The IDA (now IIROC - for purposes of this discussion we will continue to use the term IDA as did the Court of Appeal in its decision) is a voluntary, self-regulatory organization recognized by the Ontario Securities Commission (the OSC) pursuant to s. 21.1 of the Securities Act (Ontario) (the Act). Under s. 21.1(3) of the Act, and as a recognized SRO, the IDA is tasked, among other things, with regulating "the standards of practice and business conduct of its members in accordance with its by-laws, rules, regulations, policies, procedures, interpretations and practices."
Stephen Taub was registered as an Approved Person under the by-laws of the IDA from June 1998 until his resignation in September 2004. In originally applying for registration with the IDA, Mr. Taub had signed an application under which he agreed to be bound by the by-laws, rules and regulations of the IDA, including By-law 20.7, through which members (such as Taub) agreed to remain subject to the IDA’s jurisdiction for a period of five years following the cessation of their membership.
In October 2005, the IDA began disciplinary proceedings against Mr. Taub alleging four counts of conduct unbecoming, involving improper trading for clients and the improper use of confidential information. In June 2006, Taub brought a motion before a hearing panel of the IDA through which he challenged the IDA’s jurisdiction to discipline former members. Taub, as a former member of the IDA, pointed to s. 21 of the Act in arguing that the IDA had no jurisdiction over him due to the fact that his status as a registered representative had expired before the disciplinary proceedings were launched. The hearing panel’s decision (rejecting Taub’s motion and confirming the contractual right of the IDA to pursue disciplinary proceedings against its former members) was upheld on application to the OSC, but subsequently overturned by the Divisional Court of Ontario on the basis that s. 21.1 of the Act limited the jurisdiction of the IDA to current members.
The Court of Appeal Decision
Having heard the IDA’s appeal (and a cross-appeal, brought by Mr. Taub, related to the appropriate standard of judicial review), Feldman J.A., in a well-reasoned decision written on behalf of a unanimous Court of Appeal, overturned the Divisional Court ruling, and reaffirmed the contractual right of the IDA to discipline its former members. In doing so, the Court of Appeal determined that the language of s. 21.1(3) of the Act was not "jurisdictionally limiting" (as was proposed by Mr. Taub). Rather, the Court held that the Act simply set out the statutory obligations of the SRO, while specifically providing the SRO (i.e. the IDA) with the scope and jurisdiction to impose additional (contractual) requirements to fulfill its regulatory mandate so long as those additional requirements did not contravene the Act.
In reaching this decision, the Court of Appeal appears to have agreed with the rationale underlying the IDA’s decision on the initial hearing - that "to allow a person to escape disciplinary sanctions by voluntarily ceasing to be a member [is] contrary to public policy, the preservation of confidence in the IDA, and the integrity of the securities industry and markets". That the Court generally agreed with this rationale is further indicated by the "alternative" consideration/potential outcome raised in obiter by Feldman, J.A. – to wit, and even if s. 21.1 of the Act was seen to limit the IDA’s jurisdiction to current members, it is unclear whether that limitation would apply to the timing of the discipline (i.e. the IDA is, in all cases, prohibited from disciplining former members) or the timing of the misconduct (i.e. the IDA can discipline former members where the conduct in question occurred during the term of their membership). Though posed "only as an alternative," this obiter comment strongly suggests that the Court of Appeal would have had little difficulty, had it found s. 21.1 to be a jurisdictional limitation, in proceeding on to find that the IDA nonetheless retained the jurisdiction to discipline a former member for conduct, which occurred during the term of membership in the SRO.
Counsel for Mr. Taub has indicated an intention to seek leave to appeal the Court of Appeal decision to the Supreme Court of Canada.