Committee for the Equal Treatment of Asbestos Minority Shareholders v. Ontario (Securities Commission), [2001] 2 S.C.R. 132, 2001 SCC 37
Committee for the Equal Treatment of Asbestos
Minority Shareholders Appellant
v.
Her Majesty in Right of Quebec, Ontario Securities
Commission and Société nationale de l’amiante Respondents
Indexed as: Committee for the Equal Treatment of Asbestos Minority Shareholders v. Ontario (Securities Commission)
Neutral citation: 2001 SCC 37.
File No.: 27252.
2000: December 15; 2001: June 7.
Present: McLachlin C.J. and L’Heureux‑Dubé, Gonthier, Iacobucci, Major, Bastarache and Arbour JJ.
on appeal from the court of appeal for ontario
Securities -- Ontario Securities Commission -- Public interest jurisdiction -- Nature and scope of Commission’s public interest jurisdiction to intervene in activities related to Ontario capital markets -- Whether Commission’s decision not to exercise its public interest jurisdiction in this case reasonable -- Securities Act, R.S.O. 1990, c. S.5, s. 127(1), para. 3.
Administrative law -- Judicial review -- Securities commissions -- Standard of review -- Standard of review for Ontario Securities Commission’s decisions involving application of its public interest jurisdiction.
In 1977, the Quebec Government decided to take control of Asbestos Corp., a leading asbestos producer in the province. The common shares of Asbestos traded on the Toronto Stock Exchange and the Montreal Stock Exchange. Approximately 30 percent of the Asbestos common shares were held by minority shareholders resident in Ontario while GD Canada, a subsidiary of an American company, held the controlling interest. As a vehicle to take control of Asbestos, Quebec incorporated the Société nationale de l’amiante (SNA), a Crown corporation wholly owned by the province. In 1981, Quebec reached an agreement with the American company pursuant to which SNA would acquire voting control of GD Canada and, therefore, indirect control of Asbestos. Despite statements made in previous years by the Quebec Minister of Finance suggesting the prospect of a follow-up offer to the minority shareholders of Asbestos, Quebec announced that it did not intend to make such an offer. In response to that announcement, the shares of Asbestos fell to a four-year low. Five years later, SNA purchased the remaining common shares of GD Canada. The appellant sought redress pursuant to s. 127 of the Ontario Securities Act (then s. 124), specifically for an order removing Quebec’s and SNA’s trading exemptions. The OSC determined that the transaction was not a take-over bid and this finding was not appealed. Even though the OSC found that the actions of the Quebec Government and SNA were abusive of the minority shareholders of Asbestos and were manifestly unfair to them, the OSC declined to exercise its public interest jurisdiction under s. 127(1), para. 3, and take away Quebec’s trading exemption in the Ontario capital markets. The Divisional Court set aside the decision, holding that the OSC had erred by imposing two jurisdictional prerequisites to its s. 127(1), para. 3 jurisdiction: a “transactional connection” with Ontario and a conscious motive to avoid the takeover laws in Ontario. The Court of Appeal reinstated the OSC’s decision.
Held: The appeal should be dismissed.
Pursuant to s. 127(1) of the Securities Act, the OSC has the jurisdiction and a broad discretion to intervene in Ontario capital markets if it is in the public interest to do so. The permissive language of s. 127(1) expresses an intent to leave it to the OSC to determine whether and how to intervene in a particular case. However, the discretion to act in the public interest is not unlimited. In exercising its discretion, the OSC should consider the protection of investors and the efficiency of, and public confidence in, capital markets generally. In addition, s. 127(1) is a regulatory provision. The sanctions under the section are preventive in nature and prospective in orientation. Therefore, s. 127 cannot be used in response to Securities Act misconduct alleged to have caused harm or damages to private parties or individuals.
The standard of review applicable in this case is one of reasonableness. The OSC is a specialized tribunal with a wide discretion to intervene in the public interest and the protection of the public interest is a matter falling within the core of the OSC’s expertise. Therefore, although there is no privative clause shielding the decisions of the OSC from review by the courts, taking into consideration that body’s relative expertise in the regulation of the capital markets, the purpose of the Act as a whole and s. 127(1) in particular, and the nature of the problem before the OSC, those factors all militate in favour of a high degree of curial deference. However, as there is a statutory right of appeal from the decision of the OSC to the courts, when this factor is considered with all the other factors, an intermediate standard of review is indicated.
The OSC did not commit a reviewable error. First, the OSC did exercise the discretion that is incidental to its public interest jurisdiction. The OSC did not consider a transactional connection with Ontario and an intention to avoid Ontario law to be jurisdictional barriers or pre-conditions to an order under s. 127(1), para. 3 of the Act. The OSC properly rejected the argument that its public interest jurisdiction was subject to an implicit precondition. In analyzing the appellant’s application for a remedy under s. 127(1), para. 3, the OSC identified and considered several factors relevant to the exercise of its discretion under that provision. The transactional connection with Ontario and the motive behind the structure of the transaction were two of several factors considered.
Second, the OSC’s decision not to grant a remedy to the aggrieved minority shareholders through the exercise of its jurisdiction to act in the public interest was reasonable. The OSC’s decision was informed by the legitimate and relevant considerations inherent in s.127(1) and in the OSC’s previous jurisprudence on public interest jurisdiction. These considerations include: (i) the seriousness and severity of the sanction applied for; (ii) the effect of imposing such a sanction on the efficiency of, and public confidence in, Ontario capital markets; (iii) a reluctance to use the open-ended nature of the public interest jurisdiction to police out-of-province activities; and (iv) a recognition that s. 127 powers are preventive in nature, not remedial. The OSC’s findings of fact that the transaction in this case was not intentionally structured to avoid Ontario law and that the capital markets in general, and the minority shareholders of Asbestos in particular, were not materially misled by the statements of Quebec’s Minister of Finance respecting the prospect of a follow-up offer were reasonable and supported by the evidence.
