Walton v. Alberta Securities Commission et al., (2014) 580 A.R. 218

• Judge: Martin,Nation,Slatter
• Neutral Citation: 2014 ABCA 273
• Date: 29 August 2014
• Subject Matter: SECURITIES REGULATION
• Court: Court of Appeal (Alberta)

Walton v. Securities Comm. (2014), 580 A.R. 218; 620 W.A.C. 218 (CA)

MLB headnote and full text

Temp. Cite: [2014] A.R. TBEd. SE.006

Gayle Marie Walton (appellant/respondent) v. Alberta Securities Commission (respondent/applicant) and John Herbert Holtby, Kenneth Michael Burdeyney, Randall George Kowalchuk, Dale Francis Holtby and John Jacob Shepert (not parties to the appeal)

(1301-0201-AC)

John Herbert Holtby (appellant/respondent) v. Alberta Securities Commission (respondent/applicant) and Neil Donald Tanner (merits stage only), Kenneth Michael Burdeyney, Eric John Jaschke (merits stage only), Gayle Marie Walton, Ken Landsiedel (merits stage only), Randall George Kowalchuk, Dale Francis Holtby and John Jacob Shepert (not parties to the appeal)

(1301-0207-AC)

Kenneth Michael Burdeyney (appellant/respondent) v. Alberta Securities Commission (respondent/applicant) and John Herbert Holtby, Neil Donald Tanner (merits stage only), Eric John Jaschke (merits stage only), Gayle Marie Walton, Ken Landsiedel (merits stage only), Randall George Kowalchuk, Dale Francis Holtby and John Jacob Shepert (not parties to the appeal)

(1301-0209-AC)

Randall George Kowalchuk (appellant/respondent) v. Alberta Securities Commission (respondent/applicant) and Neil Donald Tanner (merits stage only), Eric John Jaschke (merits stage only), Ken Landsiedel (merits stage only), John Herbert Holtby, Kenneth Michael Burdeyney, Gayle Marie Walton, Dale Francis Holtby and John Jacob Shepert (not parties to the appeal)

(1301-0210-AC)

Alberta Securities Commission (respondent/applicant) v. John Jacob Shepert (appellant/respondent) and John Herbert Holtby, Neil Donald Tanner, Kenneth Michael Burdeyney, Eric John Jaschke, Gayle Marie Walton, Ken Landsiedel, Randall George Kowalchuk, and Dale Francis Holtby (not parties to the appeal)

(1301-0253-AC; 2014 ABCA 273)

Indexed As: Walton v. Alberta Securities Commission et al.

Alberta Court of Appeal

Martin and Slatter, JJ.A., and Nation, J.(ad hoc)

August 29, 2014.

Summary:

The Alberta Securities Commission, in a decision reported as Re Holtby, 2013 ABASC 45, found G. Walton, B. Holtby, Burdeyney, Randy Kowalchuk and Shepert (the appellants) culpable of insider trading, tipping and/or encouraging with respect to the shares of Eveready Inc. The appellants appealed the findings of culpability and the sanctions subsequently imposed on them in the decision of Re Holtby, 2013 ABASC 273.

The Alberta Court of Appeal allowed the appeals of G. Walton, Burdeyney, and Shepert, on the merits. The findings of culpability and the sanctions against them were set aside. B. Holtby's appeal on the merits was allowed with respect to one of the allegations against him (i.e., an allegation of encouragement). His appeal on sanction was allowed and the matter remitted to the Commission. Randy Kowalchuk's appeal on the merits was dismissed, but his appeal on sanction was allowed and remitted to the Commission.

Securities Regulation - Topic 1386

Regulatory commissions (incl. self-regulatory organizations) - Statutory appeal or judicial review - Scope of appeal or standard of review - The Alberta Court of Appeal discussed the standard of review on an appeal from findings of culpability and sanctions for insider trading and other forms of conduct prohibited by the Securities Act - See paragraphs 16 to 23.

Securities Regulation - Topic 5311

Trading in securities - Offences - Material changes or facts - Nondisclosure (incl. tipping and encouraging) - The Alberta Court of Appeal explained that "There is an important distinction between a person in a special relationship passing on knowledge of a material fact ('tipping' under s. 147(3)) [of the Alberta Securities Act], and that same person merely encouraging others to purchase the shares ('encouraging' under s. 147(3.1)). A person who is 'tipped', and knows or ought to know that the source of the information is in a special relationship, also becomes a person in a special relationship under s. 9(e). The same consequences apply down a chain of tipping to everyone who ought to know that the source of the information was a person in a special relationship. On the other hand, someone who is merely 'encouraged' to buy the stock will not become a person in a special relationship, and if that person encourages yet others, neither will they. Those who are merely 'encouraged' do not offend the Act if they trade in the subject securities" - See paragraph 15.

