Maximum penalty provisions in Section 162, Securities Act, RSBC 1996, c.418, are subject to the statutory interpretation presumption against retrospective operation of statutes. Imposition of the current maximum monetary penalty under this section is “punitive” in nature and cannot be imposed for violations of the Securities Act which occurred prior to the 2006 amendments which changed the maximum penalty. For such violations, the maximum penalty that can be imposed is that in force at the time.

24. March 2009 0

Administrative law – Stock brokers – Disciplinary proceedings – Penalties – Decisions of administrative tribunals – Securities Commission – Judicial review – Compliance with legislation – Statutory interpretation – Legislation – Retrospective and retroactive operation

Thow v. British Columbia (Securities Commission), [2009] B.C.J. No. 211, 2009 BCCA 46, British Columbia Court of Appeal, February 12, 2009, C.A. Ryan, D.M. Smith and H. Groberman JJ.A.

The appellant, Mr. Thow, appealed to the British Columbia Court of Appeal from a decision of the British Columbia Securities Commission (the “Commission”), imposing on him an “administrative penalty” of $6 million. The appellant argued that because his contraventions of the Securities Act, RSBC 1996, c.418, occurred at a time when it authorized a maximum administrative penalty of only $250,000, any penalty in excess of that amount was outside the jurisdiction of the Commission.

The Commission acknowledged that the appellant’s contraventions predated the amendments that increased the maximum penalty. The sole question on the appeal was whether the Commission’s interpretation of the amendments as providing it with jurisdiction to impose the increased penalty for contraventions that occurred before the amendments were enacted was sustainable.

The Commission imposed the penalty on Mr. Thow for having misappropriated approximately $6 million of the $8.7 million in funds that various clients had entrusted to him. The Commission considered the circumstances of the violations to be serious. It stated in its decision on penalty:

This case represents one of the most callous and audacious frauds this province has seen. Thow preyed on his clients by offering them nonexistent securities and instead using the funds to support his lavish lifestyle. He took their money and betrayed their trust. He has left a trail of financial devastation and heartbreak.

The Commission made a number of orders under section 161 of the Securities Act, effectively permanently prohibiting Mr. Thow from participation in the securities industry. Mr. Thow did not seek leave to appeal those orders. The Commission also imposed the $6 million fine under section 162 of the Securities Act, which was the subject of the appeal.

A considerable part of the Court’s reasons involved a discussion of retroactive versus retrospective legislation, and whether the amendments to the Securities Act increasing the maximum penalty were retrospective or retroactive.

The Court concluded, however, that while, for the purposes of its judgment in this case, it was content to describe the Commission’s application of the new legislation as retrospective, the result and reasoning would have been identical if it were described, instead, as retroactive. The next issue which the Court considered was whether the presumption against retrospectivity applied in the case.

The Court held that the Commission’s imposition of the fine was arguably not punitive in the narrow sense of the word; that is, it may not have been imposed as a punishment for the appellant’s moral failings, and it may not have been motivated by a desire for retribution or to denounce his conduct. Nonetheless, it was punitive in the broad sense of the word; it was designed to penalize the appellant and to deter others from similar conduct. It was not merely a prophylactic measure designed to limit or eliminate the risk that the appellant might pose in the future. Accordingly, the Court was of the view that the Commission erred in finding that the presumption against retrospectivity was inapplicable to the increase in the maximum administrative penalty authorized by the 2006 legislation.

The Court went on to say that the presumption against the retrospective operation of a statute is merely an aid to interpreting the statute. Where a court is able to discern a clear intent that a statute operates retrospectively, the presumption is rebutted. Thus, the Court next considered whether such a clear intent could be found in the amendments in question, ultimately holding that nothing in the section compelled a retrospective interpretation of the legislation in issue.

With respect to the argument that a failure to apply the new legislation would create a situation in which no penalty could be imposed, section 35(1)(d) of the Interpretation Act provided a complete answer. Accordingly, the Court held that the penalty provisions of section 162 of the Securities Act as they read prior to the 2006 amendment applied to the appellant’s case. Thus, the appeal was allowed and the administrative penalty imposed on the appellant reduced to $250,000.

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