Cases Cited
Referred to: Re Canadian Tire Corp. (1987), 10 O.S.C.B. 857, aff’d (1987), 59 O.R. (2d) 79, leave to appeal to C.A. denied (1987), 35 B.L.R. xx; Re H.E.R.O. Industries Ltd. (1990), 13 O.S.C.B. 3775; Pezim v. British Columbia (Superintendent of Brokers), [1994] 2 S.C.R. 557; Canada (Director of Investigation and Research) v. Southam Inc., [1997] 1 S.C.R. 748; R. v. Wholesale Travel Group Inc., [1991] 3 S.C.R. 154; Re Albino (1991), 14 O.S.C.B. 365; Re Mithras Management Ltd. (1990), 13 O.S.C.B. 1600; U.E.S., Local 298 v. Bibeault, [1988] 2 S.C.R. 1048; Pushpanathan v. Canada (Minister of Citizenship and Immigration), [1998] 1 S.C.R. 982; Trinity Western University v. British Columbia College of Teachers, [2001] 1 S.C.R. 772, 2001 SCC 31; Re Atco Ltd. (1980), 15 O.S.C.B. 412; Re Electra Investments (Canada) Ltd. (1983), 6 O.S.C.B. 417; Re Turbo Resources Ltd. (1982), 4 O.S.C.B. 403C; Re Genstar Corp. (1982), 4 O.S.C.B. 326C; Global Securities Corp. v. British Columbia (Securities Commission), [2000] 1 S.C.R. 494, 2000 SCC 21.
Statutes and Regulations Cited
Securities Act, R.S.O. 1980, c. 466, s. 124(1).
Securities Act, R.S.O. 1990, c. S.5, ss. 1.1 [ad. 1994, c. 33, s. 2], 2.1, para. 5 [idem], 122 [rep. & sub. 1994, c. 11, s. 373], 127 [idem, s. 375], 128 [idem], Part XXIII.
Authors Cited
Johnston, David and Kathleen Doyle Rockwell. Canadian Securities Regulation, 2nd ed. Markham, Ont.: Butterworths, 1998.
APPEAL from a judgment of the Ontario Court of Appeal (1999), 43 O.R. (3d) 257, 169 D.L.R. (4th) 612, 117 O.A.C. 224, [1999] O.J. No. 388 (QL), setting aside a decision of the Divisional Court (1997), 33 O.R. (3d) 651, 146 D.L.R. (4th) 721, 100 O.A.C. 46, 46 Admin. L.R. (2d) 128, 34 B.L.R. (2d) 103, 13 C.C.L.S. 50, [1997] O.J. No. 1872 (QL). Appeal dismissed.
David W. Scott, Q.C., Barry H. Bresner and Ira Nishisato, for the appellant.
Sheila R. Block, James C. Tory, Michel Jolin and Claude G. Rioux, for the respondent Her Majesty in Right of Quebec.
Tim Moseley, for the respondent Ontario Securities Commission.
Glenn F. Leslie and Matthew J. Halpin, for the respondent Société nationale de l’amiante.
The judgment of the Court was delivered by
1 Iacobucci J. – This appeal arises out of a series of transactions in the course of which Société nationale de l’amiante (“SNA”), a crown corporation wholly owned by Her Majesty in right of Quebec (the “Quebec Government” or “Quebec”), acquired effective control of the federally incorporated, Asbestos Corporation Limited (“Asbestos”). The acquisition of control of Asbestos by SNA was achieved without a follow-up offer to the minority shareholders of Asbestos. Subsequent to SNA taking control, the market value of Asbestos shares fell. A group of the minority shareholders of Asbestos formed an unincorporated association to represent the interests of all the minority shareholders. That association, called the Committee for the Equal Treatment of Asbestos Minority Shareholders, sought redress pursuant to s. 127 of the Ontario Securities Act, R.S.O. 1990, c. S.5 (the “Act”) (formerly R.S.O. 1980, c. 466, s. 124). Specifically, the association sought an order under s. 127(1), para. 3, removing the trading exemptions of SNA and/or the province of Quebec.
2 The basic question raised by this appeal is whether the Court should intervene in the refusal of the Ontario Securities Commission (“OSC”) to grant a remedy to the aggrieved minority shareholders through the exercise of its jurisdiction to act in the public interest under s. 127(1) of the Act.
I. Facts
3 There do not appear to be any substantive factual issues in dispute on this appeal. A comprehensive review of the background to this case, the agreed upon facts, the details of the transactions at issue, and the other evidence before the OSC is available in the reasons of the Commission in Re Asbestos Corp. (1994), 17 O.S.C.B. 3537. The following is intended to be a synopsis only of the salient factual matters in this appeal.
4 In the fall of 1977, the province of Quebec was the largest asbestos producer in the Western world, accounting for perhaps 29 percent of annual world asbestos production. However, it had virtually no secondary asbestos industry in that approximately 95 percent of the raw product was shipped elsewhere for manufacture.
5 During that same time period, Quebec’s newly elected Parti québécois Government pursued a policy of creating an asbestos manufacturing industry in Quebec to complement the asbestos mining industry. To accomplish its objective, the Quebec Government decided to take control of Asbestos, a leading asbestos producer in the province.
