Pezim v. British Columbia (Superintendent of Brokers)

Pezim v. British Columbia (Superintendent of Brokers)
Collection
Supreme Court Judgments
Date
1994-06-23
Report
[1994] 2 SCR 557
Case number
23107, 23113
Judges
Lamer, Antonio; La Forest, Gérard V.; Sopinka, John; Gonthier, Charles Doherty; McLachlin, Beverley; Iacobucci, Frank; Major, John C.
On appeal from
British Columbia
Subjects
Administrative law
Securities
Notes
SCC Case Information: 23107, 23113
Decision Content
Pezim v. British Columbia (Superintendent of Brokers), [1994] 2 S.C.R. 557
The Superintendent of Brokers Appellant
v.
Murray Pezim, Lawrence Page and John Ivany Respondents
and
The Attorney General of British Columbia,
the Ontario Securities Commission,
the Alberta Securities Commission and
the Securities Dealers Society of Ontario Interveners
and between
The British Columbia Securities Commission Appellant
v.
Murray Pezim, Lawrence Page and John Ivany Respondents
and
The Attorney General of British Columbia,
the Ontario Securities Commission,
the Alberta Securities Commission and
the Securities Dealers Society of Ontario Interveners
Indexed as: Pezim v. British Columbia (Superintendent of Brokers)
File Nos.: 23107, 23113.
1994: February 24; 1994: June 23.
Present: Lamer C.J. and La Forest, Sopinka, Gonthier, McLachlin, Iacobucci and Major JJ.
on appeal from the court of appeal for british columbia
Administrative law ‑‑ Judicial review ‑‑ Securities Commission ‑‑ Commission part of larger regulatory framework ‑‑ No privative clause and right of appeal ‑‑ Appropriate standard of review of Commission's decisions ‑‑ Whether standard properly applied -- Securities Act, S.B.C. 1985, c. 83, ss. 1(1) "material change", "material fact", 14(1), (2), 44(1), 45(2), 49(1), 50(1), 67, 68, 144(1)(a), (b), (c), (d), 149(a), (b), (c), 154.2.
Securities ‑‑ Securities Commission ‑‑ Statutory duty on issuers of stock to disclose nature and substance of material change ‑‑ Prohibition against insider trading ‑‑ Series of transactions allegedly breaching duty to disclose ‑‑ Whether transactions breaching duty to disclose and/or prohibition against insider trading.
Respondents were, respectively, the chair of the board, the vice president responsible for internal administration and the president of Prime, a company holding several wholly owned subsidiaries and controlling or managing about 50 public junior resource companies. Respondents were also directors of Calpine, a company controlled and managed by Prime. Both companies were reporting issuers listed on the Vancouver Stock Exchange and subject to the VSE's rules and policies concerning public disclosure of information and pricing of options. Both were subject to the continuing and timely disclosure requirements under s. 67 of the Securities Act and to the insider trading provisions under s. 68. The British Columbia Securities Commission administers the Act and ensures compliance with its requirements. It also regulates the VSE.
In the spring of 1990, the Superintendent of Brokers (the Commission's chief administrative officer) instituted proceedings against the respondents in connection with various types of transactions which occurred between July and October, 1989. The Superintendent alleged that the respondents had violated the timely disclosure provisions and insider trading provisions in three categories of impugned transactions: the drilling results and share options transactions, the private placement, and the ALC withdrawal. Respondents were prevented from having information relative to assay results by a "Chinese Wall".
In the first category, Prime or Calpine allegedly failed to disclose all material changes in four transactions in that assay results were publicly disclosed after the company had granted or repriced options. The fifth option transaction, although made after a detailed news release of assay results, allegedly violated a pricing formula under the VSE options policy.
The second series of impugned transactions involved the private placement of Calpine units. Calpine allegedly failed to disclose, contrary to s. 67, that Prime was the purchaser and that the sale significantly increased Prime's interest in Calpine. It was also alleged that Calpine had misled the VSE as to the firm brokering the private placement.
The third impugned transaction occurred when a broker disputed its contractual obligation either to find a purchaser or to buy a set number of Prime units on offer following the withdrawal of a firm (ALC) from a deal to purchase them. Prime was alleged to have violated s. 67 by not making timely and adequate disclosure of the dispute following ALC's withdrawal.
