Argument made that Quebec Civil Code applies to jurisdiction question for province's financial regulator
The Supreme Court of Canada recently heard an appeal that could impact how administrative tribunals in Quebec determine jurisdiction.
In 2017, Quebec’s financial markets regulator, Autorité des marchés financiers (AMF), brought a case against four people accused of participating in a pump-and-dump scheme before the Financial Markets Administrative Tribunal. The AMF alleged the defendants were guilty of improperly influencing or manipulating a stock price in violation of the Quebec Securities Act.
The alleged scheme involved a company called Solo, which was incorporated in the US state of Nevada, and Solo’s shares were traded on a New York-based over-the-counter market.
The AMF sought an order from the FMAT requiring the defendants to cease transacting in securities; prohibiting them from serving as directors or officers of an issuer, dealer, adviser, or investment fund manager for five years; and also sought administrative penalties.
The defendants unsuccessfully argued at the FMAT that the tribunal lacked jurisdiction. The Quebec Superior Court dismissed the application for judicial review, and the Court of Appeal rejected their appeal.
The four defendants appealed the jurisdictional issue to the SCC, and the court heard the matter on Jan. 18.
In Frederick Langford Sharp, et al. v. Autorité des marchés financiers, et al., there are two main legal issues, says Patrick Ferland, a partner with LCM Avocats in Montreal and counsel for three of the appellants.
The first is about the applicable jurisdictional test. The appellants argue that the Quebec Civil Code determines jurisdiction, while the AMF argues it is the common law.
“There are provisions in the Civil Code detailing the various circumstances where a court or an administrative tribunal could have jurisdiction,” says Ferland. “We're saying there is no provision that would grant jurisdiction in a case like this.”
The AMF argued that the relevant Civil Code provisions do not apply to administrative enforcement proceedings before the FMAT, says Stéphanie Jolin, counsel for the AMF.
“Rather, the latter’s jurisdiction coincides with the scope of the Securities Act, which must respect the territorial limits of the province’s legislative powers under the Constitution,” she says. “The Respondent therefore argues that the applicable constitutional test is the ‘sufficient connection’ test set out in Unifund.”
If the common law and not the Quebec Civil Code applies, the second issue is how the common law would have a tribunal assess its jurisdiction, says Ferland.
In the common law provinces, a provincial court or tribunal can hear a case where there is a “real and substantial connection,” he says. The 2012 SCC case, Club Resorts Ltd. v Van Breda, found that in the case of a tort, the decision-maker will look at “where the tort was committed” and “where the prejudice was suffered,” he says.
The appellant’s position is that, for predictability, the court must look at “objective factors” such as where the defendants reside, where the infractions were committed, and where the exchange is located. The defendants reside in BC, where they allegedly carried out the violations of the provision, and the transactions at issue occurred on a U.S. exchange, says Ferland.
“Our position is that nothing connects with Quebec, and the very tenuous connections that there are with Quebec are not sufficient to grant jurisdiction to the Quebec tribunal.”
The AMF’s position is that the “sufficient connection test” that the court adopted is “inherently contextual and flexible” and designed to account for “varying objectives of provincial legislation,” says Jolin.
According to the SCC case summary, the AMF alleges that “at all material times, Solo was under the direction of a Quebec resident and was a reporting issuer in Quebec with a business address in Montreal.” The AMF also says that “the misleading press releases and promotional materials, a portion of which originated in Montreal, were accessible to Quebec residents.” Fifteen investors in Quebec lost a total of $5,000 because of the scheme, according to the AMF.
The case will impact the development of Quebec law and the role of the province’s Civil Code, says Ferland. The case has raised “a very thorny issue,” which is the extent to which government action is subject to the Civil code, he says.
“The case could have a very fundamental impact on how the Civil Code applies to the actions of the government and of all the various governmental agencies in Quebec.”
The case will also clarify the rules in assessing jurisdiction in securities and other regulatory matters, says Ferland.
“The Supreme Court, I hope, will set out a clear test to allow courts across Canada to better determine whether they have jurisdiction to hear a given case that raises interprovincial or international issues.”
“The Court will have to determine whether the Civil Code applies to administrative enforcement proceedings under the Securities Act,” says Jolin. “Should the Court determine that the provisions of the Civil Code at issue do not apply to the underlying proceedings, the Court will have to determine the basis on which the Tribunal’s jurisdiction should be founded.”