6 The common shares of Asbestos traded on the Toronto Stock Exchange and the Montreal Stock Exchange. Approximately 30 percent of the Asbestos common shares were held by minority shareholders resident in Ontario. General Dynamics Corporation (Canada) Limited (“GD Canada”) held the controlling interest of 54.6 percent of the common shares of Asbestos. However, ultimate control of Asbestos resided in GD Canada’s parent company, General Dynamics Corporation (“GD U.S.”), a Delaware corporation with its head office in Missouri. GD Canada was a wholly owned subsidiary of GD U.S.
7 On October 22, 1977, Premier Lévesque announced the Quebec Government’s intention to take control of Asbestos. He was quoted in the press as saying that other shareholders would be “uncomfortable” if they were minority shareholders while the Government held control as the Quebec Government must take positions and achieve objectives that are not always those of ordinary shareholders. At the same time, the press quoted Quebec’s Finance Minister, Mr. Parizeau, as saying, “we will in any case make a bid for all public shares” and that a public offer for Asbestos Corp. shares would be at “an equivalent price” to that paid for the General Dynamics block.
8 In May 1978, Quebec incorporated the SNA as a vehicle to take control of Asbestos. All of SNA’s shares were allotted to Quebec’s Minister of Finance.
9 In September 1979, SNA made its first bid to acquire control of Asbestos. SNA offered to purchase all of GD Canada’s shares in Asbestos for $42 per share. The offer stated that, once it acquired the shares held by GD Canada, the Quebec Government would offer to purchase the remaining Asbestos shares at the same price. This offer was rejected by GD U.S., as parent of GD Canada. Their valuation came in at $99 per share. The difference in share price arose from the parties’ projections for the future asbestos market.
10 In June 1979, SNA’s incorporating statute was amended to permit Quebec to expropriate the assets of Asbestos. However, in the debates concerning this amendment, both Premier Lévesque and Finance Minister Parizeau emphasized their preference to acquire control of Asbestos by agreement with GD U.S. and their intention to expropriate only if negotiations failed.
11 Negotiations ceased while Asbestos challenged the constitutionality of the legislation permitting Quebec to expropriate its assets. In the spring of 1981, the Quebec Court of Appeal rejected the constitutional challenge ([1981] C.A. 43, aff’g [1980] C.S. 331) and this Court denied leave to appeal, [1981] 1 S.C.R. v. Quebec then imposed a November 30, 1981 deadline for a negotiated agreement with GD U.S., failing which it would expropriate.
12 On November 9, 1981, Quebec and GD U.S. reached an agreement pursuant to which SNA would acquire voting control of GD Canada and, therefore, indirect control of Asbestos. Under that agreement, SNA acquired control over GD Canada; however, SNA’s payment for GD Canada was deferred through the operation of a “put and call” agreement. This form of the transaction was designed to benefit the tax position of GD U.S., and to provide GD U.S. with a means to acquire the benefits of any subsequent improvement in the asbestos market.
13 The 1981 transaction differed materially from the offer rejected by GD U.S. in 1979. Under the 1981 transaction, SNA purchased GD Canada shares rather than Asbestos shares as it would have under the 1979 offer. Furthermore, the 1981 transaction was not accompanied by an undertaking to the minority shareholders of Asbestos to purchase their shares. On November 11, 1981, two days after the agreement was reached, Quebec announced that it did not intend to make a follow-up offer to the minority shareholders. Instead, the Finance Minister said in a press release, [translation] “it will be up to GD Canada to evaluate over the course of the years the advantage of increasing eventually its interest in [Asbestos Corp.]”. In response to that statement, the shares of Asbestos fell to a four-year low. Six days later the Finance Minister was quoted by the press as saying: “[b]ut at the present time, I’m not buying the shares of General Dynamics . . . but if I force them out . . . then obviously I should do something with the minority shareholders”.
14 On February 12, 1982, the agreement among Quebec, SNA, and GD U.S. was formalized. GD Canada’s name was changed to Mines SNA Inc. and its registered office was moved from Ottawa, Ontario, to Thetford Mines, Quebec. In November 1986, GD U.S. exercised its put option and, on December 9, 1986, SNA purchased the remaining common shares of GD Canada held by GD U.S. No follow-up offer was ever made to the minority shareholders of Asbestos.
15 In April 1988, the OSC issued a notice of hearing to determine two questions: (i) whether the transaction amounted to a take-over bid in Ontario, requiring SNA to make a follow-up offer to the minority shareholders of Asbestos, and (ii) whether the OSC should exercise its public interest jurisdiction under s. 124(1) (now s. 127(1), para. 3) of the Securities Act and take away Quebec’s trading exemptions in the Ontario capital markets.
16 In addition to the details of the negotiations and transaction, the evidence before the OSC included press reports of the statements made by members of the Quebec Government, noted above, as well as other articles quoting analysts as recommending caution and warning against the speculative nature of an investment in Asbestos. The OSC also examined the market performance of Asbestos shares during the relevant period in light of all of the information about Asbestos and the change of control transaction that was available to the market during the material times. The OSC also considered the testimony of witnesses called by the appellant. The OSC concluded that the statements made by members of the Quebec Government did not constitute a promise to make a follow-up offer, that the minority shareholders and market analysts were aware of the speculative nature of an investment in Asbestos, and that the market was not materially misled by Quebec or SNA.
II. Decisions Below
1. The 1988 Jurisdictional Proceedings
17 Immediately after the OSC issued the notice of hearing in this case, Quebec challenged the jurisdiction of the OSC to inquire into the transaction. In a decision dated August 15, 1988, a majority of the OSC held that it had jurisdiction to decide the issues raised in the notice of hearing: (1988), 11 O.S.C.B. 3419. A combined appeal and judicial review application brought by Quebec was dismissed by the Divisional Court. A further appeal was dismissed by the Court of Appeal: (1992), 10 O.R. (3d) 577, with leave to appeal to this Court denied, [1993] 2 S.C.R. x.
