdiction over members and employees, not former members and employees. Finlayson J.A. found that the attempt to discipline former members was not compatible with the statute and that the by-law was ultra vires and of no force and effect. He was satisfied [at para. 20] that the courts would intervene where an SRO had purported to confer on itself through a by-law jurisdiction not provided for "in the statute which created or incorporated it" (emphasis added).

[69] The IDA was not created nor incorporated by statute. The by-law which "purported" to maintain disciplinary jurisdiction over Mr. Taub, following his resignation, was one which he contractually bound himself to observe. As noted earlier, the by-law was implicitly approved by the Commission. The Commission is to foster and maintain public confidence in financial markets. Its review of the IDA by-law must have persuaded the Commission that the by-law met IDA's obligations imposed by s. 21.1(3) of the Act.

[70] The IDA accomplishes the regulation of its members by, among other things, requiring them to submit to post-membership [page505] discipline where appropriate. It is obvious to a member that misconduct as a member cannot escape sanction by resignation. The effect of the by-law is akin to that described by Samuel Johnson -- the prospect of hanging wonderfully concentrates the mind.

[71] It is puzzling that the Court of Appeal, in Chalmers, chose to ignore the element of general deterrence in disciplining members of SRO's. The court concentrated on the futility of expulsion where one was no longer a member. Surely, a finding of misconduct on the part of a former member would carry with it the opprobrium of that finding for the individual and the warning to others of a like mind who remain members of the IDA, as discussed in Cartaway, above. Certainly, the public would have less confidence in capital markets where sanctions for misconduct could be avoided by a simple letter of resignation.

[72] The Commission's analysis of the difference between Chalmers and this matter under appeal is reasonable. In my view, it is also correct.

[73] The Commission's decision is further supported by s. 21.6 of the Act, which provides that an SRO may impose "additional requirements" within its jurisdiction. This provision negates any suggestion, in my view, that the powers of the IDA with respect to its members are limited by s. 21.1(3), as submitted on behalf of Mr. Taub. The MacBain decision does not assist Mr. Taub. The Saskatchewan Court of Appeal found that it was unnecessary for it to consider the question of whether the IDA had any jurisdiction over former members in respect of disciplinary proceedings. (See Investment Dealers Assn. of Canada v. MacBain, [2007] S.J. No. 292, 2007 SKCA 70, at para. 28.)

[74] The Commission's finding that s. 21.1(3) did not limit the IDA's jurisdiction is reasonable. In my view, it is also correct.

[75] The Commission specifically noted in its decision that it would be contrary to the public interest to allow the appellant to avoid regulation by simply resigning his membership in the IDA. The interpretation of s. 21.1(3) advanced by Mr. Taub would undermine the IDA's ability to discipline its members and would be inconsistent with its obligations to protect the public interest.

[76] This analysis of the public interest is squarely within the core expertise of the Commission. As noted earlier in these reasons, this view is consistent with recent authority in Cartaway, which confirms that general deterrence is an appropriate factor for a securities commission to consider. Cartaway post-dates Chalmers. General deterrence is not discussed in Chalmers. In recognizing this public interest factor, the Commission's decision is reasonable. In my view, it is also correct. [page506]

[77] For the foregoing reasons, I would dismiss the appeal and award costs to the IDA fixed at $7,500, inclusive of disbursements and GST, as agreed upon. The Commission did not seek costs of the appeal.

Appeal allowed.