



COURT OF APPEAL FOR ONTARIO

CITATION: Ontario Securities Commission v.
    Tiffin, 2020 ONCA 217

DATE: 20200316

DOCKET: C66232

Roberts, Harvison Young and
    Thorburn JJ.A.

BETWEEN

Ontario Securities Commission

Respondent

and

Daniel Tiffin and Tiffin Financial Corporation

Appellants

Glen Jennings and Alex Zavaglia, for
    the appellants

Jonathan Feasby and Matthew Britton,
    for the respondent

Heard: October 29, 2019

On appeal from the order of Justice
    Robert Charney of the Superior Court of Justice dated May 15, 2018, with
    reasons reported at 2018 ONSC 3047, 142 O.R. (3d) 223, allowing an appeal from
    the acquittals entered on August 31, 2016, by Justice Joseph F. Kenkel of the
    Ontario Court of Justice and substituting convictions, and from the sentence
    imposed on September 26, 2018, with reasons reported at 2018 ONSC 5419.

Harvison Young J.A.:

A.

Overview

[1]

The appellants, Daniel Tiffin and his company
    Tiffin Financial Corporation (TFC), borrowed money from six people who were
    clients and friends in amounts which totalled $700,000. The appellants provided
    them with promissory notes evidencing the debt. At the time of the loans,
    Tiffin was under significant financial pressure and was subject to a cease
    trading order issued by the Ontario Securities Commission (OSC).

[2]

With respect to these promissory notes, Tiffin
    and TFC were charged by the OSC with three provincial offences pursuant to s.
    122(1)(c) of the
Securities Act
, R.S.O. 1990, c. S.5, namely (i) trading
    in securities without registration; (ii) distributing securities without filing
    a prospectus; and (iii) trading in securities while prohibited.

[3]

The central issue on this appeal is whether
    these notes were securities within the definition of the Act. The trial judge
    held that they were not, applying the test set out in
Reves v. Ernst &
    Young
(1990), 494 U.S. 56. On appeal to the Superior Court of Justice, the
    appeal judge found that the notes were securities. He declined to apply the
    American family resemblance test from
Reves
in interpreting the term
    security under the Act and concluded that the trial judge erred in finding that
    the notes were not securities.

[4]

For the following reasons, I would dismiss the
    appeal from these convictions. In brief, the definition of security in the Act
    is sufficiently broad to capture the promissory notes at issue here. While
    American law is a useful source of persuasive precedent in the securities
    context, the family resemblance test applied by the trial judge does not assist
    in the interpretation of the Act. The definition of security adopted by the
    appeal judge is supported both by the plain text of the Act and the logic of the
    regulatory scheme.

[5]

In particular, the Act contains broad
    definitions coupled with equally broad exemptions which relieve vast numbers of
    transactions involving securities from compliance with its requirements. The
    appellants ask us to import the family resemblance test, not because of an
    absence of applicable exemptions to the transaction at issue, but rather because
    pursuant to an administrative order (that is, the cease trade order) they could
    not rely on these exemptions. That quarrel is properly directed at the order,
    not the definition of security in the Act, and, in the absence of any
    legislative intent for the kind of test developed in the United States, I decline
    to impose such a test so that the appellants can escape liability under the
    securities regime in this province.

[6]

I would, however, allow the sentence appeal. While
    it was not an error in law to impose a custodial sentence per se, the sentence
    arrived at by the sentencing judge is demonstrably unfit.

B.

BACKGROUND

[7]

Tiffin was licenced to sell insurance and
    insurance-based investment products through TFC, of which he was the sole
    officer, director and shareholder. Tiffin was also registered with the OSC to
    trade in securities from 1983 to 1999.

[8]

The OSC investigated the appellants and others
    for soliciting investments in Rezwealth Financial Services Inc. (Rezwealth)
    without proper authorization. In December 2009, the OSC issued a temporary
    order requiring the appellants to cease trading in securities and prohibiting
    them from relying on any exemptions in Ontario securities law.
In making this order, the OSC relied on its power at s. 127(1)5 of
    the Act, which authorizes it to order that any exemptions contained in Ontario
    securities law do not apply to a person or company permanently or for such
    period as is specified in the order.
This order
    remained in effect until July 2014.

[9]

The OSC commenced administrative proceedings
    against the appellants in connection with the Rezwealth matter. The OSC found
    that the appellants and others had traded in securities without registration
    and had illegally distributed securities. In July 2014, the OSC issued a final
    order imposing sanctions on the appellants. Under the terms of that order, the
    appellants were prohibited from trading in securities and from relying on
    exemptions from securities law for five years, in addition to monetary
    penalties and a restitution order.

