Canada: The Exercise Of The Public Interest Power By The OSC – A New Standard Is Needed

Last Updated: September 12 2014
Article by Paul D. Davis, Jonathan Rajzman (Student-at-Law) and Vlad Duta

The ability of the State or any agency thereof to mete out sanctions in circumstances where there has not been a contravention of a clearly delineated statutory provision has generally been the purview of dictators or absolute monarchs. However, there is no doubt that under section 127 of the Ontario Securities Act (the "Act"),1 the Ontario Securities Commission (the "Commission") has the power to exercise its public interest jurisdiction to sanction persons, absent a breach of the Act, regulations thereunder or policy statements.2 It is therefore not surprising that the public interest power has been the subject of much controversy, and increasingly so with its more frequent use by the Commission.3 More recently, there has been debate as to whether the Commission's public interest power should be exercised, absent a breach of securities laws, only in circumstances where the conduct or transaction is clearly "abusive" of shareholders and the capital markets, or whether it may also be exercised "where the conduct engages the animating principles of the Act."4 We have issued a paper that can be found here, which suggests that neither position provides a cogent or transparent basis for the exercise of the public interest power.5 Rather, we suggest that the appropriate standard is whether the conduct in question confounds the justifiable expectations of shareholders and the capital markets.

In this bulletin, we also provide a brief commentary on the recent decision of the Commission In the Matter of Jowdat Waheed and Bruce Walter,6 which was released following the completion of our paper.

Our Paper

We begin by reviewing the legislative history of the public interest power in the Act. This is followed by an in-depth analysis of the jurisprudence pertaining to the use of section 127 and its predecessor provisions, absent a breach of securities laws. We then examine the guiding principles that can be gleaned from the jurisprudence.

In reviewing prior jurisprudence, it appears to us that one standard should be used to determine if the public interest power should be exercised. In Canadian Tire Corp v CTC Dealer Holdings Ltd,7 the Ontario Divisional Court noted that the impugned conduct confounded the "justifiable expectations" of shareholders and the capital markets in general. We suggest that this standard would be more appropriate and would allow the Commission and practitioners to move away from labels, such as "abusive," which are difficult to define and may be simply unhelpful. The application of the justifiable expectations standard moves away from labels and focuses on preventing future conduct8 in order to protect investors, enhance market efficiency and promote confidence in the capital markets.

The application of the justifiable expectations standard starts with a fairly straightforward question: Would a reasonable investor lose confidence in the capital markets and be less willing to invest if the Commission did not take action to deter a repetition of the conduct in question? If the answer is clearly yes, then the "expectations" aspect of this standard has been met. In terms of "justifiable," we suggest that there are various policy reasons why the reasonable expectations of investors may not be supported under the Act. Limitations to the exercise of the public interest power include: (i) those imposed by the objects and purposes of the Act;9 (ii) the fact that the power may not be exercised to punish, but only to be preventive and prospective;10 (iii) the fact that the power may not be exercised to provide a private remedy, which would include redress for breach of fiduciary duty;11 and (iv) the fact that a transactional nexus to Ontario is important in considering whether to exercise the power.12

In considering whether a transaction or conduct defeats the justifiable expectations of shareholders and the capital markets in general, prior jurisprudence has provided the following guidelines:

  1. As a threshold issue, the conduct or transaction must contravene or be inconsistent with the policy and animating principles underlying securities laws and must have an impact on the capital markets.
  2. The more the conduct or transaction is not specifically regulated under the securities laws, the more outrageous or egregious (or outside acceptable business conduct) the conduct or transaction must be. If the conduct or transaction is regulated under a statute not assigned to the Commission (for example, the Canada Business Corporations Act13), the term "flagrant" may be more appropriate.
  3. If the conduct or transaction has been addressed by the Legislature without being made subject to regulation, then the exercise of the public interest power is highly unlikely.
  4. The following conduct or transactions are more likely to be sanctioned: (i) artificial transactions; (ii) transactions structured intentionally to "end run the statutory scheme or exploit a loophole";14 and (iii) conduct or transactions which would otherwise be illegal, but are not caught by provisions in the securities regulations based on a technical matter, and are clearly (and intentionally enacted) contrary to the underlying principles of the statutory provision in question.
  5. Conduct or transactions which run contrary to the "fundamental principles" under the Act, particularly those set out in section 2.1(2) of the Act including the "requirements for timely, accurate and efficient disclosure of information" and "requirements for the maintenance of high standards of fitness and business conduct to ensure honest and responsible conduct by market participants,"15 are more likely to be subject to the exercise of the public interest power.

While the justifiable expectations standard does not allow for simple answers, we believe it sets a relatively high threshold and affords market participants with more transparency and predictability regarding the exercise by the Commission of the public interest power than the standards currently being used. We ask you to review our paper, which provides greater insight into our analysis, including an application of the justifiable expectations standard to the facts of the key Commission decisions in Re Biovail Corp,16 Re Donald17 and Re VenGrowth Funds (Special Committee of Directors).18

Finally, our hope is that our paper serves as a catalyst for an ongoing debate regarding the standards and principles that should be used to determine when the public interest power will be exercised. The public interest power is a powerful, necessary and important tool that has been given to the Commission. In light of the fact that "[e]ffective and responsive securities regulation requires timely, open and efficient administration and enforcement of"19 the Act, it is incumbent on the Commission to exercise the public interest power in a manner that is transparent and cogent, where the results are predictable and easily understood by securities law practitioners and market participants alike.