18 At the Court of Appeal, McKinlay J.A., writing for the court, held that the provisions of the Act raised in the notice of hearing were within the province’s legislative competence and that it was neither fair nor reasonable to suggest only Ontario residents are subject to Ontario regulatory rules when operating in Ontario capital markets. She wrote, at p. 595:
. . . I am of the view that territorial jurisdiction of the OSC under s. 124 does not depend solely upon the province or country in which relevant transactions may have taken place, but rather upon whether or not persons availing themselves of the benefits of trading in the Ontario capital markets act in a manner consistent with the provisions of the Act.
19 McKinlay J.A. also held the OSC’s public interest jurisdiction was not “subject to an implicit precondition” (p. 592) that the conduct in question “must have a ‘sufficient Ontario connection’” (p. 593). She wrote at pp. 592‑93:
I have difficulty understanding the argument of the appellant that s. 124(1) must be interpreted as being subject to an implicit precondition that the conduct relied upon by the OSC as the basis for the exercise of its discretion must have a “sufficient Ontario connection”. The Ontario connection required by the section is “the public interest”. I construe “the public interest” in that provision as being not only the interest of residents of Ontario, but the interest of all persons making use of Ontario capital markets. The discretion being contemplated by the OSC is a discretion to withdraw special privileges given, in this case, to the government of another province. I see nothing in the Act, nor do I see any constitutional or policy reason why any limited interpretation should be placed on the clear wording of the section.
20 Following the Court of Appeal’s decision, the OSC resumed its hearing into whether the transaction amounted to a take‑over bid, or whether it should exercise its public interest jurisdiction to remove Quebec’s trading exemptions.
2. Ontario Securities Commission (Vice Chair Geller, Commissioners Kitts and Carscallen concurring) (1994), 4 C.C.L.S. 233
21 The OSC considered two questions: (i) whether the transaction amounted to a take-over bid in Ontario, requiring SNA to make a follow-up offer to the minority shareholders of Asbestos; and (ii) whether the OSC should exercise its public interest jurisdiction under s. 124(1) (now s. 127(1), para. 3) of the Securities Act and take away Quebec’s trading exemptions in the Ontario capital markets.
22 First, the OSC panel held that the transaction was not a take-over bid, nor a deemed take-over bid, under the Act. Thus, the transaction was not a breach of the Act and no follow-up offer was required under its express provisions or the regulations thereunder. This finding has not been appealed.
23 Next, the panel considered whether it should exercise its public interest jurisdiction. In doing so, the panel relied on its previous jurisprudence in Re Canadian Tire Corp. (1987), 10 O.S.C.B. 857, and Re H.E.R.O. Industries Ltd. (1990), 13 O.S.C.B. 3775. The panel noted that it does not need to find a breach of the Act or of the regulations thereunder in order to exercise its s. 127 jurisdiction. It emphasized, however, that it should be cautious in exercising its s. 127 jurisdiction, and should not use its open-ended nature to correct perceived abuses regardless of a connection with Ontario. Then, the panel went on to consider the following four factors: (i) whether the transaction had been designed to avoid the animating principles behind the legislation and the rules respecting take-over bids, (ii) whether the transaction was manifestly unfair to public minority shareholders, (iii) whether there was a sufficient nexus with Ontario to warrant the OSC’s intervention, or whether the transaction was structured to make an Ontario transaction appear to be a non-Ontario one, and (iv) whether the transaction was abusive of the integrity of the capital markets in the province.
24 With regard to the first two factors, the panel held that both Quebec and GD U.S. had a moral obligation to the minority shareholders and that
the actions of the Quebec Government and SNA failed to comply with the spirit underlying the take-over bid rules of the Act, were abusive of the minority shareholders of Asbestos and were manifestly unfair . . . (para. 71)
25 However, with respect to the third factor, the panel held that a sufficient Ontario nexus had not been established, and that the principal and, so far as the evidence went, the sole purpose for structuring the transaction in its final form was the minimization of taxes on the profit received by GD Canada and GD U.S.
26 Furthermore, the panel found that, although it would have been fairer if the Quebec Government had not equivocated about its plans regarding a follow-up offer, its equivocation did not result in the market being materially misled or investors purchasing shares on the “promise” that there would be a follow-up offer.
27 The OSC concluded that, although the minority shareholders of Asbestos were unfairly and badly dealt with by the Quebec Government, they are unable to look to the Act for a remedy (para. 90).
3. Ontario Divisional Court (Crane J., O’Driscoll J. concurring; Steele J. dissenting in part) (1997), 33 O.R. (3d) 651
28 The Divisional Court was unanimous in reversing the decision of the OSC. The court held that the OSC had erred by imposing two jurisdictional prerequisites to its s. 127(1), para. 3 jurisdiction: a “transactional connection” with Ontario, and a conscious motive to avoid the takeover laws in Ontario and abuse minority shareholders. On the first jurisdictional error, the court further held that the OSC had erred in concluding that a sufficient Ontario nexus had not been established. On the second jurisdictional error, the court held that the OSC must look at the effect of the transaction, not the motivation of the parties.
29 Based on these findings, a majority of the Divisional Court directed the OSC to order the Quebec Government to make a follow-up offer to the minority shareholders within 90 days, failing which the OSC was to deny the Quebec Government all of the exemptions that allowed it to participate in the Ontario capital market. The OSC was also directed to order the Quebec Government to pay the appellant’s costs of the 1994 proceedings before the OSC, as well as present costs at the Divisional Court and the future costs of appearances before the OSC on this matter, if any. Steele J. concurred with the majority’s reasons but would have granted a different order. The substance of Steele J.’s order was the same as that of the majority; however, Steele J. would have left the “mechanics and details” to be determined by the OSC. In other words, Steele J. would have remitted the matter to the OSC for a determination of the prescribed time period for the follow-up offer to be made, the exemptions to be disallowed, the interest rate to be applied, and the liability for future costs.
