The appeal by an investment dealer (“Golden Capital”) from a British Columbia Securities Commission (the “Commission”) decision finding the dealer’s self-regulatory organization was entitled to full access to its records for the purpose of an investigation was allowed when the Court found that the Commission lost sight of the true question which was whether or not full access was reasonably required for the investigation of the allegations against the dealer

Administrative law – Decisions of administrative tribunals – Securities Commission – Rules and by-laws – Stock brokers – Disciplinary proceedings – Judicial review – Investigations – Compliance with legislation – Disclosure – Relevance of information disclosed – Standard of review – Reasonableness simpliciter

Golden Capital Securities Ltd. v. Investment Industry Regulatory Organization of Canada, [2010] B.C.J. No. 1458, 2010 BCCA 359, British Columbia Court of Appeal, July 22, 2010, M.E. Saunders, P.A. Kirkpatrick and E.C. Chiasson JJ.A.

In June and July 2006, the Commission provided information to the Investment Industry Regulatory Organization of Canada (“IIROC”) about the handling of some investment accounts by three representatives employed by Golden Capital. The Commission suspected that the representatives had contravened the Know Your Client Rule by failing to identify the beneficial owners of securities being traded through the accounts. As part of its investigation, IIROC investigators sought copies of the representatives’ computer hard drives. Golden Capital expressed concern that irrelevant or private information, or information subject to solicitor-client privilege, might be subject to search by IIROC. As a result of this dispute, IIROC issued a notice of hearing alleging that Golden Capital had violated paragraph 19.6 of IIROC by-law 19 (now Rule 19). Golden Capital took the position at the disciplinary hearing that the proper interpretation of Rule 19.6 meant that IIROC must demonstrate that the documents it sought were relevant and reasonably required for the investigation. Ultimately, IIROC decided at the hearing that it was for the investigators to determine what information was relevant to the investigation.

Golden Capital sought a review of IIROC’s decision before the Commission under section 28 of the Securities Act, R.S.B.C. 1996, c. 418. The Commission determined that IIROC had acted reasonably and confirmed the liability and penalty decisions against Golden Capital. An appeal from this decision was made by Golden Capital to the Court of Appeal.

The Court determined that the applicable standard of review of the Commission’s decision was reasonableness, citing Investment Dealers Association of Canada v. DASS, 2008 BCCA 413. The test was whether the Commission’s decision fell within “a range of possible acceptable outcomes which are defensible in respect of the fact in law”: Dunsmuir v. New Brunswick, 2008 SCC 9.

The Court noted that Golden Capital’s essential argument was that its refusal to allow access to its records was not a breach of Rule 19.6 because IIROC was not acting reasonably. The Court concluded that Golden Capital’s argument diverted both IIROC and the Commission from the essential question that should have been asked: were the records reasonably required for the investigation? The Court noted that it may well be that in a given case all relevant records produced under Rule 19.5 will be reasonably required. However, there must first be a determination that they are reasonably required for the investigation as required by the rule. In the result, the Court remitted the matter to the Commission to decide, or to direct IIROC to decide, whether the records were reasonably required for the investigation.

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