[10]

It was while he was subject to the cease trade order
    that Tiffin solicited funds from his clients for his personal use and to keep his
    business operating. The clients were told about the OSCs administrative
    actions and the consequent impact on the appellants finances. Six clients
    agreed to loan funds, a total of $700,000, to TFC on terms set out in fourteen
    promissory notes signed by Tiffin on behalf of TFC. The notes provided for
    annual interest rates ranging from 10% to 25% and stated that they were secured
    against a toy soldier collection owned by TFC. It is these promissory notes
    that are at issue in these proceedings.

C.

Decisions Below

(1)

The Trial Decision Acquitting the Appellants

[11]

At trial, it was undisputed that the appellants
    were not registered with the OSC, they did not file a prospectus, and they were
    prohibited from trading in securities by order. The only issue at trial was
    whether the promissory notes were securities as defined by the Act.

[12]

The trial judge found that the promissory notes
    were not securities and entered acquittals. He accepted OSCs characterization
    of the Act as a catch and exclude regime, which defined the term security
    broadly and then provided statutory exemptions. However, the trial judge
    concluded that a definition of security that included the promissory notes at
    issue would cast too broad a net and would be inconsistent with the purposes of
    the Act.

[13]

In reaching his conclusion, the trial judge
    adopted the family resemblance test from the Supreme Court of the United States
    decision in
Reves
. This test involves asking whether the instruments
    resemble securities based on a list of factors including: (1) whether there is
    motivation to make profit, (2) whether the plan of distribution resembles
    common trading for speculation or investment, (3) the publics reasonable
    expectation that the note is a security, and (4) whether there is another
    regulatory scheme that protects the investor. Based on these factors, the trial
    judge concluded that the promissory notes were not securities because they
    resembled notes secured by a lien on small business assets, which is one family
    of recognized non-security notes in
Reves
.

[14]

Accordingly, the trial judge acquitted the
    appellants on all charges.

(2)

The Appeal Decision Substituting Convictions

[15]

The appeal judge concluded that the
    interpretation of the term security is a question of law, and the standard of
    review is correctness. He found that the findings of fact of the trial judge
    were not in issue on appeal.

[16]

The appeal judge concluded that the trial judge
    erred in importing the family resemblance test into Ontario securities law. He disagreed
    that securities that appeared to fall within the statutory definition should
    nonetheless be excluded based on judicially crafted criteria. Contrary to the
    conclusion of the trial judge, the appeal judge concluded that the broad net
    cast by the definition of security was deliberate and consistent with the
    purposes of the Act and should not be interfered with absent a constitutional
    challenge for overbreadth. The appeal judge referred to the Alberta Court of
    Appeals decision in
R. v. Stevenson
, which declined to import the
Reves
test into Albertas securities regime: 2017 ABCA 420, 61 Alta. L.R. (6th)
    273, leave to appeal refused, [2018] S.C.C.A. No. 54.

[17]

The appeal judge also noted the significant
    differences between Ontarios securities regulation and that in the United
    States. Specifically, securities regulation in the United States differentiates
    between commercial and investment purposes in a manner that is consistent with
    the family resemblance test, but this is not determinative in Ontarios scheme.
    Further, the American statutory definition begins with the phrase unless the
    context otherwise requires, an inherent limitation that is not present in the
    Ontario Act.

[18]

The appeal judge declined to go through the
    family resemblance test in full, given that he had found it did not apply.
    However, he did point out specific elements of the trial judges reasoning in
    applying the test with which he took issue.

[19]

On the basis that the trial judge had erred in
    law and that the promissory notes were securities, the appeal judge allowed the
    appeal and substituted convictions.

(3)

The Sentencing Decision

[20]

The OSC submitted that an appropriate sentence
    would be from 12 to 15 months in jail followed by probation and a restitution
    order. Its submission was that a custodial sentence was required because the
    appellants had not paid previous financial penalties, the promissory notes were
    similar to notes used in the Rezwealth scheme and had been traded while an
    order prohibiting trading in securities was in place. The appellants submitted
    that a custodial sentence was unnecessary and would interfere with Tiffins
    ability to repay the money owing. They submitted that the evidence indicated no
    intention to defraud or deceive anyone, Tiffin was not evasive, and five of the
    holders of the promissory notes wrote in support of Tiffin.

[21]

The appeal judge noted the statutory maximum
    penalty of $5,000,000 or imprisonment for a term of not more than five years
    less a day or both. He concluded that a financial penalty would not be
    sufficient in this case given the amount still owed in relation to the previous
    offences, and also because Tiffin had exploited a position of trust with his
    clients for financial gain. He accepted that the conduct here was different
    than in the Rezwealth scheme and that Tiffin did not intend to defraud or
    deceive anyone. He noted that the case law range for persons with previous
    convictions usually begins at nine months. Accordingly, the appeal judge
    sentenced Tiffin to six months imprisonment, with 24 months of probation and a
    restitution order.

