



COURT OF APPEAL FOR ONTARIO

CITATION: Qin v. Ontario Securities
    Commission, 2021 ONCA 165

DATE: 20210318

DOCKET: C68534

Doherty, Pepall and Thorburn
    JJ.A.

BETWEEN

Xundong
    Qin, also known as Sam Qin and Cenith Air Inc.

Plaintiffs (Appellants)

and

Ontario Securities Commission,
    Christie Johnson, Steve Carpenter and Naomi Chak

Defendants (Respondents)

Andrew Ostrom, for the appellants

Paul Le Vay and Fredrick R. Schumann,
    for the respondents

Heard: February 17, 2021 by video conference

On
    appeal from the order of Justice G. Dow of the Superior Court of Justice, dated
    April 24, 2020, striking the appellants statement of claim: reported at 2020
    ONSC 1145.

Doherty J.A.:


I



overview

[1]

In February 2015, the Ontario Securities
    Commission (OSC), acting under s. 126 of the
Securities Act
, R.S.O.,
    1990, c. S.5 (the Act), froze the assets of the appellants and related companies.
    In March 2015, the OSC commenced a proceeding against the appellants and
    related companies under s. 127 of the Act. In May 2015, Pattillo J., directed
    that the freeze order should continue:
OSC v. Future Solar
,
2015 ONSC 2334. In May 2016, a panel of
    the OSC dismissed the allegations against the appellants and directed the freeze
    order lifted forthwith:
Future Solar Developments Inc. et al.
, 2016
    ONSEC 17. In May 2018, the appellants sued the OSC and three employees (the
    respondents) for malicious prosecution.
[1]

[2]

The respondents moved to strike the statement of
    claim on the basis the decision of Pattillo J. estopped the appellants from proving
    the respondents acted without reasonable and probable cause when they commenced
    proceedings against the appellants. As proof of the absence of reasonable and
    probable cause is an essential element of the tort of malicious prosecution, the
    appellants claim could not possibly succeed if they were estopped from proving
    the absence of reasonable and probable cause.

[3]

The motion judge accepted the respondents
    submissions and struck the claim. He allowed the appellants 30 days to amend
    their claim to plead facts not available before Pattillo J. The appellants
    chose not to amend the claim, but did appeal from the order. For the reasons
    that follow, I would allow the appeal, set aside the order and return the
    proceedings to the Superior Court.


II



the OSC proceedings

[4]

The appellant, Mr. Qin, and various entities he
    controlled were involved in the development and management of solar energy
    projects in Ontario and elsewhere.
[2]
Mr. Qin attempted to raise capital for his projects, especially in China, using
    a program sponsored by the Ontario government, which allowed persons who made
    substantial investments in Ontario-based business to apply for permanent
    residence status in Canada. Mr. Qin raised several million dollars. Neither Mr.
    Qin, nor any of his companies were registered to sell securities. No prospectus
    was filed in connection with Mr. Qins efforts to raise funding.

[5]

The OSC commenced an investigation. In February
    2015, it issued an order under s. 126 of the Act, freezing the assets of the appellants
    and related companies. Section 126 allows the Commission to make that order:

If the Commission considers it expedient for
    the due administration of Ontarios securities law or the regulation of capital
    markets in Ontario

[6]

The OSC, as required by s. 126(5) of the Act,
    applied to the Superior Court, on notice to the appellants, for an order
    continuing the freeze order. The application came on before Pattillo J. Section
    126(5.1) directs that the freeze order may be continued:

If the court is satisfied that the order
    would be reasonable and expedient in the circumstances, having due regard to
    the public interest and,

(a) the due administration of Ontarios
    securities law or the securities law of another jurisdiction; or

(b)   the regulation of capital markets in
    Ontario or another jurisdiction.

