Poonian v. British Columbia (Securities Commission)

Poonian v. British Columbia (Securities Commission)
Collection
Supreme Court Judgments
Date
2024-07-31
Neutral citation
2024 SCC 28
Case number
40396
Judges
Wagner, Richard; Karakatsanis, Andromache; Côté, Suzanne; Rowe, Malcolm; Martin, Sheilah; Jamal, Mahmud; O’Bonsawin, Michelle
On appeal from
British Columbia
Subjects
Bankruptcy and insolvency
Notes
Case in Brief SCC Case Information
Decision Content
SUPREME COURT OF CANADA
Citation: Poonian v. British Columbia (Securities Commission), 2024 SCC 28
Appeal Heard: December 6, 2023 Judgment Rendered: July 31, 2024 Docket: 40396
Between:
Thalbinder Singh Poonian and Shailu Poonian Appellants
and
British Columbia Securities Commission Respondent
- and -
Attorney General of Ontario, Attorney General of British Columbia, Attorney General of Saskatchewan, Canadian Association of Insolvency and Restructuring Professionals, Superintendent of Bankruptcy, Federation of Law Societies of Canada, Alberta Securities Commission, Ontario Securities Commission and Osgoode Investor Protection Clinic Interveners
Coram: Wagner C.J. and Karakatsanis, Côté, Rowe, Martin, Jamal and O’Bonsawin JJ.
Reasons for Judgment: (paras. 1 to 116)
Côté J. (Wagner C.J. and Rowe, Jamal and O’Bonsawin JJ. concurring)
Reasons Dissenting in Part: (paras. 117 to 142)
Karakatsanis J. (Martin J. concurring)
Note: This document is subject to editorial revision before its reproduction in final form in the Canada Supreme Court Reports.
Thalbinder Singh Poonian and
Shailu Poonian Appellants
v.
British Columbia Securities Commission Respondent
and
Attorney General of Ontario,
Attorney General of British Columbia,
Attorney General of Saskatchewan,
Canadian Association of Insolvency
and Restructuring Professionals,
Superintendent of Bankruptcy,
Federation of Law Societies of Canada,
Alberta Securities Commission,
Ontario Securities Commission and
Osgoode Investor Protection Clinic Interveners
Indexed as: Poonian v. British Columbia (Securities Commission)
2024 SCC 28
File No.: 40396.
2023: December 6; 2024: July 31.
Present: Wagner C.J. and Karakatsanis, Côté, Rowe, Martin, Jamal and O’Bonsawin JJ.
on appeal from the court of appeal for british columbia
Bankruptcy and insolvency — Debts not released by order of discharge — Provincial securities commission imposing administrative penalties and disgorgement orders on bankrupts for breach of securities legislation — Commission applying to prevent release of debts by order of discharge on basis of exceptions set out in federal bankruptcy legislation — Whether commission’s administrative penalties and disgorgement orders fall within exceptions provided for in bankruptcy legislation such that they are not released by order of discharge and therefore survive bankruptcy — Bankruptcy and Insolvency Act, R.S.C. 1985, c. B‑3, s. 178(1)(a), (e).
Between 2007 and 2009, the bankrupts engaged in market manipulation that caused vulnerable investors to lose millions of dollars. The British Columbia Securities Commission found that the bankrupts had contravened the province’s Securities Act. It ordered the bankrupts to pay $13.5 million in administrative penalties; it also ordered them to disgorge approximately $5.6 million, which represented the amounts they obtained as a result of the market manipulation scheme. These sanctions were registered with the Supreme Court of British Columbia pursuant to the Securities Act, which provides that, on being filed in a registry of that court, a decision of the Commission has the same force and effect, and all proceedings may be taken on it, as if it were a judgment of that court.
Section 178(1) of the Bankruptcy and Insolvency Act sets out a specific list of debts that are not released by an order of discharge and that therefore survive bankruptcy. Relying on some of these exceptions, the Commission applied for a declaration that the amounts owed to it by the bankrupts, who remain undischarged, not be released by any order of discharge. The chambers judge allowed the application, finding that the exceptions in s. 178(1)(a) — “any fine, penalty, restitution order or other order similar in nature to a fine, penalty or restitution order, imposed by a court in respect of an offence, or any debt arising out of a recognizance or bail” — and in s. 178(1)(e) — “any debt or liability resulting from obtaining property or services by false pretences or fraudulent misrepresentation” — both applied and that the bankrupts’ debts were exempt from and would survive any discharge. The bankrupts appealed. According to the Court of Appeal, the debts were not exempt from discharge pursuant to s. 178(1)(a) because the Commission’s decisions could not be said to have been “imposed” by a court as required by the provision. However, the court upheld the chambers judge’s conclusion that both the administrative penalties and the disgorgement orders were exempt under s. 178(1)(e). Given that the debts were still exempt, the appeal was dismissed.
Held (Karakatsanis and Martin JJ. dissenting in part): The appeal should be allowed in part.
