



COURT OF APPEAL FOR ONTARIO

CITATION:
Rowan v. Ontario
    Securities Commission, 2012 ONCA 208

DATE: 20120329

DOCKET: C53943 & C53960

Sharpe, Blair and Juriansz JJ.A.

BETWEEN

Roger
    D. Rowan, Watt Carmichael Inc., Harry J. Carmichael and

G. Michael McKenney

Appellants

and

Ontario Securities Commission

Respondent

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

Heard: February 21 and 22, 2012

On appeal from the order of the Divisional Court (Justice
    Lee K. Ferrier, Justice Anne M. Molloy and Justice Thea P. Herman), dated
    December 16, 2010, with reasons reported at 2010 ONSC 7029, 103 O.R. (3d) 484, dismissing
    the appeal from the orders of the Ontario Securities Commission dated June 20,
    2008, reported at (2008), 31 OSCB 6515, and December 21, 2009, reported at (2010),
    33 OSCB 91.

Sharpe
    J.A.:

[1]

At an administrative hearing, the Ontario Securities Commission
    (Commission) found that the appellants had breached Ontario securities law,
    that they had engaged in conduct contrary to the public interest and that it
    was in the public interest to make certain orders against them pursuant to the
Ontario
    Securities Act
, R.S.O. 1990, c. S.5 (the Act), s. 127(1). The orders
    included substantial administrative monetary penalties. The Commission rejected
    the submission that those penalties ran afoul s. 11(d) of the
Charter of
    Rights and Freedoms
. The Divisional Court dismissed an appeal against the
    Commissions orders. The appellants obtained leave to appeal to this court.

[2]

The proceedings arose from allegations that Roger Rowan, President and
    Chief Operating Officer of Watt Carmichael Inc. ("WCI"), breached
    Ontario securities law by trading in, and failing to report his trades in, a
    large volume of shares of Biovail Corporation. WCI is a broker and registered
    investment dealer. Rowan was also a director of Biovail. Eugene N. Melnyk,
    Biovails Chairman and Chief Executive Officer, set up various offshore trusts which
    held Biovail securities and maintained discretionary trading accounts at WCI.
    Rowan, as registered representative on the trust accounts, was permitted to
    trade in securities without client authorization. Before the Commission, the
    parties agreed that Rowan traded millions of Biovail shares, generating approximately
    $2,350,000 in commissions for WCI between 2002 and 2004. The Commission
    dismissed allegations of insider trading but found that Rowan breached Ontario
    securities law by failing to file insider reports as required by s. 107 of the
Act
.

[3]

Harry Carmichael was the Chairman, Chief Executive Officer and Ultimate
    Designated Person (UDP) of WCI and Michael McKenney was the Chief Financial
    Officer and Chief Compliance Officer (CCO). The Commission found that WCI,
    Carmichael and McKenney had failed adequately to supervise Rowans trading in
    Biovail shares.

[4]

The appellants challenge the constitutionality of s. 127(1)(9) of the Act,
    the provision that allows the Commission to impose administrative monetary
    penalties (AMPs). The appellants argue that because the maximum penalty of $1
    million can be imposed for each transaction in a single course of infractions,
    the potential size of an AMP is so large that it amounts to a penal sanction,
    and  a party who is subject to such a penalty is a person charged with an
    offence within the meaning of the
Charter
, s. 11(d). As the
    Commission does not accord the rights guaranteed by s. 11(d) when conducting
    administrative hearings, the appellants say that s. 127(1)(9) should be struck
    down. Rowan also argues that the Commission erred by taking into account breaches
    of the public interest in awarding an AMP against him. WCI and Carmichael
    contend that the Commission made no finding that they breached Ontario
    securities law and that as a result, the Commission had no jurisdiction to
    impose an AMP against them. Carmichael also argues that there was no basis to
    find that he was under any duty under Ontario securities law to supervise Rowan
    and that the Commissions sanctions imposed against him on that account should
    be set aside. WCI, Carmichael and McKenney also argue that the finding that
    they failed to adequately supervise Rowan was unreasonable. Finally, the
    appellants appeal the Commissions award of costs.

[5]

In my view, the Commission and the Divisional Court correctly concluded
    that the only remedy available to the appellants under s. 11(d) of the
Charter
is to limit the authority of the Commission to impose AMPs to levels that
    qualify as administrative, rather than penal, sanctions. The AMPs at issue here
    do not transgress that limit. Accordingly I would dismiss the constitutional
    challenge to s. 127(1)(9). I would also dismiss the other grounds of appeal on
    the basis that Divisional Court properly concluded that the Commissions
    reasons are to be reviewed on a standard of reasonableness, and that they met
    that standard. The Commission provided careful and detailed reasons for its
    decision, making all the necessary findings to support the sanctions it
    imposed. I agree with the Divisional Court that the appellants have failed to
    show any basis for appellate intervention.

FACTS

[6]

WCI was an investment dealer registered under the
Ontario Securities
    Act
and a member of the Investment Dealers Association (the IDA) (now
    the Investment Industry Regulatory Organization of Canada). Rowan, Carmichael
    and McKenney were senior officers of WCI.  Rowan was the President and Chief
    Operating Officer. Carmichael was the Chairman, Chief Executive Officer and
    Ultimate Designated Person (UDP). McKenney served as WCIs Chief Financial Officer
    and Chief Compliance Officer (CCO).

[7]

A firms UDP is responsible for overall compliance with regulatory
    requirements as well as overseeing the development and implementation of its
    compliance practices and procedures. The CCO is responsible for day-to-day
    compliance activities, for supervising the firm's accounts as well as
    developing and implementing its compliance policies and procedures.

[8]

Biovail Corporation (Biovail) is a reporting issuer in Ontario whose
    shares traded on both the Toronto Stock Exchange and the New York Stock Exchange. 
    Eugene N. Melnyk was Biovails Chairman and Chief Executive Officer. In 1996,
    Melnyk established four trusts in the Cayman Islands. The trusts assets
    consisted largely of Biovail securities. The trusts had discretionary trading
    accounts with WCI, enabling Rowan, the registered representative for the
    accounts, to make trades without prior client authorization.

