The Supreme Court of Canada has recently provided clarity on the limitation period applicable to "secondary proceedings" in the securities enforcement context. Subject to a few exceptions, these proceedings, brought in the public interest against persons who have agreed with another jurisdiction's securities regulator to be subject to regulatory action, must not be commenced more than six years after the date of "the events" that gave rise to the proceeding. In McLean v. British Columbia (Securities Commission), released earlier today, the Supreme Court upheld the B.C. Securities Commission's (BCSC's) reciprocal order, issued against an individual director in 2010 for conduct that occurred in Ontario in 2001 and for which the director entered into a settlement agreement with the Ontario Securities Commission in 2008. The "event," as found by the BCSC and affirmed by the Supreme Court, was the fact of having agreed with a securities regulator to be subject to regulatory action. The decision is noteworthy because the Supreme Court has clarified the standard of review for a tribunal when interpreting its own statute and reaffirms that deference is owed to administrative decision makers on interpretative matters. At the same time, the decision leaves open the possibility that other provincial and territorial securities commissions may arrive at different interpretations of their own statutory limitation periods. The decision also leaves open the prospect, albeit remote, of provinces "piggy-backing" reciprocal orders sequentially, with the result that a person may be subject to lengthy regulatory action.
Between March 1996 and June 2001, the appellant, Janet McLean, served as a director of a reporting issuer in Ontario. On September 8, 2008, McLean entered into a settlement agreement with the Ontario Securities Commission (OSC) whereby she consented to an order that included a five-year cease trading ban, a reprimand, a ten-year ban from acting as officer or director of any reporting issuer or registrant, and a five-year period in which Ontario securities exemptions were not applicable. The conduct subject to sanction occurred in 2001. The OSC approved the settlement and issued the order that same day.
Approximately a year and a half later, in January 2010, McLean was notified that the Executive Director of the BCSC was applying for an order against her under s. 161(6)(d) of the Securities Act (B.C.) (the Act), commonly referred to as a secondary or reciprocal order. This section provides that the "commission or the executive director may, after providing an opportunity to be heard, make an order under subsection (1) in respect of a person if the person has agreed with a securities regulatory authority, a self regulatory body or an exchange, in Canada or elsewhere, to be subject to sanctions, conditions, restrictions or requirements."
In written submissions filed with the BCSC, McLean argued that no reciprocal order could be made since the six-year limitation period as prescribed in s. 159 of the Act had expired. This section provides that proceedings under this Act, other than an action referred to in s. 140, "must not be commenced more than 6 years after the date of the events that give rise to the proceedings." The same six-year limitation period is found in most of the other provincial and territorial securities statutes. McLean argued that the "events" that gave rise to the proceeding was the underlying misconduct.
On May 14, 2010, the BCSC issued the reciprocal order, which was in substance identical to that issued by the OSC. No written reasons were provided.
McLean appealed the order to the B.C. Court of Appeal. On the question of whether s. 159 of the Act applies to s. 161(6)(d), the Court found that a plain reading of that section meant that until McLean had entered into the agreement with the OSC, the BCSC could not make an order under s. 161(6)(d). Therefore, under s. 159, the "event" that gave rise to the proceeding was in fact the settlement agreement between McLean and the OSC and not the underlying events that gave rise to the agreement itself (i.e., the misconduct). As a result of this reasoning, the Court denied this ground of appeal. The appeal was ultimately granted on separate grounds – namely, the BCSC's failure to issue written reasons.
Leave to the Supreme Court of Canada was granted on June 28, 2012, and its decision was released on December 5, 2013.
The SCC Decision
Writing for the majority, Justice Moldaver found that the appropriate standard of review for the BCSC's decision is reasonableness and not correctness. Indeed, the interpretation of s. 159 in relation to s. 161(6)(d) of the Act, and in particular the meaning of "the events," is a "nuts-and-bolts question of statutory interpretation confined to a particular context." This, coupled with the current approach by the courts that decision makers are best left to interpret their home statutes, meant there was no question of law of general importance to the legal system as a whole, let alone one that fell outside the Commission's specialized area of expertise, requiring a correctness standard. Thus, while Justice Moldaver found that the statutory language was less than "crystal clear" and that the interpretations advanced by the appellant and the respondent were both reasonable, in light of the reasonableness standard of review, deference was owed to the BCSC's conclusion – namely, that the event giving rise to a proceeding under s. 161(6)(d) was the fact of the appellant having agreed with the OSC to be subject to regulatory action; absent an unreasonable interpretation, the decision should stand.
Justice Moldaver found that the BCSC's interpretation was supported by both the plain meaning of the language in the statute, as well as a contextual reading. Indeed, he stated that the open-ended language of s. 159 allows for secondary proceedings under s. 161(6)(d) of the Act to proceed in a meaningful way. Or, when viewed in the opposite, applying the appellant's interpretation would lead to the "troublesome" conclusion that the BCSC could be time-barred from proceeding under this provision before the triggering event even exists. This, he said, supports the legislative goal of interprovincial cooperation given that the triggering event is not the misconduct, thus leading to parallel proceedings, but the conclusion of proceedings in one jurisdiction and a reciprocal order enacted in a sister province. Justice Moldaver, while recognizing the appellant's concern that this approach could potentially lead to an extended duration of time that one is subject to regulatory action, found that comfort can be had in that no administrative order is immune from appellate review for its reasonableness.
Agreeing with the disposition of the issue, Justice Karakatsanis disagreed with Justice Moldaver's finding that the Appellant's interpretation was reasonable. Justice Karakatsanis found that the Appellant's interpretation, which the majority found to also be reasonable, would not give effect to the interprovincial cooperation within the securities context and has the potential to thwart legislative objectives of consistency and cooperation which underlie the secondary proceedings regime.
This decision by the Supreme Court clarifies the standard of review – reasonableness – for administrative bodies when interpreting their own statutes as this standard applies within the specific context of the agency's expertise. It is interesting to note that the decision makes room for differing interpretations regarding limitation periods from province to province. Indeed, the Court notes that this potential difference is the result of the Constitution's federalist structure and should not fall under the purview of administrative law standards of review. Finally, the decision leaves open the prospect – argued forcefully by the appellant – of provinces piggy-backing reciprocal orders sequentially, with the result that a person is subject to potential lengthy regulatory action. The Court specifically notes that this is not the case to determine whether secondary orders can be stacked one on the other or if they may issued if the original order has lapsed. The Court downplayed the significance of this potential outcome, reasoning that the authority of securities commissions is not unlimited and no order – secondary or otherwise – is immune from appellate review for its reasonableness; however, until such cases are litigated, the uncertainty remains.
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