4. Court of Appeal for Ontario (Laskin J.A., Doherty and Rosenberg JJ.A. concurring) (1999), 43 O.R. (3d) 257
30 In comprehensive and lucid reasons written by Laskin J.A., the Court of Appeal for Ontario unanimously allowed the appeal and reinstated the OSC’s decision. The Court of Appeal concluded that the Divisional Court made four main errors in that it:
(1) applied the wrong standard of review,
(2) mischaracterized what the OSC did,
(3) failed to appreciate that whether the acquisition of control of Asbestos had a sufficient “transactional connection” with Ontario, whether Quebec intended to avoid Ontario law and whether Quebec’s public statements misled investors into believing a follow-up offer would be made, were relevant factors for the OSC to consider in exercising its discretion under s. 127(1), para. 3, and
(4) misconceived the purpose of the OSC’s public interest jurisdiction by treating it as remedial.
31 With respect to the first error noted above, the Court of Appeal was of the opinion that the Divisional Court had applied a standard of correctness without first addressing the necessary issue of appropriate standard of review. The Court of Appeal then applied Pezim v. British Columbia (Superintendent of Brokers), [1994] 2 S.C.R. 557, and Canada (Director of Investigation and Research) v. Southam Inc., [1997] 1 S.C.R. 748, and concluded that the appropriate standard of review in this case was “reasonableness”.
32 With respect to the second and third errors, in interpreting the reasons of the OSC in this case, Laskin J.A. was of the view that the OSC did not decide it could not make an order under s. 127; rather it decided it would not do so. In his view, the OSC treated the transactional connection to Ontario and the intention to avoid Ontario law as factors relevant to the exercise of its discretion, not as conditions precedent (at p. 273):
. . . the Commission did not set up any jurisdictional preconditions to the exercise of its discretion. Instead, it took into account and indeed gave prominence to factors that were relevant to the exercise of its discretion. It weighed those factors and made findings of fact on them that were reasonably supported by the evidence. Finally, it properly considered whether the abusive and unfair conduct that it found to have been established warranted an order under s. 127(1)3 of the Act, removing Québec’s trading exemptions. In refusing to make such an order, I am not persuaded that the Commission exercised its discretion unreasonably or, to use the familiar language of review of discretionary orders, committed an error in principle, or acted capriciously, arbitrarily or unjustly.
33 Further, Laskin J.A. held that the Divisional Court erred in considering only the effect of the transaction. He stated that this was relevant and was considered by the panel, but it acted reasonably in considering other factors as well. Laskin J.A. was also of the view that it was relevant to consider the motivation of the Quebec Government, and that the panel’s findings in this regard were reasonable.
34 Laskin J.A. held that the panel’s finding that there was not a sufficient Ontario connection was reasonably supported by the evidence and therefore not reviewable. Laskin J.A. rejected the appellant’s alternative argument that the panel had erred in giving the connection to Ontario and the intention to avoid Ontario law too much weight. According to Laskin J.A., the panel acted reasonably in emphasizing these factors.
35 Laskin J.A. also held that the panel’s conclusions that the public was not misled and could not have reasonably relied on the statements of Quebec’s Minister of Finance were reasonably supported by the record and therefore not reviewable. Furthermore, Laskin J.A. held that the panel had to consider the potential for future harm to the integrity of Ontario’s capital markets and the likelihood that Quebec’s unfair treatment of investors would be repeated.
36 With respect to the fourth error noted by the Court of Appeal, Laskin J.A. held that the Divisional Court erred by focussing only on investor abuse and viewing s. 127(1), para. 3 as remedial. It was the opinion of the court that s. 127(1), para. 3 is not remedial (at p. 272):
The purpose of the Commission’s public interest jurisdiction is neither remedial nor punitive; it is protective and preventive, intended to be exercised to prevent likely future harm to Ontario’s capital markets. The past conduct of offending market participants is relevant but only to assessing whether their future conduct is likely to harm the integrity of the capital markets.
37 Finally, Laskin J.A. commented on the Divisional Court order. He held that the Divisional Court had no jurisdiction to make the order in respect of future costs. However, he was of the view that the court did have the jurisdiction to include the other aspects of the order but held that it ought not to have. Rather, it should have remitted the matter back to the OSC to determine what order should be made.
III. Issues on Appeal
38 There are three main issues in this appeal:
1. What is the nature and scope of s. 127 jurisdiction to intervene in the public interest?
2. What is the appropriate standard of review?
3. Did the OSC make a reviewable error?
IV. Analysis
1. What Is the Nature and Scope of Section 127 Jurisdiction to Intervene in the Public Interest?
39 Section 127(1) of the Act provides the OSC with the jurisdiction to intervene in activities related to the Ontario capital markets when it is in the public interest to do so. The legislature clearly intended that the OSC have a very wide discretion in such matters. The permissive language of s. 127(1) expresses an intent to leave it for the OSC to determine whether and how to intervene in a particular case:
127. (1) The Commission may make one or more of the following orders if in its opinion it is in the public interest to make the order or orders . . . . [Emphasis added.]
40 The breadth of the OSC’s discretion to act in the public interest is also evident in the range and potential seriousness of the sanctions it can impose under s. 127(1). Furthermore, pursuant to s. 127(2), the OSC has an unrestricted discretion to attach terms and conditions to any order made under s. 127(1):
(2) An order under this section may be subject to such terms and conditions as the Commission may impose.