[9]

During the relevant period, Rowan was an insider of Biovail, serving as
    a Director and as a member of Biovails Audit Committee. From 2002 to 2004
    Rowan engaged in a substantial volume of discretionary trading of Biovail
    securities held in the Trust Accounts.  These transactions were summarized by
    the Commission as follows:



Year

Shares
          Bought

Shares
          Sold





Quantity

US$

Quantity

US$



2002


7.1 million

265 million

7.0 million

250 million



2003


9.5 million

316 million

10.3 million

340 million



2004

0.2 million

2 million

0.7 million

14 million



Total

16.8
          million

583
          million

18.0
          million

604
          million



In addition, during 2002 and 2003, Rowan bought 24,500
          Biovail call options at a cost of (approx.) US$ 10 million



THE COMMISSIONS FINDINGS

Merits decision

Rowan

[10]

By a
    majority, the Commission dismissed the most serious allegation against Rowan,
    namely, that he was guilty of insider trading while in possession of material
    undisclosed information contrary to s. 76 of the
Act
. However, as an insider, Rowan was required by s. 107
    of the Act to report his trades and the Commission found that he had repeatedly
    breached that section by failing to do so.

[11]

The
    Commission also found that Rowan had acted in a manner contrary to the public
    interest on several counts. He failed to provide complete and accurate
    information to Biovail concerning the number of Biovail shares over which he
    exercised control or direction, and his failure caused Biovails Management
    Information Circulars to contain incomplete and misleading information. The
    Commission further held that, throughout 2002 and 2003, Rowan had engaged in a
    high volume of discretionary trading in Biovail securities in the Trust
    Accounts during Biovails blackout periods -
periods
    declared by public companies during which insiders may not trade company shares
    because of the increased risk of insiders having access to material undisclosed
    information.
Rowans trades were summarized by the Commission in its Sanctions
    decision as follows:



Year

Shares
          Bought

Shares
          Sold





Quantity

US$

Quantity

US$



2002

2.5 million

110 million

2.0 million

100 million



2003


2.5 million

90 million

2.8 million

100 million



Total

5.0
          million

200
          million

4.8
          million

200
          million



In addition, during
          2003, over 11,00 Biovail call options were acquired at a cost of (approx.)
          US$ 4 million



[12]

The
    Commission described Rowans trading during the blackout periods to be contrary
    to the public interest and abusive of the integrity of the capital markets of
    Ontario.

McKenney

[13]

The
    Commission held that, as WCIs Chief Compliance Officer, McKenney was
    responsible for supervising Rowans trading to ensure compliance with
    regulatory requirements.  Despite this, he had:

·

failed to properly monitor Rowans trading in the Trust Accounts
    in spite of the clear risks of non-compliance posed by the trading;

·

made only sporadic and inadequate attempts to determine when
    Rowan had knowledge of undisclosed information;

·

accepted information provided by Rowan at face value rather
    than performing independent checks;

·

relied on happenstance to determine when Rowan was attending
    Biovail Board or Audit Committee meetings; and

·

failed to adhere to WCIs own policies by only monitoring trading
    in Biovail securities in accounts controlled by Rowan.

Carmichael

[14]

The
    Commission held that as Chairman, CEO and UDP of WCI, Carmichael was
    responsible for the firms overall compliance with regulatory requirements and
    for overseeing the development and implementation of its compliance practices
    and procedures.  Despite this, Carmichael:

·

had failed to ensure that WCI had adequate policies and
    procedures in place to discharge its responsibility to ensure Rowans
    compliance; and

·

had failed to ensure that McKenney was providing proper oversight
    to the trading in the Trust Accounts.

WCI

[15]

Finally,
    the Commission found that WCI had breached its supervisory obligations by:

·

failing to implement compliance policies, procedures and
    practices to address the inherent risk in Rowans dual role as a Registered
    Representative for the Trust Accounts and an insider of Biovail; and

·

failing to adequately supervise Rowans trading in Biovail shares
    in the Trust Accounts, in that WCI failed to ensure the containment of inside
    information, failed to ensure Rowans compliance with insider trading and
    disclosure rules and the Biovail Blackout Policy, and failed to properly
    document its compliance activities.

[16]

The Commission
    noted that Rowans trading in Biovail trust shares during the relevant period
    had generated approximately $2,350,000 in commissions for WCI.

Sanctions decision

[17]

In its
    subsequent Sanctions decision, the Commission imposed significant sanctions against
    each of the appellants to reflect the seriousness of the securities law
    violations that occurred in this matter and to not only deter the
    [Appellants] but also like-minded people from engaging in future conduct that
    violates securities law.

[18]

The
    Commission gave comprehensive reasons dismissing the challenge to the
    constitutionality of the AMP provision and, as described below, imposed
    significant AMPs on all appellants except for McKenney. In assessing the size
    of the AMPs, the Commission took into account that approximately one half of Rowans
    7,410 trades in Biovail shares took place prior the date when the power to
    impose AMPs came into force.

[19]

Rowans
    registration was suspended for 12 months and made subject to conditions upon
    his return. He was prohibited from being a director or officer of a reporting
    issuer for 7 years, prohibited from being a director of officer of a registrant
    for 3 years, reprimanded, and ordered to pay an AMP of $520,000.

[20]

Carmichael
    was required to resign any current position as an officer or director of a
    registrant and prohibited from acting as such for 45 days, prohibited from
    acting in a supervisory role for 45 days, reprimanded, and required to pay an
    AMP of $250,000.

[21]

McKenney
    was required to resign any current position as an officer or director of a
    registrant and prohibited from acting as such for 12 months. He was also prohibited
    from acting in a supervisory role for 12 months, and reprimanded.

[22]

WCI was
    required to undergo an independent review of its compliance structure,
    reprimanded and required to pay an AMP of $450,000.