The Commission concluded that the respondents contravened s. 67 of the Act by failing to disclose material changes in their affairs. No insider trading contrary to s. 68 of the Act was found, however. The respondents were found responsible for these breaches as senior managers of the companies, were suspended from trading in shares for one year and were required to pay part of the costs incurred by the Commission and Superintendent. Respondents' appeal was limited to whether the Commission had erred as a matter of law in its conclusions on s. 67 (disclosure of material change), s. 144 (power of Commission to make orders) and s. 154.2 (power of Commission to make orders regarding costs) of the Act. The Court of Appeal allowed the appeal and set aside the Commission's orders. The Superintendent and the Commission now appeal from that decision.
These appeals dealt mainly with the appropriate standard of review for an appellate court reviewing a decision of a securities commission which is not protected by a privative clause when there exists a statutory right of appeal and where the case turns on a question of statutory interpretation. The appeals also raised issues of compliance with the timely disclosure requirements under applicable securities legislation.
Held: The appeals should be allowed.
The Securities Act is part of a much larger framework which regulates the securities industry throughout Canada primarily for the protection of the investor but also for capital market efficiency and ensuring public confidence in the system.
The central question in ascertaining the standard of review is to determine the legislative intent in conferring jurisdiction on the administrative tribunal. The analysis must consider the tribunal's role or function, whether the agency's decisions are protected by a privative clause, and whether the question goes to the tribunal's jurisdiction. The courts have developed a spectrum that ranges from the standard of patent unreasonableness (where deference is at its highest, for example, where a tribunal is protected by a privative clause in deciding a matter within its jurisdiction) to that of correctness (where deference is at its lowest, for example, where there is a statutory right of appeal or where the issue concerns the interpretation of a provision limiting the tribunal's jurisdiction). The case at bar falls between these two extremes. On one hand lies a statutory right of appeal pursuant to s. 149 of the Securities Act. On the other lies an appeal from a highly specialized tribunal on an issue which arguably goes to the core of its regulatory mandate and expertise. Even where there is no privative clause and where there is a statutory right of appeal, the concept of the specialization of duties requires that deference be shown to decisions of specialized tribunals on matters which fall squarely within the tribunal's expertise.
The breadth of the Commission's expertise and specialisation is reflected in the provisions of the Securities Act. The Commission is responsible for the administration of the Act, has broad powers with respect to investigations, audits, hearings and orders, and any decision, when filed in the Supreme Court of British Columbia Registry, has the force and effect of a decision of that court. The Commission has the power to revoke or vary any of its decisions. It also has a very broad discretion to determine what is in the public's interest. The definitions in the Act exist in a factual or regulatory context and must be analysed in context, not in isolation. This is yet another basis for curial deference. A higher degree of judicial deference is also warranted with respect to a tribunal's interpretation of the law where it plays a role in policy development. Here, the Commission's primary role is to administer and apply the Act. It also plays a policy development role but its policies are not to be treated as legal pronouncements absent statutory authority mandating such treatment. Thus, on precedent, principle and policy, those decisions of the Commission falling within its expertise generally warrant judicial deference.
Sections 67, 144 and 154.2 of Act were specifically considered with an eye to the tribunal's expertise and its need for deference. The decision to make an order and the precise nature of that order, under s. 144, as well as any decision obliging a person to pay the costs of a hearing necessitated by his or her conduct, pursuant to s. 154.2, are clearly within the jurisdiction and expertise of the Commission. The other provision at issue was s. 67 which involves an interpretation of the words "material change" and "as soon as practicable".
Both "material change" and "material fact" are defined in s. 1 of the Act. They are defined in terms of the significance of their impact on the market price or value of the securities of an issuer. The definition of "material fact" is broader than that of "material change"; it encompasses any fact that can "reasonably be expected to significantly affect" the market price or value of the securities of an issuer, and not only changes "in the business, operations, assets or ownership of the issuer" that would reasonably be expected to have such an effect.