Securities Regulation - Topic 5311

Trading in securities - Offences - Material changes or facts - Nondisclosure (incl. tipping and encouraging) - The Alberta Securities Commission considered the mens rea requirement for the offences of insider trading, tipping and encouraging - See paragraph 49 - The Alberta Court of Appeal stated that the "The Commission's interpretation of the requirements of 'insider trading' and 'tipping' is reasonable, and amply supported by the case law. Its interpretation of 'recommending or encouraging', however, cannot be sustained. The wording of the statute ... is key. The insider trading provision (s. 147(2)) requires only 'knowledge of a material fact'. The tipping provision (s. 147(3)) requires 'informing', which is the mere passing on of information. The recommending or encouraging provision (s. 147(3.1)) requires both 'knowledge of a material fact' and also an act of recommending or encouraging. Mere knowledge is not sufficient, because s. 147(3.1) clearly requires something more. It may not be necessary for the encourager to 'know or intend that the recipient will buy' the security, but that does not exhaust the analysis. The ordinary meaning of 'recommending or encouraging' includes some intention to convey information with the expectation that it might be relied on; that is the essence of 'recommending' ... Overall, the Commission's interpretation is unreasonable" - See paragraphs 50 and 51.

Securities Regulation - Topic 5311

Trading in securities - Offences - Material changes or facts - Nondisclosure (incl. tipping and encouraging) - B. Holtby was the founder and director of Eveready and had knowledge of a potential takeover (material fact) - The Alberta Securities Commission found that Holtby, having knowledge of the material fact, encouraged Landsiedel (a golf acquaintance) to purchase Eveready shares - Holtby appealed - The Alberta Court of Appeal held that the finding that Holtby encouraged Landsiedel was unreasonable and not a finding that was available on the entire record, having regard to the facts and the law - The only evidence supporting an inference of encouraging was a meeting at a golf course, in which some vague, generic statements were made about Eveready and Landsiedel's purchase of a significant number of shares during the relevant period - However, when the evidence was considered as a whole, it was unreasonable to think that "encouraging" had been proven on a balance of probabilities, much less to the standard of clear and cogent evidence the Commission established for itself - This finding had to be set aside - See paragraphs 50 to 82.

Securities Regulation - Topic 5311

Trading in securities - Offences - Material changes or facts - Nondisclosure (incl. tipping and encouraging) - B. Holtby was the founder and director of Eveready and had knowledge of a potential takeover (material fact) - Holtby's investment adviser, Richard Kowalchuk, entered in to a settlement agreement with the Alberta Securities Commission admitting that B. Holtby told him about the material fact and that he then engaged in insider trading - The Commission also found that Richard told his brother Randy Kowalchuk about the material fact, and that Randy then engaged in tipping and insider trading - Randy appealed - The Alberta Court of Appeal held that the issues raised by Randy Kowalchuk attacked the fact findings of the Commission - While other findings would have been possible, the standard of review was deferential, and no reviewable error was shown - See paragraphs 83 to 87.

Securities Regulation - Topic 5311

Trading in securities - Offences - Material changes or facts - Nondisclosure (incl. tipping and encouraging) - B. Holtby was the founder and director of Eveready and had knowledge of a potential takeover (material fact) - The Alberta Securities Comission found that Shepert gained knowledge of the material fact from B. Hotlby's brother, D. Holtby, a person whom Shepert should have known had been informed of it by his brother B. Holtby - The Commission found that Shepert thereafter engaged in insider trading - Shepert appealed - The Alberta Court of Appeal held that there was very little on the record that would justify a finding of any kind of misconduct on the part of Shepert - There was nothing that justified an inference that what happened was "tipping" as opposed to merely "encouraging" - There was nothing to support an inference that Shepert should have known that any information he received originated in a person in a special relationship with Eveready - The finding that Shepert engaged in insider trading was unreasonable and had to be set aside - See paragraphs 88 to 111.