[23]

The
    Commission ordered that all of the AMPs were to be allocated for the benefit of
    third parties pursuant to s. 3.4(2)(b). The Commission also ordered the
    appellants to pay costs of $140,000.

THE DIVISIONAL COURT

[24]

The
    Divisional Court dismissed the appeal without calling on the respondents. The
    Divisional Court observed that most of the grounds of appeal raised issues that
    fell squarely within the expertise of the Commission and were therefore to be
    reviewed on a standard of reasonableness. The Divisional Court described the
    Commissions decisions as careful and thorough, correct in law and
    reasonable in light of the evidence and the public interest.

[25]

Applying a
    standard of correctness to the constitutional challenge to the AMP provision,
    the Divisional Court adopted the detailed reasons of the Commissions Sanctions
    decision rejecting the constitutional challenge.

[26]

Without
    squarely deciding which standard of review should apply, the Divisional Court
    found no error of law in the Commissions consideration of conduct contrary to
    the public interest in awarding an AMP against Rowan.

[27]

Noting
    that the appellants had not raised the issue below, the Divisional Court
    rejected the argument that the Commission erred in awarding AMPs against
    Carmichael and WCI without finding that their failure to supervise was itself a
    breach of Ontario securities law. The Divisional Court held that the
    Commissions findings supported the conclusion that Carmichael and WCI breached
    Ontario securities law.

ISSUES

1. Should s.
    127(1)(9), authorizing the Commission to impose an AMP of up to $1 million per
    infraction, be struck down as contrary to s. 11(d) of the
Charter of Rights
    and Freedoms
?

2. Did the
    Commission err and exceed its jurisdiction by taking conduct contrary to the
    public interest into account when imposing an AMP against Rowan?

3. Did the
    Commission err and exceed its jurisdiction by imposing AMPs against Carmichael
    and WCI without making a finding that they had breached Ontario securities law?

4. Did the
    Commission err and exceed its jurisdiction by finding that Carmichael was under
    a duty imposed by Ontario securities law to supervise Rowan?

5. Was the
    Commissions finding that Carmichael, McKenney and WCI had failed to adequately
    supervise Rowan unreasonable?

6. Should
    the Commissions costs award be set aside?

ANALYSIS

1.
    Should s. 127(1)(9), authorizing the Commission to impose an AMP of up to $1
    million per infraction, be struck down as contrary to s. 11(d) of the Charter
    of Rights and Freedoms
?

[28]

Section
    127(1) provides as follows:

127.  (1)
The
    Commission may make one or more of the following orders if in its opinion it is
    in the public interest to make the order or orders:



9. If a person or company has not complied with Ontario
    securities law, an order requiring the person or company to pay an
    administrative penalty of not more than $1 million for each failure to comply.

[29]

Section
    127(1) is contained in Part XXII of the
Act
,
    which deals with enforcement. Also of relevance to the case at bar is s. 122,
    which provides that a person who contravenes Ontario securities law may be
    charged with an offence and is liable on conviction to a fine of up to $5
    million and imprisonment of up to five years less a day.

[30]

Most s.
    127(1) orders may be made on the basis of the Commissions opinion that it is
    in the public interest to make the order or orders but some, including the
    power to impose an AMP, can only be made where the Commission has found that
    the person or company has not complied with Ontario securities law.

[31]

Ontario
    securities law is defined in s. 1 as follows:

Ontario securities law means,

(a) this Act,

(b) the regulations, and

(c) in respect of a person or company, a decision of the
    Commission or a Director to which the person or company is subject;



regulations means the regulations made under this Act and,
    unless the context otherwise indicates, includes the rules;



rules means,

(a) the rules made under section 143, and

(b) orders, rulings and policies listed in the Schedule;

[32]

The
Charter
    of Rights and Freedoms
, s. 11(d) provides:

11.
Any
    person charged with an offence has the right



(d) to be presumed innocent until proven guilty according to
    law in a fair and public hearing by an independent and impartial tribunal;

[33]

The
    respondent concedes that the appellants were not accorded the rights guaranteed
    by s. 11(d) and, accordingly, the issue is whether the appellants were entitled
    to s. 11(d) protections: that is, were they persons charged with an offence
    because they were in jeopardy of having the Commission impose the AMPs
    authorized by s. 127(1)(9).

[34]

The
    appellants argue that s. 127(1)(9) allows the Commission to impose an AMP of
    virtually unlimited magnitude. In the present case, if the maximum fine of $1 million
    per infraction were multiplied by the thousands of infractions Rowan was found
    to have committed, a penalty in the billions of dollars would be theoretically
    possible. The appellants say that a fine of that magnitude cannot possibly
    qualify as an administrative sanction and that it is necessarily penal in
    nature. They submit that a person put in jeopardy of having such a penalty
    imposed must be someone charged with an offence and therefore entitled to the
    rights conferred by s. 11(d) of the
Charter.
They insist that whether
    a proceeding is covered by s. 11 must be assessed
ex ante
, on the
    basis of the amount of the potential fine, and not
ex post
, on the
    basis of the actual monetary penalty imposed.

[35]

The
    starting point for analysis of the
Charter
challenge is the decision
    of the Supreme Court of Canada in
R. v. Wigglesworth
, [1987] 2 S.C.R.
    541, the seminal case on the meaning of the phrase charged with an offence in
    s. 11
. Wigglesworth
rejected the proposition that all persons subject
    to proceedings leading to the imposition of a penalty should be regarded as charged
    with an offence for the purposes of s. 11. Wilson J., who wrote the majority
    opinion, took a narrower view and held, at p. 558, that s. 11 should be
    restricted to the most serious offences known to our law, i.e., criminal and
    penal matters.

[36]

There are
    two categories of criminal or penal matters. A matter may be a criminal or
    penal matter either because by its very nature it is a criminal proceeding, or
    because a conviction in respect of the offence may lead to a true penal
    consequence: p. 559. Matters of a public nature, intended to promote public
    order and welfare within a public sphere of activity are by their very nature
    criminal or penal while private, domestic or disciplinary matters which are
    regulatory, protective or corrective and which are primarily intended to
    maintain discipline, professional integrity and professional standards or to
    regulate conduct within a limited private sphere of activity are not: p. 560.
    Proceedings of an administrative nature instituted for the protection of the
    public in accordance with the policy of a statute are also not the sort of
    offence proceedings to which s. 11 is applicable: p. 560.

