In an enforcement proceeding before the Ontario Securities Commission, must the same commissioners who preside over the merits hearing be the ones to determine the appropriate penalties? In a recent decision, the Ontario Court of Appeal confirmed that the answer is no.
As dictated by the OSC’s Rules of Procedure, a proceeding before the OSC is conducted in two phases: (1) a merits hearing, where a panel of OSC commissioners makes findings about alleged breaches of the Ontario Securities Act; and (2) a sanctions hearing, where a panel of commissioners decides what sanctions and costs, if any, are appropriate.
Before the Ontario Court of Appeal in Ontario Securities Commission v. MRS Sciences Inc., the appellant (MRS) challenged the OSC’s decision that a separate panel of commissioners had jurisdiction to hear and decide the issues of sanctions and costs, notwithstanding that they were not involved in the merits hearing.
The merits hearing against MRS was held in 2011, and the panel of commissioners who presided over that hearing found that MRS had breached securities laws by selling securities without registration and trading securities without a prospectus. Soon after the decision, but before the sanctions hearing could take place, the five-year term of two of the presiding commissioners expired.
MRS objected to new commissioners, who had not heard the evidence at the merits hearing, constituting the panel for the sanctions hearing. MRS argued that “there is no authority or jurisdiction for an entirely new panel, that has heard none of the evidence, to continue the hearing or deal with sanctions”. The basis for MRS’ argument was that the merits hearing and the sanctions hearing should be considered together as a single hearing, and therefore the principle of audi alteram partem (“they who hear must decide”) must apply.
By contrast, OSC Staff argued that a sanctions and costs hearing convened following a merits decision is a discrete “hearing” within a “proceeding” that is commenced by the initial Notice of Hearing. As such, the Secretary must constitute a panel of current OSC commissioners, and not necessarily the same commissioners who presided over the merits hearing. Staff also argued that the sanctions panel had been properly constituted to conduct the hearing through an assignment in the normal course by the Secretary, who was exercising authority delegated to him by the Commission. The Secretary’s authority to constitute panels comes from the Commission’s inherent powers as “master of its own house”.
In its 2011 decision [PDF], the OSC sided with Staff. It held that, where both parties are given the opportunity to lead evidence and make submissions at the sanctions hearing, the requirement of the maxim of audi alteram partem will be satisfied, since “the sanctions Panel will adjudicate on the appropriate sanctions for those breaches or conduct and the Respondents will be heard by the sanctions Panel on those issues.”
MRS appealed first to the Divisional Court, which split on this question in its decision. The majority of the Court held that, while the position MRS urged upon the Court was reasonable, it was not the only reasonable outcome. They concluded that the OSC’s interpretation was also reasonable and, accordingly, dismissed the appeal. In reaching that decision, the Divisional Court reflected on practical considerations that weighed in favour of permitting separate panels for the merits and the sanction hearings, including the limited number of commissioners, the OSC’s burdensome load of complex cases, and the fact that, in this case, the sanctions hearing was held nearly five years after the merits hearing.
The Court of Appeal was unanimous in upholding the Divisional Court’s decision, and ruled that there is no procedural unfairness or breach of natural justice in constituting a different sanctions panel. In addition, the Court of Appeal noted that the principle of audi alteram partem was not violated on the facts of this case, since the panel that decided the issue of sanctions and costs did so based on the evidence and submissions that it heard on those issues at the sanctions hearing.