Rowan et al. v. Ontario Securities Commission, 2012 ONCA 208

• Judge: Sharpe, Blair and Juriansz, JJ.A.
• Court: Court of Appeal (Ontario)
• Case Date: March 29, 2012
• Jurisdiction: Ontario
• Citations: 2012 ONCA 208;(2012), 290 O.A.C. 159 (CA)

Rowan v. Securities Comm. (2012), 290 O.A.C. 159 (CA)

MLB headnote and full text

Temp. Cite: [2012] O.A.C. TBEd. AP.006

Roger D. Rowan, Watt Carmichael Inc., Harry J. Carmichael and G. Michael McKenney (appellants) v. Ontario Securities Commission (respondent)

(C53943; C53960; 2012 ONCA 208)

Indexed As: Rowan et al. v. Ontario Securities Commission

Ontario Court of Appeal

Sharpe, Blair and Juriansz, JJ.A.

March 29, 2012.

Summary:

Rowan was an investment advisor with Watt Carmichael Inc. and a director of a publicly traded company (Biovail). The Ontario Securities Commission had before it eight allegations of wrongdoing by Rowan in relation to the handling of Biovail shares held in three trusts. In the merits decision, the Commission dismissed four allegations but made these findings against the appellants: (i) Rowan breached s. 107 of the Securities Act by failing to file insider reports in respect of trades in Biovail securities he executed in the accounts of the trusts; (ii) Rowan engaged in conduct contrary to the public interest by failing to disclose to Biovail the Biovail securities he held in certain trust accounts over which he exercised control or direction; (iii) Rowan engaged in conduct contrary to the public interest by trading in Biovail securities during blackout periods imposed by Biovail; and (iv) Watt Carmichael, Carmichael and McKenney failed to adequately supervise Rowan. In its penalty decision, the Commission imposed various sanctions against the appellants including administrative monetary penalties against Rowan, Carmichael and Watt Carmichael in the amounts of $520,000, $250,000 and $450,000 respectively. The appellants appealed.

The Ontario Divisional Court, in a decision reported at 272 O.A.C. 119, dismissed the appeal. The appellants appealed.

The Ontario Court of Appeal dismissed the appeals.

Civil Rights - Topic 8305.1

Canadian Charter of Rights and Freedoms - Application - Section 11 - [See first Securities Regulation - Topic 5322 ].

Practice - Topic 9012

Appeals - Restrictions on argument on appeal - Issues or points not previously raised - [See second Securities Regulation - Topic 5301 and third Securities Regulation - Topic 5322 ].

Securities Regulation - Topic 1371

Regulatory commissions (incl. self-regulatory organizations) - Practice - Hearings - Costs - Rowan was an investment advisor with Watt Carmichael Inc. and a director of a publicly traded company (Biovail) - The Ontario Securities Commission had before it eight allegations of wrongdoing by Rowan in relation to the handling of Biovail shares held in three trusts - In the merits decision, the Commission dismissed four allegations but made these findings against the appellants: (i) Rowan breached s. 107 of the Securities Act by failing to file insider reports in respect of trades in Biovail securities he executed in the accounts of the trusts; (ii) Rowan engaged in conduct contrary to the public interest by failing to disclose to Biovail the Biovail securities he held in certain trust accounts over which he exercised control or direction; (iii) Rowan engaged in conduct contrary to the public interest by trading in Biovail securities during blackout periods imposed by Biovail; and (iv) Watt Carmichael, Carmichael and McKenney failed to adequately supervise Rowan - In its penalty decision, the Commission imposed various sanctions against the appellants including administrative monetary penalties against Rowan, Carmichael and Watt Carmichael in the amounts of $520,000, $250,000 and $450,000 respectively - The Commission awarded costs of $140,000 - The appellants appealed the costs award - The appellants complained that the Act's one-way costs regime, allowing only for costs to be awarded against a party found to have failed to comply with Ontario securities law or to have acted contrary to the public interest, was fundamentally unfair, especially because they had defeated the most serious charge - The Ontario Court of Appeal dismissed the appeals - Costs orders were entitled to deference on appeal - Where the tribunal making the order had expressly taken into account the very point advanced on appeal, an appellate court would rarely interfere - See paragraphs 89 to 93.

