COURT FILE NO.: CV-19-69337 DATE: 20220412

ONTARIO SUPERIOR COURT OF JUSTICE

B E T W E E N:

MUTUAL FUND DEALERS ASSOCIATION OF CANADA

D. Boswell, U. Sheikh and E. Hayes, for the Plaintiff (Responding Party)

Plaintiffs

- and -

HONG LAM

K. Dekker and A. Hall, for the Defendant (Moving Party)

Defendants

HEARD: February 22 and 23, 2022

REASONS FOR DECISION

The Honourable Justice J. Krawchenko

INTRODUCTION

[1] Hong Lam (“Lam”) was a mutual fund representative and branch manager with Investia Financial Services Inc. (“Investia”).

[2] Lam started with Investia in June 2006. He was an “Approved Person” within the self-regulatory organization (“SRO”) known as the Mutual Fund Dealers Association of Canada (the “MFDA”).

[3] Lam was required and did complete a Form 33-109 F4 -- Registration of Individuals and Review of Permitted Individuals. (“Form 33-109”) as a condition of becoming an “Approved Person” within his industry.

[4] In completing his Form 33-109, Lam agreed:

a. to be subject to the securities legislation or derivatives legislation or both of each jurisdiction of Canada, and to the by-laws, regulations, rules, rulings and policies of the SROs;

b. to become conversant with the rules of the SRO, to keep himself fully informed about them and to be bound by, to observe and comply with those rules as they were from time to time amended or supplemented;

c. to be bound by and to observe and comply with the MFDA rules, including applicable by-law rules or policies of the MFDA;

d. to cooperate with investigations if required;

e. to remain subject to the jurisdiction of the MFDA for five years after ceasing to be an Approved Person; and

f. he acknowledged and accepted the jurisdiction of any tribunals or any proceedings that related to his activities as a registrant or a partner, director, or officer of a registrant under that securities legislation or derivatives legislation or both or as an Approved Person under SRO rules.

RESIGNATION AND INVESTIGATION

[5] Lam resigned from Investia in January 2016.

[6] In April 2016, the MFDA commenced an investigation into Lam’s conduct for potential violations of the MFDA rules.

[7] The investigators sought Lam’s cooperation.

[8] Lam sought legal advice.

[9] Lam initially offered limited assistance to the investigators, but by June 2016, elected not to cooperate with the investigators any further, concluding that, come what may, any MFDA fine or other enforcement sanctions levied against him after his resignation would only be a bar to his re-entry to the investment industry and would otherwise be uncollectible. How he came to this conclusion is not entirely clear, nor particularly relevant.

MFDA HEARING AND ORDER

[10] As noted earlier, Lam did not cooperate with the MFDA investigators. In December 2017 investigators provided Lam with a “Wells Notice”, which provided Lam a final opportunity to provide information or make representations in order to stave off a possible hearing. He did not respond.

[11] In January 2018, the MFDA issued and served Lam with a Notice of Hearing with a first appearance date of March 22, 2018. Lam did not appear.

[12] Lam did not participate in his hearing which was conducted, on the merits, on September 18, 2018.

[13] The Hearing panel issued their Decision, Reasons and Order on October 19, 2018.

[14] The MFDA Order permanently banned Lam from registration with an MFDA dealer, fined him $250,000, and ordered him to pay costs of $10,000.

[15] Lam was provided a copy of the Decision and Reasons together with the news release concerning his matter with information regarding the opportunity to seek a review. He did not seek a review.

[16] Lam concedes that the MFDA did have jurisdiction to pursue their investigation after his resignation and does not challenge the ultimate decision rendered at the hearing.

CHANGES TO SECTION 151

[17] In March 2017 (after Lam’s resignation but prior to his hearing), the Ontario government announced its intention to introduce legislation that would give The Investment Industry Regulatory Organization of Canada and the MFDA the power to enforce their decisions as Orders of the Superior Court. The government’s announcement was covered extensively in the press and by the affected SROs.

[18] One of the objectives of this proposed legislation was to make it easier for financial regulatory bodies to collect monetary penalties and help to deter potential offenders from wrongdoing.

