2011 QCCA 2247, 2011 QCCA 2247

Unofficial English Translation Organisme canadien de réglementation du commerce des valeurs mobilières (OCRCVM) c. Beaudoin 2011 QCCA 2247 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No.: 500-09-021201-108 (500-22-163646-097) DATE: December 6, 2011 CORAM: THE HONOURABLE ANDRÉ FORGET, J.A. ANDRÉ ROCHON, J.A. JACQUES R. FOURNIER, J.A. INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA (IIROC) APPELLANT – Plaintiff v.

MARC BEAUDOIN RESPONDENT - Defendant and AUTORITÉ DES MARCHÉS FINANCIERS INTERVENER JUDGMENT [ 1 ] The appellant appeals from a judgment of the Court of Quebec, District of Montreal (the Honourable Judge Brigitte Gouin) rendered on October 27, 2010, which dismissed the motion to institute proceedings for the homologation of a decision against the respondent; [ 2 ] For the reasons of Rochon, J.A., with which Forget and Fournier, JJ.A. agree; THE COURT: [ 3 ] GRANTS the motion to adduce fresh evidence without costs; [ 4 ] DISMISSES the appeal with costs, but the intervention without costs. ANDRÉ FORGET, J.A.

ANDRÉ ROCHON J.A. JACQUES R. FOURNIER, J.A. Mtre William J. Atkinson Mtre Sean Griffin McCARTHY TÉTRAULT LLP For the appellant Mtre Nadia Tucci NADIA TUCCI, attorney For the respondent Mtre Marie A. Pettigrew

LEGAL DEPARTMENT, AUTORITÉ DES MARCHÉS FINANCIERS for the intervener Date of hearing: November 8, 2011 REASONS OF ROCHON, J.A. [ 5 ] The Investment Industry Regulatory Organization of Canada (IIROC) unsuccessfully petitioned the Court of Quebec for the homologation of a decision of a hearing panel that handed down a disciplinary sanction by imposing a fine and costs ($56,114.09) on the respondent. [ 6 ] The IIROC appeals with leave from a judge of this Court. In appeal, the Autorité des marchés financiers (AMF) has been granted the status of intervener.

It lends its full support to the position of the IIROC. [ 7 ] The respondent, for his part, argues essentially that the disciplinary decision at issue here cannot be homologated by the courts as a matter of law. The Facts [ 8 ] The facts are not disputed. [ 9 ] On June 1, 2008, the IIROC [1] legally succeeded the Investment Dealers Association of Canada (IDA). The IDA was a voluntary, Canada-wide association of securities dealers that had existed in Quebec since 1916.

It ensured the professional self-regulation of its securities dealer members. [ 10 ] From 1982 to 2004, the IDA was recognized as a self-regulatory organization (SRO) under a grandfather clause in the Securities Act ( SA ) [2] in force at the time. [ 11 ] As of January 1, 2004, a new SRO recognition mechanism was enacted in the Act respecting the Agence nationale d'encadrement du secteur financier [3] ( AANESF ), which has since become the Act respecting the Autorité des marchés financiers [4] ( AAMF ) . [ 12 ] In 2004, the AMF recognized the IDA as an SRO. [ 13 ] The respondent began practising in the securities industry in 1993.

On July 23, 2001, he began acting as a representative for Corporation Recherche Capital, a member of the the IDA. He resigned on January 30, 2006. [ 14 ] In the summer of 2006, he was informed that an investigation into his role in a money laundering case had begun. The respondent refused to cooperate with the investigation, although he was under an obligation to do so under

section 5 of the IDA's By-law 19. [ 15 ] An IDA Hearing Panel heard the disciplinary complaint and found the respondent guilty. As a sanction, the panel handed down a permanent registration prohibition and a $50,000 fine, as well as ordering the payment of $6,114.09 to cover the costs of the investigation. [ 16 ] The respondent did not avail himself of the review mechanism with the Bureau de décision et de révision under

section 322 of the current SA . [5] [ 17 ] It is common ground that the disciplinary procedure was followed and that the hearing panel's decision is valid. [ 18 ] When the respondent refused to pay, the IIROC asked the Court of Quebec to homologate the decision so as to render it enforceable. Judgment in appeal [ 19 ] After setting out the facts, the trial judge analyzed the applicable law, from which she drew two conclusions.