D.

Issues

[22]

The
    appellants were granted leave to appeal from their convictions:
Ontario Securities Commission v. Tiffin
, 2018 ONCA 953.
Pursuant to s. 131(1) of the
Provincial Offences Act
,
    R.S.O. 1990, c. P.33, this appeal is limited in scope to the questions of law
    on which leave to appeal have been granted.
As I noted above, the
    central question on the conviction appeal is the interpretation to be given to
    the term security within the statutory scheme pursuant to the Act.

[23]

The appellants were also granted leave to appeal from the
    sentences imposed. They take issue with the sentence of six months
    imprisonment for Tiffin, arguing that it was an error of law to impose a
    custodial sentence in the absence of a proven intent to defraud.

E.

Conviction Appeal

(1)

The Appeal Judge Properly Applied the
    Correctness Standard of Review

[24]

The preliminary question is the standard of
    review. In my view, the appeal judge correctly noted that there were no
    relevant facts in dispute, and that the central issue was one of statutory
    interpretation, which is a question of law. For this reason, he applied the
    standard of correctness.

[25]

While the ultimate question in this case was
    whether these instruments are securities, which is a question of mixed fact and
    law, the appeal judge did not take issue with the trial judges factual
    findings or how the law was applied to them, but rather with the definition the
    trial judge identified and applied. In my view, he correctly identified and applied
    the standard of correctness.

[26]

The issue on this further appeal is the same as
    on the appeal below. Therefore, I review the appeal judges determination of
    the meaning of the term security on a correctness standard.

(2)

The Applicable Legal Principles

[27]

The principles of statutory interpretation are
    well established. The terms of the Act are to be interpreted in their entire
    context, in their grammatical and ordinary sense, harmoniously with the scheme
    and object of the Act, and the intention of the legislator:
Rizzo &
    Rizzo Shoes Ltd. (Re)
, [1998] 1 S.C.R. 27, at para. 21.

(3)

The Security Act Definition in Context

[28]

I accept that the scheme of the Act is catch
    and exclude. In other words, the Act defines key terms very broadly, and
    thereby captures a great many instruments and activities in its wide regulatory
    scope, and then provides for many exemptions from the Acts requirements,
    discussed further below, to tailor this regulatory scope to its purposes.

[29]

The term security is defined at s. 1(1) of the
    Act. It consists of a non-exhaustive list of 16 clauses expressed in general
    terms, evidencing an intention for breadth. The clause most centrally at issue
    in this case is clause (e) which reads a bond, debenture, note or other evidence
    of indebtedness. Section 1 provides for only two explicit exceptions to clause
    (e):

(i) a contract of insurance issued by an
    insurance company licensed under the
Insurance Act
, and

(ii) evidence of a
    deposit issued by a bank listed in Schedule I, II or III to the
Bank
    Act
(Canada), by a credit union or league to which the
Credit
    Unions

and Caisses Populaires Act, 1994
applies, by a
    loan corporation or trust corporation registered under the
Loan and
    Trust Corporations Act
or by an association to which the
Cooperative
    Credit Associations Act
(Canada) applies

[30]

Consistent with the text of this definition, the
    Supreme Court has held that a promissory note is a security for the purpose of a
    similar statute in Saskatchewan: see
Duplain v. Cameron et al.
, [1961]
    S.C.R. 693, at p. 711.

[31]

The Act sets out broad exemptions from its core requirements, which
    require registration prior to trading in securities and the issuance of a
    prospectus prior to trading in securities: ss. 25, 53.
Exemptions cover,
    by way of example, securities issued by governments and banks, secured by a
    security agreement or mortgage, distributions to accredited investors
    purchasing securities as principals, family members, friends, business
    associates and their related corporations, an isolated distribution of
    securities, and the distribution of short-term debt instruments: see e.g. ss.
    25, 35, 35.1 and 73-74.3;
Prospectus Exemptions
, OSC NI 45-106, (2009) O.S.C.B. (Supp. 5) 1, ss. 2.4, 2.5, 2.6.1, 2.35
.
    Therefore, notwithstanding that a certain instrument may be a security, it may
    not trigger the application of one or more core requirements of the Act.

(4)

The Non-Application of the Exemptions to the Appellants

[32]

The
    appellants point out that,
according to the terms of the cease
    trade order which was issued against them at the relevant time, they were not
    allowed to shelter under these exemptions.

