A recent Supreme Court decision showed the power of provincial securities commissions. In McLean v. British Columbia (Securities Commission) (2013 SCC 67, available here), McLean challenged the BC Securities Commission's 2010 decision to temporarily ban her from trading securities (with exceptions) or being a director or officer of a BC public company. In 2008, McLean accepted the same restrictions in a settlement with the Ontario Securities Commission (the "OSC") based on her involvement in events that ended in 2001. In 2010, the BC Securities Commission (the "Commission") informed her that it intended to impose its own restrictions, but the general limitation period in the BC Securities Act requires that process to start within 6 years after the events that motivated the proceedings. The Commission decided those events happened in 2008, not 2001, because the appellant agreed to the Ontario restrictions in 2008. The BC Court of Appeal decided this was correct (2011 BCCA 455, available here). The Supreme Court went further and decided the Commission did not have to be correct in this case, as long as it was reasonable.
The Supreme Court's decision turned on two provisions in the BC Securities Act, which can be termed the "secondary proceedings provision" and the "limitation provision".
The "secondary proceedings provision" is part of s. 161(6). It empowers the Commission to sanction someone when another securities commission or court has already sanctioned that person in the same way. The equivalent provision in the Ontario Securities Act is s. 127(10). The Commission must give the person an "opportunity to be heard", but the Commission sanctioned McLean after she sent a written submission without requesting an oral hearing . In this case, the "secondary proceedings provision" at issue was s. 161(6)(d), which lets the Commission impose restrictions on someone who agreed to restrictions imposed by another securities regulator.
The "limitation provision" is s. 159. It defines the general limitation period that applies to proceedings under the BC Securities Act. With exception, those proceedings "must not be commenced more than 6 years after the date of the events that give rise to the proceedings." Its equivalent in the Ontario Securities Act is s. 129.1.
With respect to these provisions, the Supreme Court's decision, written by Justice Moldaver, had to answer two questions:
- What standard applies when the court reviews the Commission's interpretation of the provisions?
- Did the Commission reasonably interpret the provisions?
What Standard Applies?
The court considered two competing answers to this. The first said the Commission had to pick the legally correct interpretation (the "correctness" standard of review). The second said a reasonable interpretation would suffice, even if there were other reasonable interpretations (the "reasonableness" standard).
The BC Court of Appeal decided the Commission's decision had to be correct (for The Litigator's comment on the BCCA decision, see here). The basis was the court's view that limitation periods are an issue of general law outside the Commission's area of expertise. The Court of Appeal also justified its decision on the grounds that limitation periods should be interpreted consistently.
The Supreme Court disagreed for two main reasons.
First, courts should presumptively defer to decisions of administrative tribunals, like the Commission, interpreting their home legislation, like the BC Securities Act. In this case, the Commission interpreted a limitation period in that statute, so its decision would be respected unless shown to be unreasonable.
Second, the limitation period issue did not warrant an exception to this presumed deference. There may be exceptional questions of central importance to the legal system where the court needs to ensure consistent, correct answers, without conflicting decisions from tribunals. This was not one of those questions. Limitation periods in general may be central to the legal system, but this case dealt with a particular limitation period that may, in fact, differ from province to province, because securities regulation falls under provincial jurisdiction (see here for The Litigator's article on a recent federal proposal for national securities regulation).
Was the Commission Reasonable?
To conclude that it was, Moldaver J. contrasted the interpretations offered by McLean and the Commission to define "the events" in the requirement that the Commission commence enforcement proceedings within 6 years of the events giving rise to those proceedings.
McLean argued that the events should mean the same conduct that prompted the initial proceedings by the OSC. That conduct ceased in 2001 at the latest. The Commission argued that the events should mean the appellant's decision to settle with the OSC in 2008.
All but one of the judges decided that both interpretations were reasonable (Justice Karakatsanis agreed that the Commission's interpretation was reasonable but decided that McLean's was not). As Moldaver J. wrote, the "bottom line" in this case was: "under reasonableness review, we defer to any reasonable interpretation adopted by an administrative decision maker, even if other reasonable interpretations may exist."
Moldaver J. then went into detail about what made the interpretations reasonable.
He started with the "ordinary meaning" of "the events". This supported the Commission's view because, on simple reading, an agreement to be sanctioned by a securities commission outside BC would give rise to a secondary proceeding by the Commission under s. 161(6)(d), if the Commission saw fit.
Then Moldaver J. considered the limitation provision's drafting history. This initially favoured the appellant's interpretation. Until s. 161(6) was introduced in 2006, "the events" in s. 159 were the underlying conduct that attracted the scrutiny of the securities commission in the first place, not an agreement with another securities commission based on that conduct.
The Meaning in Context
Moldaver J.'s next step asked what interpretation made the most sense in context. He observed that the wording of s. 159 was open-ended, unlike other, more specific limitation provisions in the BC Securities Act. This supported the Commission's view because an open-ended interpretation could include the ordinary meaning of the provision in light of the new secondary proceedings provision, regardless of the historical meaning.
The Purpose of the Secondary Proceedings Provision
Moldaver J. reinforced this conclusion by considering the purpose of the secondary proceedings provision. He pointed out the multijurisdictional nature of securities enforcement in Canada. The provinces need an efficient way of working together given the potentially national or international scope of conduct under scrutiny.
According to Moldaver J., the secondary proceedings provision achieves this by letting one province rely on enforcement proceedings in other provinces. If all the commissions had to start their own proceedings for the same conduct from the beginning, Moldaver J. wrote that "overlapping cases would clog up the legal system and overburden the securities commissions."
The Purpose of the Limitation Provision
However, Moldaver J. plainly acknowledged the appellant's concern that this interpretation could, on its face, let securities regulators prolong enforcement proceedings for decades, as Commission B used penalties imposed by Commission A to re-impose and extend those penalties, thus commencing a new limitation period and restarting the clock for Commission C to impose penalties 6 years later, and then Commission D 6 years after that. This challenges a fundamental purpose of limitation periods – that a defendant not have to endlessly answer for past conduct.
Powerful When Reasonable
Moldaver J.'s answer to this concern returned to the standard he used to review the Commission's decision – it had to be reasonable. Someone faced with a decades-long chain of enforcement proceedings, as each securities commission extended the penalties of the other, could argue that those proceedings would be unreasonable, because they overstepped the authority of the restrictions imposed by the first regulator.
The Commission's counsel before the Supreme Court directly admitted that the Commission would be unreasonable to extend proceedings in this manner. He accepted that the secondary proceedings provision must rely on an original proceeding, not another secondary proceeding. He also accepted that the secondary proceedings must begin while the original sanctions are still in effect and within 6 years of those sanctions first coming into effect. Moldaver J. did not formally approve those conditions, since they did not affect the outcome of this case, but he wrote that "they make eminent good sense".
This is the type of obiter dicta that courts applying this decision may take very seriously. Counsel challenging the reasonableness of securities commissions in other cases should pay close attention to these conditions. In this case, the Commission copied the OSC's restrictions, so they ended at the same time in both provinces. As a result, the potential unreasonableness described above did not apply to McLean. However, if securities commissions make unreasonable decisions, the courts can step in (see, for instance, Lines v. British Columbia (Securities Commission), 2012 BCCA 316). Despite the power of these regulators, there can be recourse if they are not reasonable.
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