41 However, the public interest jurisdiction of the OSC is not unlimited. Its precise nature and scope should be assessed by considering s. 127 in context. Two aspects of the public interest jurisdiction are of particular importance in this regard. First, it is important to keep in mind that the OSC’s public interest jurisdiction is animated in part by both of the purposes of the Act described in s. 1.1, namely “to provide protection to investors from unfair, improper or fraudulent practices” and “to foster fair and efficient capital markets and confidence in capital markets”. Therefore, in considering an order in the public interest, it is an error to focus only on the fair treatment of investors. The effect of an intervention in the public interest on capital market efficiencies and public confidence in the capital markets should also be considered.
42 Second, it is important to recognize that s. 127 is a regulatory provision. In this regard, I agree with Laskin J.A. that “[t]he purpose of the Commission’s public interest jurisdiction is neither remedial nor punitive; it is protective and preventive, intended to be exercised to prevent likely future harm to Ontario’s capital markets” (p. 272). This interpretation of s. 127 powers is consistent with the previous jurisprudence of the OSC in cases such as Canadian Tire, supra, aff’d (1987), 59 O.R. (2d) 79 (Div. Ct.); leave to appeal to C.A. denied (1987), 35 B.L.R. xx, in which it was held that no breach of the Act is required to trigger s. 127. It is also consistent with the objective of regulatory legislation in general. The focus of regulatory law is on the protection of societal interests, not punishment of an individual’s moral faults: see R. v. Wholesale Travel Group Inc., [1991] 3 S.C.R. 154, at p. 219.
43 Furthermore, the above interpretation is consistent with the scheme of enforcement in the Act. The enforcement techniques in the Act span a broad spectrum from purely regulatory or administrative sanctions to serious criminal penalties. The administrative sanctions are the most frequently used sanctions and are grouped together in s. 127 as “Orders in the public interest”. Such orders are not punitive: Re Albino (1991), 14 O.S.C.B. 365. Rather, the purpose of an order under s. 127 is to restrain future conduct that is likely to be prejudicial to the public interest in fair and efficient capital markets. The role of the OSC under s. 127 is to protect the public interest by removing from the capital markets those whose past conduct is so abusive as to warrant apprehension of future conduct detrimental to the integrity of the capital markets: Re Mithras Management Ltd. (1990), 13 O.S.C.B. 1600. In contradistinction, it is for the courts to punish or remedy past conduct under ss. 122 and 128 of the Act respectively: see D. Johnston and K. Doyle Rockwell, Canadian Securities Regulation (2nd ed. 1998), at pp. 209-11.
44 More specifically, s. 122 makes it an offence to contravene the Act and, though the OSC’s consent is required before a proceeding under s. 122 can commence, the provision authorizes the courts to impose fines and terms of imprisonment. Under s. 128, the OSC may apply to the Ontario Court (General Division) for a declaratory order. In making such an order, the courts may resort to a wide range of remedial powers detailed in that section, including an order for compensation or restitution which would be aimed at providing a remedy for harm suffered by private parties or individuals. In addition, further remedial powers are available under Part XXIII of the Act which deals with civil liability for misrepresentation and tipping and creates rights of action for rescission and damages.
45 In summary, pursuant to s. 127(1), the OSC has the jurisdiction and a broad discretion to intervene in Ontario capital markets if it is in the public interest to do so. However, the discretion to act in the public interest is not unlimited. In exercising its discretion, the OSC should consider the protection of investors and the efficiency of, and public confidence in, capital markets generally. In addition, s. 127(1) is a regulatory provision. The sanctions under the section are preventive in nature and prospective in orientation. Therefore, s. 127 cannot be used merely to remedy Securities Act misconduct alleged to have caused harm or damages to private parties or individuals.
2. What Is the Appropriate Standard of Review?
46 A determination of the appropriate standard of review calls for the application of the “pragmatic and functional” approach first adopted by this Court in U.E.S., Local 298 v. Bibeault, [1988] 2 S.C.R. 1048. That approach was further developed by this Court in cases such as Pezim, supra, and Southam, supra.
47 The recent jurisprudence of this Court on standards of review was summarized by Bastarache J. in Pushpanathan v. Canada (Minister of Citizenship and Immigration), [1998] 1 S.C.R. 982. The focus of the inquiry is on the particular provision being interpreted by the tribunal, and the central question is: was the question that the provision raises one that was intended by the legislators to be left to the exclusive decision of the administrative tribunal? There are four factors that are used to determine the appropriate degree of curial deference: (i) privative clauses; (ii) relative expertise of the tribunal; (iii) the purpose of the Act as a whole and the provision in particular; and (iv) the nature of the problem: a question of law or fact? None of the four factors is alone dispositive. Each factor indicates a point falling on a spectrum of the proper level of deference to be shown to the decision in question.
48 Most recently, in Trinity Western University v. British Columbia College of Teachers, [2001] 1 S.C.R. 772, 2001 SCC 31, at para. 17, it was emphasized that Pushpanathan did not modify the decisions of this Court in Pezim and Southam noted above. In fact, in my view, this Court’s decision in Pezim is particularly applicable to the present appeal, since both cases concern the exercise of a provincial securities commission’s discretion to determine what is in the public interest.
49 In this case, as in Pezim, it cannot be contested that the OSC is a specialized tribunal with a wide discretion to intervene in the public interest and that the protection of the public interest is a matter falling within the core of the OSC’s expertise. Therefore, although there is no privative clause shielding the decisions of the OSC from review by the courts, that body’s relative expertise in the regulation of the capital markets, the purpose of the Act as a whole and s. 127(1) in particular, and the nature of the problem before the OSC, all militate in favour of a high degree of curial deference. However, as there is a statutory right of appeal from the decision of the OSC to the courts, when this factor is considered with all the other factors, an intermediate standard of review is indicated. Accordingly, the standard of review in this case is one of reasonableness.