[33]

It is, in effect, for this reason that the appellants seek to have
    us apply the American law as set out in
Reves
that narrows the
    definition of security from the outset. If these notes were not securities, the
    appellants were not subject to the requirements of being registered, filing a
    prospectus, or trading while prohibited.

The appellants argue that interpreting the definition of security as
    being broad enough to include these notes, notwithstanding the existence of the
    broad and numerous exemptions in the Act, would give rise to unjust results
    because it would sanction activities that, in their submission, should not be
    subject to sanction under the securities regime.

[34]


The difficulty in giving effect to this
    argument is that the appellants conduct may well have been exempted from the
    requirements of the Act had they not been subject to an order forbidding them
    from relying on such exemptions. For example, at the relevant time, Ontario
    securities law contained a private issuer exemption exempting distributions of
    securities by those who met the definition of private issuer to close friends
    and business associates from the prospectus requirement:
Prospectus
    Exemptions
, s. 2.4(2).
[1]
Additionally, the notes themselves purported, by their terms, to rely on the so
    called accredited investor exemption. The exemption, provided for at s. 73.3
    of the Act, exempts some distributions to financially sophisticated parties
    identified in that section and in the
Prospectus Exemptions
.

[35]

In my view, the injustice caused by the unavailability
    of the exemptions, if any, is properly attributed to the order, and is not
    controlling of the definition of security in the Act. Moreover, in addition to
    any other route the law may provide to challenge such an order, interested
    parties can apply to the OSC to exempt specific trades from statutory
    requirements and affected parties may also apply to revoke or vary the order:
Securities
    Act
, ss. 74, 144. The appellants did not avail themselves of these procedures.

(5)

Reves
and the Applicability
    of American Law

[36]

The appellants submit that the definition of
    security in the Act is further limited by the principles propounded in the Supreme
    Court of the United States decision in
Reves
. In
Reves
, that
    court set out the so-called family resemblance test in order to determine
    whether a given note fell within the definition of security for the purposes of
    the American legislation. Under that test, a note is presumed to be a security
    unless it bears a strong resemblance to judicially recognized families of
    instruments:
Reves
, at p. 65. To determine whether a strong
    resemblance exists, the court is to look to the motivations of the parties, the
    plan of distribution, the reasonable expectations of the investing public and
    the existence of other applicable regulatory schemes that would reduce risk:
Reves
,
    at pp. 66-67.

[37]

For the following reasons, I disagree with the
    appellants and I decline to import the family resemblance test into the
    definition of security in the Act.

[38]

To begin with, there can be no question that
    American law can be useful in interpreting Canadian securities legislation. That
    is because both legislative schemes have similar purposes and intend to address
    similar issues: see
Pacific Coast Coin Exchange v. Ontario Securities
    Commission
, [1978] 2 S.C.R. 112, at pp. 126-28. Both seek to address the
    challenge of casting a broad enough regulatory net to protect the public and
    ensure the stability of the financial system without being so broad as to capture
    activities unconnected to these goals. In particular, the emphasis on
    disclosure in the federal securities regime in the United States had a
    considerable influence on the development of securities regulation in this
    province: Mark R. Gillen,
Securities Regulation in Canada
(Scarborough: Carswell, 1992) at p. 57.

[39]

The specific mechanisms the two systems have chosen to address the
    challenge, however, are not identical. Since the origins of modern securities
    regulation in the early 20th century, the securities regimes on either side of
    the border have been developed by distinct legislators and regulators shaped by
    distinct constitutional contexts and accountable to distinct polities. This
    context must be borne in mind when, as here, this court is asked to interpret
    the intention of the Ontario legislator in line with jurisprudence from another
    jurisdiction.

[40]

In particular, it is very clear that federal securities regulation in
    the United States was only intended to regulate
investments
,
    and not to create a broad federal remedy for all fraud:
Reves
, at p.
    61;
Marine Bank v. Weaver
(1982), 455 U.S. 551, at p. 556. Accordingly,
    courts in that country have distinguished between investment instruments, which
    are subject to the regime, and commercial instruments, which are not. The
    family resemblance test applied in
Reves
is the manner in which that
    court chose to draw this distinction. The parties disagree on the extent to
    which this distinction is applicable to an interpretation of the Act in Ontario.

[41]

Three key differences exist between the Act and
The Securities
    Exchange Act of 1934
, 15 U.S.C. § 78a, considered in
Reves
, such
    that the family resemblance test is not helpful in interpreting the meaning of the
    term security in the Act. First, the definition in the Act, at s. 1(1), opens
    with inclusive language, security includes , whereas the definition in
The
    Securities Exchange Act of 1934
, at s. 3(10), opens with language
    indicating an exhaustive definition security means. The Act therefore
    contains an indicator of breadth not present in the United States statute:
    Ruth Sullivan,
Sullivan on the Construction of Statutes
, 6th ed.
    (Toronto: LexisNexis, 2014), at paras. 4.34-4.39.

