A recent appeal court clarifies the limits of the B.C. Securities Commission's powers
Measures taken by the British Columbia Securities Commission under new and unprecedented amendments to the province’s Securities Act are likely to be challenged in the courts, with the potential impact of reining in the regulator’s powers, says Blake Cassels & Graydon lawyer Sean Boyle.
He noted that a recent Court of Appeal for B.C. decision ruled that an asset freeze order made by the regulator must be based on an investigation into conduct that allegedly contravenes the Securities Act and could give rise to monetary claims against the asset owner.
It must also be based on evidence that satisfies the “serious question” threshold, the appeal court ruled. As well, upon application for review, the onus rests on the regulator’s executive director to prove that the evidence continues to satisfy this threshold.
Says Boyle: “If the commission is making orders that impact individuals rights and use of property, they have a right to be heard and have proper evidence presented.”
The appeal court removed the asset freeze from one of the parties being investigated in the Party A case, while the others were referred back to the commission for reappraisal based on the court’s decision.
“The result of this decision is that the commission will have to be a bit more proactive in how they present their case in terms of what evidence they have and how far along they are in the case, Boyle says.
On March 27, 2020, more than 100 changes were made to the legislation, expanding, and enhancing the commission’s enforcement and collection powers. These include mandatory minimum jail sentences for certain types of fraud, increased penalties for certain types of misconduct, new prohibitions on false or misleading statements and tighter rules around promotional activities.
These amendments were implemented to equip the BCSC with the powers needed to safeguard investors and modernize the securities regime and enable the BCSC to regulate more types of misconduct, go after more wrongdoers, and more effectively freeze assets and collect financial sanctions.
“With the new powers for the B.C. Securities Commission coming into effect, people can feel confident knowing that B.C.’s investment markets are protected by the strongest enforcement powers in Canada,” said Carole James, Minister of Finance of British Columbia, when the amendments went into effect.
Blakes lawyer Boyle says that since then, there have been several cases looking at “overreach” or even “misconduct” by commission investigators, looking to use their new power “to create leverage” over those they are investigating for securities violations.
However, Boyle notes that the B.C. appeal court decision in Party A clarifies that there are limits to those powers.
“The overall structure of the Act is designed to provide tools to the commission to protect the investing public but to also put limits on those tools and to provide checks and balances, so as to avoid overreach and maintain public confidence in the system,” Madam Justice Susan Griffin wrote on behalf of the three-judge appeal panel.
Says Boyle: “How I read that is that the commission has been given significant tools, but they need to be used judiciously, fairly and appropriately.”
He also points to Justice Griffin’s ruling that while regulators are allowed to act in the public interest, they don’t have the right to go further than that. What the new rules do not do “is set up an impossibly high burden of proof . . . as that would make the review process meaningless,” Griffin wrote.
The commission must determine whether the evidence presented is sufficient to raise a serious question that the investigation could show a breach of the Act leading to monetary claims or penalties against the asset owner under the Act. The appeal court wrote that this standard remains “low and flexible” but requires more than mere speculation or mere suspicion.
Says Boyle: “The Court of Appeal is saying, ‘No, B.C. Securities Commission, you have the onus of providing evidence to support your allegations and to support the remedies that you’re seeking under these enhanced powers.’ So, I view this decision as a check against any regulatory overreach or regulatory bullying.”
Boyle adds that the Party A decision will also help provide other regulators, such as the Ontario Securities Commission, guidance as they undertake their modernization of securities regulation.
“The message is that any new tools given will have to be used judiciously; otherwise, the courts will intervene as a matter of fairness and natural justice,” he says. “The takeaway is that powers provided by legislatures come with corresponding responsibility, or the courts will intervene.”
An example of the type of overreach that might be challenged is one amendment to the B.C. rules that allows the commission to revoke someone’s driving licence if they do not pay administrative penalties of more than $3,000.
“The question comes down to proportionality and relevancy to the alleged wrongdoing,” he says, noting this type of provision is designed to create leverage over people who need a vehicle to “earn a living or drive their kids to hockey.”
Another amendment revolves around the issue of whether administrative penalties imposed by the commission are dischargeable in bankruptcy.
“Is this an example of overreach? It’s these types of matters that are beginning to find its way to the courts,” Boyle says, as parties targeted by commission investigators ask for a review by a commission appeal tribunal, or then go to the Court of Appeal for judicial review.