Per Wagner C.J. and Côté, Rowe, Jamal and O’Bonsawin JJ.: Neither the administrative penalties nor the disgorgement orders are exempt from discharge pursuant to s. 178(1)(a). The words “imposed by a court” in s. 178(1)(a) do not capture orders made by administrative tribunals or regulatory agencies, such as the Commission, that are subsequently registered as judgments of a court. In addition, the administrative penalties do not come within the exception in s. 178(1)(e), as they did not result directly from the fraudulent scheme; rather, they arose indirectly as a result of the Commission’s decision to sanction the bankrupts. The disgorgement orders, however, are captured by the s. 178(1)(e) exception because there is a direct link between them and the bankrupts’ fraudulent conduct. Therefore, they will not be released by any possible future order of discharge.
For a debt to survive bankruptcy under s. 178(1)(a), the creditor must establish that the debt is (1) a fine, penalty, restitution order or other order similar in nature, (2) imposed by a court, and (3) imposed in respect of an offence. This provision is not restricted to penalties associated with criminal or quasi‑criminal proceedings. However, the word “court” does not capture administrative tribunals or regulatory bodies. If Parliament had wanted fines, penalties, restitution orders or other orders similar in nature imposed by regulatory bodies, administrative tribunals or other administrative decision makers to be exempt from discharge under this section, it could have said so expressly. Moreover, this provision cannot be read so broadly as to include fines imposed by tribunals that are registered in a court. The registration of a decision with a court does not change the fact that it was made and imposed by an administrative decision maker, nor does it overcome the requirement that the exempt debt be imposed by a court. When a decision is registered with a court, the court’s involvement is passive, whereas the act of “imposing” a fine, penalty, restitution order or other order similar in nature requires that the court be actively involved in making the decision. In the instant case, the administrative penalties and disgorgement orders were imposed by the Commission, not by a court, and therefore are not captured by s. 178(1)(a).
For a debt or liability to survive bankruptcy under s. 178(1)(e), the creditor must establish three elements: (1) false pretences or fraudulent misrepresentation; (2) a passing of property or provision of services; and (3) a link between the debt or liability and the fraud. To establish the first requirement, the onus is on the creditor to prove that the debts or liabilities were obtained as a result of the debtor’s false pretences or fraudulent misrepresentation. A court cannot take judicial notice of fraud, nor can it infer fraud in a cursory manner. When a party relies on the findings and conclusions of an administrative decision maker to establish that the debtor made a fraudulent statement, the court must still make its own determination based on a review of the record, even where the administrative findings of fraud are express. The evidence tendered to prove fraud or dishonesty must be clear and cogent and courts must be consistent and rigorous in assessing the evidence presented to them in this regard. Even where all of the required findings for false pretences or fraudulent misrepresentation have been expressly made by an administrative decision maker, a determination of whether the claim falls within one of the categories of non dischargeable claims must be made by a court.
To establish the second requirement, there must be a loss in the form of a transfer of property or delivery of services, as well as a debt or liability corresponding to that loss. Section 178(1)(e) does not require that the bankrupt be the recipient of the property of which a person was deprived. The property need not have been obtained, or retained, by the bankrupt and may have passed directly or indirectly from the person to a third party at the bankrupt’s direction or on his or her behalf. What is required is that the fraudulent misrepresentation induced a person to give the property to the bankrupt or someone associated with the bankrupt.
To establish the third requirement, the debt or liability must have been created as a result of false pretences or fraudulent misrepresentation. This requires a direct link whereby only the debt or liability that represents the value of the property or services obtained by false pretences or fraudulent misrepresentation qualifies as non dischargeable. While in most cases, the claiming creditor will be the party directly victimized by the false pretences or fraudulent misrepresentation, the wording of s. 178(1)(e) does not import a direct victim requirement. A creditor who is not a direct victim is thus not barred from bringing a claim under this section provided that the claim is the result of a person being deprived of property or services after having detrimentally relied on the debtor’s false pretences or fraudulent misrepresentation.
In the instant case, the first s. 178(1)(e) requirement is met. The market manipulation was characterized as fraudulent by both the Commission and the chambers judge, because the bankrupts falsely and knowingly misrepresented the price of shares in order to turn a profit. The second requirement is also met, as the bankrupts obtained property or services as a result of their fraudulent misrepresentation. While some of the amounts obtained as a result of the market manipulation scheme were obtained indirectly, it is not necessary that the bankrupt directly obtain or retain the property for the s. 178(1)(e) exception to apply. The property may pass from a person or group of people (the deceived investors) to a third party (another participant) at the direction of the bankrupt.
With respect to the third requirement, it is not met in the case of the administrative penalties, which therefore do not survive a discharge from bankruptcy under s. 178(1)(e). A direct link between the debt or liability and the fraudulent conduct is required and it is only the value of the property or services obtained as a result of that conduct that is not released by an order of discharge. The debt represented by the Commission’s administrative penalties did not result directly from the bankrupts’ fraudulent misrepresentation, but arose indirectly as a result of the Commission’s decision to sanction them for having obtained property through deceitful statements to investors. If the exempt debt or liability is not restricted to the value of the property or services obtained by false pretences or fraudulent misrepresentation, then s. 178(1)(e) has the potential to capture debts or liabilities that are not the direct result of deceit.