[37]

The
    appellants do not suggest that the proceedings they faced before the Commission
    met the by nature test as being criminal or penal. The proceedings were
    clearly regulatory in nature and designed to enhance public confidence in the
    integrity and reliability of the capital markets. The appellants base their
    challenge to s. 127(1)(9) on the true penal consequence test. They contend
    that because of the potential magnitude of the AMP the Commission could impose,
    they were faced with a true penal consequence thereby triggering the
    protection of s. 11 of the
Charter
.

[38]

Wigglesworth
holds that a private, domestic or disciplinary matter that escapes the reach of
    the first by nature test may still be caught by s. 11 because of the matter
    could lead to a true penal consequence. This was explained by Wilson J. at p.
    561:

[A] true penal consequence which would attract the application
    of s. 11 is imprisonment or a fine which by its magnitude would appear to be
    imposed for the purpose of redressing the wrong done to society at large rather
    than to the maintenance of internal discipline within the limited sphere of
    activity.

[39]

However,
    at p. 561-62, Wilson J. added what she described as two caveats. Both caveats
    bear directly on the issue posed in this case. Wilson J.s first caveat was
    that:

[T]he possibility of a fine may be fully consonant with the
    maintenance of discipline and order within a limited private sphere of activity
    and thus may not attract the application of s. 11.
It is my view that if a
    body or an official has an unlimited power to fine, and if it does not afford
    the rights enumerated under s. 11, it cannot impose fines designed to redress
    the harm done to society at large. Instead, it is restricted to the power to
    impose fines in order to achieve the particular private purpose.
[Emphasis
    added.]

[40]

Wilson
    J.s second caveat was that only rarely would a proceeding fail to qualify for
    s. 11 protection under the by nature test but fall under s. 11 by virtue of
    the true penal consequence test. As Wilson J. put it, it is highly doubtful
    that any body or official which exists in order to achieve some administrative
    or private disciplinary purpose can ever imprison an individual. However,
    where an individual is to be subject to penal consequences such as
    imprisonment - the most severe deprivation of liberty known to our law - then
    he or she, in my opinion, should be entitled to the highest procedural
    protection known to our law.

[41]

In my
    view, Wilson J.s first caveat is fatal to the appellants argument that we
    should strike down s. 127(1)(9) on the ground that it allows for the imposition
    of a monetary penalty of potential virtually unlimited magnitude. The
    italicized portion of the passage I have quoted above stands for the
    proposition that the appropriate remedy to protect the rights guaranteed by s.
    11 in the case of an unlimited power to impose a fine is not to nullify the
    power altogether, but rather to limit the tribunals discretion so that it may
    only impose penalties that are consistent with the purpose of maintaining
    discipline and order within a particular sphere of activity.

[42]

The
    appellants contend that the italicized passage cannot mean what it appears to
    say given the actual decision in
Wigglesworth
. In his careful argument,
    Prof. Hogg pointed out that in
Wigglesworth
, the accused RCMP officer
    was charged with a disciplinary offence for which he could be fined and
    sentenced to imprisonment by the tribunal. The officer was given a modest fine
    and not sent to jail, yet the Supreme Court of Canada held that the possibility
    of imprisonment brought the proceedings within s. 11 because the officer faced
    the possibility of true penal consequences. Professor Hogg submits that the
    actual holding in
Wigglesworth
was to assess whether s. 11 applied
ex
    ante
, on the basis of the potential penalty, not
ex post
, on the
    basis of the actual penalty. He submits that we should take the same approach
    and effectively disregard the italicized passage as non-binding
obiter
    dictum
.

[43]

I am
    unable to accept that argument for the following reasons.

[44]

It is
    clear from Wilson J.s second caveat that she regarded
Wigglesworth
as
    an exceptional case. What made
Wigglesworth
exceptional was that a
    domestic tribunal was given the power to imprison, a possibility that Wilson J.
    regarded as difficult to imagine. When explaining her conclusion that the RCMP
    officer did face true penal consequences, she wrote, at p. 563-64: This
    would seem, therefore, to be that unusual case where proceedings have failed
    the by nature test but have passed the true penal consequence test. The
    power to order imprisonment is so obviously penal in nature and so exceptional
    in the setting of administrative tribunals that the mere possibility of a
    sentence of imprisonment was sufficient, in Wilson J.s view, to colour the
    proceedings as having true penal consequences and thereby to trigger the
    protection of s. 11.

[45]

In my
    view, we should decline the invitation to follow and to extend reasoning
    intended to meet the exceptional and rarely encountered power to imprison to
    the circumstances of this case. Instead, I would apply the plain language of
    the passage in
Wigglesworth
dealing with the power to fine that is
    commonly encountered in administrative proceedings.

[46]

There is now
    an established line of authority holding that the power of an administrative
    tribunal to impose substantial monetary penalties is to be assessed on the
    basis of the penalty imposed rather than on penalties that are theoretically
    possible. This is consistent not only with the language of
Wigglesworth
,
    but also with the general principles that legislation conferring an imprecise
    discretion does not confer the power to infringe the
Charter
unless
    that power is conferred expressly or by necessary implication and that
    [l]egislation conferring an imprecise discretion must therefore be interpreted
    as not allowing the
Charter
rights to be infringed:
Slaight
    Communications Inc. v. Davidson
, [1989] 1 S.C.R. 1038, at p. 1078-79.