[7]

In March 2015, before Pattillo J. heard the
    motion to continue the freeze order, the OSC commenced a proceeding under s.
    127 of the Act against the appellants. The OSC alleged the appellants had
    breached s. 25 of the Act by trading in securities without proper registration,
    and s. 53(1) of the Act, by distributing securities without first filing a
    prospectus. Under s. 127, the OSC can make any of a variety of orders, provided
    the order is justified in the public interest.

[8]

By order dated May 5, 2015, Pattillo J.
    continued the freeze order imposed by the OSC. His reasons for doing so are at
    the centre of the
issue estoppel
argument on which this appeal turns.
    I will return to those reasons.

[9]

Subsequent to the order of Pattillo J., the
    appellants unsuccessfully moved before Commissioner Condon to vary the freeze
    order:
Future Solar Developments Inc. et al.
, 2015 ONSEC 25.

[10]

In May 2016, the Commission heard the merits of
    the allegations against the appellants. The panel dismissed both allegations:
Future
    Solar Developments Inc. et al.
, 2016 ONSEC 17. Commissioner Lenczner,
    writing for the panel, found the appellants were not mainly engaged in the sale
    of securities and were not required to register under the Act. He further held
    the appellants were exempt under the private issuer exemption from the
    requirement of filing a prospectus.


III



the malicious prosecution lawsuit

[11]

In their statement of claim, the appellants pleaded
    the allegations made by the OSC in support of the freeze order in February 2015
    and in the statement of allegations in March 2015 were false, made without
    reasonable and probable cause, and made for a collateral and improper purpose.
    The appellants further pleaded the respondents had proceeded with the
    allegations against the appellants after March 2015, despite having been
    provided with all relevant documents and a full explanation of the nature of
    the appellants business operations, both of which demonstrated those
    operations were in compliance with the Act. Lastly, the appellants pleaded the
    proceedings before the OSC had been resolved entirely in their favour. The
    appellants claimed damages of $100,000,000.


IV



The motion judges decision

[12]

The respondents moved under r. 21.01(d) to
    strike the statement of claim. The respondents argued, the decision of Pattillo
    J. effectively decided there was reasonable and probable cause to initiate the
    proceedings under the Act against the appellants, and that the appellants were
    estopped from arguing, in the context of a malicious prosecution claim, the
    respondents did not have reasonable and probable cause.

[13]

The motion judge accepted the respondents
    argument. He held the finding of Pattillo J. that there was a serious issue to
    be tried in respect of the alleged breaches of the Act, raised the same
    question as did the pleading in the malicious prosecution action alleging the
    respondents had acted without reasonable and probable cause. The motion judge
    reasoned that, as essentially the same question had been determined in the
    proceedings before Pattillo J., the appellants were estopped from re-litigating
    that issue in the malicious prosecution lawsuit. That
estoppel
doomed
    the appellants action and warranted an order striking the claim:
Qin v.
    Ontario Securities Commission
, 2020 ONSC 1145, at paras. 11-12, 16.


V



analysis

[14]

The appellants advanced several arguments. In my
    view, the appeal can be resolved by addressing one of those arguments. Was the
    question answered by Pattillo J. on the motion to continue the freeze order the
    same question that will have to be answered in the civil suit when deciding
    whether the respondents had reasonable and probable cause to initiate
    proceedings against the appellants?

[15]

Although the motion judge referred to both
issue
    estoppel
and abuse of process in holding the respondents claim could not
    go forward, he correctly analyzed the arguments by reference to the essential
    elements of
issue estoppel
:
Qin v. Ontario Securities Commission
,
    2020, ONSC 1145, at paras. 11, 17. The doctrine of abuse of process may
    preclude re-litigation that does not meet the exact criteria for
issue
    estoppel
: see
Winter v. Sherman Estate
, 2018 ONCA 703, at para. 7.
    However, on the facts of this case, there is no basis apart from
issue
    estoppel
to argue the malicious prosecution claim constitutes an impermissible
    re-litigation of decided facts. I will examine the merits of the appellants
    argument solely by reference to the elements of
issue estoppel
.