Securities Regulation - Topic 5301

Trading in securities - Offences - General - Rowan was an investment advisor with Watt Carmichael Inc. and a director of a publicly traded company (Biovail) - The Ontario Securities Commission had before it eight allegations of wrongdoing by Rowan in relation to the handling of Biovail shares held in three trusts - In the merits decision, the Commission dismissed four allegations but made these findings against the appellants: (i) Rowan breached s. 107 of the Securities Act by failing to file insider reports in respect of trades in Biovail securities he executed in the accounts of the trusts; (ii) Rowan engaged in conduct contrary to the public interest by failing to disclose to Biovail the Biovail securities he held in certain trust accounts over which he exercised control or direction; (iii) Rowan engaged in conduct contrary to the public interest by trading in Biovail securities during blackout periods imposed by Biovail; and (iv) Watt Carmichael, Carmichael and McKenney failed to adequately supervise Rowan - The appellants appealed, asserting that the Commission's finding that Carmichael, McKenney and Watt Carmichael had failed to adequately supervise Rowan was unreasonable - The Ontario Court of Appeal dismissed the appeals - The appellants were asking the court to substitute its findings regarding the interpretation of the applicable supervisory standard under OSC Rule 31-505, an exercise that involved specialized knowledge of securities industry practice, for the express and fully explained findings on the point by the Commission, an expert tribunal - The court agreed with the Divisional Court that the applicable standard of review was reasonableness - The Commission's findings easily met that standard - See paragraphs 82 to 88.

Securities Regulation - Topic 5301

Trading in securities - Offences - General - Rowan was an investment advisor with Watt Carmichael Inc. and a director of a publicly traded company (Biovail) - The Ontario Securities Commission had before it eight allegations of wrongdoing by Rowan in relation to the handling of Biovail shares held in three trusts - In the merits decision, the Commission dismissed four allegations but made these findings against the appellants: (i) Rowan breached s. 107 of the Securities Act by failing to file insider reports in respect of trades in Biovail securities he executed in the accounts of the trusts; (ii) Rowan engaged in conduct contrary to the public interest by failing to disclose to Biovail the Biovail securities he held in certain trust accounts over which he exercised control or direction; (iii) Rowan engaged in conduct contrary to the public interest by trading in Biovail securities during blackout periods imposed by Biovail; and (iv) Watt Carmichael, Carmichael and McKenney failed to adequately supervise Rowan - The appellants appealed, asserting that the Commission erred and exceeded its jurisdiction by finding that Carmichael was under a duty imposed by Ontario securities law to supervise Rowan - The Ontario Court of Appeal dismissed the appeals - The appellants failed to advance this argument before the Commission - The court exercised its discretion against permitting the appellants to advance the argument before it - The court did not accept the argument that the appellants could escape their failure to raise the argument before the Commission on the basis that the alleged error deprived the Commission of jurisdiction to make the order - It would be inappropriate to describe the alleged error as jurisdictional - See paragraphs 76 to 81.