[47]

In
Lavallee
    v. Alberta (Securities Commission)
,
2010 ABCA 48, 317 D.L.R. (4th) 373, the Alberta Court of Appeal upheld the
    power of the Alberta Securities Commission to impose administrative penalties
    of $1 million per infraction. Similarly, in
Canada (Attorney General) v.
    United States Steel Corp.
,
2011 FCA 176, 333 D.L.R. (4th) 1, the Federal Court of Appeal upheld a
    provision of the
Investment Canada Act
, R.S.C. 1985, c. 28 (1st
    Supp.), s. 40, authorizing a penalty of up to $10,000 per day for failure to
    comply with a ministerial directive. The court held, at para. 80:

A statutory power to impose fines that comes along with little
    statutory guidance will not be subject to s. 11 as long as it is exercised in a
    way so as to achieve proper administrative aims. If, as U.S. Steel contends,
    the procedure provided for in section 40 does not meet the standard of
    subsection 11(d) of the
Charter
, this simply means that the Court is
    limited in the goals it can consider in imposing monetary fines [This] accords
    with the principle that we should not assume before the fact that judges will
    exercise their discretion in an unconstitutional way...

[48]

The
    appellants contend that both cases were wrongly decided and that we should set
    Ontario law on a different course. I disagree. These decisions are consistent
    with
Wigglesworth
and I am not persuaded that we should depart from
    the established pattern in the jurisprudence.

[49]

Penalties
    of up to $1 million per infraction are, in my view, entirely in keeping with
    the Commissions mandate to regulate the capital markets where enormous sums of
    money are involved and where substantial penalties are necessary to remove
    economic incentives for non-compliance with market rules. The recommendation of
    the
Securities Act
Five Year Review Committee that the Commission be
    given the power to impose administrative penalties of up to $1,000,000 per
    contravention was based on the need to ensure that the administrative penalty
    would not simply be viewed as a cost of doing business or a licensing fee
    for unscrupulous market participants: Ontario,
Five Year Review Committee
    Final Report: Reviewing the Securities Act (Ontario)

(Toronto:
    Queens Printer, 2003), at p. 214. The Committee noted the importance of
    allowing the Commission to send an appropriate deterrent message, having
    regard to, among other things, the gravity and impact of the conduct under
    consideration and the nature of the respondents that are the subject of the
    proceedings.

[50]

As the
    Commission indicated in its Sanctions decision, the level of penalty permitted
    by s. 127(1)(9) is in keeping with legislation in other provinces. One million
    dollar penalties are authorized in Nova Scotia, Alberta, and British Columbia,
    while Quebec allows for penalties of up to two million dollars:
Securities
    Act
, R.S.N.S. 1989, c. 418, s. 135;
Securities Act
, R.S.A. 2000,
    c. S-4, s. 199;
Securities Act
, R.S.B.C. 1996, c. 418, s. 162;
Securities
    Act
, R.S.Q., c.V-1.1, s. 273.1. The United States Securities and Exchange
    Commission can impose administrative fines of varying levels up to a maximum of
    $100,000 for natural persons and $500,000 for companies:
Securities
    Exchange Act of 1934
(U.S.), 15 U.S.C.
    § 78u2(b)(3)
. There is no specified maximum on administrative
    monetary penalties that can be imposed by the United Kingdom Financial Services
    Authority:
Financial Services and Markets Act
2000 (U.K.), c. 8, s.
    206. Penalties at the $1 million level are also in keeping with those levied by
    self-regulatory agencies operating in the securities field: see paras. 53-55 of
    the Commissions Sanctions reasons.

[51]

Penalties
    at the level of $1 million almost certainly have a deterrent purpose, but that
    does not make them penal in nature. As the Supreme Court of Canada held in
Re
    Cartaway Resources Corp.
, 2004 SCC 26, [2004] 1 S.C.R. 672, in carrying
    out their regulatory and preventative mandate provincial securities commissions
    may legitimately consider deterrence when imposing a monetary penalty. Writing
    for the court, Le Bel J. stated, at para. 60, that it is reasonable to view
    general deterrence as an appropriate, and perhaps necessary, consideration in
    making orders that are both protective and preventative. See also
Martineau
    v. Canada (Minister of National Revenue)
,
2004 SCC 81, [2004] 3 S.C.R. 737, at para. 38.

[52]

I agree
    with the the Commissions conclusion, at para. 56, that an administrative
    penalty of $1 million is not
prima facie
penal:

In pursuit of the legitimate regulatory goal of deterring
    others from engaging in illegal conduct, the Commission must, therefore, have
    proportionate sanctions at its disposal. The administrative penalty represents
    an appropriate legislative recognition of the need to impose sanctions that are
    more than the cost of doing business. In the current securities regulation
    and today's capital markets context, a $1,000,000 administrative penalty is not
prima facie
penal.

[53]

Nor am I
    persuaded that the AMPs imposed by the Commission on the appellants were at a
    level to bring them within the true penal consequence category. The
    constitution does not impose a defined limit on what is permissible by way of
    administrative monetary sanctions. The limit can only be determined by
    reference to the purpose of the penalty in relation to the regulatory mandate
    of the tribunal.  In
Martineau
, the Supreme Court of Canada considered
    a penalty under s. 124 of the
Customs Act
, R.S.C. 1985, c. 1 (2nd
    Supp.), which conferred a power to require a cash payment with no statutory
    maximum. The key question, as stated at para. 60, is whether the penalty
    constitutes a fine that, by its
magnitude
, is imposed for the purpose
    of
redressing a wrong done to society at large
, as opposed to the
    purpose of maintaining the effectiveness of customs requirements (emphasis in
    original).

[54]

In my
    view, the Commission did not err in concluding that magnitude of the AMP was
    geared to its regulatory mandate. The maximum AMP for one contravention is one
    fifth of the maximum penalty that can be imposed in a prosecution under the Act:
    see s. 122(1). The amount of an AMP is determined by regulatory considerations
    distinct from the principles of criminal liability and sentencing. No criminal
    record results. A further indication of the internal rather than criminal
    purpose of the AMPs is that the proceeds of the AMPs imposed were allocated by
    the Commission for the benefit of third parties pursuant to s. 3.4(2)(b) and
    not paid to the Consolidated Revenue Fund: see
Wigglesworth
, at p. 561.