[42]

Second, the definitions in
The Securities Exchange Act of 1934
are preceded by the phrase unless the context otherwise requires: s. 3. The
    intention of a legislator in using these words will not always be to create
    powerful discretion for courts to craft additional exemptions to a statutory
    definition, as the OSC contends. However, the Supreme Court of the United
    States has in fact relied upon these words, at least in part, to justify a
    narrowing of the otherwise expansive definition of security:
Weaver
, at
    p. 556. No such wording is evident in the definition in the Ontario Act and I
    cannot, therefore, follow the Supreme Court of the United States reasoning in interpreting
    it.

[43]

Third, the respective approaches of the two statutes to short-term
    debt instruments demonstrate a broader definition of security in this
    jurisdiction. In
The Securities Exchange Act of 1934
, any note,
    draft, bill of exchange, or bankers acceptance which has a maturity at the
    time of issuance of not exceeding nine months is specifically excluded from
    the
definition
of security: s. 3(10). By contrast,
    in Ontario, there is no such explicit exclusion from the definition of security
    in the text of the Act. Rather, the OSC, by rule, exempts a distribution of a
    similar class of short-term debt that meets certain criteria from the
    prospectus requirement in the Act:
Prospectus Requirements
, s. 2.35.

[44]

This distinction is significant. It exemplifies a difference in legislative
    structure. Congress has made clear its intention to exclude these short-term
    debt instruments, which may be viewed as commercial, from the scope of this
    statute altogether, by carving them out of the definition of security. In
    Ontario, meanwhile, there is no indication that the legislator intended short-term
    debt instruments to be understood as anything other than securities. The
    approach taken by the regulator in this province is to enact rules exempting
    them from the prospectus requirement in the Act, rather that excluding them
    from the ambit of the scheme as a whole.

[45]

These
structural differences militate against
    importing the family resemblance test. To do so would risk undermining the legislators
    chosen scheme expressed in the Act, which, as discussed above, is to broadly
    cast its regulatory net and then exempt those activities it does not wish to
    regulate. There is simply no indication that the Ontario legislator wished to
    determinatively distinguish between commercial and investment instruments as
    courts have held in the United States.

[46]

As the parties noted before this Court, appellate courts in Canada
    have come to different conclusions regarding the applicability of
Reves
.
    In
British Columbia (Securities Commission) v. Gill
, 2003 BCCA
    169, 11 B.C.L.R. (4th) 102, the British Columbia Court of Appeal applied the
Reves
family resemblance test in reaching the conclusion
    that the documents at issue, namely
receipts, financial
    summaries and personal loan agreements
evidencing debt, were securities
    for the purpose of the
Securities Act
,
    R.S.B.C. 1996, c. 418. I note that the
Gill
decision considered whether an administrative decision-makers interpretation
    of the B.C.
Securities Act
was
reasonable
, and it referred to
    the test in
Reves
to illustrate the
    reasonableness of that decision. The court did not rely on
Reves
to narrow the definition of security, but rather
    relied on it to support its breadth.

[47]

In
    the more recent case of
Stevenson
, the Alberta
    Court of Appeal declined to import the family resemblance test into that
    provinces law, given that the numerous conditions and exemptions in the
Securities Act
, R.S.A. 2000, c. S-4, obviated the need
    for judicially created exemptions like those in
Reves
:
    at para. 16. That appeal court upheld the decision of the summary conviction
    appeal court judge concluding that the loan agreements, which were the subject
    of the regulatory prosecution, were evidence of indebtedness and therefore
    securities for the purpose of the very similar definition of security in the
    Alberta
Securities Act
: at paras. 4, 21.

[48]

I
    agree with the conclusion in
Stevenson
. In my
    view, importing the family resemblance test into the interpretation of the term,
    security, would raise a risk of unintended consequences and litigation inherent
    when tinkering with a definition central to a complex regulatory scheme. Moreover,
    and importantly, there is no need to run this risk given the statutory mechanisms
    through which the legislator has seen fit to achieve the goals which animate securities
    regulation. In short, while American securities jurisprudence may be a useful
    source of persuasive authority in some cases, it is not necessary or advisable
    to import the family resemblance test into the definition of security in the
    Ontario context.