Waheed decision

The Commission's decision in Waheed was released following the completion of our paper, and is therefore not discussed therein. However, the decision confirms key principles established in prior Commission decisions and provides further evidence of the concern expressed in our paper regarding the standard outlined in Biovail. This standard, which permits the public interest power to be exercised absent a finding of abuse where market conduct engages the animating principles of the Act, may allow the Commission to exercise the public interest power beyond its constitutional limit and contrary to the proper administration of the Act.

In Waheed, Staff of the Commission asserted that the respondents used confidential information, in breach of a consulting agreement with Baffinland Iron Mines Corporation ("Baffinland"), to acquire shares of Baffinland and to subsequently launch a hostile take-over bid for Baffinland. They argued that this created an unfair advantage over Baffinland's shareholders and potential investors. In addition, the confidential information was used to advise Baffinland's largest shareholder to initiate a dissident proxy fight, purportedly in breach of fiduciary duties and obligations owed to Baffinland. Staff argued that this conduct should be subject to sanction through the exercise of the public interest power.

The respondents submitted that the information they used was not material and that the Act does not regulate the use or disclosure of non-material confidential information. Further, the allegations relate to a private law dispute between Baffinland and the respondents, which Baffinland chose not to pursue for its own strategic reasons. The Commission rightfully concurred with the respondents in holding that "the Act does not prohibit trading on the basis of non-material confidential information."20 The Commission also held that "it is beyond the scope of the Commission's jurisdiction to make findings against Waheed with respect to allegations that he did not always act in Baffinland's best interest while a consultant."21

Staff's arguments in favour of the exercise of the public interest power were fundamentally contrary to the decisions of the Commission in Lindzon and Canadian Tire, each of which having held that the Commission should not provide a remedy for breaches of fiduciary duty or matters that are the basis of a private law dispute. This is particularly so when the allegedly wronged parties have the opportunity to seek redress from the courts. However, Staff's arguments in Waheed were consistent with the standard set out in Biovail, which we believe is too broad to provide any real guidance as to when the public interest power should be exercised.

For this and other reasons set out in our paper, we believe it is important for the Commission to clearly set out a cogent and transparent standard for the exercise of its public interest power that leaves no doubt as to the basis on which the power may be exercised.

Download a copy of Paul Davis' paper titled Justifiable Expectations Standard: The Basis for the Exercise of the Public Interest Power of the Ontario Securities Commission


1 RSO 1990, c S 5. In this bulletin, we will refer to the exercise of the Commission's jurisdiction under section 127 of the Act and its predecessor provisions as the "public interest power".

2 For ease of reference, we will use the term "securities laws" to refer to the Act, regulations thereunder (including applicable multilateral, and national instruments) and policy statements.

3 Nigel Campbell, Erin Hoult & David Badham, "Lesser Included Non-Offences?: The Use of the Public Interest Power in Re Donald" (2014) 27 Can J Admin L & Prac 161; "A Fine Balance Being Tipped – A Review of the Ontario Securities Commission's Public Interest Jurisdiction" (2014) 18 Corporate Liability 3 at 1090, 1096, 1098 [Leon & Carlo].

4 Leon & Carlo, ibid; Tom Atkinson & Cullen Price, "The Ontario Securities Commission's Public Interest Power: The Primacy of Principles" (2014) 27 Can J Admin L & Prac 205 at 212.

5 Paul Davis, "Justifiable Expectations Standard: The Basis for the Exercise of the Public Interest Power of the Ontario Securities Commission" (August 22, 2014). This paper was prepared with the assistance of Sandy Andreou (an associate at McMillan LLP); and Allison Vale, David Zhou, Jennifer Allman and Matthew Burns, each of whom is a summer student.

6 (26 August 2014), online: Ontario Securities Commission ( [Waheed].

7 (1987), 59 OR (2d) 79 at para 78.

8 Re Mithras Management, (1990), 13 OSCB 1600 at 1610–11; Committee for Equal Treatment of Asbestos Minority Shareholders v Ontario (Securities Commission), 2001 SCC 37 at para 43 [Asbestos SCC].

9 Asbestos SCC, ibid at 41.

10 Ibid at para 43; Re Cartaway Resource Corp, 2004 SCC 26 at para 58.

11 Re Canadian Tire Corp (1987), 10 OSCB 857 [Canadian Tire]; Re Lindzon, [1982] 42 OSCB 43C at 59C-60C [Lindzon].

12 Re HERO Industries Ltd (1990), 13 OSCB 3775 at para 19; Asbestos SCC, supra note 8 at para 50-62.

13 RSC 1985, c C-44.

14 Cristian Blidariu & Rene Sorell, " Can the OSC's Public Interest Power Be Used to Expand Insider Trading Liability?," Canadian Securities Regulatory Monitor (28 May 2014).

15 Securities Act, RSO 1990, c S 5, s 2.1(2).

16 (2010), 33 OSCB 8914 [Biovail].

17 (2012), 35 OSCB 7383.

18 (2011), 34 OSCB 6755.

19 Securities Act, RSO 1990, c S 5, s 2.1(3).

20 Waheed, supra note 6 at para 484.

21 Ibid at para 489.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Paul D. Davis
Jonathan Rajzman (Student-at-Law)
Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions