Section 171 of the Securities Act (the “Act”) is a powerful provision that provides the British Columbia Securities Commission (the “Commission”) with the discretion to make an order revoking or varying a decision the Commission or Executive Director has made under the Act – as long as it is not prejudicial to the public interest. In most instances, this means the affected party, or applicant, bears the onus of proving to the Commission that new evidence or a significant change in circumstances exist that warrants a change in decision. However, in light of the Commission’s recent expanded powers, applicants have sought to shift the onus of proof to the Commission itself to demonstrate why their decision should continue to be upheld in support of the public interest.
Last year, and most significantly, the question of onus in connection with asset freeze orders was addressed directly by the Court of Appeal in Party A v. British Columbia (Securities Commission), 2021 BCCA 358. In this case, the appellants sought to overturn the Commission’s decision which dismissed their applications brought under s. 171 of the Act to revoke freeze orders over their assets. The appellants argued the freeze orders were not in the public interest. The Court of Appeal held that where a freeze order was obtained in circumstances that did not give the asset owner an opportunity to be heard, the Executive Director will bear the onus on a s. 171 application. In particular, the Executive Director must establish that the evidence raises a serious question that the investigation could show breaches of the Act leading to financial consequences against the asset owner, and further, that the public interest will be served by the continuation of the order.
The Court of Appeal further clarified that when a freeze order is obtained without notice to the asset owner, or without reasons being issued, and an application is brought under s. 171 to revoke or vary the order, the Commission must take a fresh look at whether continuation of the order is in the public interest. This must be based on the evidence and circumstances known at the time of the s. 171 application. In essence, the Commission must treat the application as a new hearing without giving deference to the original order. The Party A decision was significant because it marked the first shift in onus to the Executive Director and went against the long standing assumption that the applicant bears the onus of proof.
More recently, in Morabito v British Columbia (Securities Commission), 2022 BCCA 279, the Court of Appealgrappled with the question of onus in connection with investigation orders issued by the Commission. In this case, the appellants were subjects of a Commission investigation related to insider trading in the shares of a publicly listed airline company. Similarly, the appellants brought an application under s. 171 to revoke the investigation order on the basis it was no longer in the public interest. In particular, the Morabito’s argued the investigators abused their powers in a way that brought the Commission’s processes into disrepute, and the public interest demanded that investigation be terminated. Their application was dismissed. On the back of the Party A decision, the Morabito’s appealed and submitted that because an investigation order is issued without notice and without hearing the parties, the onus of proof should be on Executive Director, similar to that of freeze orders. The Court of Appeal rejected the Morabito’s argument and held that the onus for revoking an investigation order is a heavy one which falls on the applicant. The Morabito’s did not adduce sufficient evidence to show the investigation order was not in the public interest.
The Court of Appeal reasoned that investigation orders are distinguishable from freeze orders because the legal significance of the investigation order is much lower. Specifically, an investigation order does not affect the rights or privacy of a subject to the same degree as a freeze order. The Court of Appeal noted the importance of statutory investigations and the inherent risk of shifting the onus to the Executive Director to continuously justify investigation orders because this would require the Executive Director to disclose what the investigation has shown so far and what he or she expects it will show as it progresses. This would no doubt have an impact on the integrity of investigations and result in investigations being further delayed by s. 171 applications.
Interestingly however, the Court of Appeal’s ruling was not without caution. The Court of Appeal warned that the Executive Director and Commission investigators should not sit back and rely on the fact the onus of proof lies on the applicant. In cases where an applicant alleges unprofessional conduct or an abuse of some kind, and adduces evidence supporting his or her case, the evidentiary burden may well shift to the Executive Director to respond in a meaningful way. For example, the Executive Director may need to explain why a particular tactic was followed or why an investigation was prolonged. This is significant because it leaves the door open for the onus respecting investigation orders to shift to the Executive Director or Commission under the right circumstances.
In conclusion, s. 171 applications serve an important purpose for affected parties who are impacted by decisions of the Commission and the Executive Director. In respect of the Commission’s recent expanded powers, it is significant that the Court of Appeal has recognized that the onus of proof does not automatically fall on the applicant as it has long been understood. This is an intriguing area of the law to follow as applicants will undoubtedly seek to revoke or vary other decisions of the Commission and Executive Director beyond freeze orders and investigation orders. The shifting onus of proof has the potential to act as a “check and balance” for a regulator which now possesses the strongest enforcement and collections tools in Canada.
For more information regarding s. 171 of the Act, or any other related securities related legal questions, please contact Patrick Sullivan or Dennis Whincup.