How high is too high? Appeal court finds that OSC penalties are not high enough to be unconstitutional
May 25th, 2012
In a decision released in March in Rowan v. Ontario Securities Commission, 2012 ONCA 208, the Ontario Court of Appeal declined to overturn on constitutional grounds the substantial penalties imposed by the Ontario Securities Commission against an investment dealer and several of its officers for breaches of securities laws in relation to their trading in Biovail Corporation shares. In particular, the Court of Appeal upheld the decision of the OSC tribunal that penalties and costs awards against all respondents totalling in excess of $1.3 million did not rise to the level of penal sanctions; sanctions that would give rise to the rights afforded to criminally charged persons under s.11(d) of the Charter of Rights and Freedoms.
The primary constitutional argument advanced by the appellants was that the applicable section of the Securities Act, s.127(1)(g), prescribes sanctions for breaches of the Securities Act that could potentially be so high that they are, in effect, criminal or penal and not regulatory. In particular they argued that in prescribing a penalty of up to $1 million for each and every breach of Ontario securities laws, s.127(1)(g) of the Securities Act allows for virtually unlimited penalties, as each trade or transaction would be a separate breach that could give rise to a $1 million penalty. For example, where an offending course of conduct has included thousands of trades the total fines under this section could, in theory, be in the billions of dollars.
Writing for a unanimous court, Mr. Justice Sharpe rejected the idea that the fact that a particular section could potentially give rise to such high penalties means it is necessarily penal and therefore gives rise to the protections under s.11(d) of the Charter. Rather, it is the penalty itself that must be examined. As long as a particular penalty is tailored to achieve the particular purpose of regulating the conduct of the particular individual or corporate respondent, such a penalty will not rise to the level of a penal or criminal sanction.
In finding that both s.127(1)(g) of the Securities Act and the fines imposed thereunder were constitutional, Sharpe, J.A. observed that "penalties of up to $1 million per infraction are…entirely in keeping with the Commission's mandate to regulate the capital markets where enormous sums of money are involved and where substantial penalties are necessary to remove economic incentives for non-compliance with market rules." Sharpe J.A. further observed that it had been the recommmendation of the Securities Act Five Year Review Committee that such penalties be available to ensure that "the administrative penalty would not simply be viewed as a 'cost of doing business' or a 'licensing fee' for unscrupulous market participants." Sharpe J.A. concluded that, given the number of infractions involving over a billion dollars worth of securities and over $2 million in commissions, fines totalling $1,220,000 were within the constitutionally permissible range.