First, she stated that the AMF had not delegated its power to fine to the IDA and that the IDA therefore could not fine the respondent. [ 20 ] While this conclusion creates a bar to granting the motion for homologation, the trial judge also went on to find that she lacked the material jurisdiction to homologate the hearing panel's decision in the absence of enabling provisions to this effect. Analysis [ 21 ] To succeed in its appeal, the IIROC must overcome these two obstacles, which are in fact its two grounds of appeal. The first –

the inability of the IIROC to impose disciplinary fines in the absence of delegated power – is easily overcome. This ground is conceded by counsel for the respondent, who claims that she never made this argument at trial. [ 22 ] With regard to the first ground, and I say this with the greatest respect for the trial judge, she confused the notion of recognition with that of delegation. These are two distinct and independent functions. Recognition allows an SRO to apply its own disciplinary rules.

Moreover, the SRO may undertake penal proceedings separate from any disciplinary proceeding if the AMF has delegated these functions to it. [ 23 ] The real issue of the appeal is the second ground: the court's lack of material jurisdiction to homologate the disciplinary decision. [ 24 ] I will nevertheless deal with both grounds. The analysis of the first will enable a clearer understanding of the second. I THE DISCIPLINARY PROCESS OF THE IDA (

i) Its contractual nature [ 25 ] Because the respondent voluntarily adhered to the IDA's by-laws, rules and regulations, the parties have established a contractual relationship amongst themselves, the nature of which is described by the Supreme Court in Seney v.

Montreal Real Estate Board . [6] Discussing an organization quite similar to the IDA, Beetz J. wrote the following: The foregoing indicates that the Board does not belong to the category of political corporations or to that of professional corporations as such, which the legislator for reasons of public interest may invest with monopolies, on which he may confer privileges or to which he may delegate a true legislative authority, which may be effective not only against their members but with respect to the public—such as, for example, the power to prescribe a tariff of professional fees.

The Board more closely resembles the type of voluntarily formed groups which, in English law, is known as “voluntary associations”, such as social clubs, philanthropic, sports or even professional bodies, but the by-laws of which affect only members and apply only to them [TRANSLATION] “in a manner based on agreement and of a private nature”: Gagné v. Ouellet [1] (at p. 107). In the second volume of the Traité de Droit Civil du Québec , the author Gérard Trudel, correctly in my opinion, equates the by-laws of such corporations to provisions of a contractual nature.

At pp. 482 and 483 he writes: [TRANSLATION] In general, only the members of the corporation are subject to the by-laws and their consequences; they exist and have their authority merely by virtue of the application of a sort of contractural agreement; they are a type of adhesion contract… Insubordination by a member equates to a breach of his contractual obligations to the corporation. It could also be said that a breach by the corporation of its own by-laws equates to a breach of its contractual obligations to its members.

When an individual decides to join a corporation like the Board, he accepts its constitution and the by-laws then in force, and he undertakes an obligation to observe them. In accepting the constitution, he also undertakes in advance to comply with the by-laws that shall subsequently be duly adopted by a majority of members entitled to vote, even if he disagrees with such changes. Additionally, he may generally resign, and by remaining he accepts the new by-laws. The corporation may claim from him arrears of the dues fixed by a by-law. Would such a claim not be of a contractual nature?

What other basis could it have in these circumstances? In my view, the obligation of the corporation to provide the agreed services and to observe its own by-laws, with respect to the expulsion of a member as in other respects, is similarly of a contractual nature. Relying solely on the enactments and on principle, therefore, I conclude that the rules and by-laws infringed by the Board are contractual in nature.

The relatively rare precedents that are to be found on this or similar points tend in general to confirm this conclusion. [ 26 ] This Court, per my colleague Forget, J.A., has drawn a similar conclusion with regard to another SRO, the Montreal Exchange. [7] [ 27 ] In its by-laws and rules, the IDA has established a disciplinary process by which it confers the authority to rule on any complaint against a member or representative on a [ translation ] "consensual" or "domestic" tribunal known as a "hearing panel". [ 28 ] The power to impose disciplinary measures in the event of a breach of its rules and by-laws is essential to the IDA's very status as an SRO.

