The founder and chair of a Vancouver based brokerage house (“Smolensky”), petitioned for prerogative and Charter relief to preclude the Securities Commission from hearing an allegation of insider trading made against him. The hearing was to be convened to consider the imposition of sanctions against Smolensky. The court held that judicial review of the situation should not be granted, given that the Securities Act contained a privative clause providing that no application for a judicial review under the Judicial Review Procedure Act could be instituted against the Commission or an officer of the Commission for an act done in good faith in the exercise or intended exercise of any power under the Securities Act. The court further held that the judicial review was precluded by the court’s decision in Pezim, where it was determined that the Notice of Hearing was not issued pursuant to an exercise of a statutory power. Smolensky’s application for Charter relief was also denied on the grounds that section 148 of the Securities Act, which prohibits a person from disclosing except to their own lawyer any information or evidence obtained or sought to be obtained with respect to Securities Commission investigations and audits against them, did not violate sections 2, 7, 8, 11 or the Preamble of the Canadian Charter of Rights and Freedoms.

28. October 2003 0

Administrative law – Stock brokers – Disciplinary proceedings – Governance – Penalties – Suspensions – Judicial review application – Privative clauses – Compliance with legislation – Remedies – Self-governing professions – Charter of Rights – Discrimination – Validity of legislation

Smolensky v. British Columbia (Securities Commission), [2003] B.C.J. No. 1805, British Columbia Supreme Court, July 29, 2003, Lowry J.

Smolensky was accused of insider trading in 1997, and in 2001, he entered into an agreement with the Vancouver Stock Exchange wherein he made certain admissions for the limited purpose of settling the matter with the Exchange, and accepted the imposition of sanctions including a $115,000 fine and the suspension of his trading privileges for 30 days. In 2002, Mr. Smolensky was delivered a Notice of Hearing from the Executive Director of the Securities Commission seeking to convene a hearing and to impose sanctions for the insider trading offence.

Smolensky argued that the Executive Director should have challenged the terms of his settlement with the Exchange, rather than convening a hearing before the Securities Commission, and that the resolution of the matter before the Exchange had given rise to an estoppel foreclosing any action being taken against him by the Commission under section 161 of the Securities Act.

Smolensky further argued that the Securities Commission proceeding against him after an allegation was resolved by settlement with the Exchange without object by the Executive Director of the Securities Commission constituted an abuse of power, process, and discretion.

The court held that the decision in Pezim v. British Columbia Securities Commission and Nesmith effectively foreclosed the judicial review being sought by Smolensky. In Pezim, the applicant sought relief under the Judicial Review Procedure Act to have the court quash a Notice of Hearing with respect to alleged violations of the Securities Act that was issued to him by the Superintendent of Brokers in the same way that the Notice of Hearing was issued to Smolensky by the Executive Director of the Securities Commission. The relief in Pezim was refused on the basis that judicial review was not available, in that section 2(2) of the Judicial Review Procedure Act provides that a court may grant relief that the applicant may be entitled to in any one or more of the proceedings for a declaration or injunction or both in relation to the exercise, refusal to exercise, or proposed or purported exercise of a statutory power. Given that there was no provision in the Securities Act for giving a Notice of Hearing, it could not be said that the Superintendent of Brokers had exercised or proposed to exercise a statutory power and so judicial review was denied. Similarly, Smolensky’s application for a judicial review was denied in that the Executive Director was not acting pursuant to an exercise of statutory power.

The court noted that Smolensky would still have a remedy under s. 165(3) of Securities Act regarding the decision of the Executive Director to give him notice and convene a hearing of the Commission to consider disciplinary measures with respect to the allegation made against him.

Smolensky’s application was subject to the well-established rule that the court would hesitate to intervene in an administrative process until all administrative remedies had been exhausted: Canadian Pacific Ltd. v. Matsqui Indian Band, [1995] 1 S.C.R. 3.

