This appellate decision considers a fact pattern that has not frequently arisen from the British Columbia Securities Commission: how to enforce compliance with the informal inquiries that administrative investigators undertake. The appeal dealt with section 57.5 of the B.C. Securities Act:
57.5 (1) A person must not
(a) refuse to give any information or produce any record or thing, or
(b) destroy, conceal or withhold, or attempt to destroy, conceal or withhold, any information, record or thing reasonably required for a hearing,
review, investigation, examination or inspection under this Act.
(2) A person contravenes subsection (1) if the person knows or reasonably should know that a hearing, review, investigation, examination or inspection is
to be conducted and the person takes any action referred to in subsection (1) before the hearing, review, investigation, examination or inspection.
The appellant approached an investor, offering a “risk-free” investment opportunity with a guaranteed 10% return for three years. The investor signed an agreement and invested $25,000, expecting monthly interest payments. However, right after the investment, the investor regretted it and asked for a refund via email. The investor's mother, concerned about the investment, contacted the British Columbia Securities Commission and provided the Commission’s investigator with documents, including the investment agreement by the appellant and email exchanges with the appellant.
The Commission's investigator contacted the appellant to request details about the investment. Meanwhile, a meeting occurred between the investor, the investor's mother, and the appellant. During the meeting, the appellant said the availability of a refund would depend on how the investor and his mother handled the matter with the Commission, asking the investor's mother not to say anything further to the Commission. Another meeting occurred the next day, during which the appellant proposed concocting a false story to end further inquiries from the Commission. The investor was coached on the false report, with the appellant pretending to be the investigator in a role-playing exercise. The investor eventually made a scripted call to the investigator, apologizing and explaining the apparent confusion regarding the investments.
After the call, the appellant coached the investor's mother on what to say if the investigator contacted her. The investor's mother then drove the appellant to the bank, where the appellant provided the investor’s mother with a $25,000 bank draft as a refund.
The investor's mother later emailed the investigator, revealing the meeting details and that she had secretly recorded her interactions with the appellant. Then a notice of hearing was issued, alleging that the appellant’s conduct contravened securities laws and abused capital markets.
At the appeal, the appellant argued that s. 57.5 did not encompass informal investigations conducted by the Commission. Only formal investigations, essentially arguing that only exercises started by an investigation order issued under the Securities Act could trigger the Commission’s investigation powers and the obligations of those subject to investigation activities. The Commission argued that section 57.6 of the Act should encompass formal and informal investigations.
The Court of Appeal, applying well-established principles of statutory interpretation, considered the Securities Act’s entire context, legislative purpose, and the presumption that courts prefer to avoid “absurd” consequences. The court concluded that the plain and ordinary meaning of "investigation" in Section 57.5 includes informal investigations conducted by the Commission. The section had no express terms to exclude informal investigatory steps or to limit steps to formal steps. Further, the court held that a distinction between formal and informal steps would cause s. 57.5 to create absurd consequences in how the Securities Act was intended to operate.
This case creates no new legal principles. Rizzo has been in place for decades and set the framework within which the Court of Appeal analyzed the problem. However, the case raises both specific and general issues.
First, when defending someone against the Commission, defence counsel will note that a client who gives false information or interferes with the general operations of a regulator to enforce the principles of a regulatory statute risks more than having their character impeached in a future cross-examination. Instead, the client may be subject to enforcement action for interfering with the Commission. If another regulatory body operates similarly and has similar provisions, this case could be relied on by analogy.
Second, the case raises a more troubling public policy question: what are the contours of public administration through enforcement action? Note that this case involved Commissions staff making inquiries not covered under a process specifically prescribed and defined in the Act (I.e. issuing an investigation order).
In a liberal state (in a formal, rather than partisan sense) such as Canada, we presume a person may do anything unless that behaviour is restricted by law. By law, we often mean specific and explicit prescriptions of legal norms.
Here, the Court of Appeal equated the ability to regulate behaviour not to a prescribed and explicit norm, but to an institutional structure and roles defined by a statute.
The result allows a person to be convicted of an offence under the Securities Act (or similar legislation) or enforcement action even when the impugned behaviour does not violate an explicitly prescribed norm.
See my latest case commentary on Canlii Connects.