[55]

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.

2.
    Did the Commission err and exceed its jurisdiction by taking conduct contrary
    to the public interest into account when imposing an AMP against Rowan?

[56]

As I have
    already noted, under s. 127(1)(9) of the Act, the Commission can only impose an
    AMP where there has been a breach of Ontario securities law. Rowan argues that
    the Commission wrongly took into account conduct that was found to be contrary
    to the public interest when assessing the amount to impose against him by way
    of an AMP. Particular importance was attached to para. 161 of the Commissions
    Sanctions reasons:

Rowan failed to comply with Ontario securities law by:
    breaching section 107 of the Act by failing to file insider reports in respect
    of trades in Biovail securities that he executed in the Trust Accounts;
    engaging in conduct contrary to the public interest by failing to provide
    complete and accurate information to Biovail concerning the number of Biovail
    common shares held in the Trust Accounts over which he exercised or shared
    control or direction; and engaging in conduct contrary to the public interest
    by trading in Biovail securities in the Trust Accounts during Biovail's
    Blackout Periods. Further, the Hearing Panel found that Rowan's conduct was
    contrary to the public interest.

[57]

As it was
    common ground before us, I accept without deciding that Rowans only
    transgression that amounted to a breach of Ontario securities law was his
    failure to file insider reports. He submits that by listing the matters on
    which he was found to have acted contrary to the public interest as if those
    were also breaches of Ontario securities law, the Commission conflated the
    former with the latter. It follows, in his submission, that this passage
    demonstrates that the Commission improperly considered acts contrary to the
    public interest when fixing the amount of the AMP.

[58]

I am not
    persuaded by counsels characterization of the Commissions alleged error as
    amounting to a jurisdictional error. I agree with the Divisional Court that
    on this issue the Commissions reasons are to be reviewed on a reasonableness
    standard. However, I will proceed on the assumption that if the Commission did
    impose the AMP on the basis of some irrelevant or legally improper basis, the
    decision could not escape being characterized as unreasonable.

[59]

I am unable
    to accept the submission that the Commisions AMP order was imposed on an
    improper basis, for the following reasons.

[60]

It is
    clear from the opening words of s. 127(1)(9) that before ordering any sanction,
    including an AMP, the Commission must be of the opinion that it is in the
    public interest to make the order. I read this provision as
requiring
the Commission to consider the public interest before imposing an AMP.

[61]

In
Re
    Cartaway Resources Corp.
, at para. 63,
    the Supreme Court of Canada, interpreting a provision of the B.C.
Securities
    Act
, R.S.B.C. 1996, c. 418, s. 162,
    conferring the power to order AMPs, held that the penalty that the Commission
    ultimately imposes should take into account the entire context
,
as well as the preservation of the public interest
.


[62]

Rowans
    conduct found to be contrary to the public interest was inextricably linked to
    his breach of Ontario securities law. When imposing an AMP for Rowans failure
    to report, the Commission was surely entitled to consider what it was he failed
    to report. Viewed in that light, the conduct found contrary to the public
    interest had a direct bearing on a proper assessment of the gravity of his
    specific breach of Ontario securities law.

[63]

The
    question, then, is whether the Commission went beyond using findings of conduct
    contrary to the public interest as contextual factors and instead used the AMP
    as a sanction against the conduct contrary to the public interest. Rowan
    submits that para. 161 demonstrates that the Commission did just that, treating
    Rowans trades as if they were violations of Ontario securities law. I cannot
    accept this submission.

[64]

I agree
    with the Divisional Court that para. 161 cannot be read in isolation. I agree
    with the Divisional Courts conclusion, at para. 20, that para. 161 of the
    Sanction reasons is merely a summary of findings previously made. The balance
    of the reasons and findings clearly demonstrate that the Commission fully
    understood and carefully applied the important distinction between a breach of
    Ontario securities law and conduct contrary to the public interest.

[65]

I also
    agree with and adopt paras. 21 and 22 of the Divisional Courts reasons:

Other references by the Commission in its reasons to multiple
    violations of securities law are, in my view, more reasonably interpreted as a
    reference to the fact that the Commission found that Mr. Rowan repeatedly
    violated s. 107 over an extended period of time. Indeed, the Commission found
    that there were 7,410 such breaches.

It is also apparent from the Commission's reasons that its
    primary focus in determining the appropriate administrative penalty under s.
    127(1)(9) was the repeated breach by Mr. Rowan of s. 107 of the Act. At para.
    96 of the Penalty Reasons, the Commission referred to there being 7,410
    breaches, but also said that only 3,690 (being 52% of the total breaches),
    occurred after the administrative penalty provisions came into force. The
    Commission held that this provision should not be applied retrospectively and
    therefore ruled that any administrative penalty it imposed against Mr. Rowan
    would only be 52% of the penalty it would have imposed if all of the conduct
    under s. 107 were taken into account. In para. 166 of its Reasons, the
    Commission did just that. It imposed an administrative penalty of $520,000 and
    then stated that but for its decision on retrospectivity, the penalty would be
    $900,000 to $1 million. It is therefore clear that the Commission tied the
    administrative penalty directly to the s. 107 breaches.

[66]

Moreover,
    in my view it is clear that para. 161 of the Commissions reasons do not only
    relate to the imposition of the AMP. The impugned paragraph summarizes all of
    Rowans 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.

[67]

Accordingly,
    I would reject this ground of appeal.

3.
    Did the Commission err and exceed its jurisdiction by imposing AMPs against
    Carmichael and WCI without making a finding that they had breached Ontario
    securities law?

[68]

The
    lynchpin to this argument is that while the Commission found that McKenney,
    Carmichael and Watt Carmichael failed to adequately supervise Rowan's trading
    in Biovail securities in the Trust Accounts (see especially Merits decision at
    para. 353), at no point in the Merits decision did the Commission make a
    specific finding that Carmichael and WCI had breached a specific provision of Ontario
    securities law.