However, the Commission’s disgorgement orders are captured by the s. 178(1)(e) exception and will not be released by any order of discharge. Where a person has not complied with a provision of the Securities Act, the Commission may order that person to pay to it any amount obtained as a result of the failure to comply. The disgorgement orders were made under the Securities Act and represent the value of the bankrupts’ fraud — the funds that they gained as a result of their market manipulation. There is therefore a direct link between the fraudulent conduct of the bankrupts and the Commission’s disgorgement orders.
Per Karakatsanis and Martin JJ. (dissenting in part): The appeal should be dismissed. Although there is agreement with the majority that the administrative penalties and the disgorgement orders imposed by the Commission do not survive bankruptcy under s. 178(1)(a), both the disgorgement orders and the administrative penalties properly fall within the narrow scope of s. 178(1)(e) and should not be released by any order of discharge. They are both debts that originate from the bankrupts having obtained property by false pretences or fraudulent misrepresentations. Both are monetary sanctions imposed because of, and thus resulting from, deceitful conduct that Parliament specifically sought to address.
There is disagreement with the majority regarding the scope of the causation requirement contemplated by the words “resulting from” in s. 178(1)(e) and the degree of link required between the debt and the deceitful behaviour. Just as s. 178(1)(e) does not require that there be an exact correlation between the person claiming the exemption and the victims of that deceitful conduct, it does not require that the quantum of the debt or liability be limited by the quantum of the property obtained as a result of that deceitful conduct. Such a requirement is unsupported by the jurisprudence, is not found in the text of the provision, and is inconsistent with the provision’s central focus. The central focus is the deceitful conduct at the source of the debt or liability, not the exact gain derived thereby.
A direct causation requirement does not mean that the debt or liability must be limited to the value of the property obtained; rather it means that where only part of a liability can be traced to deceitful conduct, but not the balance, only the part induced by fraudulent conduct will be exempt from discharge. Where a debt or liability is entirely caused by fraudulent conduct, such as punitive damages imposed to sanction the conduct, there is no reason to limit the application of s. 178(1)(e) only to the gain ultimately obtained by the bankrupt. The jurisprudence in fact overwhelmingly shows that punitive damages exceeding the value of the property obtained qualify for the exception as long as they directly result from the deceitful conduct targeted by s. 178(1)(e).
In the instant case, the amounts the Commission submits should survive discharge have as their only source or origin the bankrupts’ deceitful conduct. Both the disgorgement orders and the administrative penalties under the Securities Act are monetary sanctions for the unlawful conduct. Like punitive damages imposed at private law, the administrative penalties arise directly from the type of conduct that they sanction. To exclude administrative penalties on the basis that they have an element of general deterrence amounts to reading in an additional limitation that is found nowhere in the text of the provision, and is inconsistent with the purpose of the exception.
Parliament has determined that some bankrupts simply do not deserve to be free of particular debts, based on the nature of the conduct giving rise to those debts. It provided for many exceptions to the fresh start principle, in s. 178(1), that are focused not on the person claiming the exemption but on categories of specific wrongful conduct that give rise to debts that are not released. Section 178(1)(e) should ultimately be interpreted purposively so as to ensure that dishonest debtors do not benefit from their dishonesty. This purpose would surely extend to a decision of a securities commission, charged with enforcing securities laws in order to protect the interests of the public and promoting the integrity of the capital markets.
Cases Cited
By Côté J.