[49]

To be clear, I do not disagree with the appellants submission
    that a legislative provision that is overly broad on its face can, in
    appropriate cases, be read down or interpreted in a manner that is narrower
    than the bare language of the text:
Canada Post Corp. v.
    Canadian Union of Postal Workers
, 2019 SCC 67, at para. 59;
Blue Mountain Resorts Ltd. v. Ontario (Ministry of Labour)
,
    2013 ONCA 75, 114 O.R. (3d) 321, at para. 29;
Montréal (City)
    v. 2952-1366 Québec Inc.
, 2005 SCC 62, [2005] 3 S.C.R. 141, at
    para. 14. This is just another way to express the principle that the words of
    legislation must always be read in context and harmoniously with the intention
    of the legislator. This exercise is distinct from reading down as a
    constitutional remedy: Sullivan, at para. 7.10. In the former case, the courts
    are interpreting the legislation in order to properly give effect to the true
    intention of the legislator. In the latter case, the courts are adjusting the
    scope of the legislation to conform to the Constitution notwithstanding the
    legislators intention.
As I have discussed, however, the
    scheme of the Act is such that the broad definition of security is consistent
    with its object and the intention of the legislator. Accordingly, the purposive
    reading does not assist the appellants.

(6)

Conclusion:  the Promissory Notes are Securities

[50]

In summary, the promissory notes at issue in
    this case are securities. They are properly captured by the phrase bond,
    debenture, note or other evidence of indebtedness in the definition of
    security for the purposes of the Act: s. 1(1). While the appellants may have
    been able to rely on exemptions from the requirements in the Act in respect of
    these transactions, these exemptions were not available to them in this case
    because of the cease trade order. This does not warrant interference with the
    definition in the Act on which the legislator has chosen to ground its scheme.

F.

Sentence Appeal

(1)

The
    Principles of Sentencing for Regulatory Offences

[51]

This appeal arises from a regulatory
    prosecution. I begin by summarizing the principles applicable to the sentencing
    for these offences.

[52]

Unlike criminal offences, regulatory offences
    are not prosecuted because they are inherently abhorrent, but rather because
    compliance is necessary to achieve the legislators public interest goal:
Ontario
    (Environment, Conservation and Parks) v. Henry of Pelham Inc.
, 2018 ONCA
    999, at para. 33. Consistent with the difference in purposes, while the sentencing
    of regulatory offenders remains multi-factorial, the principle of deterrence is
    the paramount consideration:
Henry of Pelham
, at para. 38.

[53]

Imprisonment for regulatory offences may
    sometimes be necessary to achieve this purpose. As Cory J. said in
R. v.
    Wholesale Travel Group Inc.
, [1991] 3 S.C.R. 154, at p. 250:

Regulatory schemes
    can only be effective if they provide for significant penalties in the event of
    their breach. Indeed, although it may be rare that imprisonment is sought, it
    must be available as a sanction if there is to be effective enforcement of the
    regulatory measure.  The potential for serious harm flowing from the breach of
    regulatory measures is too great for it to be said that imprisonment can never
    be imposed as a sanction.

[54]

As in criminal law, the sentence must be
    proportionate to both the gravity of the offence and the degree of
    responsibility of the offender:
Ontario (Labour) v. New Mex Canada Inc.
,
    2019 ONCA 30, 144 O.R. (3d) 673, at paras. 67-68. Moral blameworthiness can be
    relevant to the sentencing of a regulatory offender, given that it is probative
    of the degree of responsibility of the offender, notwithstanding the fact that
    regulatory offences generally involve less moral blameworthiness:
New Mex
,
    at paras. 66, 69.

[55]

The principle of restraint requires the
    sentencing court to apply a measured response to determining a sentence that
    best satisfies the purpose and principles of sentencing, as in criminal law:
New
    Mex
, at paras. 81-82. The application of restraint generally means that
    incarceration for regulatory offences is rare, but this is a descriptive
    observation, not a prescriptive one, and it is not an independent principle in
    sentencing:
New Mex
, at para. 85. It flows from the fact that
    deterrence can generally be achieved with fines.

[56]

In short, regulatory offenders are not sentenced
    in a manner wholly distinct from criminal offenders. The principles of
    proportionality and restraint still apply. The differences flow from the
    distinct purpose underlying regulatory offences, which requires a greater
    emphasis on deterrence and generally involves lower moral blameworthiness than
    in the criminal context.

(2)

The Principle from
Bowman

[57]

The appellants rely on the decision in
Rex
    v. Bowman and Thibaudeau
, [1949] 1 D.L.R. 671 (Ont. Mag. Ct.), to claim
    that there is a clear standard that only evasive and fraudulent offences
    under the Act warrant incarceration. I do not accept this submission. First, I
    do not read
Bowman
as creating this kind of bright line rule. Second, this
    submission runs contrary to the principles of sentencing in regulatory offences,
    which are inherently contextual.