This case turned partly on the definition of "material change". Three elements emerge from that definition: the change must be (a) "in relation to the affairs of an issuer", (b) "in the business, operations, assets or ownership of the issuer" and (c) material, i.e., would reasonably be expected to have a significant effect on the market price or value of the securities of the issuer. Not all changes are material changes; the latter are set in the context of making sure that issuers keep investors up to date. The determination of what information should be disclosed is an issue which goes to the heart of the regulatory expertise and mandate of the Commission, i.e., regulating the securities markets in the public's interest.
This case also turns on the meaning of the words "as soon as practicable", in s. 67 of the Act, as to when a material change should be disclosed to the public. The timeliness of disclosure also falls within the Commission's regulatory jurisdiction.
Given the nature of the securities industry, the Commission's specialization of duties and policy development role, and the nature of the problem before the court, considerable deference was warranted in the present case notwithstanding the facts that there was a statutory right of appeal and that there was no privative clause.
The determination of what constitutes a material change for the purposes of general disclosure under s. 67 of the Act falls squarely within the regulatory mandate and expertise of the Commission. New information relating to a mining property (which is an asset) bears significantly on the question of that property's value. A change in assay and drilling results can amount to a material change as was the case here.
The obligation to disclose "as soon as practicable" takes on a different meaning when an issuer is about to engage in a securities transaction. Although a duty to inquire is not expressly stated in s. 67, such an interpretation contextualizes the general obligation to disclose material changes and guarantees the fairness of the market, which is the underlying goal of the Act. The Commission had jurisdiction to interpret s. 67 in this manner and was entitled to the court's deference.
A duty to inquire under s. 67 is not incompatible with the Act's insider trading provision (s. 68). If an issuer wishes to engage in a securities transaction, its directors must inquire about all material changes in the issuer's affairs. Consequently, the directors will have, at one point in time, knowledge of undisclosed material facts and material changes which constitute inside information. As long as the material facts and material changes are adequately disclosed prior to the transaction, there will be no possibility of insider trading. The directors' duty to inquire about material changes is not erased by the erection of a Chinese Wall because the disclosure requirements under s. 67 are on the issuer.
Each of the Commission's findings were supported by overwhelming evidence and should not be disturbed. The Commission concluded that information contained in drilling results can constitute a material change in a reporting issuer's affairs and that s. 67 imposes a duty on senior management to inquire as to the existence of material changes before causing a reporting issuer to engage in a securities transaction. It found that the respondents breached s. 67 by failing to disclose various material changes in the affairs of Prime and Calpine before causing these two companies to engage in securities transactions. The Commission also concluded that the non‑disclosure of information concerning the private placement issue and the withdrawal of ALC constituted a failure to disclose a material change. Although the material change arising from the controversy surrounding the withdrawal of ALC was self-evident, not all material changes are self-evident.
Section 144 of the Act gives the Commission a broad discretion to make orders that it considers to be in the public interest. Thus, a reviewing court should not disturb an order of the Commission unless the Commission has made some error in principle in exercising its discretion or has exercised its discretion in a capricious or vexatious manner.
The Commission exercised its discretion in a judicial manner. Further, it could make the orders it did with respect to the respondents even though the duty to make timely disclosure under s. 67 of the Act applies to a "reporting issuer". Although responsibility for timely disclosure is vested in the reporting issuer, effective responsibility rests with the senior officers and the directors of the reporting issuer. In addition, s. 144 of the Act not only gives the Commission a broad power to make orders it considers to be in the public interest but also confers upon the Commission the authority to make orders with respect to "a person". The Commission's order with respect to costs was well within its jurisdiction; considerable deference was in order.