Applied: Montréal (City) v. Deloitte Restructuring Inc., 2021 SCC 53; considered: Alberta Securities Commission v. Hennig, 2020 ABQB 48, 8 Alta. L.R. (7th) 177, rev’d 2021 ABCA 411, 34 Alta. L.R. (7th) 219; Ste. Rose & District Cattle Feeders Co-op v. Geisel, 2010 MBCA 52, 255 Man. R. (2d) 45; Woolf v. Harrop (2003), 50 C.B.R. (4th) 309; Goldstein, Re, 2011 ONSC 561, 74 C.B.R. (5th) 296; referred to: Schreyer v. Schreyer, 2011 SCC 35, [2011] 2 S.C.R. 605; Alberta (Attorney General) v. Moloney, 2015 SCC 51, [2015] 3 S.C.R. 327; Shakell, Re (1988), 70 C.B.R. (N.S.) 270; Phenix, Re (1989), 76 C.B.R. (N.S.) 82; Jerrard v. Peacock (1985), 37 Alta. L.R. (2d) 197; Korea Data Systems (USA), Inc. v. Aamazing Technologies Inc., 2015 ONCA 465, 126 O.R. (3d) 81; Shaver‑Kudell Manufacturing Inc. v. Knight Manufacturing Inc., 2021 ONCA 925, 160 O.R. (3d) 205; Martin v. Martin, 2005 NBCA 32, 282 N.B.R. (2d) 61; Canada Mortgage and Housing Corp. v. Gray, 2014 ONCA 236, 119 O.R. (3d) 710; Air Canada, Re (2006), 28 C.B.R. (5th) 317; Chaytor, Re, 2006 BCSC 1742, 26 C.B.R. (5th) 574; Belair v. Gottschlich, 2008 ABQB 47, 89 Alta. L.R. (4th) 268; R. v. Manzioros, 2004 MBQB 121, 183 Man. R. (2d) 279; Chambre des notaires du Québec v. Dugas, [2003] R.J.Q. 1; Simone v. Daley (1999), 43 O.R. (3d) 511; Buland Empire Development Inc. v. Quinto Shoes Imports Ltd. (1999), 123 O.A.C. 288; Vancouver (City) v. Alliston, 2003 BCPC 105, 47 C.B.R. (4th) 142; Nowegijick v. The Queen, [1983] 1 S.C.R. 29; Markevich v. Canada, 2003 SCC 9, [2003] 1 S.C.R. 94; Merck Frosst Canada Ltd. v. Canada (Health), 2012 SCC 3, [2012] 1 S.C.R. 23; R. v. Proulx, 2000 SCC 5, [2000] 1 S.C.R. 61; J.R.B. v. Jimenez, 2018 ABQB 847; Agraira v. Canada (Public Safety and Emergency Preparedness), 2013 SCC 36, [2013] 2 S.C.R. 559; Alberta (Information and Privacy Commissioner) v. University of Calgary, 2016 SCC 53, [2016] 2 S.C.R. 555; McAteer v. Billes, 2007 ABCA 137, 409 A.R. 143; Cruise Connections Canada v. Szeto, 2015 BCCA 363, 78 B.C.L.R. (5th) 82; Bryant v. Benjamin, 2023 QCCA 1021; H.Y. Louie Co. v. Bowick, 2015 BCCA 256, 386 D.L.R. (4th) 117; 9354-9186 Québec inc. v. Callidus Capital Corp., 2020 SCC 10, [2020] 1 S.C.R. 521; Century Services Inc. v. Canada (Attorney General), 2010 SCC 60, [2010] 3 S.C.R. 379; The Toronto‑Dominion Bank v. Merenick, 2007 BCSC 1261; Iroquois Falls Community Credit Union Ltd. (Liquidator of) v. Miljours (2009), 52 C.B.R (5th) 231; Derry v. Peek (1889), 14 App. Cas. 337; Morris Bureau v. Darde, 2013 NSCA 121, 335 N.S.R. (2d) 378; Water Matrix Inc. v. Carnevale, 2018 ONSC 6436, 65 C.B.R. (6th) 109, aff’d 2016 ONCA 875; Canada (Attorney General) v. Bourassa (Trustee of), 2002 ABCA 205, 6 Alta. L.R. (4th) 223; Lawyers’ Professional Indemnity Co. v. Rodriguez, 2018 ONCA 171, 139 O.R. (3d) 641; Pelletier v. CAE Rive‑Nord, 2019 QCCA 2164; Sharma v. Sandhu, 2019 MBQB 160; McAteer v. Billes, 2006 ABCA 312, 397 A.R. 365; Morgan v. Demers (1986), 71 A.R. 244; Varvis (Bankrupt), Re, 1999 ABQB 853, 254 A.R. 197; Molloy v. Janes & Noseworthy Ltd. (1998), 164 Nfld. & P.E.I.R. 176; The Workers’ Compensation Board v. Petkau, 2018 SKCA 85, 429 D.L.R. (4th) 92; Pietrzak, Re (2016), 39 C.B.R. (6th) 145; Groupe Unigesco inc. v. Michaud, 2021 QCCQ 10330; Dead End Survival, LLC v. Marhasin, 2020 ONSC 766, 77 C.B.R. (6th) 299.
