Canada: Brokers´ Report - May 2009

Last Updated: June 1 2009

IIROC Investigations

An April 9, 2009 decision of the British Columbia Securities Commission [BCSC], Golden Capital Securities Ltd., has changed the law regarding the conduct of such investigations to some extent by concluding that IIROC does not have an obligation to conduct itself reasonably in initiating or conducting an investigation of its members.

IIROC's only obligation, according to the BCSC, is to act in good faith, not the higher standard of reasonableness. Though there is no bright line, there is a distinction between good faith and reasonableness and therefore the BCSC's decision provides freer reign to IIROC in going about its enforcement procedures.

The basic rationale stated by the BCSC was:

It is in the public interest that IIROC be able to pursue investigations in good faith without having to consider whether every decision it makes in the course of initiating and conducting an investigation will be considered "reasonable" when viewed after the fact.

On the facts of this particular case, the BCSC seemed troubled by the notion that the member being investigated could impair the investigative process by declining to fully cooperate until the member had satisfied itself that IIROC was acting reasonably. It is ironic that, prior to this decision, IIROC did consider itself under a duty to act reasonably on the basis of previous decisions. In this particular case, an IIROC panel concluded that the investigative staff had met its duty to act reasonably. Golden Capital appealed that decision to the BCSC. Not only did the BCSC dismiss Golden Capital's appeal, it concluded that the IIROC panel erred in proceeding on the basis that the investigation had to be conducted reasonably in the first place.

Although we do not expect IIROC's protocol in the initiation and conduct of investigations to noticeably change as a result of this decision, it is likely that enforcement staff will be less inclined to concern themselves with whether their investigation will stand up to scrutiny under a "reasonableness" standard, (as that is no longer the standard) and may be less likely to debate or argue about whether certain elements of their requests are unreasonable than was previously the case.

By John Blair

An Apology Is Not An Admission Of Fault Or Liability

Ontario has approved legislation that prevents the imposition of liability based on an apology, by making the apology inadmissible for purposes of proving liability and by not construing the apology as an admission of liability. British Columbia passed its Apology Act in May 2006, followed by Saskatchewan in May 2007, through an amendment to its Evidence Act, and Manitoba in November 2007. The legislation does not affect a victim's right to sue, or the right to compensation for harm done. It does not allow a wrongdoer to escape the consequences of the wrong, nor does it affect any criminal or provincial offences prosecution where the accused person has apologized. The legislation is based on the concern that an expression of regret or an apology might be construed as an admission of legal liability. The rationale for the legislation is that apologies, when made quickly after an incident occurs, may lead to earlier and more cost effective dispute resolution. The Act applies to all Ontarians, as well as courts, tribunals, arbitrators and other judicial and quasi-judicial bodies. Though the legislation arose principally from concerns in the health care industry, it applies to all legal proceedings, such as civil lawsuits, administrative proceedings and professional discipline matters, and is not limited to healthcare institutions.

Attention on this legislation has been principally focused on the effect it will have in mitigating animosity, promoting mediation and ultimately reducing unnecessary litigation in the health care context, but it may have a broader impact on other areas of the law, such as how brokers can and should respond to client complaints.

Pursuant to the legislation, the effect of an apology is that it is not an express or implied admission of fault or liability by the person in connection with the matter; is not an acknowledgment of liability for the purposes of s.13 of the Limitations Act; and does not void, impair or otherwise affect any insurance coverage that is available or that, but for the apology, would be available in connection with the matter.

By Margot Finley

IIROC Hearing Panel – By-laws 29.1 And 38 And Dax Sukhraj (Argosy Securities Inc.)

In September 17, 2008, an IIROC Hearing Panel found that Dax Sukhraj, owner and sole board member of Argosy Securities Inc., engaged in business conduct or practice unbecoming and detrimental to the public interest. The conduct in question was his failure, contrary to Association By-laws 29.1 and 38, to ensure that Argosy fulfilled representations to the IDA that it would develop and implement policies and procedures to ensure compliance with regulatory requirements.

Although the Panel found that his conduct had been neither unethical nor in bad faith, his failure to cure numerous deficiencies was described as grossly negligent warranting significant sanctions.

On December 31, 2008, the Hearing Panel imposed a fine of $150,000 inclusive of costs on Dax Sukhraj. In addition, the Panel demanded that Dax Sukhraj complete the Chief Compliance Officers Qualifying Examination no later than April 1, 2009 and that a compliance consultant approved by IIROC be put in place to remain at Argosy Securities Inc. for a period of one year to conduct regular evaluations of Argosy's compliance systems.

Carole J. Brown, partner, Benjamin Shaer and Liliane Djahangir, articled students-at-law.
Edited by David Di Paolo

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