[16]


Issue estoppel
protects against the
    abuse of the courts process by preventing an unsuccessful party from re-litigating
    a material fact or issue previously and finally decided in proceedings
    involving the same parties or their privies. The doctrine is not absolute and
    will not be applied if the interests of justice dictate otherwise:
Danyluk
    v. Ainsworth Technologies Inc.
, 2001 SCC 44, at paras. 20, 24-25, 33.

[17]

Issue estoppel
operates to preclude re-litigation when
    an issue or material fact that must be decided in the second proceeding raises
    the same question that was decided in the previous proceeding. Binnie J. explained
    this requirement in
Danyluk
, at para. 54:

In this case, for example, the existence of
    an employment contract is a material fact common to both the ESA proceeding and
    to the appellants wrongful dismissal claim in court.
Issue estoppel
simply means that once a material fact such as a valid employment contract is
    found to exist (or not to exist) by a court or tribunal of competent
    jurisdiction, whether on the basis of evidence or admissions, the same issue
    cannot be relitigated in subsequent proceedings between the same parties.
The
    estoppel, in other words, extends to the issues of fact, law and mixed fact and
    law that are necessarily bound up with determination of that issue in the
    prior proceedings
. [Emphasis added.]

[18]

Issue estoppel
extends to findings that are necessarily bound up in the findings made in the
    prior proceeding. The outcome of this appeal turns on whether a determination
    the OSC had reasonable and probable cause to commence proceedings against the
    appellants was necessarily bound up in Pattillo J.s finding that the OSC
    allegations raised a serious issue to be tried.

[19]

What exactly did Pattillo J. decide? He was
    required to interpret, as a matter of first impression, s. 126(5.1), a
    relatively new provision in the Act.
[3]
Pattillo J. concluded, at para. 31, that the OSC had to establish three things to
    obtain an order continuing the freeze order. Only the first of those three
    requirements is relevant here. He framed that requirement in these terms:

There is a serious issue to be tried in
    respect of the respondents breaches of the Act or other security laws in
    another jurisdiction.

[20]

This requirement speaks to some assessment of
    the merits of the allegations, but only in a very limited way. Just how limited
    is made clear by Pattillo J., at para. 28, where he describes the serious
    issue to be tried standard as:

A lesser standard than the requirement to
    establish a strong
prima facie
case or even a
prima facie
case.

[21]

A
prima facie
case is one which, if
    unanswered, would justify, although not compel, a finding in favour of the
    party advancing that case. In the context of a s. 126(5) hearing, a finding of
    a
prima facie
case may be the equivalent of a finding of reasonable
    and probable cause to believe the appellants had breached the Act. Pattillo J.,
    however, expressly indicated he was assessing the merits of the OSCs
    allegations on the lesser standard captured by the phrase serious issue to
    be tried. That standard comes from the interlocutory/stay jurisprudence and is
    used to describe a claim which, upon a preliminary assessment, is said to rise
    above the level of a frivolous or vexatious claim. The merits threshold described
    by the phrase serious issue to be tried is clearly a low one: see
RJR-MacDonald
    Inc. v. Canada (Attorney General)
, [1994] 1 S.C.R. 311, at 337;
American
    Cyanamid v. Ethicon Ltd.
, 1975 A.C. 396, at pp. 404-405 (H.L.). In my
    view, a finding a claim is not frivolous or vexatious does not answer the
    question whether the same claim is based on reasonable and probable cause.

[22]

The serious issue to be tried standard and the
    reasonable and probable cause standard are qualitatively different. The
    reasonable and probable cause standard invites scrutiny of the record to
    determine the likelihood or probability, at the time the proceedings were
    commenced, that the OSC could ultimately establish the allegations. The serious
    question to be tried standard addresses the preliminary question of whether
    the OSC had provided a sufficient basis upon which it could be said the
    allegations had some merit warranting the continuation of the freeze orders and
    related investigative steps. Viewed in their proper context, it is clear the
    presence of reasonable and probable cause does not flow from a finding of a serious
    issue to be tried and cannot be described as necessarily bound up in that
    finding.