Cases Cited
Referred to: Canadian Union of Public Employees, Local 963 v. New Brunswick Liquor Corp., [1979] 2 S.C.R. 227; U.E.S., Local 298 v. Bibeault, [1988] 2 S.C.R. 1048; Domtar Inc. v. Quebec (Commission d'appel en matière de lésions professionnelles), [1993] 2 S.C.R. 756; Zurich Insurance Co. v. Ontario (Human Rights Commission), [1992] 2 S.C.R. 321; Canada (Attorney General) v. Mossop, [1993] 1 S.C.R. 554; University of British Columbia v. Berg, [1993] 2 S.C.R. 353; Bell Canada v. Canada (Canadian Radio‑Television and Telecommunications Commission), [1989] 1 S.C.R. 1722; United Brotherhood of Carpenters and Joiners of America, Local 579 v. Bradco Construction Ltd., [1993] 2 S.C.R. 316; Brosseau v. Alberta Securities Commission, [1989] 1 S.C.R. 301; National Corn Growers Assn. v. Canada (Import Tribunal), [1990] 2 S.C.R. 1324; Pacific Coast Coin Exchange v. Ontario Securities Commission, [1978] 2 S.C.R. 112; Four Star Mgmt. Ltd. v. B.C. Securities Comm. (1990), 46 B.C.L.R. (2d) 195, leave to appeal refused sub nom. Williams (Byron Leslie) v. British Columbia Securities Comm., [1991] 1 S.C.R. xv; Gordon Capital Corp. v. Ontario Securities Commission (1991), 14 O.S.C.B. 2713; Re the Securities Commission and Mitchell, [1957] O.W.N. 595; Bay Street West Securities (1983) Inc. v. Alberta Securities Commission (1984), 56 A.R. 19.
Statutes and Regulations Cited
Company Act, R.S.B.C. 1979, c. 59, ss. 1, 255, 267, 272.
Securities Act, S.B.C. 1985, c. 83, ss. 1(1) "material change", "material fact", 14(1), (2), 44(1) [am. 1989, c. 78, s. 16], 45(2) [am. 1989, c. 78, s. 16], 47(1), (2), 48(1) [am. 1989, c. 58, s. 12], 49(1) [am. 1989, c. 78, s. 20], 50(1), 67, 68 [rep. & sub. 1989, c. 78, s. 25], 144(1)(a) [rep. & sub. 1989, c. 78, s. 39], (b) [rep. & sub. 1989, c. 78, s. 39], (c) [rep. & sub. 1989, c. 78, s. 39, am. 1990, c. 25, s. 49], (d) [rep. & sub. 1989, c. 78, s. 39], 149(a) [rep. & sub. 1989, c. 78, s. 43, am. 1992, c. 52, s. 27], (b) [rep. & sub. 1989, c. 78, s. 43], (c) [ad. 1992, c. 52, s. 27], 154.2 [ad. 1988, c. 58, s. 25].
Authors Cited
. Alboini, Victor P. Securities Law and Practice, 2nd ed., vol. 2 (loose‑leaf). Toronto: Carswell, 1984.
Johnston, David L. Canadian Securities Regulation. Toronto: Butterworths, 1977.
Stevens, George C. and Stephen D. Wortley. "Murray Pezim in the Court of Appeal: Draining the Lifeblood from Securities Regulation" (1992), 26 U.B.C. L. Rev. 331.
APPEALS from a judgment of the British Columbia Court of Appeal (1992), 66 B.C.L.R. (2d) 257, 96 D.L.R. (4th) 137, 24 W.A.C. 1, allowing an appeal from an order of the British Columbia Securities Commission. Appeals allowed.
M. J. Gregory Walsh and Catharine M. Esson, for the appellant the Superintendent of Brokers.
John L. Finlay and Susan E. Ross, for the appellant the British Columbia Securities Commission.
Alan J. Lenczner, Q.C., and Winton K. Derby, Q.C., for the respondents.
Deborah K. Lovett, for the intervener the Attorney General of British Columbia.
Stephen T. Goudge, Q.C., and Sandra Forbes, for the intervener the Ontario Securities Commission.
Frances L. Zinger and Glenda A. Campbell, for the intervener the Alberta Securities Commission.
Bryan Finlay, Q.C., and Philip Anisman, for the intervener the Securities Dealers Society of Ontario.
The judgment of the Court was delivered by
Iacobucci J. -- These appeals (hereinafter referred to in the singular) deal mainly with the appropriate standard of review for an appellate court reviewing a decision of a securities commission which is not protected by a privative clause when there exists a statutory right of appeal and where the case turns on a question of statutory interpretation. The appeal also raises issues of compliance with the timely disclosure requirements under applicable securities legislation.
