Court File and Parties
CITATION: Northern Securities Inc. v. OSC, 2015 ONSC 3641
COURT FILE NO.: 45/14
DATE: 20150605
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
(GORDON R.S.J. and MOLLOY and D.L. CORBETT JJ.)
B E T W E E N:
NORTHERN SECURITIES INC. and VICTOR PHILIP ALBOINI Appellants
- and -
ONTARIO SECURITIES COMMISSION and INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA Respondents
Counsel: Mr Alboini for himself and Northern Securities Inc. Yvonne B. Chisholm and Catherine V. Weiler, for the OSC Alexandra Clark and Charles Corlett for IIROC
Heard at Toronto: June 3 and 4, 2015
Endorsement
D.L. Corbett J.
[1] There are four general areas of argument on this appeal:
(i) the proper standard of review;
(ii) fresh evidence;
(iii) whether the OSC Merits and Sanctions Decisions are reasonable; and
(iv) whether the OSC Sanctions Hearing was fair procedurally.
[2] For the reasons that follow we conclude:
(i) the standard of review is reasonableness for all issues other than procedural fairness.
(ii) fresh evidence was reasonably excluded by the OSC and will not be considered on the merits of this appeal;
(iii) both the Merits and Sanctions decisions of the OSC are reasonable;
(iv) the OSC Sanctions Hearing was fair procedurally.
Therefore, for the reasons that follow, the appeal is dismissed.
Issue #1 – Standard of Review
[3] “[S]ecurities regulation is a highly specialized activity which requires specific knowledge and expertise in what has become complex and essential capital and financial markets.” See Pezim v. BC (Superintendent of Brokers), 1994 103 (SCC), [1994] SCJ No. 58, para. 60.
[4] A long line of cases makes it clear that the standard of review applicable to decisions of the Commission is reasonableness: Pezim, ibid., para. 73, Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 SCR 190; Committee for the Equal Treatment of Asbestos Minority Shareholders v. Ontario Securities Commission, [2011] 2 SCR 132, paras. 31 and 49; McLean v. BC Securities Commission, 2013 SCC 67, [2013] 3 SCR 895, paras. 4, 19, 33; Rowan v. Ontario Securities Commission, 2012 ONCA 208, paras. 79-80; Cornish v. Ontario Securities Commission, 2013 ONSC 1310 (Div. Ct.), paras. 30-34.
[5] This standard of review – reasonableness – applies when the OSC reviews the decision of a self-regulatory organization (“SRO”) such as the Investment Industry Regulatory Organization of Canada (“IIROC”) and its predecessor the Investment Dealers’ Association of Canada (“IDAC”). See Ontario Securities Commission v. Shambleau, [2003] OJ No. 4089, para. 5 (Div Ct); Taub v. IDAC, 2009 ONCA 628, [2009] OJ No 3552, para 21; Vitug v. IIROC, [2010] OJ No 3716, para. 2 (Div Ct); Berry v. OSC, [2010] OJ No. 5114 (Div Ct); Deutsche Bank Securities Ltd. v. OSC, 2012 ONSC 1576, [2012] OJ No. 3189, para. 19 (Div Ct).
[6] As stated by the Supreme Court of Canada in Dunsmuir (para. 47):
The reasonableness standard 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.
[7] This analysis has been developed in further jurisprudence from the Supreme Court of Canada:
The Dunsmuir criteria of justification, transparency and intelligibility are met “if the reasons allow the reviewing court to understand why the tribunal made its decision and permit it to determine whether the conclusion is within the range of acceptable outcomes.
[T]he reasons must be read together with the outcome and serve the purpose of showing whether the result falls within a range of possible outcomes.
[Newfoundland and Labrador Nurses’ Union v. Newfoundland and Labrador (Treasury Board), 2011 SCC 62, paras. 16 and 62.]
[8] It follows that this court’s review of the OSC decision must be grounded in the reasons provided by the OSC: Alberta (Information and Privacy Commissioner) v. Alberta Teachers’ Association, 2011 SCC 61, [2011] 3 SCR 654, para. 54.
[9] The appellants in their factum and oral argument focus on a retelling of the events at issue grounded in the record and the fresh evidence they have filed on this appeal. This is not the correct approach on an appeal from the OSC. This court does not re-try the case or reach its own conclusions on the facts based on the record that was before the OSC. We defer to factual findings of the OSC. It is for the appellants to show, not that a different version of facts could be found on the record below, but rather that the OSC’s decisions are not reasonable.