Securities Regulation - Topic 5311

Trading in securities - Offences - Material changes or facts - Nondisclosure (incl. tipping and encouraging) - B. Holtby was the founder and director of Eveready and had knowledge of a potential takeover (material fact) - The Alberta Securities Commission found that Holtby tipped Burdeyney, his longtime personal accountant (not Eveready's), about the takeover, making Burdeyney a person in a special relationship with Eveready - Burdeyney then engaged in insider trading on that information and also tipped another accountant who worked in his office, G. Walton, about the material fact placing her in a special relationship - G. Walton then improperly encouraged her husband T. Walton to purchase shares of Eveready - Burdeyney and G. Walton appealed - The Alberta Court of Appeal held that while the Commission's findings of fact and credibility were entitled to deference, the findings that Holtby tipped Burdeyney, that Burdeyney tipped Walton, and that Walton encouraged her husband were unreasonable - The clear, convincing and cogent evidence that the Commission realized was needed was missing from the record - See paragraphs 112 to 148.

Securities Regulation - Topic 5322

Trading in securities - Offences - Penalties and punishments - Administrative penalties - B. Holtby was the founder and director of Eveready and had knowledge of a potential takeover - The Alberta Securities Commission found that Holtby was involved in insider trading, tipping and encouraging regarding disclosure of information respecting the potential takeover - The Commission imposed a permanent market exclusion regarding Holtby, ordered him to disgorge profits of $80,678, imposed an administrative penalty of $1,750,000 and costs of $90,000 - Holtby appealed - The Alberta Court of Appeal allowed the appeal respecting the allegation of encouraging - The court also allowed the appeal respecting the sanction, noting that the administrative penalty was "very severe" - The matter of sanction was remitted to the Commission - See paragraphs 149 to 167.

Securities Regulation - Topic 5322

Trading in securities - Offences - Penalties and punishments - Administrative penalties - B. Holtby was the founder and director of Eveready and had knowledge of a potential takeover (material fact) - Holtby's investment adviser, Richard Kowalchuk, entered in to a settlement agreement with the Alberta Securities Commission admitting that B. Holtby told him about the material fact and that he then engaged in insider trading - The Commission also found that Richard told his brother Randy Kowalchuk about the material fact, and that Randy then engaged in tipping and insider trading - The Commission imposed a four year market exclusion regarding Randy, ordered him to disgorge profits of $54,402, imposed an administrative penalty of $55,000 and costs of $22,500 - Randy appealed - The Alberta Court of Appeal dismissed the appeal on the merits, but allowed the appeal regarding the sanctions - The sanction lacked justification, transparency and intelligibility - The matter of sanctions was remitted to the Commission - See paragraphs 83 to 87.

Cases Noticed:

Alberta Securities Commission v. Workum et al. (2010), 493 A.R. 1; 502 W.A.C. 1; 41 Alta. L.R.(5th) 48; 2010 ABCA 405, refd to. [para. 17].

Ironside et al. v. Alberta Securities Commission (2009), 454 A.R. 285; 455 W.A.C. 285; 11 Alta. L.R.(5th) 27; 2009 ABCA 134, refd to. [para. 17].

Alliance Pipeline Ltd. v. Smith, [2011] 1 S.C.R. 160; 412 N.R. 66; 2011 SCC 7, refd to. [para. 17].

H.L. v. Canada (Attorney General) et al., [2005] 1 S.C.R. 401; 333 N.R. 1; 262 Sask.R. 1; 347 W.A.C. 1; 2005 SCC 25, refd to. [para. 17].

R. v. Regan (G.A.), [2002] 1 S.C.R. 297; 282 N.R. 1; 201 N.S.R.(2d) 63; 629 A.P.R. 63; 2002 SCC 12, refd to. [para. 17].

Wilde et al. v. Archean Energy Ltd. et al. (2007), 422 A.R. 41; 415 W.A.C. 41; 82 Alta. L.R.(4th) 203; 2007 ABCA 385, refd to. [para. 17].

Johnson v. General Motors of Canada Ltd. (2013), 307 O.A.C. 359; 2013 ONCA 502, refd to. [para. 17].

Newfoundland and Labrador Nurses' Union v. Newfoundland and Labrador (Treasury Board) et al., [2011] 3 S.C.R. 708; 424 N.R. 220; 317 Nfld. & P.E.I.R. 340; 986 A.P.R. 340; 2011 SCC 62, refd to. [para. 20].

Irving Pulp & Paper Ltd. v. Communications, Energy and Paperworkers Union of Canada, Local 30, [2013] 2 SCR 458; 445 N.R. 1; 404 N.B.R.(2d) 1; 1048 A.P.R. 1; 2013 SCC 34, refd to. [para. 20].

Spinks v. Law Enforcement Review Board (Alta.) et al. (2011), 505 A.R. 260; 522 W.A.C. 260; 46 Alta. L.R.(5th) 84; 2011 ABCA 162, refd to. [para. 20].