Securities Regulation - Topic 5322

Trading in securities - Offences - Penalties and punishments - Administrative penalties - Rowan was an investment advisor with Watt Carmichael Inc. and a director of a publicly traded company (Biovail) - The Ontario Securities Commission had before it eight allegations of wrongdoing by Rowan in relation to the handling of Biovail shares held in three trusts - In the merits decision, the Commission dismissed four allegations but made these findings against the appellants: (i) Rowan breached s. 107 of the Securities Act by failing to file insider reports in respect of trades in Biovail securities he executed in the accounts of the trusts; (ii) Rowan engaged in conduct contrary to the public interest by failing to disclose to Biovail the Biovail securities he held in certain trust accounts over which he exercised control or direction; (iii) Rowan engaged in conduct contrary to the public interest by trading in Biovail securities during blackout periods imposed by Biovail; and (iv) Watt Carmichael, Carmichael and McKenney failed to adequately supervise Rowan - In its penalty decision, the Commission imposed various sanctions against the appellants including administrative monetary penalties against Rowan, Carmichael and Watt Carmichael in the amounts of $520,000, $250,000 and $450,000 respectively - The appellants appealed, asserting that s. 127(1)(9) of the Securities Act, authorizing the Commission to impose an administrative monetary penalty of up to $1 million per infraction, should be struck down as contrary to s. 11(d) of the Charter - The appellants asserted that the potential size of the monetary penalty was so large that a party subject to such a penalty was a person "charged with an offence" within the meaning of s. 11(d) - As the Commission did not accord the rights guaranteed by s. 11(d) when conducting administrative hearings, the appellants submitted that s. 127(1)(9) should be struck - The Ontario Court of Appeal dismissed the appeals - The court agreed with the Commission and the Divisional Court that the only remedy available to the appellants under s. 11(d) was to limit the authority of the Commission to impose monetary penalties to levels that qualified as administrative, rather than penal, sanctions - "Given the very large number of infractions involving over a billion dollars worth of securities and over $2 million dollars in commissions, fines totalling $1,220,000 were within the constitutionally permissible range" - See paragraphs 28 to 55.

Securities Regulation - Topic 5322

Trading in securities - Offences - Penalties and punishments - Administrative penalties - Rowan was an investment advisor with Watt Carmichael Inc. and a director of a publicly traded company (Biovail) - The Ontario Securities Commission had before it eight allegations of wrongdoing by Rowan in relation to the handling of Biovail shares held in three trusts - In the merits decision, the Commission dismissed four allegations but made these findings against the appellants: (i) Rowan breached s. 107 of the Securities Act by failing to file insider reports in respect of trades in Biovail securities he executed in the accounts of the trusts; (ii) Rowan engaged in conduct contrary to the public interest by failing to disclose to Biovail the Biovail securities he held in certain trust accounts over which he exercised control or direction; (iii) Rowan engaged in conduct contrary to the public interest by trading in Biovail securities during blackout periods imposed by Biovail; and (iv) Watt Carmichael, Carmichael and McKenney failed to adequately supervise Rowan - In its penalty decision, the Commission imposed various sanctions against the appellants including administrative monetary penalties against Rowan, Carmichael and Watt Carmichael in the amounts of $520,000, $250,000 and $450,000 respectively - The appellants appealed, asserting that the Commission erred and exceeded its jurisdiction by taking conduct contrary to the public interest into account when imposing a monetary penalty against Rowan - The Ontario Court of Appeal dismissed the appeals - It was clear from the opening words of s. 127(1)(9) of the Act that before ordering any sanction, including a monetary penalty, the Commission had to be of the opinion that it was in the public interest to make the order - Rowan's conduct found to be contrary to the public interest was inextricably linked to his breach of Ontario securities law - When imposing a monetary penalty for Rowan's failure to report, the Commission was entitled to consider what it was he failed to report - The Commission's reasons summarized all of Rowan's transgressions as a basis for the imposition of a long list of sanctions, most of which were properly made on the basis that he had acted contrary to the public interest - There was nothing wrong with the Commission providing a complete list of the conduct it found to justify the various sanctions it imposed - See paragraphs 56 to 67.