Issue #2 – Fresh Evidence
[10] In their factum and in oral argument the appellants rely extensively on evidence that they did not seek to introduce into evidence before IIROC and which the OSC refused to admit in the hearings before it.
[11] The appellants have not brought a motion to introduce fresh evidence on this appeal pursuant to s.134(4)(b) of the Courts of Justice Act. However, substantial material was filed with this court that was not part of the evidence before either of the tribunals below. We agreed to consider this evidence only to the limited extent of its relevance to the appellants’ argument that the OSC erred in failing to admit it.
[12] The appellants sought to introduce this same fresh evidence at the OSC Merits Hearing. This request was denied on the basis that this evidence was not “new” or “compelling”. It is clear that this evidence existed at the time of the IIROC hearing and could have been introduced as evidence then. The appellants argued that they could not access this evidence at the time of the IIROC Merits Hearing because they had limited resources and insufficient time to prepare. If the appellants were not ready for the Merits Hearing before IIROC, it was for them to raise this issue with and seek an adjournment from IIROC at that time. It is not a basis for permitting fresh evidence after the IIROC Merits Hearing. It does not meet the test for new evidence on appeal: see Ostrander Point GPO Inc. v. Prince Edward County Field Naturalists, 2014 ONSC 974, [2014] OJ No. 772, para. 8 (Div. Ct) and R. v. Palmer, 1979 8 (SCC), [1980] 1 SCR 759. The decision by the OSC to exclude it at the Merits Hearing was reasonable.
[13] The appellants sought to introduce the evidence again at the OSC Sanctions Hearing. This request was denied on the basis that the evidence was not relevant to sanctions and was an improper effort to relitigate the merits of the Merits Decision. Again, this decision was reasonable.
Issue #3 – Reasonableness of OSC Merits and Sanctions Decisions
[14] The OSC Merits Decision upheld the decision of IIROC that (a) Mr Alboini engaged in conduct unbecoming a registrant by engaging in a trading practice which improperly obtained access to credit for one of his clients (Count 1), and (b) Northern Securities Inc. had filed inaccurate monthly reports, and Alboini and another had permitted NSI to do this (Count 5(a)). The OSC Merits Decision also upheld a finding against NSI’s Chief Compliance Officer, Vance, who has not appealed this decision against him. Finally, in the Merits Decision the OSC set aside IIROC’s decision on count 3 and remitted that count back to IIROC for a fresh hearing before a new IIROC tribunal.
[15] Count 3 alleged that NSI, Alboini and Vance failed to correct compliance deficiencies identified during IIROC regulatory audits. IIROC applied a standard of deference to IIROC staff’s compliance audits and enforcement audits. The OSC concluded that IIROC erred in applying a deferential standard of review to this administrative action by IIROC staff. Rather, OSC concluded that the IIROC hearing was an adjudicative hearing at first instance, and no deference was owed to IIROC staff. We see no error in this determination by the OSC and find that it is reasonable.
[16] The OSC thus upheld two counts against the appellants, and set aside one count and remitted it for a fresh hearing. The OSC then determined that the IIROC Sanction Decision could not stand because of procedural unfairness. IIROC had not delivered its reasons for its Merits Decision prior to conducting the Sanction Hearing. The OSC concluded that the appellants were entitled to have the reasons for the Merits Decision in order to prepare for and conduct the Sanctions Hearing. This decision was reasonable.
[17] The OSC concluded that it would conduct a Sanctions Hearing, rather than sending the matter back for a fresh sanctions hearing before IIROC. There is no doubt that the OSC has the jurisdiction to do this: Securities Act, ss. 8 and 21.7.
[18] The OSC imposed sanctions against Alboini of a fine of $250,000, disgorgement of commissions of $244,985, costs of $62,500, a reprimand, a one year suspension on all IIROC categories anywhere in the industry, and a two year suspension on being an Ultimate Designated Person. The OSC imposed sanctions on NSI of a fine of $50,000, a reprimand, and costs of $10,000. These sanctions were materially lower than those that had been imposed by IIROC. The OSC also imposed sanctions against Vance and another NSI employee; those sanctions have not been appealed.
[19] In his oral and written submissions, Mr Alboini raised issues that fall roughly into two categories. In the first category, he argues that IIROCs Merits Decision was unreasonable on the facts, and the OSC erred in accepting IIROCs findings and applying a deferential standard to them. In the second category, Mr Alboini argues that IIROCs proceedings are tainted by bias and that the errors that led the OSC to reverse IIROC on Count 3 and the IIROC Merits Decision are a basis on which reliance on IIROC`s conclusions on Counts 1 and 5(a) is not reasonable.