I.Facts
At the relevant time, the respondents were directors and senior managers of Prime Resources Corporation ("Prime"), a company which headed a large corporate network which consisted of Prime, various wholly owned subsidiaries, and Prime's "managed companies", a group of about 50 public junior resource companies controlled and managed by Prime. Murray Pezim was the chairperson of Prime's board of directors and was responsible for promoting and arranging financing for Prime and the managed companies. Lawrence Page was Prime's vice president and was responsible for administration within Prime and for liaison with Prime's outside legal counsel. Finally, John Ivany was president and chief executive officer of Prime. He was also responsible for the overall direction of Prime and played a role in raising financing for the corporation.
One of Prime's managed companies was Calpine Resources Inc. ("Calpine"), which was involved in mineral exploration and development in northern British Columbia. Prime held 23 percent of Calpine's common shares. The respondents were also directors of Calpine.
Both Prime and Calpine were incorporated under the Company Act, R.S.B.C. 1979, c. 59 (as amended), and were reporting issuers whose common shares were listed for trading on the Vancouver Stock Exchange ("VSE"). As such, they were subject to the VSE's rules and policies concerning such matters as public disclosure of information and pricing of options. They were also subject to the continuing and timely disclosure requirements under s. 67 of the Securities Act, S.B.C. 1985, c. 83 (as amended) (the "Act"), which required disclosure of "material changes" in the affairs of a reporting issuer as soon as practicable, as well as the insider trading provisions under s. 68 of the Act. The British Columbia Securities Commission ("the Commission"), which is established by the Act, is charged with administering the Act and ensuring compliance with the requirements of the Act, as well as regulating the VSE.
In the spring of 1990, the Superintendent of Brokers ("Superintendent"), the chief administrative officer of the Commission, instituted proceedings against the respondents in connection with various types of transactions which occurred between July and October, 1989. The Superintendent alleged that the respondents had violated the timely disclosure provisions found in s. 67 of the Act, as well as the insider trading provisions found in s. 68. As a matter of convenience, the impugned transactions have been divided into three categories: the drilling results and share options transactions, the private placement, and the so-called ALC withdrawal. Each of these will be discussed in turn.
A.The Drilling Results and Share Options Transactions
In September 1988, Calpine announced the commencement of drilling on a property known as "Eskay Creek". On May 18, 1989, Calpine announced another drilling program on the same property for the summer of 1989.
Prime Explorations Ltd., one of Prime's wholly owned subsidiaries, was engaged to provide consulting and management services for the project. David Mallo, a staff geologist employed by Prime Explorations, was appointed manager of the Eskay Creek project and prepared regular written reports on the progress of the project. These reports, which contained information on the activity at the camp, as well as visual descriptions and ratings of the holes drilled since the last report, were sent to the president of Prime Explorations, Chet Idziszek, an experienced geologist. Idziszek was responsible for implementing and carrying out a system to compile the drilling and assay results, to ensure the confidentiality of the results, and to determine the time when public disclosure of the results was required. Idziszek also erected a "Chinese Wall" to prevent the non-geological officers of Prime Explorations, including the respondents, from having actual knowledge of the drilling results before they were released to the public.
Early in the first program, that is in the fall of 1988, news releases had been issued to disclose the drilling results from a single hole or even a partial hole. However, by the summer of 1989, the practice was to release results about every two weeks covering several holes.
During the summer program, the drilling concentrated on two zones of mineralization, known as the 21A zone and the 21B zone. Several holes were drilled including holes 71, 93, 101 and 109. During this period, share options were granted and news releases were issued.
The first disclosure on the summer program occurred in a news release, dated June 20, 1989, to announce the commencement of the drilling activity. Five subsequent news releases were issued on July 13, 19, August 2, 15 and 22. The first four of these five news releases were issued after, rather than before, Calpine and Prime granted new share options or reduced the price of previously issued options in favour of directors (including the respondents) and employees. The fifth news release was issued before the fifth impugned share options transaction. As a matter of convenience, I set out the following chronology of events which relate to the five share options transactions and news releases:
DateEvent
July 11/12, 1989Idziszek and Mallo visit the drill camp and are very impressed with their visual observations. A new zone of mineralization is identified and Mallo states that there is a very good chance that the reserves are doubling.
July 12, 1989Calpine grants options on 100,000 of its common shares to the Calpine Employee Plan at a price of $1.44 per share, the previous close being $1.63 per share.
July 13, 1989A news release is issued describing the location of the drilling. The assay results for the first hole, hole 71, are ready but they are not disclosed in the news release.
July 19, 1989Calpine issues a news release disclosing the first assay results from the summer drilling program.
July 26, 1989While reviewing the daily fax sent from the drill camp, Mallo finds out that hole 109 is out of the ordinary. Mallo receives chip samples from hole 109 and has assays done on them. At least one of the samples shows very high gold and silver values.
July 28, 1989While on vacation, Idziszek is advised that visible gold has been discovered in hole 109. He immediately phones the respondent Ivany to advise him of the discovery. He then calls Mallo who informs him of the results of the chip sample assays for hole 109.
July 31, 1989In the morning, Calpine grants options on 100,000 of its common shares to Leslie MacConnell, a long-time associate of Pezim's, at a price of $2.32 per share, the previous close being $2.55. Idziszek and Mallo visit the drill camp, arriving about noon. After viewing the drill core and confirming the finding of visible gold, Idziszek phones Pezim at about 1:30 p.m. and informs him of the visible gold. In the late afternoon, Pezim signs and files a declaration in which he certifies that there are no undisclosed material changes in the affairs of Calpine.
August 1, 1989Idziszek and Mallo begin to prepare a news release and correlate the assay results that are in the office.
August 2, 1989At Pezim's request, trading in Calpine's shares is halted from 9:40 a.m. until 9:30 a.m. the following day. A news release is issued announcing the assay results for several more holes as well as the discovery of visible gold in hole 109.
August 14, 1989The final gold and silver assays for holes 93 and 101 arrive. They included "very good numbers".
August 15, 1989Prime reduces, to $2.13 per share, the exercise price of options on 3,351,383 of its common shares already granted, the previous close being $2.47. Most of these options are held by Senior Management of Prime, including the respondents. In the afternoon, Calpine issues a news release disclosing the assay results for holes 93 and 101.
August 16, 1989The final total gold assays for hole 109 arrive at Prime Explorations in the afternoon.
August 17, 1989Prime grants options on 125,000 of its common shares to Richard Warke and Murray Garrison, two Prime employees, at an exercise price of $2.28 per share, the previous close being $2.50. In the afternoon, Pezim signs and files a declaration in which he certifies that there are no undisclosed material changes in the affairs of Prime.
August 22, 1989Calpine issues a news release (dated August 21) disclosing a detailed description of the assay results for hole 109, as well as information on visual observations of nearby holes that had been subsequently drilled.
August 24, 1989Calpine grants options on 100,000 of its common shares to the Calpine Employee Plan and to Norman Pezim, Murray Pezim's brother, at an exercise price of $4.78 per share, the previous close being $6.
B.The Private Placement
On July 14, 1989, Calpine issued a news release announcing a private placement for two million units; each unit was to consist of one Calpine common share and one Calpine share purchase warrant, which entitles the holder to purchase one Calpine common share. The fact that the purchaser or placee was Prime was not disclosed in the news release even though the sale would increase Prime's interest in Calpine from 23 to 36 percent of the outstanding Calpine common shares.
On July 17, 1989, the respondent Ivany sent a notice letter to the VSE concerning the private placement. Prime Equities Inc., a wholly owned subsidiary of Prime, was named as agent for the private placement, but the notice did not indicate the name of the placee.
During the period from July 14 to August 10, 1989, the respondent Pezim told certain brokers and investors who asked him that it was Prime, directly or indirectly, that was purchasing the private placement.
On August 10, 1989, the VSE was advised that the private placement would be taken down by an entity related to Prime and that Prime Equities would not be involved in the transaction. Prime issued a news release on that same day identifying Prime as the placee and announcing that it would close the private placement by August 18, 1989.
On August 18, 1989, Calpine filed the required declaration with the VSE in which the respondent Page certified that there were no undisclosed material changes in Calpine's affairs.
Although the private placement purportedly closed on August 18, 1989, the money was not paid or the shares issued until December of that year. On December 11, 1989, Prime issued a news release announcing that it had completed, on December 7, 1989, the purchase of four million shares of Calpine by way of a private placement.