Indeed, it is prescribed by statutory provisions, which are reproduced herein below. (ii) Statutory provisions [ 29 ] Sections 59 , 60 , 67 , 68 , 69 and 70 of the AAMF provide: TITLE III SELF-REGULATORY ORGANIZATIONS

CHAPTER I RECOGNITION OF SELF-REGULATORY ORGANIZATIONS 59. A legal person, a partnership or any other entity whose objectives are related to the mission of the Authority may, on the conditions determined by the latter, be recognized as a self-regulatory organization responsible for supervising an activity governed by

an Act referred to in

Schedule 1. 60. A legal person, a partnership or any other entity may monitor or supervise the conduct of its members or participants as regards the carrying on, in Québec, of an activity governed by

an Act referred to in

Schedule 1 only if it is recognized by the Authority as a self-

regulatory organization, on the conditions determined by the Authority. 67. The recognition of a legal person, partnership or other entity is subject to the discretion of the Authority. The Authority shall exercise its discretion in the public interest. Recognition must, in particular, secure effective supervision of the financial industry in Québec, promote the development and soundness in the operation of the financial industry and foster the protection of the public. 68.

The Authority shall, after having ascertained that the constituting documents, by-laws and operating rules of the legal person, partnership or entity are in compliance with sections 69 and 70 , grant recognition where it considers that the legal person, partnership or entity has the administrative structure and the financial and other resources necessary to exercise its functions and powers in an objective, fair and efficient manner. The Authority must also ensure that the legal person, partnership or entity has the possibility of exercising its functions and powers without the risk of conflict of interest. 69.

The Authority must be satisfied that the constituting documents, by-laws and operating rules of the legal person, partnership or entity allow the power to make decisions relating to the supervision of an activity governed by

an Act referred to in

Schedule 1 to be exercised mainly by persons residing in Québec. 70. The constituting documents, by-laws and operating rules of the legal person, partnership or entity must allow (1) unrestricted membership for any person who meets the admission criteria; (2) equal access to the services offered. In the case of a legal person, partnership or entity referred to in

section 60 , the constituting documents, by-laws and operating rules must allow the imposition of disciplinary sanctions for any violation of the by-laws or operating rules or contravention of the law. [ 30 ] A self-regulatory organization may not regulate or monitor the conduct of its members unless it is recognized by the AMF (s. 60). [ 31 ] An SRO may be recognized as such only if it has established an autonomous disciplinary mechanism in its rules or by-laws.

The AMF recognizes organizations if it is satisfied that the constituting documents, internal by-laws, and operating rules of the SRO are sufficient to enable it to adequately exercise its functions and powers ( s. 68 ). In all cases, these documents must empower the organization to impose disciplinary sanctions for any violation (s. 70(2)). [ 32 ] Subsequently, the organization's internal documents may not be amended without the approval of the AMF (s. 74).

Similarly, the AMF may decide to suspend the application of some provisions or to order an SRO to amend them (ss. 76 and 77). [ 33 ] In short, in addition to the powers that the AMF may delegate, to be recognized by the AMF, the SRO must have a disciplinary process to sanction members in the event of a violation set down in its own by-laws, regulations or rules. This is a truism, recognized in both case law [8] and scholarly commentary. [9] [ 34 ] The AMF may, separately and independently, delegate to a recognized SRO the exercise of all or part of the functions and powers conferred on it by law.

This delegation is subject to government approval. When exercising its delegated powers and functions, the SRO enjoys relative immunity and benefits from the usual privative clause granted to administrative organizations (ss. 61, 63 and 63.1). [ 35 ] In this case, the SRO's power to govern and discipline its members has a contractual basis, which becomes enforceable through the effect of the AMF’s recognition. This recognition is granted insofar as the SRO has set out an adequate disciplinary process in its internal documents. [ 36 ] Consequently, I am also required to reject the

interpretation of sections 202 and 210 SA that was accepted by the trial judge.

Section 202 SA creates a penal offence for contravening any provision of the Act. Penal proceedings under this Act (s. 210) in no way preclude civil or disciplinary proceedings. [10] The purpose of the provisions at issue is not and has never been to enable the sanction of a member's contraventions of the internal rules of the SRO. II HOMOLOGATION (

i) The nature of homologation [ 37 ] Homologation calls on the imperium [11] of the judge of a court and concerns the approval of an action or a decision with a view to making it enforceable. [12] Homologation confers on the action or decision the same authority and the same enforceability as a judicial decision. [ 38 ] There is no homologation without legislation to this effect. My colleague France Thibault J., of the Superior Court at that time, wrote the following: [ translation ] It [homologation] may take place only where the legislator has provided for it. [13] [ 39 ] Authors Dussault and Borgeat make a similar statement:

[ translation ] No one may take justice into their own hands: In our legal system, there is a fundamental principle whereby no one may take justice into their own hands; this principle applies to all subjects of law, whether public or private institutions . Thus, no organization or administrative authority may enforce its decisions without being expressly authorized to do so by statute. A statutory provision is therefore necessary. Otherwise, it is the ordinary law that applies, or in other words, recourse must be taken to the civil courts. [14] [Emphasis added.] [ 40 ] In this case, this is where the problem lies:

