Court File and Parties

2024 ONSC 2236 DIVISIONAL COURT FILE NO.: 507/23 DATE: 2024-04-16 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Harold The Mortgage Closer Inc. and Harold Gerstel, Applicants -and- Chief Executive Officer of the Financial Services Regulatory Authority of Ontario, Financial Services Regulatory Authority of Ontario, and Attorney General of Ontario, Respondents

BEFORE: FL Myers J

COUNSEL: Melvyn L Solmon and Joanne Iskander Salmoon, for the Applicants Troy Harrison and Michael Scott, for the Respondents

HEARD: April 16, 2024

Endorsement

[1] The respondents move to quash this application for judicial review.

[2] In their application, the applicants ask the court to quash a notice of proposal delivered by the Financial Services Regulatory Authority on June 22, 2023. In the notice of proposal, the regulator proposes to revoke the mortgage broker license of the corporate applicant, to refuse to renew Ms. Gerstel’s license, and to impose administrative penalties on Mr. Gerstel.

[3] The applicants also seek judicial review of the publication by the regulator on January 11, 2022 of a document entitled "Transparent Communication of FSRA Enforcement Action". This document provides guidance for when the regulator will publish o its website and elsewhere its enforcement steps against license holders.

[4] The applicants seek judicial review as well of the decision by the regulator to publish its notice of proposal to the public while refusing to publish the applicants’ request for a hearing that takes issue with facts alleged by the regulator in the notice of proposal.

[5] Finally, the applicants seek orders compelling the regulator to amend its publication policy, to remove the notice of proposal from its website, to publish their response to the notice of proposal, and to enforce the statutory scheme to prevent the applicants’ competitors from misusing the notice of proposal to injure the applicants’ reputation and business.

[6] The regulator submits that it is plain and obvious that the relief claimed by the applicants in this proceeding is not available to them.

[7] In response to the notice of proposal, the applicants exercised their right to require a hearing before the Financial Services Tribunal. That is a specialized tribunal charged with hearing proceedings in the financial services sector.

[8] Under the applicable statutory scheme, the applicants will be entitled to a full hearing process before the tribunal in respect of the allegations contained in the regulator’s notice of proposal. A very high degree of procedural protection is available to the applicants in light of the serious nature of the relief sought against them. The hearing is a full trial de novo. It is not just an appeal from the notice of proposal. The hearing outcome will be based on the evidence to be admitted, after pre-hearing disclosure, cross-examination of witnesses, and submissions.

[9] The regulator rightly distinguishes two types of claims brought by the applicants. They each result in different outcomes.

[10] First, it is plain and obvious and without any serious doubt that the applicants’ complaints about the conduct of the regulator in issuing the notice of proposal and its contents are premature.

[11] Mr. Solmon asserts that it is clear that the regulator issued a notice of proposal that was deliberately false and that the court needs to be available to police such egregious misconduct.

[12] That is neither the scheme of the relevant statutes nor of the Judicial Review Procedure Act on which the applicants rely. This case is on all fours with Volochay v. College of Massage Therapists of Ontario, 2012 ONCA 541. In that precedent decision, a judge quashed a tribunal’s decision to appoint an investigator. The decision was made in direct violation of the statutory procedural right of the target of the investigation to be heard prior to the decision being made. In Volochay, even with the breach of a statute, the Court of Appeal held that proceedings must be left to run their course if there is an adequate alternative to the court becoming involved and absent exceptional circumstances.

[13] In this case, the applicants’ reliance on very general duties of a regulator in ss. 3 and 6 of the Financial Services Regulatory Authority of Ontario Act, 2016, SO 2016, c 37, Sch 8, do not really add any more strength to the case than is available from the general legal notion that government bodies should obey the law, behave fairly, and should not lie.

[14] Even assuming for the sake of argument that the applicants can establish that the regulator deliberately issued and publicized falsehoods about the applicants in the notice of proposal, this application still runs right into the hearing before the Financial Services Tribunal provided by the Mortgage Brokerages, Lenders and Administrators Act, 2006, SO 2006, c 29.

[15] In that hearing, the regulator will bear the burden of proving the allegations in its notice of proposal. The applicants will be entitled to defend themselves fully and fairly. At the end of the day, the tribunal will make findings of fact and apply the appropriate law. If it finds that the regulator has been untruthful or violated its duties, it will consider the appropriate outcome. If the applicants are then not content with the outcome, they have further appeal rights to the court and possibly also the ability to seek judicial review for matters that do not fall within appeal rights.

[16] I do not agree with Mr. Solmon that the facts are uncontested or clear. I understand why the applicants allege the regulator said things to which they object. But I would not be able to make findings of fact on the written record before me and I do not believe that a panel of this court will be any better off on an early judicial review. The panel is a review body. It is not a fact-finding body generally.

[17] The place for findings of fact to be made on disputed evidence is before the tribunal.

[18] Moreover, any procedural unfairness caused to the applicants by the delivery of the notice of proposal containing incorrect facts can and will be cured by a full trial process before the tribunal with a high standard of procedural fairness and natural justice enforced.

[19] I note that I do not necessarily agree with the tribunal’s decision in this case that it has no authority to review the conduct of the regulator or to cause it to take steps deemed necessary for fairness of the proceeding before the tribunal. The notice of proposal is not necessarily spent or rendered a dead letter by the delivery of the request for a hearing. The notice of proposal remains the regulator’s statement of allegations that guides the issues before the tribunal.