3. Did the OSC Make a Reviewable Error?
(a) The Interpretation of the OSC Decision
50 The parties to this appeal offer two different interpretations of the OSC reasons for judgment. The proper interpretation depends on how one views the OSC’s treatment of the issue of the transactional connection with Ontario and the motive for structuring the transaction as it was done in this case. The appellant argues that the OSC “adopted a transactional nexus as a jurisdictional precondition” and “imposed an alternative prerequisite” by requiring “proof of a conscious motive to evade regulation as a precondition to the exercise of its public interest jurisdiction”. The appellant argues that by failing to consider other factors affecting an assessment of the public interest the OSC “failed or refused to carry out the mandate vested in it by the Legislature”. In contrast, the respondents argue that the OSC considered the transactional connection as one of many factors relevant to the exercise of its discretion, and that it was appropriate for the OSC to consider motive as a factor in deciding whether it would exercise its public interest jurisdiction in this case.
51 I agree with Laskin J.A. that “the Commission did not set up any jurisdictional preconditions to the exercise of its discretion” (p. 273). In my view, the erection of such a jurisdictional barrier by the OSC is inconsistent with its having fought in the earlier proceedings for the recognition of its jurisdiction to hear this matter. Furthermore, in its reasons in the present case, the OSC clearly rejected the idea that the transactional connection factor could act as a jurisdictional barrier to the exercise of its public interest discretion. At para. 63, the OSC quoted the decision of McKinlay J.A. in the earlier proceedings rejecting a transactional connection with Ontario as an implied precondition to the exercise of its s. 127 jurisdiction. The OSC then continued, at para. 64:
. . . we regard this statement as a refusal to impose a “sufficient Ontario connection” as a jurisdictional requirement which must be satisfied in any clause 127(1)3 proceedings before the Commission’s discretion arises, thus leaving it to the Commission to make the necessary discretionary determination unencumbered by any a priori requirement imposed by the court as a matter of interpretation of the statutory provision.
52 Moreover, at para. 68 of its reasons, rather than raising “transactional connection” as a jurisdictional barrier, the OSC identified the transactional connection with Ontario as one of several relevant factors to be considered in determining whether to exercise its public interest discretion, including, inter alia, the motive behind the structure of the transaction at issue:
Were the transactions before us “clearly abusive of investors and of the capital markets,” to quote Canadian Tire? Were they “clearly designed to avoid the animating principles behind [the take-over bid] legislation and rules,” to quote the same decision? Were they “clearly abusive of the integrity of the capital markets, which have every right to expect that market participants . . . will adhere to both the letter and the spirit of the rules that are intended to guarantee equal treatment of offerees in the course of a take‑over bid, no matter by whom the bid is made” and is the result “manifestly unfair to the public minority shareholders . . . who lose the opportunity to tender their shares . . . at a substantial premium” to quote H.E.R.O.? And finally, does “the transaction in question [have] a sufficient Ontario connection or ‘nexus’ to warrant intervention to protect the integrity of the capital markets in the province”, to quote that decision?
53 Although in its reasoning, the OSC placed significant weight on the transactional connection factor, it did not, as alleged by the appellant, stop the inquiry upon finding there was an insufficient transactional connection with Ontario. Furthermore, in this respect, it was appropriate for the OSC to consider, as a factor relevant to the determination of whether to exercise its public interest jurisdiction in this case, the presence or absence of a motivation to structure the transaction so as to make what was essentially an Ontario transaction appear to be a non-Ontario transaction. In effect, the OSC found that what could otherwise appear to be the absence of an Ontario connection might be overcome by a finding that a transaction was improperly and deliberately structured so as to give such an appearance.
54 The Court of Appeal correctly confirmed that it was appropriate for the OSC to consider motive as a factor in deciding whether it would exercise its public interest jurisdiction (at p. 277):
The Commission also reasonably considered whether Québec and SNA intended to avoid Ontario law as relevant to the exercise of its discretion under s. 127(1)3. As I have already said, the purpose of an order under that section is to protect the Ontario capital markets by removing a participant who, based on past misconduct, represents a continuing or future threat to the integrity of these markets. Therefore, the Commission could not focus only on the effect of the transaction. This transaction was lawful. The Commission had to consider whether the Québec Government deliberately attempted to avoid the requirements of the Act . . . .
Therefore, Québec’s intention was relevant.
55 The OSC did not identify motive as a precondition to the exercise of its public interest jurisdiction. On the contrary, the OSC held that it could consider motive as a factor in deciding whether to exercise the jurisdiction that it clearly had. Indeed, the OSC saw motive as a factor that might prompt it to make an order that it may not otherwise have made. Rather than a limitation on jurisdiction, the OSC considered motive as enlarging the circumstances under which the public interest would warrant intervention.
56 In summary, I agree with Laskin J.A. that “[the OSC] did not consider a transactional connection and an intention to avoid Ontario law to be, as the Divisional Court contended, jurisdictional barriers or preconditions to an order under s. 127(1)3 of the Act” (pp. 277-78). The OSC clearly and properly rejected the argument that its public interest jurisdiction was subject to an implicit precondition. In analyzing the appellant’s application for a remedy under s. 127(1), para. 3, the OSC proceeded by identifying and considering several factors relevant to the exercise of its discretion under that provision. The transactional connection with Ontario and the motive behind the structure of the transaction were two of several factors considered. I also agree with Laskin J.A. that the OSC “took into account and indeed gave prominence to factors that were relevant to the exercise of its discretion. It weighed those factors and made findings of fact on them . . .” (p. 273). Therefore, properly interpreted, the OSC did not adopt any jurisdictional preconditions, but instead exercised the discretion that is incidental to its public interest jurisdiction.
(b) Was the OSC Decision Reasonable?
57 The OSC was cautious in the application of its public interest jurisdiction in this case. This approach was informed by the OSC’s previous jurisprudence and by four legitimate considerations inherent in s. 127 itself: (i) the seriousness and severity of the sanction applied for, (ii) the effect of imposing such a sanction on the efficiency of, and public confidence in Ontario capital markets, (iii) a reluctance to use the open-ended nature of the public interest jurisdiction to police out-of-province activities, and (iv) a recognition that s. 127 powers are preventive in nature, not remedial.
58 As noted above, in reaching its decision in this case, the OSC relied on its previous jurisprudence in Canadian Tire, supra, and H.E.R.O., supra, to identify the relevant factors to be considered. The OSC found that “the actions of the Quebec Government and SNA failed to comply with the spirit underlying the take-over bid rules of the Act . . .” (para. 71). However, the OSC did not, on the evidence, conclude that the transaction in this case was intentionally structured to avoid Ontario law (at para. 73):
We were not presented with any evidence that the transaction which finally occurred was structured so as to make an Ontario transaction appear to be a non‑Ontario one. This is not the case, like Canadian Tire, of “transactions that are clearly designed to avoid the animating principles behind” Ontario’s take‑over bid legislation and rules. The evidence was clear that the principal (and so far as the evidence went, the sole) purpose for structuring the transaction in its final form was the minimisation of taxes on the profit received by GD Canada and GD U.S. In our view, the structuring of the transaction was not abusive of the integrity of the capital markets of this province, and cannot be relied on to provide the required nexus.
This finding of fact is reasonable and supported by the evidence.
59 Granted, the OSC did find that “the actions of the Quebec Government and SNA . . . were abusive of the minority shareholders of Asbestos and were manifestly unfair to them” (para. 71). However, whether a s. 127(1) sanction is warranted depends on a consideration of all of the relevant factors together. In this case, the OSC also found that the capital markets in general, and the minority shareholders of Asbestos in particular, were not materially misled by the statements of Quebec’s Minister of Finance respecting the prospect of a follow-up offer. This finding is supported by the evidence, including the several published reports that recommended caution and characterized an investment in Asbestos as speculative. In this case, such a finding can and did properly inform the OSC’s discretion under s. 127.
60 In addition, consistent with the two purposes of the Act described in s. 1.1 and because s. 127(1) sanctions are preventive in nature, it was open to the OSC to give weight to the fact that there has been no abuse of investors or other misconduct by the province of Quebec or SNA in the 13 years since the transaction at issue in this appeal. The OSC was also entitled to give weight to the fact that the removal of the province’s exemptions is a very serious response that could have negative repercussions on other investors and the Ontario capital markets in general.
61 Furthermore, the OSC did not find that there was no transactional connection with Ontario in this case, but that the transactional connection was insufficient to justify its intervening in the public interest. As noted by Chairman Beck in his dissenting opinion in Re Asbestos Corp. (1988), 11 O.S.C.B. 3419, a review of the OSC decisions on s. 124 (now s. 127) indicates that there has been careful use of the public interest jurisdiction and that in each case there was a clear and direct transactional connection with Ontario, contrary to the facts here: see H.E.R.O., supra; Re Atco Ltd. (1980), 15 O.S.C.B. 412; Re Electra Investments (Canada) Ltd. (1983), 6 O.S.C.B. 417; Re Turbo Resources Ltd. (1982), 4 O.S.C.B. 403C; Re Genstar Corp. (1982), 4 O.S.C.B. 326C.
62 It is true that the OSC placed significant emphasis on the transactional connection factor. However, it was entitled to do so in order to avoid using the open-ended nature of s. 127 powers as a means to police too broadly out-of-province transactions. Capital markets and securities transactions are becoming increasingly international: see Global Securities Corp. v. British Columbia (Securities Commission), [2000] 1 S.C.R. 494, 2000 SCC 21, at paras. 27-28. There are a myriad of overlapping regulatory jurisdictions governing securities transactions. Under s. 2.1, para. 5 of the Act, one of the fundamental principles that the OSC has to consider is that “[t]he integration of capital markets is supported and promoted by the sound and responsible harmonization and co‑ordination of securities regulation regimes”. A transaction that is contrary to the policy of the Ontario Securities Act may be acceptable under another regulatory regime. Thus, the OSC’s insistence on a more clear and direct connection with Ontario in this case reflects a sound and responsible approach to long-arm regulation and the potential for conflict amongst the different regulatory regimes that govern the capital markets in the global economy.
63 In summary, the reasons of the OSC in this case were informed by the legitimate and relevant considerations inherent in s. 127(1) and in the OSC’s previous jurisprudence on public interest jurisdiction. The findings of fact made by the OSC were reasonable and supported by the evidence. I conclude that the decision of the OSC in this case was reasonable and therefore should not be disturbed.
64 For the foregoing reasons, I would dismiss the appeal with costs.
Appeal dismissed with costs.
Solicitors for the appellant: Borden Ladner Gervais, Ottawa.
Solicitors for the respondent Her Majesty in Right of Quebec: Torys, Toronto.
Solicitor for the respondent Ontario Securities Commission: The Ontario Securities Commission, Toronto.
Solicitors for the respondent Société nationale de l’amiante: Blake, Cassels & Graydon, Toronto.