[69]

In finding
    that Carmichael and WCI failed to adequately supervise Rowan's trading in
    Biovail securities in the Trust Accounts, the Commission did not attach the
    words contrary to a specific section of the Act, regulations, rules or
    policies falling within the definition of Ontario securities law. Carmichael
    and WCI contend that this means that the Commission failed to make a finding of
    a breach of Ontario securities law, and therefore the Commission lacked jurisdiction
    to impose an AMP against them under s. 127(1)(9).

[70]

In my
    view, this was an argument that should have been addressed to the Sanctions
    hearing as it was for the Commission to interpret its own finding on the issue
    of whether or not these appellants had breached Ontario securities law. Carmichael
    and WCI knew that Commission staff was asking the Commission to impose an AMP
    yet they failed to raise this argument at the Sanctions hearing. It was
    advanced in written argument before the Divisional Court but abandoned in oral
    argument.

[71]

The fact
    that experienced counsel did not raise an argument at first instance is often
    telling. As I will discuss in relation to the fourth issue, a court reviewing
    the decisions of an administrative tribunal has the discretion to refuse to
    entertain an argument not advanced before the tribunal and modern jurisprudence
    cautions against labelling alleged errors as jurisdictional to justify review
    on a standard of correctness. In the circumstances, I would refuse to exercise
    my discretion to entertain this new argument.

[72]

Moreover,
    even if Carmichael and WCI were entitled to raise this argument on appeal, in
    my view, it is without merit. I cannot accept their characterization of the
    Merits reasons of the Commission. We must read the passage relied on in support
    of this argument in its proper context. At several points in its Merits reasons,
    the Commission recognized that the issue was whether Carmichael and WCI had
    failed to comply with their supervisory obligations under of OSC Rule 31-505.

[73]

Rule
    31-505 is part of Ontario securities law as defined in s. 1 of the Act. Section
    3.1 of that Rule, entitled "Supervisory Terms", provided as follows:

A registered dealer shall supervise each of its registered
    salespersons, officers and partners and a registered adviser shall supervise
    each of its registered officers and partners in accordance with Ontario
    securities law and terms or conditions imposed by the Director or the
    Commission on the registration of the salesperson, officer or partner of the
    dealer or the officer or partner of the adviser requiring that the actions of
    the registered salesperson, officer or partner of the registered dealer or the
    registered officer or partner of the registered adviser be supervised in a
    particular manner.

Section 1.3 of the Rule required the registered dealer
    to designate a compliance officer to be responsible for discharging the
    obligations of the registered dealer or adviser under Ontario securities law,
    including the supervisory function provided for by s. 3.1. Rule 31-505, s.
    1.1(2) provided that an IDA member dealer was permitted to discharge its
    supervisory obligations by performing any equivalent requirement set out by the
    IDA and approved by the Commission. As an IDA member, WCI adopted the IDA
    procedure and designated Carmichael as UDP and McKenney as CCO, thereby making
    Carmicheal and McKenney responsible for the supervision required by OSC Rule
    31-505.

[74]

When
    setting out the issues to be decided, at para. 35(h), 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 contain a considered analysis of what OSC Rule 31-505
    requires. At the Sanctions hearing, especially in the absence of any argument
    from Carmichael 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: Sanctions decision, at para.
    193.

[75]

Accordingly,
    I would dismiss this ground of appeal.

4.
    Did the Commission err and exceed its jurisdiction by finding that Carmichael
    was under a duty imposed by Ontario securities law to supervise Rowan?

[76]

Again,
    Carmichael advances an argument on appeal that he failed to advance before the
    Commission. The Merits reasons of the Commission make it clear, at para. 309,
    that the defence Carmichael raised at the hearing was not that he was under no
    duty imposed by Ontario securities law but that he had done all he was required
    to do by way of supervision:

The Respondents submit that the allegation against Carmichael
    is even less well-founded than the allegation against McKenney. As the UDP,
    Carmichael was responsible for ensuring that Watt Carmichael had appropriate
    policies and procedures in place and qualified personnel to supervise
    compliance.
The Respondents submit that Carmichael fulfilled these obligations
, and that Watt Carmichael's policies were crafted in
    consultation with, and expressly approved by, the IDA. In the Respondents'
    submission, there is no basis for this allegation against Carmichael, who has
    had 45 years of experience in the industry
. [Emphasis added.]

[77]

In these
    circumstances, I would exercise my discretion against permitting Carmichael to
    advance this argument before this court. As the Supreme Court of Canada held in
Alberta (Information and Privacy Commissioner) v. Alberta Teachers Association
,
    2011 SCC 61, 339 D.L.R. (4th) 428, at paras. 22-26, courts have the discretion
    to refuse to entertain issues on judicial review where the issue could have
    been but was not raised before the specialized tribunal.

[78]

I do not
    accept the submission that Carmichael can escape his failure to raise the
    argument before the Commission on the basis that the alleged error deprived the
    Commission of jurisdiction to make the order. Since
C.U.P.E. v. N.B. Liquor
    Corporation,
[1979] 2 S.C.R. 227, courts have been dissuaded from
    labelling matters as jurisdictional. As Dickson J. explained, at p. 233: 
    [t]he question of what is and is not jurisdictional is often very difficult to
    determine and courts should hesitate to brand as jurisdic­tional, and
    therefore subject to broader curial review, that which may be doubtfully so.
    This point was made with even greater force in
Alberta (Information and
    Privacy Commissioner) v. Alberta Teachers Association
, at para. 39:

True questions of jurisdiction are narrow and will be
    exceptional.  When considering a decision of an administrative tribunal
    interpreting or applying its home statute, it should be presumed that the
    appropriate standard of review is reasonableness.

[79]

In my
    view, it would be singularly inappropriate to describe the alleged error as
    jurisdictional. To decide whether or not Carmichael was under any duty imposed
    by Ontario Securities law to supervise Rowan, the Commission would have to
    interpret and apply its home statute, regulations, rules and policies. That
    interpretive exercise would involve careful consideration of the how those
    provisions operate in the complex world of the securities industry. It is
    difficult to imagine an issue that more squarely fell with the province and the
    expertise of the Commission.