By Karakatsanis J. (dissenting in part)
Varvis (Bankrupt), Re, 1999 ABQB 853, 254 A.R. 197; Shaver-Kudell Manufacturing Inc. v. Knight Manufacturing Inc., 2021 ONCA 925, 160 O.R. (3d) 205; Canada Mortgage and Housing Corp. v. Gray, 2014 ONCA 236, 119 O.R. (3d) 710; The Workers’ Compensation Board v. Petkau, 2018 SKCA 85, 429 D.L.R. (4th) 92; Pietrzak, Re (2016), 39 C.B.R. (6th) 145; McAteer v. Billes, 2007 ABCA 137, 409 A.R. 143; Groupe Unigesco inc. v. Michaud, 2021 QCCQ 10330; Water Matrix Inc. v. Carnevale, 2018 ONSC 6436, 65 C.B.R. (6th) 109; Dead End Survival, LLC v. Marhasin, 2020 ONSC 766, 77 C.B.R. (6th) 299; Grewal v. Brar, 2015 MBQB 3, 313 Man. R. (2d) 94; Bank of Montreal v. 1886758 Ontario Inc., 2022 ONSC 4642, 1 C.B.R. (7th) 213; A.J. Lanzarotta Fruits & Vegetables Ltd. v. United Farmers, 2024 ONSC 1780, 12 C.B.R. (7th) 371; Celanese Canada Inc. v. Murray Demolition Corp., 2010 CanLII 29089; Horth v. Lalonde-Rousseau, 2021 QCCQ 3668; Maison des jeunes de Contrecœur v. Bourdon, 2011 QCCQ 3476; Vivacqua v. Contino, 2009 CanLII 14574; Agriculture Financial Services Corp. v. Zaborski, 2009 ABQB 183, 58 C.B.R. (5th) 301; Copper Cliff Community Credit Union Ltd. v. Parker (1977), 18 O.R. (2d) 49; Goldstein, Re, 2011 ONSC 561, 74 C.B.R. (5th) 296; British Columbia Securities Commission v. Branch, [1995] 2 S.C.R. 3; Cartaway Resources Corp. (Re), 2004 SCC 26, [2004] 1 S.C.R. 672; Alberta (Attorney General) v. Moloney, 2015 SCC 51, [2015] 3 S.C.R. 327; Jerrard v. Peacock (1985), 37 Alta. L.R. (2d) 197; Simone v. Daley (1999), 43 O.R. (3d) 511; Cruise Connections Canada v. Szeto, 2015 BCCA 363, 78 B.C.L.R. (5th) 82; Ste. Rose & District Cattle Feeders Co-op v. Geisel, 2010 MBCA 52, 255 Man. R. (2d) 45; McAteer v. Billes, 2006 ABCA 312, 397 A.R. 365; Alberta Securities Commission v. Hennig, 2020 ABQB 48, 8 Alta. L.R. (7th) 177, rev’d 2021 ABCA 411, 34 Alta. L.R. (7th) 219.
Statutes and Regulations Cited
Act to amend the Bankruptcy Act and to amend the Income Tax Act in consequence thereof, S.C. 1992, c. 27, s. 64(1).
Bankruptcy and Insolvency Act, R.S.C. 1985, c. B‑3, ss. 2 “court”, 69.6, 172, 173, 178(1), (2), 183(1), (1.1).
Criminal Code, R.S.C. 1985, c. C‑46, s. 361(1).
Securities Act, R.S.B.C. 1996, c. 418, ss. 15, 15.1, 57(1)(a) [rep. & sub. 2019, c. 38, s. 25], 161(1)(g), 162(1), 163.
Securities Regulation, B.C. Reg. 196/97.
Authors Cited
Bennett, Frank. Bennett on Bankruptcy, 26th ed. Toronto: LexisNexis, 2024.
Black’s Law Dictionary, 11th ed., by Bryan A. Garner. St. Paul, Minn.: Thomson Reuters, 2019, “administrative tribunal”, “court”, “regulatory agency”.
Brochu, Denis. Précis de la faillite et de l’insolvabilité, 6th ed. Montréal: LexisNexis, 2022.
Durnford, Ben. “Recent Developments under Section 178(1)(a) and (e) of the Bankruptcy and Insolvency Act: A Case Study of Poonian v. British Columbia (Securities Commission)” (2023), 12 J.I.I.C. 107.
Girgis, Jassmine, and Thomas G. W. Telfer, “Do Securities Commission Debts Survive a Bankruptcy Discharge? An Analysis of Poonian v. British Columbia (Securities Commission) (BCCA)” (2023), 67 Can. Bus. L.J. 438.
Girgis, Jassmine, and Thomas G. W. Telfer, “The Fraudulent Misrepresentation and False Pretences Exception to the Bankruptcy Discharge: Balancing the Debtor’s Fresh Start with Confidence in the Credit System”, in Jill Corraini and D. Blair Nixon, eds., Annual Review of Insolvency Law 2022. Toronto: Thomson Reuters, 2023, 143.
Honsberger, John D., and Vern W. DaRe. Honsberger’s Bankruptcy in Canada, 5th ed. Toronto: Thomson Reuters, 2017.
Macaulay, Robert W., and James L. H. Sprague. Practice and Procedure Before Administrative Tribunals, by Lorne Sossin. Toronto: Carswell, 2004 (loose‐leaf updated July 2024, release 7).
Murray, Haddon, and Heather Fisher. “You’re Hot and You’re Cold, You’re Yes and You’re No: Conflicting Appellate Decisions Regarding Whether Regulators’ Fines, Penalties or Restitution Orders Survive Bankruptcy”, in Jill Corraini and D. Blair Nixon, eds., Annual Review of Insolvency Law 2022. Toronto: Thomson Reuters, 2023, 569.
Nocilla, Alfonso. “Comment on Shaver‑Kudell Manufacturing Inc. v Knight Manufacturing Inc.” (2022), 45:2 Man. L.J. 177.
Sarra, Janis, Geoffrey B. Morawetz and L. W. Houlden. The 2024 Annotated Bankruptcy and Insolvency Act. Toronto: Carswell, 2024.
Sullivan, Ruth. The Construction of Statutes, 7th ed. Toronto: LexisNexis, 2022.
Swaigen, John, and Susan McRory. Regulatory Offences In Canada: Liability and Defences, 2nd ed. Toronto: Carswell, 2018.