Section 320.1 SA authorizes the homologation of decisions of the AMF or of a person exercising a delegated power, but there is no statutory provision allowing the IDA to seek the homologation of a decision rendered under its own powers, other than those that it has received through delegation. [ 41 ] This legal situation creates an unusual problem in this case since the IIROC may not pressure any resigning member for payment, other than through a civil action. [ 42 ] To get around the problem posed by the lack of a statutory provision, the IIROC makes the following four submissions. [ 43 ] The first, which it abandoned at the hearing, equates the organization's internal disciplinary process to an arbitration agreement.

This submission cannot be accepted, for several reasons. [ 44 ] First, the agreement to which the respondent has adhered contains no arbitration clause. It states: [ translation ] We recognize that we are conversant with the by-laws, rules, and regulations of the self-regulatory organizations referred to in Question 4. We agree to comply therewith and we undertake to keep ourselves fully informed of any amendments thereto. We submit to the jurisdiction of these organizations and their power to suspend or withdraw the rights conferred through registration.

In the event of a suspension or withdrawal of the rights conferred through registration, the applicant undertakes forthwith to terminate its association with the sponsoring firm and not to accept employment with or provide services of any kind to any member of the self- regulatory organizations or any affiliated company, in compliance with their by-laws, rules, and regulations. We hereby recognize that our obligations are joint and several. ... [ 45 ] There is every indication that this is not an arbitration agreement.

The contract between the parties does not refer to arbitration, whereas such an agreement must be evidenced in writing and its existence contested by the respondent (art. 2640 C.C.Q. ). [ 46 ] The designation of members to compose the hearing panel falls exclusively to the IIROC, which confers on it a status that is inconsistent with

article 2641 C.C.Q. [ 47 ] Even more fundamentally, when an SRO brings a disciplinary action, it does so unilaterally, and I cannot imagine how this could be equated with the contractual arbitration of a dispute between the parties. [ 48 ] What is more, if the disciplinary process is considered to be a perfect arbitration clause, it would therefore follow that the decision rendered thereunder would be final and without appeal. [15] But that is not the case.

Section 322 SA provides that such decisions may be reviewed by the Bureau de décision et de révision . It would appear that it is an arbitration clause if the person sanctioned does not seek a review, but that it is not if the person does decide to do so. [ 49 ] The second submission relies on articles 2, 20 and 46 of the C.C.P. This second submission must also fail.

Like this Court, the Supreme Court has often noted that articles 2, 20 and 46 C.C.P. may not be used to create a substantive right. [16] [ 50 ] The third submission is based on the statutory provisions relating to the recognition of self-regulatory organizations. This recognition is subject to the AMF's discretion, which is exercised in the public interest.

The AMF must, inter alia , ensure the protection of members of the public ( s. 64 AAMF ). [ 51 ] Therefore, the appellant argues, its recognition has invested it with a function of public importance, and its internal disciplinary process is one of the accepted methods to ensure the public’s protection. I recognize that this statement has merit. In Finney v. Barreau du Québec , [17] the Supreme Court noted that discipline within professional orders is one of the main mechanisms used to ensure the protection of the public (the others being professional inspection and training).

I cannot find, however, that this statement on its own can compensate for the lack of statutory provision with regard to homologation. [ 52 ] This leads me to the appellant's fourth submission. It consists of questioning the principle that there can be no homologation without a statutory provision.

In the view of the appellant, this rule is relevant only for administrative organizations, which have only the powers conferred on them by law. [ 53 ] This submission inspires several comments. [ 54 ] The issue here is not the powers of administrative organizations but those of judicial courts to homologate a disciplinary decision of a domestic tribunal in the absence of a statutory provision. [ 55 ] Provisions contemplating judicial homologation are not limited to administrative organizations. It is also the case for contracts of transaction (art. 2633 C.C.Q. ) and arbitration agreements (946 C.C.P. ).

[56] Other statutory provisions allow for the judicial homologation of the decisions of a disciplinary committee. This is the case forthe Organisme d'autoréglementation du courtage immobilier du Québec (real estate brokerage self-regulatory organization of Quebec),which is also invested with a function of public importance.[18] [57] The appellant's submission would confer on domestic tribunals an authority that administrative tribunals created by intent of thelegislature do not possess. This is not inconsequential, when considered in light of the limited role of the homologating judge.