[80]

The
    Commission did find that as the CEO and UDP of WCI, Carmichael was under a duty
    to supervise Rowan. That finding fell within the expertise of the Commission,
    it is entitled to deference on appeal and to be reviewed on a standard of
    reasonableness. Again, the fact that the argument raised on appeal was not
    advanced at first instance is telling. In my view, there is no basis upon which
    this court could conclude that the Commissions finding on this point was
    unreasonable.

[81]

Accordingly,
    I would dismiss this ground of appeal.

5.
    Was the Commissions finding that Carmichael, McKenney and WCI had failed to
    adequately supervise Rowan unreasonable?

[82]

Carmichael,
    McKenney and WCI (for the purposes of this issue the WCI appellants) submit
    that the Commissions finding that they had failed to adequately supervise
    Rowan was unreasonable. This argument is essentially based upon the assertion
    that Rowans transgressions arose because he was a director and an insider of
    Biovail and not because he was a registrant under the Act. The WCI appellants
    say that any duty to supervise him rested with Biovail, not the WCI appellants.
    The WCI appellants further submit that as a practical matter, it would have
    been impossible for them to supervise Rowans trading during the blackout
    periods.

[83]

Counsel
    properly conceded that the Commissions findings on this issue are to be
    reviewed on the standard of reasonableness. Once again, we are presented with
    an issue that falls squarely within the province and the expertise of the Commission.

[84]

In its Merits decision, the
    Commission provided very extensive reasons rejecting the very submissions made
    before us. The Commission came to that conclusion on the basis of its own
    interpretation of the relevant regulatory requirements, including OSC Rule
    31-505
,
Multilateral and
    Commission policies, the relevant jurisprudence and the evidence of Guenther
    Kleberg, an expert in industry standards for brokerage compliance practices.
    The WCI appellants led no evidence to contradict that of Kleberg, who testified
    that the Trust Accounts were screaming for attention because of the factors
    summarized at para. 321 of the Commissions Merits reasons:

(a)  the accounts held a very large position in
    Biovail securities;

(b)  the accounts were highly concentrated in
    Biovail securities;

(c)  the accounts conducted very active trading
    in Biovail securities;

(d)  the registered representative assigned to
    the accounts was an insider of Biovail; and

(e)  the registered representative held
    discretionary trading authority over the accounts.

[85]

The
    Commission took into account, at para. 322, the point relied on by the WCI appellants
    that industry standards would not generally require the CCO to monitor
    adherence to corporate blackout periods by a brokerage client who is an insider
    of a reporting issuer.  Nonetheless, the Commission accepted Kleberg's opinion
    that where a registered representative who is also an insider of a reporting
    issuer (RR/insider) has discretionary authority to trade in securities of the
    reporting issuer, close supervision by the CCO is required to ensure that an
    RR/insider does not trade in the issuer's securities during the issuer's
    blackout periods. The Commission also accepted Klebergs opinion that it would
    have been possible for the WCI appellants to supervise Rowans trading during
    the scheduled blackout periods.

[86]

The WCI appellants
    are asking this court to substitute its findings regarding the interpretation
    of the applicable supervisory standard under OSC Rule 31-505, an exercise that
    involves specialized knowledge of securities industry practice, for the express
    and fully explained findings on the point by the Commission, an expert
    tribunal. As the Supreme Court of Canada observed in
Cartaway
, at para
    46, [t]he courtshave less expertise than securities commissions in
    interpreting their constituent statutes given the broad policy context within
    which securities commissions operate.

[87]

I agree
    with and adopt the reasons of the Divisional Court on this issue, at para 25:

The Commission found that Carmichael, McKenny and Watt
    Carmichael Inc. failed to adequately supervise Rowan. Its findings in that
    regard were largely factual and policy based. They were within the special
    expertise of the Commission and the reasonableness standard therefore applies.
    The Commission's findings easily meet that standard and we would not interfere.

[88]

Accordingly,
    I would dismiss this ground of appeal.

6. Should the
    Commissions costs award be set aside?

[89]

Commission
    staff sought a costs order, pursuant to s. 127.1, in the amount of $283,691.40.
    The Commission found that costs should be ordered against the appellants but,
    on account of the failure of the Commission staff to make out the allegations
    of insider trading, ordered $140,000. The appellants say that award should be
    set aside.

[90]

The
    appellants complain that the Acts 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, is fundamentally
    unfair. I fail to see how that argument can assist the appellants as, in the
    absence of any challenge to the regimes validity, this court cannot ignore the
    law that was duly enacted by the legislature.

[91]

The
    appellants further complain that the costs award is unfair because they
    defeated the most serious allegation, that Rowan engaged in insider trading,
    which took up a substantial amount of time at the hearing. However, the
    Commission explicitly took that into account when fashioning its costs award,
    at para 239:

Further, we have also considered the unique circumstances of
    this case, and the fact that four of the eight allegations were not made out,
    in determining the appropriate amount of costs that should be paid by the
    Respondents. In particular, we considered the fact that the vast majority of
    the evidence led at the hearing was directed at allegations that were not made
    out.

[92]

Costs
    orders are entitled to deference on appeal. Where the tribunal making the order
    has expressly taken into account the very point advanced on appeal, an
    appellate court will rarely interfere. I agree with and adopt the reasons of
    the Divisional Court on this point, at para. 33:

The Commission addressed its mind to the fact that the
    appellants were successful on many of the issues raised against them. The
    Commission took that into account in assessing costs and reduced the award
    accordingly.

[93]

Accordingly,
    I would dismiss the appeal of the Commissions costs order.

DISPOSITION

[94]

For these
    reasons, I would dismiss the appeals. The Commission did not seek costs in this
    court and accordingly, I would dismiss the appeals without costs.

Robert J. Sharpe J.A.

I agree R.A. Blair
    J.A.

I agree R.G. Juriansz
    J.A.

Released: March 29, 2012