[20] We do not accept any of these arguments. These points were all raised before the OSC and rejected by it, for detailed and persuasive reasons. Those reasons set out a reasonable explanation for the OSC`s decision; there is no basis on which we can interfere. We do not review each of the many points raised by the appellants. Addressing the main ones will suffice to explain why the appeal must fail.
Creditworthiness of Jaguar
[21] This is an issue squarely within the specialized expertise of IIROC and the OSC. The appellants contend that they had commitments for funds from reliable high net worth clients, each of whom had a longstanding relationship of trust with them. The appellants also contend that IIROC and the OSC understated or mis-stated the value of marketable securities that were available in various accounts at various times to secure margin purchases of other securities.
[22] Much of the fresh evidence was devoted to bolstering the record in respect to this issue. As noted above, this fresh evidence is not part of the record on this appeal.
[23] All of this was considered by both IIROC and the OSC, in depth and in great detail: see paragraphs 46-47 of the IIROC Merits Decision and para. 230 of the OSC Merits Decision. The conclusion was that “Jaguar was not creditworthy by the standards of the investment industry at the time it purchased the securities”. This decision is reasonable, is based on evidence in the record, and was fully explained by both IIROC and the OSC. There is no basis for us to interfere.
Penson Was Misled
[24] The appellants note that no senior person from Penson was called to testify, and thus there was no direct evidence of Penson’s state of mind, and no statement of whether its position was that it had been misled. Further, Mr Skain testified at the OSC Sanctions Hearing and was clear that he never saw any dishonesty or lack of integrity by Mr Alboini.
[25] The OSC noted the absence of direct evidence from Penson on this point before IIROC. It also noted that there was a record from which an inference could fairly be drawn that Penson had been misled. The burden to prove the allegations rested on IIROC staff, of course, but this does not preclude the trier of fact from drawing a reasonable inference from the evidence. This is what IIROC did. The OSC considered it reasonable to draw the inference; we find that the OSC’s conclusion was itself reasonable.
[26] The appellants placed particular emphasis on Mr Skain’s evidence at the OSC Sanctions Hearing. This emphasis was misplaced. The Sanctions Hearing was not for relitigating the Merits Hearing. Further, Mr Skain did not have evidence about the impugned transactions. He was a character witness. His testimony was not relevant to the inference the appellants now challenge.
“Deceptive” or “Deceitful”
[27] Considerable time was spent in oral argument on whether the OSC overstated IIROC’s findings of turpitude against Mr Alboini, and then proceeded on the basis of this overstated characterization.
[28] IIROC set out IIROC staff’s position that Mr Alboini had been deceitful without adopting that language in its reasons. In the Merits Decision the OSC cited this passage as reflecting IIROC’s findings. Mr Alboini argued that although IIROC had concluded that he had acted in a deceptive manner, it did not find he had been deceitful, and the mischaracterization by the OSC led the OSC to approach this case as if Mr Alboini’s conduct was egregious and he was a serious malefactor when, in fact, his misconduct as found by IIROC was less serious.
[29] Reasons should not be parsed so minutely. The conduct in issue – whether it be described as “deceptive” or “deceitful” – was accurately and fully considered by IIROC and then by the OSC. It is clear that both bodies considered Mr Alboini’s conduct to be a serious departure from industry standards. It is also clear, both from the language used to describe the conduct and the penalties imposed, that the OSC did not consider the misconduct to be “egregious”. “Serious”, yes; “egregious”, no. And the OSC considered the conduct deserving of significant sanctions that were materially less severe than those imposed by IIROC.
[30] The OSC assessed the conduct after a careful review of the entire record and a fresh sanctions hearing. There is no basis to the suggestion that it misapprehended the nature of Mr Alboini’s misconduct. This argument fails.
Use of the TA Account
[31] The IIROC Panel expressly found that Alboini’s use of the TA account was not in accordance with accepted industry practice for accumulation accounts, or with NSI’s own policies and procedures. The month-end ticketing out was similarly found to be inconsistent with industry standards. The OSC reviewed these issues in detail and was satisfied these conclusions were reasonable. The appellants’ challenge to these findings is based on a reassessment of the evidence and challenges to IIROC statements of industry standards. Those are matters squarely within IIROC’s and the OSC’s core competence. The decisions are reasonable.