Wood, Roderick J. Bankruptcy and Insolvency Law, 2nd ed. Toronto: Irwin Law, 2015.
APPEAL from a judgment of the British Columbia Court of Appeal (Harris, Willcock and Fenlon JJ.A.), 2022 BCCA 274, 65 B.C.L.R. (6th) 213, 100 C.B.R. (6th) 182, 472 D.L.R. (4th) 115, [2022] 10 W.W.R. 375, [2022] B.C.J. No. 1417 (Lexis), 2022 CarswellBC 2124 (WL), affirming a decision of Crerar J., 2021 BCSC 555, [2021] B.C.J. No. 609 (Lexis), 2021 CarswellBC 888 (WL). Appeal allowed in part, Karakatsanis and Martin JJ. dissenting in part.
Cody G. Reedman, for the appellants.
William L. Roberts, Laura L. Bevan and Sarah B. Hannigan, for the respondent.
Susan Keenan and Jake Eidinger, for the intervener the Attorney General of Ontario.
Aaron Welch and Heather Wellman, for the intervener the Attorney General of British Columbia.
Jared G. Biden, for the intervener the Attorney General of Saskatchewan.
C. Haddon Murray, Heather Fisher and James Aston, for the intervener the Canadian Association of Insolvency and Restructuring Professionals.
Zoe Oxaal and Roy Lee, for the intervener the Superintendent of Bankruptcy.
Devin Eeg and Claire Hunter, K.C., for the intervener the Federation of Law Societies of Canada.
Michael Beeforth, Raphael T. Eghan and Brandon Barnes Trickett, for the intervener the Alberta Securities Commission.
Erin Hoult and Khrystina McMillan, for the intervener the Ontario Securities Commission.
Stephen Aylward and Karen Bernofsky, for the intervener the Osgoode Investor Protection Clinic.
The judgment of Wagner C.J. and Côté, Rowe, Jamal and O’Bonsawin JJ. was delivered by
Côté J. —
TABLE OF CONTENTS
Paragraph
I. Introduction
1
II. Facts
7
III. Judicial History
11
A. Supreme Court of British Columbia, 2021 BCSC 555 (Crerar J.)
11
B. British Columbia Court of Appeal, 2022 BCCA 274, 65 B.C.L.R. (6th) 213 (Harris, Willcock and Fenlon JJ.A.)
15
IV. Issues
20
V. Analysis
21
A. General Principles Governing the Discharge of a Bankrupt
21
(1) Section 172: Court May Grant or Refuse Discharge
23
(2) Section 178(1): Debts Not Released by Order of Discharge
25
(3) The Poonians’ Application for Discharge Was Refused Under Section 172
28
B. Do the Commission’s Claims Fall Within the Section 178(1) Exceptions?
31
(1) Section 178(1)(a)
31
(a) Section 178(1)(a) Is Not Limited to Orders Imposed in a Criminal or Quasi‑Criminal Context
33
(b) The Words “Imposed by a Court” Do Not Capture Orders Made by Administrative Tribunals That Are Subsequently Registered as Judgments of a Court
43
(c) Application of Section 178(1)(a) to the Commission’s Orders
51
(i) The Commission’s Administrative Penalties Are Not Exempt From Discharge Under Section 178(1)(a)
51
(ii) The Commission’s Disgorgement Orders Are Not Exempt From Discharge Under Section 178(1)(a)
52
(2) Section 178(1)(e)
53
(a) False Pretences or Fraudulent Misrepresentation
61
(b) Passing of Property or Provision of Services
70
(c) Link Required Between the Debt or Liability and the Fraud
74
(d) There Is No “Direct Victim” Requirement
83
(e) Application of Section 178(1)(e) to the Commission’s Orders
96
(i) The Commission’s Administrative Penalties Did Not Result From the Fraudulent Scheme
102
(ii) The Commission’s Disgorgement Orders Did Result From the Fraudulent Scheme
108
VI. Conclusion
115
I. Introduction
[1] The Bankruptcy and Insolvency Act, R.S.C. 1985, c. B‑3 (“BIA”), furthers two important purposes: the equitable distribution of a bankrupt’s assets among creditors and the bankrupt’s financial rehabilitation. Financial rehabilitation means that a debtor will be afforded a “fresh start” when appropriate. The fresh start principle is codified in s. 178(2) of the BIA; it allows a bankrupt to be released from outstanding debts at the end of the bankruptcy process. Thus, subject to reasonable conditions, the BIA permits an honest but unfortunate debtor to be freed from the burdens of indebtedness and to reintegrate into economic life.
[2] Financial rehabilitation operates as the general rule, such that every provable claim is presumptively swept into the bankruptcy. However, it has its limits. Through s. 178(1) of the BIA, Parliament has enacted specific exceptions to this general rule. An order of discharge does not release the bankrupt from a claim captured by a s. 178(1) exception. Indeed, where an exception applies, the fresh start principle yields to certain overriding policy objectives which demand that such a claim survive a discharge from bankruptcy.