[23]

Although the different standards engaged by the
    serious issue to be tried question and the reasonable and probable cause
    question are enough to conclude
issue estoppel
cannot apply, the appellants
    point to a second related and equally compelling reason for reaching that
    result.

[24]

In considering whether there was a serious issue
    to be tried concerning the merits of the allegations made against the
    appellants, Pattillo J. indicated he would not assess the merits of the
    exculpatory material placed before the court on the motion:
OSC v. Future
    Solar
, 2015 ONSC 2334, at paras. 36-37. The approach taken by Pattillo J.
    reflects the preliminary nature of his assessment of the merits of the allegations.
    The matter was still in the investigative stage. Pattillo J. was asked to
    freeze assets so that those assets might eventually be available, depending on
    any disposition the OSC might make under s. 127 of the Act. At this stage, Pattillo
    J. was not engaged in an assessment of the ultimate merits, which would include
    any explanations offered by the defence.

[25]

While the relatively narrow evidentiary focus
    taken by Pattillo J. makes sense in the context of a s. 126(5) motion, a
    broader inquiry is required when assessing whether the respondents had reasonable
    and probable cause. As explained in
Miazga v. Kvello Estate
, [2009] 3 S.C.R. 339, at 375-76,
    reasonable and probable cause, in the context of prosecutions initiated by
    public prosecutors, requires a determination of whether, objectively viewed,
    the facts known to the prosecution when it was undertaken, provided reasonable
    and probable cause to initiate the proceeding. This exercise engages an
    examination of all of the facts known to the prosecution when it initiated proceedings.
    Those facts include facts known to the prosecution which could exculpate the
    would-be targets of the prosecution. Further, as set out above, the totality of
    the facts known to the prosecution must be measured, not against the serious
    issue to be tried standard, but against the more demanding reasonable and
    probable cause standard.

[26]

Had Pattillo J. been called upon to decide
    whether the OSC had reasonable and probable grounds to commence proceedings
    against the appellants, he would have been required to consider the merits of
    the exculpatory information the appellants had provided to the OSC. Pattillo J.
    expressly, and
properly in my
    view, declined to engage in that exercise in the context of a motion to
    continue the freeze order.

[27]

I come back to the question  what did Pattillo
    J. decide? He determined the freeze order made by the OSC should be continued under
    the criteria he described in his reasons. Those criteria did not require the
    OSC to demonstrate reasonable and probable grounds to take proceedings against
    the appellants. Nothing decided by Pattillo J. would preclude the appellants
    from arguing the OSC did not have reasonable and probable grounds to believe
    the appellants had breached the Act, either when they initiated the freeze
    order, or when they commenced proceedings.

[28]

In holding that
issue estoppel
does not apply, I do not suggest the decision of Pattillo J., to the extent it
    addresses the merits of the allegations, does not have evidentiary value when
    it comes to deciding whether the appellants have proved the respondents did not
    have reasonable and probable cause to commence proceedings:
Miazga v.
    Kvello Estate
, at para. 97.


VI



conclusion

[29]

I would allow the appeal, set aside the order
    striking the appellants statement of claim, and remit the matter to the
    Superior Court.

[30]

I would award the appellants costs of the
    motion, fixed at $7,000 all in, and costs on the appeal, fixed at $6,000 all
    in.

Released: March 18, 2021 DD

Doherty
    J.A.

I
    agree S.E. Pepall J.A.

I
    agree Thorburn J.A.





[1]

The appellants also alleged negligent investigation, but
    have abandoned that claim.



[2]

The appellants maintain that, unlike the other corporate
    entities, Cenith Air Inc. was involved in the manufacture of air purifiers and
    had no involvement in any solar energy project. I need not address that claim
    as, on my analysis, it has no relevance to the outcome of the appeal.



[3]

The correctness of Pattillo J.s interpretation of s.
    126(5.1) is not in issue on this appeal.


