As we discussed in our previous blog post, the Court of Appeal granted leave to appeal a decision of the British Columbia Securities Commission (BCSC) in Morabito v. British Columbia (Securities Commission) 2023 BCCA 395. During the hearing of the appeal in Morabito v. British Columbia (Securities Commission) 2024 BCCA 377, the Court of Appeal reiterated the fairness concerns discussed in the leave decision allowing the appeal. In yet further proceedings, the BCSC panel in Re Mark Morabito 2025 BCSSECCOM 133 refused a request to recuse one of the panel members who had previously been on a panel in these proceedings, finding that there is no reasonable apprehension of bias.
Background
Mark Morabito was subject to an investigation by the BCSC. Mr. Morabito was the chairperson of Global Crossing Airlines Group Inc., (formerly known as Canada Jetlines Ltd.) (Jetlines). The BCSC alleged Mr. Morabito engaged in insider trading when he made a trade of Jetlines shares to his spouse, and an investigation was commenced in August of 2018.
In 2021, the respondents brought an application to revoke the investigation order. The application was dismissed and the BCSC issued a notice of hearing against Mr. Morabito, his spouse, and Jetlines (the Respondents). An appeal was also dismissed, but the Court of Appeal expressed some concerns with respect to the investigation.
In early 2023, Mr. Morabito and Jetlines filed an application to stay the proceedings, alleging they constituted an abuse of process. A hearing panel of the BCSC (the Panel) heard both the abuse of process claims and the insider trading claims at the same hearing. The Panel dismissed the abuse of process application. Mr. Morabito and Jetlines appealed to the British Columbia Court of Appeal (BCCA), and were granted leave.
At the BCSC hearing, the Panel blended the abuse of process and insider trading hearings. In addition, the only witness the BCSC put forward was an investigator who became involved after most of the investigative steps had been completed, and after the notice of hearing had been issued. She did not have first-hand knowledge of the investigation.
The appellants contended the proceedings were an abuse of process because (1) the BCSC investigators improperly probed all areas of Mr. Morabito's life, including confronting his spouse in their home, investigating his elderly father, and compelling extensive document production, including their young daughter's email account (2) the executive director violated their disclosure obligations by failing to disclose that a material witness had been diagnosed with a terminal illness and would be unavailable to answer a material aspect of the insider trading charge (3) the executive director failed to disclose relevant documents.
The BCCA's decision
The BCCA found the blended hearing was "fundamentally flawed" and not in accordance with the rules of procedural fairness. The procedure adopted by the Panel frustrated the appellants' ability to advance their claims of abuse of process because:
- The BCSC's one witness, the investigator, did not have any involvement in the investigative events. Fairness dictated that the head investigator should have answered the allegations made by respondents.
- The Panel stymied the appellants' cross-examination of the investigator. When counsel tried to cross-examine the witness about the head investigator's conduct, the executive director objected on the basis of relevance, and the Panel sustained the objection. The BCCA found the Panel was considering relevance in the context of the substantive case (insider trading), but not in relation to the claim of abuse of process. Moreover, the Panel filled in the evidentiary gap left by the executive director, not tendering evidence to respond to the allegations by speculating about reasons not supported by the evidence.
- Counsel for the executive director reframed and narrowed the abuse of process applications, and submitted it was restricted to disclosure delays and the failure to disclose the terminal illness of the material witness. The Panel agreed and prevented questioning from the appellants. The BCCA found the abuse of process application was plainly much broader.
Overall, the BCCA found the procedure was unfair. Blending the abuse hearing with the substantive allegations barred the appellants from a fair determination of their applications.
The BCCA found that, while the Panel is entitled to procedural deference and can do what is required to be fair, flexible and efficient, where there is a credible basis to support allegations of state misconduct, the Panel must proceed in a manner that allows for an airing of the allegations.
The BCCA held the appellants were put in an "impossible position". They sought a hearing for abuse of process before the liability hearing commenced, which was denied. When they requested a particular investigator testify, that was denied. They never got a hearing to which they were entitled.
As a remedy, the BCCA allowed the appeal, set aside the decision of the Panel, and remitted the matter to a newly constituted panel of the BCSC. The matter is set for hearing before the new panel of the BCSC in December, 2025.
The BCSC's subsequent decision
The BCSC found that, while there were some similarities and overlap between issues decided by the prior Panel and issues still to be decided, it was a matter of degree. There is a presumption that tribunal members are impartial. There is also a presumption that, when an appellate court remits a proceeding to an administrative body, this body will give full weight to the decision of the reviewing court. The BCSC rejected the interpretation that the existence of overlapping evidence from an initial application to a further application inherently creates a reasonable apprehension of bias. The BCSC also noted that the pool of tribunal members was limited, and recognized the need to protect investors and support confidence in the public markets.
Takeaways
It is interesting that following the BCCA's decision criticizing the Panel's treatment of the Respondents' abuse of process application, that the Panel denied the Respondents' subsequent application recusal request. This series of decisions calls into question whether British Columbia should follow the path of some other securities regulators in creating an independent tribunal. Notably the Ontario Securities Commission created an independent tribunal, the Capital Markets Tribunal in 2021, which, at minimum, creates the perception of independence.
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