[3] This appeal requires our Court to interpret two of these exceptions, codified in s. 178(1)(a) and (e) of the BIA. It arises in the context of the application of the British Columbia Securities Act, R.S.B.C. 1996, c. 418. Our Court must determine whether the administrative financial penalties and/or the disgorgement orders imposed by the respondent, the British Columbia Securities Commission (“Commission”), survive a discharge from bankruptcy under one of these exceptions.
[4] The appellants, Thalbinder Singh Poonian and Shailu Poonian, are undischarged bankrupts. Between 2007 and 2009, the Poonians engaged in market manipulation that caused vulnerable investors to lose millions of dollars. The Commission found that the Poonians had contravened s. 57(a) (now s. 57(1)(a)) of the Securities Act. It ordered the payment of administrative penalties by both Mr. Poonian ($10 million) and Ms. Poonian ($3.5 million). The Commission also issued orders pursuant to s. 161(1)(g) of the Securities Act requiring Mr. Poonian to disgorge $1,319,167 as well as $1,126,260 jointly and severally with another participant, and requiring Ms. Poonian to disgorge $3,149,935. The disgorgement orders represent the amounts the Poonians obtained as a result of the market manipulation scheme.
[5] Relying on the exceptions set out in s. 178(1) of the BIA, the Commission applied for a declaration that the amounts owed to it by the Poonians not be released by any order of discharge. The question before our Court is whether the administrative penalties and/or the disgorgement orders imposed by the Commission can be characterized as either “any fine, penalty, restitution order or other order similar in nature to a fine, penalty or restitution order, imposed by a court in respect of an offence, or any debt arising out of a recognizance or bail” (s. 178(1)(a)) or “any debt or liability resulting from obtaining property or services by false pretences or fraudulent misrepresentation, other than a debt or liability that arises from an equity claim” (s. 178(1)(e)). If so, they will not be released by any order of discharge and will survive bankruptcy.
[6] For the reasons I explain below, I conclude that the administrative penalties imposed by the Commission do not fall within the exceptions set out in either s. 178(1)(a) or (e) and therefore do not survive a discharge from bankruptcy on those bases. I also conclude that the disgorgement orders imposed by the Commission do not fall within the s. 178(1)(a) exception and do not survive a discharge from bankruptcy on that basis. However, they are captured by s. 178(1)(e) and therefore will not be released by any possible future order of discharge.
II. Facts
[7] On August 29, 2014, the Commission found that the Poonians, together with a number of relatives, friends and acquaintances, had engaged in market manipulation, contrary to s. 57(a) of the Securities Act. The Poonians had acquired a majority position in a public oil and gas company called OSE Corp. (“OSE”) and had then increased the price of OSE’s shares by various manipulations, including trades between themselves. Using pseudonyms and multiple nominee accounts, they had artificially inflated the share price from $0.10 to $0.17 per share to a high of near $2.00.
[8] The Commission found that the Poonians, and those working with them in this scheme, had sold the overpriced OSE shares to investors with the assistance of an entity called the Phoenix Group. The Poonians had paid commissions to the Phoenix Group, which had in turn encouraged its clients, generally unsophisticated investors seeking to escape personal debt through investment in higher‑yield vehicles, to purchase OSE shares at the artificially inflated prices.
[9] The Commission described the scheme as “serious misconduct” and as “elaborate, involving layers of deception to conceal the . . . participation [of the Poonians and their associates] in the manipulation” (2015 BCSECCOM 96 (“Sanctions Decision”), at para. 17 (CanLII)). The Commission ordered the payment of administrative penalties by Mr. Poonian ($10 million) and Ms. Poonian ($3.5 million) (para. 96). The Commission later issued orders pursuant to s. 161(1)(g) of the Securities Act, which are commonly referred to as disgorgement orders. Mr. Poonian was ordered to disgorge $1,319,167 to the Commission and an additional $1,126,260 on a joint and several basis with another participant in the scheme, and Ms. Poonian was ordered to disgorge $3,149,935 (2018 BCSECCOM 160 (“Reassessment Decision”), at para. 85 (CanLII)). As a result, the Poonians together owe $19,095,362 (plus interest) to the Commission. These sanctions were registered with the Supreme Court of British Columbia pursuant to s. 163 of the Securities Act, which provides that, on being filed in a registry of that court, a decision of the Commission has the same force and effect, and all proceedings may be taken on it, as if it were a judgment of that court. The Poonians owe $4,335,252.60 to their next largest creditor, the Canada Revenue Agency.
[10] On April 20, 2018, the Poonians made a voluntary assignment in bankruptcy. On February 13, 2020, they applied for discharge from bankruptcy, which the Commission and the Canada Revenue Agency opposed. The Supreme Court of British Columbia dismissed the Poonians’ application on April 8, 2020, and they remain undischarged bankrupts.