[19] Effective May 17, 2017, s. 151 of the Securities Act was amended to permit the MFDA to enter its Hearing Panel decisions as orders of the Superior Court. The provision now read as follows:

Enforcement of Commission decision

151(1) On filing with the Superior Court of Justice, a decision made by the Commission, by a Director pursuant to subsection 6 (3), by the Investment Industry Regulatory Organization of Canada after it conducts a hearing or by the Mutual Fund Dealers Association of Canada after it conducts a hearing shall be deemed to be an order of the Superior Court of Justice and is enforceable as an order of that court.

[20] The MFDA notified Members, Approved Persons, and the general public about the amendments to Ontario’s Securities Act in its Annual Enforcement Report for the year 2016, prior to the commencement of any disciplinary hearings involving Lam.

FILING OF THE ORDER WITH THE SUPERIOR COURT OF JUSTICE, THE EXAMINATION IN AID OF EXECUTION AND RESULTING CROSS MOTION FOR CONTEMPT

[21] Pursuant to section 151 of the Securities Act (“section151”), the Hearing Panel Order was entered as an Order of the Superior Court of Justice on May 22, 2019 (“The Order”).

[22] The MFDA subsequently sought enforcement of the Order by way of:

• a writ of seizure and sale registered on June 28, 2019;
• a Notice of Garnishment issued on July 8, 2019; and
• by conducting an examination in aid of execution on August 8, 2019.

[23] In the course of Lam’s examination, it is alleged by MFDA that he actively concealed his interest in property in order to defeat or defraud MFDA as a creditor. This is the basis for the cross motion seeking a finding of contempt.

THE POSITION OF THE PARTIES

[24] Lam argues that the conversion of the MFDA decision to a Superior Court Order was done without jurisdiction, invalid, and must be set aside because the May 2017 amendment to section 151 is presumed not to have retrospective application to prior events, i.e., his conduct that pre-dated the enactment, unless it expressly indicates it did.

[25] While acknowledging a potential exception to this presumption for legislative changes that are merely procedural in nature, Lam also argues that the change to section 151, (allowing for the “rubber stamping” of the Hearing Board decision and conversion to an order of this Court and the corresponding enforcement mechanisms available) ought not to be viewed as merely procedural, but rather ought to be viewed as a “significant new sanction” impacting on his substantive rights and, thus, outside this narrow exception.

[26] Lam also advances a contract-based argument, suggesting that because he ended his contractual relationship with the MFDA through his resignation, that he cannot be bound to changes (and, in this case, specifically the enforcement powers under the amended section 151) made after his resignation.

[27] The MFDA takes the position that this was a case of the immediate application of legislation to an ongoing factual situation. They argue that the event that triggered the operation of section 151 was the issuance of the Hearing Panel’s decision in 2018, and the act of filing it with the court and not Lam’s conduct that was the subject matter of the hearing.

[28] The MFDA further argues that prior to the amendment to section 151, it was able to enforce decisions and order of its Hearing Panels in the Superior Court by commencing civil actions. The amendment simplified the process expediting enforcement of orders that it had the authority to make. In short, the amended section 151 did not offer them any substantive rights that they did not already have.

[29] The MFDA argues, in the alternative, that if section 151 was being applied retrospectively, the presumption against this did not apply because it was procedural in nature and, further, that the consequences were intended to protect the public.

ANALYSIS - MAIN MOTION

[30] A retrospective statute is forward looking but imposes new consequences in respect of a prior event, effectively changing the law from what it otherwise would have been with regards to those prior events. A statute is not retrospective unless the description of the prior event is the fact-situation that brings about the operation of the statute.

[31] In reading Section 151, the fact situation which results in the operation of that section is the conclusion of a hearing, and the event is the issuance of the Hearing Panel decision after it had conducted a hearing and not the conduct that led to the hearing itself.

[32] Only when the hearing is concluded and a decision rendered is section 151 operationalize, leaving open the ability to file that decision and converting it into a deemed and enforceable order of this court.

[33] On the issue of retrospectivity, I am persuaded that section 151 was not being applied retrospectively but, rather, this was a case of the immediate application of the legislation to the ongoing factual situation as discussed above.