R. v. R.E.M., [2008] 3 S.C.R. 3; 380 N.R. 47; 260 B.C.A.C. 40; 439 W.A.C. 40; 2008 SCC 51, refd to. [para. 22].

R. v. Vuradin (F.), [2013] 2 SCR 639; 446 N.R. 53; 553 A.R. 1; 583 W.A.C. 1; 2013 SCC 38, refd to. [para. 22].

Cartaway Resources Corp. et al., Re, [2004] 1 S.C.R. 672; 319 N.R. 1; 195 B.C.A.C. 161; 319 W.A.C. 161; 2004 SCC 26, refd to. [para. 22].

Alberta Union of Provincial Employees v. Alberta (2010), 482 A.R. 292; 490 W.A.C. 292; 29 Alta. L.R.(5th) 273; 2010 ABCA 216, refd to. [para. 26].

United States of America v. Huynh (2005), 202 O.A.C. 198; 200 C.C.C.(3d) 305 (C.A.), refd to. [para. 26].

Suman, Re (2012), 35 OSCB 2809, refd to. [para. 26].

R. v. Cavanagh (D.), [2013] O.T.C. Uned. 5757; 2013 ONSC 5757, refd to. [para. 28].

R. v. Khan (M.A.) (1998), 129 Man.R.(2d) 32; 180 W.A.C. 32; 126 C.C.C.(3d) 353 (C.A.), refd to. [para. 33].

Steinberg v. Commissioner of Taxation (Commonwealth) (1875), 134 C.L.R. 640, refd to. [para. 36].

R. v. O'Connor (P.) (2002), 166 O.A.C. 202; 62 O.R.(3d) 263 (C.A.), refd to. [para. 36].

R. v. Sylvain (W.) (2014), 575 A.R. 59; 612 WA.C. 69; [2014] 7 W.W.R. 485; 2014 ABCA 153, refd to. [para. 37].

R. v. Vetrovec; R. v. Gaja, [1982] 1 S.C.R. 811; 41 N.R. 606, refd to. [para. 38].

Anderson v. Alberta Securities Commission (2008), 437 A.R. 55; 433 W.A.C. 55; 2008 ABCA 184, refd to. [para. 48].

Nowoselsky v. Alberta College of Social Workers Appeal Panel (2011), 505 A.R. 93; 522 W.A.C. 93; 2011 ABCA 58, refd to. [para. 48].

Visconti v. College of Physicians and Surgeons (Alta.) (2010), 482 A.R. 244; 490 W.A.C. 244; 2010 ABCA 250, refd to. [para. 48].

R. v. J.M.H., [2011] 3 S.C.R. 197; 421 N.R. 76; 283 O.A.C. 379; 2011 SCC 45, refd to. [para. 82].

Podorieszach, Re, 2004 ASCD No. 360, refd to. [para. 96].

Roche Securities, Re, 2004 ASCD No. 400, refd to. [para. 96].

Browne v. Dunn (1893), 6 R. 67 (H.L.), refd to. [para. 115].

R. v. Rankin (A.), [2006] O.T.C. 1585; 42 C.R.(6th) 297 (S.C.), leave to appeal refused (2007), 221 O.A.C. 184 (C.A.), refd to. [para. 134].

Workum and Hennig, Re, 2008 ABASC 719, refd to. [para. 153].

R. v. Tracy (R.) (1992), 12 B.C.A.C. 150; 23 W.A.C. 150; 71 C.C.C.(3d) 329 (C.A.), refd to. [para. 165].

Statutes Noticed:

Securities Act, R.S.A. 2000, c. S-4, sect. 1(gg) [para. 11]; sect. 9 [para. 13]; sect. 147(2), sect. 147(3), sect. 147(3.1) [para. 14].

Counsel:

S.M. Renouf, Q.C., and L. Anaka, for the appellant, Gayle Marie Walton;

J.T. Eamon, Q.C., for the appellant, John Herbert Holtby;

W.R. Pieschel, Q.C., for the appellant, Kenneth Michael Burdeyney;

J.D. West, for the appellant, Randall George Kowalchuk;

R.S. Abells, Q.C., for the appellant, John Jacob Shepert;

T.G. McCartney and L. Berner, for the respondent, Alberta Securities Commission.

This appeal was heard on June 11 and 12, 2014, in Calgary, Alberta, before Martin and Slatter, JJ.A., and Nation, J.(ad hoc), of the Alberta Court of Appeal. The following memorandum was filed by the court on August 29, 2014.