C.The ALC Withdrawal
In September 1989, Prime made a public offering of five million units, at $4.25 per unit, under a guaranteed agency agreement ("GAA") with three brokerage firms. Each unit was to consist of one Prime common share and one Prime share purchase warrant. Under the GAA, one of the brokerage firms, Canarim Investment Corporation Ltd. ("Canarim") guaranteed either to find purchasers or purchase itself four million units. An English company, Alexanders, Laing and Cruickshank Ltd. ("ALC"), entered into a deal with Canarim to buy one million Prime units. The deadline for payment under the GAA was September 29, 1989.
On September 25, 1989, Tim Hoare, a principal of ALC and a director of Prime, advised Canarim that ALC was withdrawing its purchase because it had not been adequately consulted on the price of the offering. Peter Brown, Canarim's chairperson and a director of Prime, called Pezim and told him there was a problem. Pezim told Brown to give ALC a delayed delivery contract and said he would talk to Hoare personally to convince him to take the units. Pezim also told Brown that Canarim would have to pay for the units, but indicated that Prime would try to help Canarim offset any loss through other business. On September 29, 1989, neither ALC nor Canarim paid for the unwanted one million units.
On October 16, 1989, Brown formally notified Prime that Canarim would not take down or pay for the one million Prime units. The withdrawal of Canarim was disclosed on October 19, 1989 in a planned news release intended to disclose a share swap between Prime and another company. Following this news release, Canarim came under pressure from the brokerage community to take down the units. Accordingly, Canarim agreed to honour its obligation and advised Prime. This was disclosed by Prime in a news release on October 23, 1989.
Following a rather lengthy hearing relating to the three groups of impugned transactions described above, the Commission concluded that the respondents had contravened s. 67 of the Act by failing to disclose material changes in their affairs. However, no contravention of s. 68 of the Act, relating to improper insider trading, was found. The respondents were responsible for these breaches as senior managers of the companies and were suspended from trading in shares for a period of one year through the removal of their trading exemptions under the Act. Further, they were ordered to pay two-thirds of the costs incurred by the Commission and the Superintendent.
Pursuant to s. 149 of the Act, the respondents appealed to the British Columbia Court of Appeal. The order granting leave to appeal limited the appeal to the question of whether the Commission had erred as a matter of law in its conclusions on s. 67 (disclosure of material change), s. 144 (power of Commission to make orders) and s. 154.2 (power of Commission to make orders regarding costs) of the Act. The Court of Appeal allowed their appeal and set aside the orders of the Commission, Locke J.A. dissenting. The respondents were ordered to pay one tenth of the costs incurred by the Commission and the Superintendent. The Superintendent and the Commission now appeal from that decision.
II.Relevant Statutory Provisions
Securities Act, S.B.C. 1985, c. 83 (am. S.B.C. 1988, c. 58, S.B.C. 1989, c. 78, S.B.C. 1990, c. 25 and S.B.C. 1992, c. 52):
1. (1) In this Act
. . .
"material change" means, where used in relation to the affairs of an issuer, a change in the business, operations, assets or ownership of the issuer that would reasonably be expected to have a significant effect on the market price or value of any of the securities of the issuer and includes a decision to implement that change made by
(a)senior management of the issuer who believe that confirmation of the decision by the directors is probable, or
(b) the directors of the issuer;
"material fact" means, where used in relation to securities issued or proposed to be issued, a fact that significantly affects, or could reasonably be expected to significantly affect, the market price or value of those securities;
67. (1) Where a material change occurs in the affairs of a reporting issuer, the reporting issuer shall
(a)as soon as practicable issue and file a press release that is authorized by a senior officer and that discloses the nature and substance of the change, and
(b)file a required report, as soon as practicable, but in any event no later than 10 days after the date on which the change occurs.
(2) Subsection (1) does not apply to a reporting issuer which immediately files the report required under subsection (1) (b) marked "confidential" together with written reasons why there should not be a press release under subsection (1) (a) so long as
(a)in the opinion of the reporting issuer, the disclosure required by subsection (1) would be unduly detrimental to its interests, or
(b)the material change in the affairs of the reporting issuer
(i)consists of a decision to implement a change made by senior management of the issuer who believe that confirmation of the decision by the directors is probable, and
(ii)senior management of the issuer has no reason to believe that persons with knowledge of the material change have made use of that knowledge in purchasing or selling securities of the issuer.
