Unlike the United States, Canada does not have a national securities regulator. In Canada, each province regulates securities through its own securities commission. One of the means of harmonizing securities regulation across the country is a provision in the securities legislation of each province that empowers its regulator to make an order (often referred to as a “reciprocal order”) against a person who has entered into a settlement agreement with another jurisdiction’s securities regulator to be subject to regulatory action.
On December 5, 2013, the Supreme Court of Canada released its decision in McLean v. British Columbia (Securities Commission), 2013 SCC 67, in which the court considered the limitation period to be applied to the making of reciprocal orders and the level of deference to be shown by courts to decisions of securities commissions.
In 2008, Ms. McLean entered into a settlement agreement with the Ontario Securities Commission with respect to conduct that occurred in Ontario in 2001 or earlier. Pursuant to the settlement agreement, she agreed to various sanctions in Ontario. In 2010, the Executive Director of the British Columbia Securities Commission notified Ms. McLean that he was applying to the BC Securities Commission for an order pursuant to section 161(6)(d) of the BC Securities Act, which empowers proceedings to be brought against a person who has agreed with an another jurisdiction’s securities regulator to be subject to regulatory action. An issue arose because the BC Securities Act contains a limitation period that requires that proceedings must not be commenced more than six years “after the date of the events that give rise to the proceedings.”
The question before the Supreme Court of Canada was whether the “the events” that trigger the six-year limitation period are (1) the underlying misconduct that gave rise to the settlement agreement, or (2) the settlement agreement itself. By making the order against Ms. McLean, the BC Securities Commission implicitly rejected her limitation argument. On appeal, the BC Court of Appeal applied a standard of correctness and upheld the Commission’s decision that the relevant “event” was the settlement agreement itself.
The Supreme Court of Canada dismissed the appeal. But the court held that the Court of Appeal erred in applying a correctness standard of review, finding that courts should defer to an administrative tribunal such as a securities commission when interpreting its own statute or statutes closely connected to its function. In the court’s view, a specialized tribunal is better able to resolve unclear language in its home statute and to weigh the policy considerations often involved in choosing between multiple reasonable interpretations.
The court held that the Commission’s interpretation of the limitation period was reasonable, in particular because it would allow secondary jurisdictions across the country to wait until a primary proceeding has concluded without having to institute parallel and duplicative proceedings just to avoid the expiry of a limitation period.
The case is significant for at least two reasons. First, it clarifies the rules that apply to what has become an important aspect of securities regulation in Canada, given its federal structure and lack of a national securities regulator. Those who find themselves the targets of securities enforcement will need to remember that reciprocal orders can be sought up to six years after a settlement has been reached, which may be many years after the underlying misconduct.
Second, the case is a reminder of the high level of deference that courts will show to administrative tribunals such as securities commissions when interpreting legislation in their sphere of expertise.