[34] If I am incorrect in this analysis, even if section 151 was being applied retrospectively, I would conclude that the presumption did not apply because the amended section was procedural in nature, dealing solely with issues of enforcement and collections of an otherwise legitimate award obtained from a tribunal of competent jurisdiction. I would go further and determine that simplification of the collections and enforcements of Hearing Panel orders through section 151 had a powerful deterrent effect to potential unethical actors, with the main benefit ultimately being the protection of the public engaging the financial services sector.

[35] Dealing briefly with “contractual” argument advanced by Lam, I find that it is without merit. If the change to section 151 was to be viewed as a contractual change to the rules that governed his relationship with the MFDA, Lam accepted the eventuality of such a change in advance. Lam agreed to remain subject to the jurisdiction of the MFDA for five years after ceasing to be an Approved Person and to be subject to the relevant securities legislation and to the by-laws, regulations, rules, rulings, and policies of the SROs as they were from time to time amended or supplemented. He agreed to be bound by and to observe and comply with the MFDA rules, including applicable laws, by-law rules or policy of the MFDA.

[36] Given the foregoing, I decline to set aside the Order pursuant to subrule 37.14 of the Rules of Civil Procedure, relief which was sought by Lam nearly two years after the Order came to his attention.

CONTEMPT

[37] On August 8, 2019, Lam attended his Judgment Debtor Examination where it is alleged that he made “repeated attempts to conceal real property”, specifically his interest in what has been referred to as the “Montrose Property”.

[38] Subrule 60.18(5) of the Rules of Civil Procedure provides that where it appears from an examination in aid of execution that a debtor has concealed or made away with property to defeat or defraud creditors, a judge may make a contempt order against the debtor.

[39] Rule 60.18(5) provides a distinct contempt power from that of Rule 60.11 in the sense that it does not specifically require a breach of an order, but an appearance of concealment or making away with property for the purpose of defeating or defrauding creditors. Regardless, both contempt powers are discretionary and must be exercised cautiously and with great restraint, and both require a heightened standard of proof; the equivalent of beyond a reasonable doubt with the onus of proof being placed upon the party alleging the contempt.

[40] Turning to the evidence, the transcript of Lam’s examination was filed as an exhibit in this cross motion. At his examination, Lam identified his 1/3 ownership interest in the residence which he occupied with his spouse and children. When questioned about other ownership interests in real property, he identified the Montrose Property but stated that he was simply a co-signer or guarantor on a loan taken out by his brother.

[41] It is clear from Lam’s evidence given at the examination that he in no way concealed the Montrose Property, but quite the opposite, he identified it for the creditor, who then looked into it further. His evidence characterizing of his interests in that property may have been incorrect in law, but that alone does not make out a concealment for the purpose of defeating or defrauding his creditor.

[42] I find that the moving party has not met its onus to prove the necessary elements required for civil contempt under 60.18(5) beyond a reasonable doubt and, accordingly, I dismiss the cross motion.

[43] The moving party also sought an Order directing Lam’s further attendance at an examination in aid of execution. Since the last examination was conducted in August 2019, the provisions of Rule 60.18(4) allow the creditor to examine Lam every twelve months. Accordingly, no Order is required from me.

CONCLUSION

[44] The main motion to set aside the Court Order of 22 May 2019 is dismissed.

[45] The cross motion for contempt is also dismissed.

[46] I will accept written submissions regarding costs of both the main and cross motions as follows:

a. From MFDA: served and filed within fifteen days from the release date of this decision of no more than four pages, double spaced, in addition to any relevant offers and draft bills of costs.

b. From Lam: served and filed within fifteen days after he is served with the MFDA’s submissions, of no more than six pages, double spaced, in addition to any relevant offers and draft bills of costs.

c. If required, a reply from MFDA of no more than two pages double spaced, served and filed within five days after they are served with Lam’s submissions.

[47] If no submissions are received within the contemplated timeframe, the parties shall be deemed to have settled the issue of costs between themselves.

Justice J. Krawchenko

Released: April 12th, 2022