The court further noted that the privative provisions of the Securities Act had previously been recognized to greatly restrict the discretion to entertain applications for judicial review to instances of unusual circumstances (Delmas). No such unusual circumstances were present in this case.

Smolensky also argued that a perception of bias could cloud any decision the Commission might make with respect to the complaint Smolensky was forwarding with regard to the conduct of the Executive Director of the Commission. However, in the Court of Appeal case of Bennett, 94 D.L.R. (4th) 339, it was made clear that the activities of the Commission staff in assisting in a quasi-criminal prosecution could not serve to preclude the Commissioner from conducting a disciplinary hearing in relation to the same matter on the basis that there was a perception of bias against those who had been prosecuted and were to be subject of the hearing.

Smolensky also argued that he should be entitled to Charter relief for violations of his Charter rights precipitated by section 148 of the Securities Act, which provides that without the consent of the Commission, a person must not disclose, except to the person’s counsel, any information or evidence obtained or sought to be obtained or the names of any witnesses examined or sought to be examined under sections 143, 144, or 145.

Smolensky challenged the constitutional validity of section 148 on the basis that it violated sections 2, 7, 8, and 11 as well as the Preamble of the Constitution, and argued that section 24(2) entitled him to a stay of proceedings.

In considering the argument that section 2 of the Charter had been violated by section 148 of the Securities Act, the court considered the case of Irwin Toy v. Quebec, [1989] 1 S.C.R. 927 wherein a framework to determine a right to freedom of expression had been violated was set out. The court considered the first question in the analytical framework, namely whether the activities subject to the allegedly impugned legislation is “expression”. Although it was conceded that communications between persons such as those prohibited by section 148 are normally carried out in attempts to convey meaning and are therefore expressive activity within the ambit of section 2(b) of the Charter. Lowry J. did not consider the expression here to be that which section 2(b) of the Charter was intended to protect.

Mr. Smolensky also argued that section 7 of the Charter, dealing with life, liberty, and security of the person, was also violated by section 148 because the section impeded his ability to make a full answer and defence and thereby gave an investigative advantage to the Security Commission. The Court reviewed the two constituent elements necessary to found a section 7 claim, namely, that one’s life, liberty, and security of a person were threatened and secondly, that the threat or depravation was not in accordance with the principles of fundamental justice. The court concluded that section 7 claims were unfounded since Smolensky was not physically restrained and the evidence did not show that his psychological integrity had been violated.

The court then went on to determine that section 11(d) of the Charter, the presumption of innocence and right to a fair hearing section, was also not violated by section 148 of the Securities Act. The court cited the case of Johnson [1999] B.C.J. No. 1885, for the proposition that section 11 applies to proceedings that are criminal in nature or result in “true penal consequences” owing to the commission of an offence. The court held that section 11 did not apply to hearings or investigations of a security commission, pursuant to the decision in Re Barry and Alberta Securities Commission (1986), 25 D.L.R. (4th) 730 (Alta. C.A.). Since section 11(d) could only be invoked when one had been charged with an offence and no charges had been laid against Smolensky, section 11(d) of the Charter had no application in this case.

Smolensky also argued that section 148 of the Securities Act violated section 8 of the Charter which provides that everyone has the right to be secure against unreasonable search and seizure. The court held that there had been no violation of section 8 of the Charter since if the Commission chose to exercise its search powers against a third party, Smolensky could not expect to allege that what may or may not appear to be a violation of a third party’s privacy was somehow a violation of his rights as well. The court also pointed out that the freedom from unreasonable search and seizure is not absolute in that the government must have a right to interfere to ensure that the public’s interest is protected and legislative aims are met.

The court also held that the preamble of the Charter was not violated by section 148 of the Securities Act, in that the rule of law was not infringed in this case. Smolensky’s application for a declaration that section 148 of the Act violated his rights under the Preamble or sections 2, 7, 8, or 11 of the Charter was dismissed.

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