[58]

In
Bowman
, Hanrahan P.M. gave very
    brief reasons for sentence in which he sentenced two brokers to imprisonment
    for violating the Act. He distinguished, at p. 672, between careless and
    intentional offenders in terms of the appropriate sentence:

When breaches of
    the Act such as these occur, dealing with failure to register or to file
    required reports designed to protect the investing public, the dividing line
    between imprisonment and monetary punishment as the appropriate penalty must be
    in which class the offender falls  the merely careless or the designedly evasive
    delinquent, who is bent on defrauding the public unhindered by the watchful
    supervision of the Commissions investigators.

[59]

This passage has been cited with approval by the
    Ontario Court of Justice and the provincial courts of other provinces.

[60]

In some cases, the principle is applied in the
    rigid manner advanced by the appellants. That is, the court determines whether
    the offender being sentenced is a merely careless offender or is a
    designedly evasive delinquent and this is determinative of whether a sentence
    of imprisonment is imposed: see e.g.
R. v. Lewandosky
, [1997] M.J. No.
    471, at paras. 12-13, 23;
Autorité des marchés financiers c. Veillet
,
    2014 QCCQ 2358, at para. 47.

[61]

Other cases do not go this far, and instead
    characterize
Bowman
as establishing a spectrum of blameworthiness on
    which a specific offence is placed to determine the appropriate penalty: see
    e.g.
R. v. Tulsiani
, 2017 ONCJ 430, at paras. 30-32;
R. v. Perch
(2006), 203 Man. R. (2d) 300 (Prov. Ct.), at paras. 19-20;
R. v. Edgar
,
    2000 BCPC 215, at para. 14. In
Autorité des marchés financiers v. Greeley
,
    2010 QCCQ 2879, Mascia J.C.Q. distills
Bowman
as merely requiring an
    assessment of moral blameworthiness: at para. 29.

[62]

In my view, the rigid application of
Bowman
is at tension with the proper approach to the sentencing of regulatory
    offenders. Moral blameworthiness is relevant to the sentencing of regulatory
    offenders because it is probative of the responsibility of the offender to
    which the sentence must be proportionate:
New Mex
, at para. 69.
    However, the sentence must also be proportionate to the gravity of the offence,
    which is unaccounted for in the
Bowman
principle. In other words, moral
    blameworthiness is relevant, but it cannot be the sole focus of the regulatory
    sentencing judge.

[63]

The regulatory sentencing court, according to
    the principles of proportionality and restraint, must impose the sentence
    required to optimally achieve the sentencing goals, of which deterrence is
    paramount. It is unclear how the comparison of the offender to the ideal types
    of the careless offender or the designedly evasive delinquent assists in
    coming to a fit sentence in the circumstances of a given case. It might be
    contrary to the principle of restraint, for example, to rigidly impose
    imprisonment on offenders based on their intention when the goal of deterrence
    could be achieved with a fine. Equally, a fine may not be sufficient to achieve
    the goals of sentencing in some cases where fraud is not made out. Sentencing
    is inherently contextual.

[64]

For this reason then, it would be contrary to
    established sentencing principles to hold that
Bowman
restricts a
    sentencing judges discretion to this one consideration above all others. The
    better formulation of the
Bowman
principle is that intention may be a
    relevant consideration in determining whether a custodial sentence is necessary
    to achieve the goals of sentencing.

(3)

The Sentence is Demonstrably Unfit

[65]

The appellants also argue that the sentence of
    six months imprisonment for Tiffin was demonstrably unfit in the
    circumstances. I agree.

[66]

This court can vary the sentence on appeal if it
    is demonstrably unfit:
R. v. Lacasse
, 2015 SCC 64, [2015] 3 S.C.R.
    1089, at para. 11. A sentence will be demonstrably unfit if it is clearly
    excessive or inadequate or if it represents a substantial and marked departure
    from a proportional sentence properly arrived at based on the correct
    application of the principles and objectives of sentencing: at para. 52.

[67]

I do not agree with the sentencing judges
    reasons for imposing a custodial sentence in addition to the probation order. In
    the unusual circumstances of this case, I find that a custodial sentence is
    manifestly unfit. In particular:

a.

Mr. Tiffin did not attempt to deceive in
    the sense that the evidence indicates that he honestly revealed his desperate
    financial situation when he sought a personal loan from his friends/clients;

b.

As noted by the sentencing judge, While Mr.
    Tiffin did not plead guilty, he did acknowledge that he engaged in the conduct
    complained of, and his defence was based on a question of statutory interpretation.
    While not quite a mitigating factor, it places this case closer to the guilty
    plea category than some of the longer sentence cases relied on by the OSC;

c.