IIROC Refusal to Admit Expert Evidence
[32] The IIROC Panel refused to admit an expert report tendered by the appellants on the use of accumulation accounts in the investment industry. IIROC correctly stated the test for admission of expert evidence. It noted its own expertise in the area of the proposed evidence. IIROC considered the qualifications of the proposed expert, the subject-matter of the tendered report, and the quality of the report. It concluded that it did not need the report in order to decide the questions before it, and that the report would be “of no assistance”.
[33] The OSC deferred to this discretionary decision of IIROC. The OSC also stated that in a hearing on the merits before it, it likely would have wanted to receive further evidence concerning industry practice. There is no inconsistency between this statement and the conclusion reached by IIROC. IIROC, as a specialized tribunal, is best fixed to decide what it needs in order to decide a question squarely within the ambit of its technical expertise. IIROC, the OSC, and a generalist court could each come to different decisions on the need for particular expert evidence, because of their varying levels of specialized expertise in respect to the proposed evidence and the issue to be decided. The OSC’s conclusion that IIROC’s discretionary decision on the admission of this expert evidence is reasonable.
Allegations of Bias
[34] The appellants argued that certain comments made during the IIROC Sanctions Hearing showed a negative animus towards the appellants sufficient to give rise to a reasonable apprehensions of bias. The OSC considered that the impugned comments were part of an acceptable exchange between counsel and the Panel. This conclusion was reasonable. Further, we fail to see any argument that errant comments at the IIROC Sanctions Hearing somehow infected the IIROC Merits Decision. This ground of appeal must fail.
Issue #4 –Procedural Fairness of OSC Sanctions Hearing
[35] The appellants argue that it was unfair for the OSC to hold a fresh sanctions hearing. They argue that this process deprived them of the right to be heard by the tribunal deciding their fate, because the OSC had not heard the merits hearing.
[36] This submission is without merit.
[37] The appellants argue that because the sanctions decision was set aside, both the merits and sanctions hearings had to be run again. That is simply wrong. The OSC could have remitted the issue of sanctions back to IIROC – either to a new panel or to the original panel. The appellants did not want the case sent back to the original panel. Having the OSC hold its own Sanctions Hearing was the most practical approach if the case was not to be sent back to the original IIROC panel – the OSC panel was already immersed deeply in the record of the case.
[38] If there had not been procedural unfairness in the IIROC sanctions hearing, it would have been open to the OSC to have varied the sanctions without holding a new sanctions hearing. Because the OSC concluded that there had not been a fair sanctions hearing before IIROC, it held a fresh sanctions hearing at which the appellants were permitted to present evidence and make argument. There is no question that the OSC had the statutory power to do this and its decision to do so was reasonable. The appellants had a full chance to be heard. There was no procedural unfairness.
Conclusion
[39] The appellants feel very strongly about their views of their own conduct and the conclusions of the IIROC Panel and the OSC. Mr Alboini, who is a lawyer, represented himself and the company on this appeal. He knows the file very well, and has an insider’s knowledge of the regulatory issues. He did his best to convey this information to us, and the depth of his sincerity and commitment to these issues was evident.
[40] That said, this appeal was argued more as a review of the evidence and a policy discussion of the wisdom of IIROC’s choices and the OSC’s deference to those choices. That analysis misconceives this court’s role on a review from a sophisticated and expert specialized tribunal. The IIROC Merits Decision gives full and detailed consideration of the evidence and gives cogent reasons for the decisions it made. It meets the standards of justification, transparency and intelligibility. The OSC’s decisions on the merits and on sanctions similarly meet the tests by which this court assesses the sufficiency of reasons and the reasonableness of decisions.
[41] The appeal is dismissed.
[42] The parties agreed that in these circumstances the appellants will pay costs of $10,000 inclusive to each of IIROC and the OSC. It is so ordered.
D.L. Corbett J.
Gordon R.S. J.
Molloy J.
Released: 20150605
CITATION: Northern Securities Inc. v. OSC, 2015 ONSC 3641
COURT FILE NO.: 45/14
DATE: 20150605
ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT
B E T W E E N:
NORTHERN SECURITIES INC. and VICTOR PHILIP ALBOINI
- and –
ONTARIO SECURITIES COMMISSION and INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA
ENDORSEMENT
D.L. Corbett J. Gordon R.S.J. Molloy J.
Released: 20150605