[20] But even if the applicants ask the tribunal to give some remedy against the regulator and the tribunal declines after a full hearing, the applicants will still have their appeal and review rights before the court. In those hearings, the court will be armed with a full evidentiary record, findings of fact on the contested evidence, and the specialist tribunal’s views and reasoning on the issues that were argued before it by the parties.

[21] Under Volochay, the tribunal proceeding must be left to run its course as it is a very adequate alternative to the relief sought contesting the notice of proposal and the regulator’s conduct in issuing it. There are no exceptional circumstances at play in my view. Mr., Solmon submits that this case is exceptional because the claim is that the regulator included untruthful allegations in the notice of proposal deliberately. That does not take the case outside the principle in Volochay. Moreover, the strategy that, “the best defence is a good offence” is not as unusual or exceptional before the court as Mr. Solmon surmises.

[22] It follows that I quash as premature the portion of the application challenging the validity of the notice of proposal.

[23] The other aspect of the case involves the regulator’s publication decisions. The regulator submits that it did not exercise a statutory power of decision when it adopted its publication guidelines. They are not binding on anyone and do not have the force of law. They just tell the marketplace when to expect enforcement steps to be publicized by the regulator.

[24] Similarly, the regulator submits that it has no statutory duty to publish the applicants’ request for a hearing although the applicants dispute the facts in the notice of proposal and ask the regulator to be fair and balanced.

[25] The applicants can also show that competitors have used the notice of proposal as published by the regulator to slag them in the marketplace. They submit that the regulator’s decisions to publish the notice of proposal and the decision to refuse to publish their request for hearing impair its reputation and impact its legal rights.

[26] As I am not quashing these requests for judicial review, I will say little about them. The SCC has recognized peoples’ legal interest in their reputation. While I am dubious that the applicant has standing to challenge the publication guidelines or that the publication of the guidelines was an exercise of a statutory power, to the extent that the guidelines become an excuse or justification for the regulator’s publication decisions, I would not put challenging them beyond the applicants’ reach.

[27] But the real focus of the applicant is on the regulator’s decision to publish the notice of proposal and the decision to refuse to publish the request for a hearing. It is not impossibly far-fetched that ss. 3 and 6 of the Financial Services Regulatory Authority of Ontario Act impose constraints (if not a duty) on the activity of the regulator especially where reputational harm of a registrant is at risk (or is intended rightly or wrongly). Moreover, since the notice of proposal is not a dead letter in the tribunal hearing, issues of procedural fairness may arise concerning the regulator’s conduct if it affects the fairness of the hearing.

[28] I cannot say that it is plain and obvious that the applicants have no rights vis-à-vis the regulator’s decisions about what to publish or not publish concerning the applicants. I expressly leave open to the panel of the Divisional Court the possibility that it may find this issue too best dealt with first before the Financial Services Tribunal. But while the validity of the notice of proposal and its contents is squarely before the tribunal, I am less sure that this issue will necessarily be before the tribunal.

[29] I am in no way endorsing the strength of the claims to challenge either the guidelines themselves or the publication decisions surrounding the notice of proposal, I do not accept the regulator’s submissions that it is plain and obvious that they are either unreviewable private decisions or decisions that do not impair the legal rights or interests of the applicants.

[30] Mr. Solmon asks me to defer to the panel the question of whether the applicants need or ought to be granted more time to bring their applications under s. 5 (2) of the JRPA. Having quashed the claims against the notice of proposal, perhaps this is no longer an issue. Regardless, in my view, the panel that hears matters on their merits is generally better armed to assess the equities involved in the balancing of interests under s 5 (2). I therefore defer that issue to the panel.

[31] Finally, it is plain and obvious that the applicants have no claim for an order in the nature of mandamus against the regulator concerning competitors. There is no duty owing to the applicants for the regulator to take any steps against competitors. Moreover, prosecution and enforcement are always discretionary. Relief rooted in the availability of a writ of mandamus cannot be available for such decisions.

[32] Therefore, I quash the claims for orders set out in the the Amended Notice of Application dated November 8, 2023 (found beginning at Caselines page B1092) other than the following claims that survive and will be heard by the panel: Caselines page B1095, paragraphs 1, only the declaration sought in 3 (a), only the declaration sought in 3 (b), 3 (e), 3 (h), 3 (j), and 3 (l) to (n) inclusive.

[33] I am told that the Financial Services Tribunal may have been waiting for this decision before scheduling its hearing into the notice of proposal and request for hearing. In my respectful view, nothing left open for the court in this proceeding need have any bearing on the tribunal’s scheduling decisions. The court generally respects and appreciates every effort by tribunals to complete proceedings as efficiently and affordably as possible.

[34] Success was divided. My inclination is to order no costs or to defer costs to the panel hearing the application. If counsel can agree on costs, they are requested to advise me accordingly. If counsel cannot agree, the applicants may deliver costs submissions by April 26, 2024. The regulator can then deliver submissions by May 3, 2024.

[35] Submissions shall be no longer than three double-spaced pages in minimum 12-point font with normal margins. Each submission shall be accompanied by the party’s Costs Outline. Parties may also submit copies of any offers to settle on which they rely for costs purposes, if any.

FL Myers J

Date: April 16, 2024