The trial judge also noted that Mr. Tiffin is 66
    years old and likely to continue repaying his clients;

d.

Five of the six recipients of the promissory
    notes filed
letters of support;

e.

The appellants have repaid $90,500 of the
    principal amount of the loan, and $263,000 in interest, for total payments of
    $353,500; and

f.

Mr. Tiffin has expressed remorse.

[68]

There is a history of non-compliance with the
    Act, which led to the cease trading order and not all of the money has been
    repaid. Having said that, the financial penalties alone would fail to meet the applicable
    sentencing objectives.

[69]

While the appeal judge cited the relevant
    principles, the sentence is disproportionate to the point of being demonstrably
    unfit. There is relatively little in the sentencing reasons to justify the custodial
    sentence. The appeal judge cited
R. v. Da Silva
, 2012 ONCJ 279, varied,
    2013 ONSC 260, for the proposition that the applicable sentencing range where
    there is a history of non-compliance begins at nine months.

[70]

This decision does not hold that nine months is
    the starting point for the sentencing of any recidivist. The sentencing judge in
Da Silva
said, These are not first offences, so they would not
    attract periods of six months as did the offenders in
R. v. Casteneda
.
    I agree that given Mr. Da Silvas history of
Securities Act
violations,
    the range would start in these circumstances at [nine] months: at para. 29. Da
    Silvas history of non-compliance was markedly worse than that of Tiffin. Da
    Silva had been under three separate cease trade orders relating to various
    schemes at the time he committed the offences before the sentencing court: at
    para. 5. Further, unlike this case, his activities were intentionally
    deceitful: at paras. 3 and 29. It was in those circumstances that a sentence of
    nine months imprisonment was the starting point.

[71]

A review of relevant case law in Ontario
    securities matters reveals sentences that are significantly below nine months. In
Ontario Securities Commission v. DaSilva
, 2017 ONSC 4576, an offender
    with a significant history of non-compliance was sentenced to three months
    following a trial for similar offences. The sentence was upheld on appeal: at
    para. 79. While there was a smaller amount of money at issue in that case, the
    offence involved dishonesty, specifically using a fake name to solicit
    investments: at paras. 68 and 71.

[72]

Further, in
R. v. Schwartz
, 2013 ONSC
    5031, a 90-day intermittent sentence was upheld on appeal for an offender with
    a history of misconduct who pleaded guilty to violating an OSC order by committing
    fraud: at paras. 14 and 30. In
R. v. Castaneda
, 2008 ONCJ 69, a
    six-month sentence was imposed on an offender who pleaded guilty to offences
    that also made out criminal fraud and imposed significant hardship on investors:
    at paras. 19 and 33. By contrast, in this case five out of six lenders wrote in
    support of Tiffin and the appeal judge found that he was truthful with them in
    soliciting the funds. While the appellants did not plead guilty, the appeal
    judge found that this was closer to the guilty plea category given the
    circumscribed nature of the trial.

[73]

The OSC was not able to direct us to a precedent
    where a custodial sentence was imposed for conduct that was found not to be in
    any way deceitful. This is a unique mitigating factor that distinguishes the
    offences on appeal from all custodial precedents to which we were referred. A
    fit sentence must reflect the appellants reduced responsibility for the
    offences that flows from the absence of deceit in their conduct.

[74]

In light of this case law and the unique
    circumstances of this case, six months incarceration is a demonstrably unfit
    sentence and cannot stand. I would set aside the custodial term but uphold the
    24-month probation order as well as the restitution order with the same terms,
    as outlined below:

·

that the appellants not commit the same or any
    related or similar offence, or any offence under a statute of Canada or Ontario
    or any other province of Canada that is punishable by imprisonment;

·

that the appellants appear before the court as
    and when required;

·

that the appellants notify the court of any
    change in their address;

·

that the appellants report to a probation
    officer if and when directed to do so by the probation officer; and

·

that the appellants not trade in any
    securities as that term is defined in the Act.

[75]

In addition to the restitution order below, this
    probation order is sufficient to achieve the objectives of sentencing in the
    circumstances of this case.

G.

Conclusion

[76]

I would dismiss the conviction appeal and allow
    the sentence appeal. I would set aside the custodial sentence and uphold the
    probation and restitution orders.

Released: March 16, 2020

LB

A.
    Harvison Young J.A.

I
    agree L.B. Roberts J.A.

I
    agree J.A. Thorburn J.A.





[1]

An even broader exemption for distributions to close family,
    friends and business associates was subsequently added to the rules: ss. 2.5,
    2.6.1.