(3) Where a report has been filed under subsection (2), the reporting issuer shall advise the commission in writing, within 10 days of the date of filing the initial report and every 10 days after that, that it believes the report should continue to remain confidential until
(a)the material change is generally disclosed in the manner referred to in subsection (1) (a), or
(b)if the material change consists of a decision of the type referred to in subsection (2) (b), that decision has been rejected by the directors of the issuer.
68. (1) No person that
(a)is in a special relationship with a reporting issuer, and
(b)knows of a material fact or material change with respect to that reporting issuer, which material fact or material change has not been generally disclosed,
shall purchase or sell
(c)securities of that reporting issuer,
(d)a put, a call, an option or another right or obligation to purchase or sell securities of the reporting issuer, or
(e)a security, the market price of which varies materially with the market price of any securities of the reporting issuer.
(2) No reporting issuer and no person in a special relationship with a reporting issuer shall inform another person of a material fact or material change with respect to the reporting issuer before the material fact or material change has been generally disclosed, unless giving the information is necessary in the course of business of the reporting issuer or of the person in the special relationship with the reporting issuer.
(3) No person that proposes to
(a)make a take over bid, as defined in section 74, for the securities of a reporting issuer,
(b)become a party to a reorganization, amalgamation, merger, arrangement or similar business combination with a reporting issuer, or
(c)acquire a substantial portion of the property of a reporting issuer
shall inform another person of a material fact or material change with respect to the reporting issuer before the material fact or material change has been generally disclosed, unless giving the information is necessary to effect the take over bid, business combination or acquisition, as the case may be.
(4) A person does not contravene subsection (1), (2) or (3) if the person proves on the balance of probabilities that at the time of the purchase or sale referred to in subsection (1) or at the time of giving the information under subsection (2) or (3), as the case may be, the person reasonably believed that the material fact or material change had been generally disclosed.
144. (1) Where the commission or the superintendent considers it to be in the public interest, the commission or the superintendent, after a hearing, may order
...
(c)that any or all of the exemptions described in any of sections 30 to 32, 55, 58, 80 or 81 do not apply to a person,
(d)that a person
(i)resign any position that the person holds as a director or officer of an issuer, and
(ii)is prohibited from becoming or acting as a director or officer of any issuer,
. . .
149. (1) A person directly affected by a decision of the commission, other than
(a)a decision under section 33 or 59,
(b)a decision under section 147 in connection with the review of a decision of the superintendent under section 33 or 59, or
(c)a decision by a person acting under authority delegated by the commission under section 6,
may appeal to the Court of Appeal with leave of a justice of that court.
154.2 The person presiding at a hearing required or permitted under this Act or the regulations may order a person whose affairs are the subject of the hearing to pay prescribed fees or charges for the costs of or related to the hearing that are incurred by or on behalf of the commission or the superintendent including, without limiting this,
(a)costs of matters preliminary to the hearing,
(b)costs for time spent by the commission or the superintendent or the staff of either of them,
(c)fees paid to an expert or witness, and
(d)costs of legal services.
III.Judgments Below
1. British Columbia Securities Commission
The Commission's reasons for judgment were handed down in two parts: the findings of the Commission and the decision of the Commission.
In its findings, released on November 16, 1990, the Commission began by commenting on its jurisdiction. It held that, because it was vested with the responsibility of regulating the financial markets, it had broad powers. More specifically, the Commission stated that its jurisdiction was not limited to breaches of the Act, but extended to "circumstances where no provision of any law has been violated...since, no matter how extensive the specific provisions are, there will be fertile and unscrupulous minds to invent schemes that will skirt the words of all published pronouncements". The Commission concluded its discussion of jurisdiction as follows:
The Commission may from time to time judge the conduct of directors against a standard found in the Company Act. In other instances it may, through policy statements, impose a higher standard or one more specific in its terms. The Commission may exercise its jurisdiction even when there is no published policy. The focus of the Commission's inquiry remains constant: the conduct of market participants and its impact on the efficiency and fairness of the market. Where the public interest requires its intervention, the Commission's response is a proper exercis