III. Judicial History
A. Supreme Court of British Columbia, 2021 BCSC 555 (Crerar J.)
[11] The Commission applied to the Supreme Court of British Columbia for a declaration that the debts represented by the administrative penalties and disgorgement orders not be released by any order of discharge, pursuant to s. 178(1)(a), (d) and (e) of the BIA. The chambers judge allowed the Commission’s application, finding that the debts were exempt from and would survive any discharge. While only one exception had to apply for the debts not to be released, the chambers judge found that the exceptions in s. 178(1)(a) and (e) both applied.
[12] With respect to s. 178(1)(a), the chambers judge rejected the Poonians’ argument that it applies only to fines, penalties or restitution orders imposed in criminal or quasi‑criminal proceedings. He noted that the inclusion of the words “restitution order” in s. 178(1)(a) implies that the scope of this provision extends beyond monetary orders imposed in a criminal or quasi‑criminal context. The chambers judge also rejected the Poonians’ argument that an order of the Commission that is subsequently registered with a court is not an order “imposed by a court”, as required by s. 178(1)(a). According to the chambers judge, both the administrative penalties and the disgorgement orders could be characterized as fines, penalties, restitution orders or other orders similar in nature that had been imposed by a court in respect of an offence. On this basis, he ordered that they not be released on discharge from bankruptcy.
[13] As for s. 178(1)(e), the chambers judge agreed with the Commission that the Poonians’ market manipulation, particularly the multi‑party elaborate scheme they had orchestrated, was at its core a fraudulent misrepresentation and false pretence. He held that, through that scheme, the Poonians had “obtained property” in the form of millions of dollars and that, in doing so, they had engaged in deceitful conduct, which he deemed “the essence of s 178(1)(e)” (para. 105 (CanLII)). The chambers judge concluded that the Poonians’ market manipulation and knowing exploitation of vulnerable investors, which corrodes public confidence in securities markets, were evidence of the deceit lying at the heart of s. 178(1)(e). As a result, the administrative penalties and disgorgement orders were also exempt from discharge under s. 178(1)(e).
[14] The Commission argued in the alternative that the disgorgement orders (but not the administrative penalties) should be exempt under s. 178(1)(d). However, in light of his conclusion that both the disgorgement orders and the administrative penalties were exempt under s. 178(1)(a) and (e), the chambers judge declined to consider this alternative ground. No further arguments were made in respect of s. 178(1)(d), either before the British Columbia Court of Appeal or before our Court.
B. British Columbia Court of Appeal, 2022 BCCA 274, 65 B.C.L.R. (6th) 213 (Harris, Willcock and Fenlon JJ.A.)
[15] The Poonians appealed to the British Columbia Court of Appeal, challenging the chambers judge’s interpretation of the BIA. They also argued that the chambers judge had erred in adopting and following the rationale in Alberta Securities Commission v. Hennig, 2020 ABQB 48, 8 Alta. L.R. (7th) 177, a decision later reversed by the Alberta Court of Appeal (2021 ABCA 411, 34 Alta. L.R. (7th) 219). Justice Willcock, writing for the British Columbia Court of Appeal, held that the chambers judge had erred in concluding that the debts were exempt from discharge pursuant to s. 178(1)(a) of the BIA. However, he upheld the chambers judge’s conclusion that the debts were exempt under s. 178(1)(e). Given that the debts were exempt, albeit only under s. 178(1)(e), the appeal was dismissed.
[16] Justice Willcock agreed with the chambers judge that s. 178(1)(a) is not limited to monetary orders imposed in criminal or quasi‑criminal proceedings. However, he disagreed that a decision of the Commission that is merely registered with the Supreme Court of British Columbia can be considered an order “imposed by a court”. Once the Commission’s decisions are registered with the court, they can be enforced as if they were judgments of the court, but they cannot be said to be “imposed” by the court. The Commission’s penalties and disgorgement orders therefore did not fall within the s. 178(1)(a) exception.
[17] Justice Willcock upheld the chambers judge’s conclusion that the Commission’s administrative penalties and disgorgement orders came within the s. 178(1)(e) exception. He held that the Poonians’ debts had arisen from obtaining property, in the form of millions of dollars, by fraudulent misrepresentation, that is, through their market manipulation.
[18] In Hennig, the Alberta Court of Appeal held that “[t]he required link between the fraudulent statement and the debt is established only if the debtor makes the fraudulent statement to the creditor relying on s 178(1)(e)” (para. 78). Under this approach, the Poonians would have had to make their fraudulent misrepresentation to the Commission itself. The s. 178(1)(e) exception would not be applicable, because the Poonians’ fraudulent misrepresentation was made not to the Commission but rather to the victim investors.
[19] Justice Willcock rejected the narrow approach adopted by the Alberta Court of Appeal in Hennig. Instead, he concluded that s. 178(1)(e) is not restricted to cases in which the bankrupt made a fraudulent statement to the specific creditor relying on this provision. The Commission was therefore permitted to invoke s. 178(1)(e). Justice Willcock concluded that both the administrative penalties and the disgorgement orders imposed by the Commission were non‑dischargeable debts under s. 178(1)(e), because they had arisen from the Poonians having obtained property by false pretences or fraudulent misrepresentation.
IV. Issues
[20] Th