As ageneral rule, the judge may not hear the merits of a case. The judge may certainly refuse to homologate if the case concerns publicorder, the capacity of persons, or certain family issues, but aside from these exceptions, the judge hearing a petition for homologation ona subject authorized by law who sees no other cause for nullity must homologate. [58] As a consequence, any voluntary association, social club, hunting and fishing club, and the like could seek the homologation oftheir decisions, even in the absence of statutory provisions to this effect.

This submission is unacceptable in my view. [59] It is perhaps useful to recall that the IIROC itself recognizes its lack of capacity to seek the homologation of its disciplinarydecisions. In its 2009-2010 annual report, it wrote the following: The IIROC does not have the statutory ability to collect fines in all provinces and territories. If firms or registrants do not pay their fines,we will rescind their registrationapproval or will disallow re-approval. [60] Here, the IIROC reiterates what it stated in one of its releases from October 10, 2002, and in its 2006 annual report.

Indeed, theOntario Legislative Assembly's Standing Committee on Government Agencies, in its March 2010 report, recommended an overhaul ofOntario's self-regulatory system to give the IIROC the power to collect fines. [61] The respondent sought leave to file into evidence the appellant's 2009-2010 report. The appellant and the intervener made nocomment regarding this request. Despite the relative weight of the argument drawn from the appellant's own remarks, I am of the viewthat this motion for fresh evidence should be granted. The evidence was not available at trial.

Although its scope remains limited, theopinion it contains could in some way be one of the elements that this Court should consider in the appeal. [62] In a recent case,[19] the Supreme Court took into account an organization's consistent understanding of its power to awardcosts: [53] A further element of context is that the Commission itself has consistently understood that the CHRA does not confer jurisdiction toaward costs and has repeatedly urged Parliament to amend the Act in this respect. Despite the limited weight of the factor, this Court haspermitted consideration of an administrative body’s own

interpretation of its enabling legislation,for example, in Will-Kare Paving &Contracting Ltd. v. Canada, 2000 SCC 36, [2000] 1 S.C.R. 915. Binnie J. (in dissent) relied on excerpts from speeches to the CanadianTax Foundation made by both the Minister of Finance and an employee of Revenue Canada when interpreting an income tax provision.Binnie J. states, “Administrative policy and

interpretation are not determinative but are entitled to weight and can be an important factorin case of doubt about the meaning of legislation”, at para. 66, citing Harel v. Deputy Minister of Revenue of Quebec, (SCC), [1978] 1 S.C.R. 851, at p. 859, per de Grandpré, andNowegijick v. The Queen, (SCC), [1983] 1 S.C.R. 29, at p.37, per Dickson J. (as he then was). While of course not conclusive, this sort of opinion about the proper

interpretation of the provisionmay be consulted by the court provided it meets the threshold test of relevance and reliability (see Sullivan, at p. 575; Côté, at pp. 633-38). In my view, the considered and consistent view of the Commission itself about the meaning of its constitutive statute meets theserequirements.[20] [56] While, as noted, the Commission’s views about the limits of its statutory powers are not binding on the court, they may beconsidered.

The Commission is the body charged with the administration and enforcement of the CHRA on a daily basis and possessesextensive knowledge of and familiarity with the Act. Its long-standing and consistently held view that the Act does not allow for costs,while not determinative, is entitled to some weight in the circumstances of this case.[21] [Emphasis added.] [63] To sum up, the Court of Quebec judge should have recognized the power of the IIROC to discipline its members by imposingfines.

That said, it correctly concluded that, given the lack of an enabling statutory provision, the IIROC could not seek thehomologation of the disciplinary decision. [64] Concluding as I do, I am aware that the legislation at issue contains a certain number of paradoxes. There may be homologationif the SRO exercises a delegated power (s. 320.1 SA). Homologation is possible if the Bureau de décision et de révision upholds thehearing panel's disciplinary decision.

In such a case, the decision of the Bureau de décision et de révision, when filed at the office of theSuperior Court, becomes enforceable.[22] If the member does not seek a review at the Bureau de décision et de révision, however, nostatutory provision allows for the homologation of the disciplinary decision. [65] In the absence of a statutory provision to this effect, however, I am of the view that only the legislator may correct the situation. [66] For these reasons, I would grant the motion for new evidence without costs and dismiss the appeal with costs, but dismiss theintervention without costs.

ANDRÉ ROCHON, J.A.