Securities Regulation - Topic 5322

Trading in securities - Offences - Penalties and punishments - Administrative penalties - Rowan was an investment advisor with Watt Carmichael Inc. and a director of a publicly traded company (Biovail) - The Ontario Securities Commission had before it eight allegations of wrongdoing by Rowan in relation to the handling of Biovail shares held in three trusts - In the merits decision, the Commission dismissed four allegations but made these findings against the appellants: (i) Rowan breached s. 107 of the Securities Act by failing to file insider reports in respect of trades in Biovail securities he executed in the accounts of the trusts; (ii) Rowan engaged in conduct contrary to the public interest by failing to disclose to Biovail the Biovail securities he held in certain trust accounts over which he exercised control or direction; (iii) Rowan engaged in conduct contrary to the public interest by trading in Biovail securities during blackout periods imposed by Biovail; and (iv) Watt Carmichael, Carmichael and McKenney failed to adequately supervise Rowan - The appellants appealed, asserting that the Commission erred and exceeded its jurisdiction by imposing a monetary penalty against Carmichael and Watt Carmichael without making a finding that they had breached Ontario securities law - The Ontario Court of Appeal dismissed the appeals - The appellants failed to raise this argument before the Commission - When setting out the issues to be decided, the Commission described this issue as "[w]hether Watt Carmichael, McKenney and Carmichael failed to adequately supervise Rowan's trading in Biovail securities in the Trust Accounts, contrary to OSC Rule 31-505, IDA Regulation 1300.2 and IDA Policy No. 2" - The merits reasons contained a considered analysis of what OSC Rule 31-505 required - At the sanctions hearing, especially in the absence of any argument from the appellants to the contrary, it was open to the Commission to interpret its own reasons for its merits findings as amounting to a finding that Carmichael "failed to comply with Ontario securities law" - See paragraphs 68 to 75.

Cases Noticed:

R. v. Wigglesworth, [1987] 2 S.C.R. 541; 81 N.R. 161; 24 O.A.C. 321; 61 Sask.R. 105, consd. [para. 35].

Davidson v. Slaight Communications Inc., [1989] 1 S.C.R. 1038; 93 N.R. 183, refd to. [para. 46].

Lavallee v. Alberta Securities Commission (2009), 467 A.R. 152; 2009 ABQB 17, affd. (2010), 474 A.R. 295; 479 W.A.C. 295; 2010 ABCA 48, refd to. [para. 47].

Canada (Attorney General) v. United States Steel Corp. et al. (2011), 419 N.R. 203; 333 D.L.R.(4th) 1; 2011 FCA 176, refd to. [para. 47].

Cartaway Resources Corp. et al., Re (2004), 319 N.R. 1; 195 B.C.A.C. 161; 319 W.A.C. 161; 2004 SCC 26, refd to. [para. 51].

Martineau v. Ministre du Revenu national, [2004] 3 S.C.R. 737; 328 N.R. 48; 2004 SCC 81, refd to. [para. 51].

Alberta Teachers' Association v. Information and Privacy Commissioner (Alta.) et al. (2011), 424 N.R. 70; 519 A.R. 1; 539 W.A.C. 1; 339 D.L.R.(4th) 428; 2011 SCC 61, refd to. [para. 77].

Canadian Union of Public Employees, Local 963 v. New Brunswick Liquor Corp., [1979] 2 S.C.R. 227; 26 N.R. 341; 25 N.B.R.(2d) 237; 51 A.P.R. 237, refd to. [para. 78].

Statutes Noticed:

Securities Act, R.S.O. 1990, c. S-5, sect. 127(1)(9) [para. 28].

Authors and Works Noticed:

Ontario, Five Year Review Committee Final Report: Reviewing the Securities Act (Ontario) (2003), p. 214 [para. 49].

Counsel:

Nigel Campbell, Peter Hogg, Q.C., and Ryder Gilliland, for the appellant, Roger D. Rowan;

John A. Campion, David A. Hausman, and Laura R. Baron, for the appellants, Watt Carmichael Inc., Harry J. Carmichael and G. Michael McKenney;

Alexandra Clark, Johanna Superina and Usman M. Sheikh, for the respondent;

S. Zachary Green, for the intervener, Ministry of the Attorney General.

These appeals were heard on February 21 and 22, 2012, by Sharpe, Blair and Juriansz, JJ.A., of the Ontario Court of Appeal. The following judgment of the Court of Appeal was delivered by Sharpe, J.A., on March 29, 2012.