2011 QCCA 214, 2011 QCCA 214

Unofficial English Translation Nechi Investments Inc. c. Autorité des marchés financiers 2011 QCCA 214 COURT OF APPEAL CANADA PROVINCE OF QUEBEC MONTREAL REGISTRY No.: 500-09-020448-106 (500-80-014058-094) DATE: February 4, 2011 CORAM: THE HONOURABLE YVES-MARIE MORISSETTE, J.A. LORNE GIROUX, J.A. NICHOLAS KASIRER, J.A. NECHI INVESTMENTS INC. 2938201 CANADA INC. HYMSON HOLDINGS INC. ETINVEST HOLDINGS LTD. MICHAEL ZUNENSHINE APPELLANTS - Interveners v. AUTORITÉ DES MARCHÉS FINANCIERS RESPONDENT - Plaintiff and TRIGLOBAL CAPITAL MANAGEMENT INC. TRIGLOBAL WEALTH MANAGEMENT LTD.

THEMISTOKLIS PAPADOPOULOS ANNA PAPATHANASIOU FRANCO MIGNACCA JOSEPH JEKKEL PNB MANAGEMENT INC. MARIO BRIGHT FOCUS MANAGEMENT INC. IVEST FUND LTD. KEVIN COOMBES 3769682 CANADA INC. 2967-9420 QUÉBEC INC. 4384610 CANADA INC. 4190424 CANADA INC. RESPONDENTS - Respondents and INTERACTIVE BROKERS CIBC BANK TD BANK FINANCIAL GROUP BNP PARIBAS (CANADA) ANGELA SKAFIDAS ANTHANASIOS PAPADOPOULOS PAUL CHRONOPOULOS JEAN ROBILLARD, in his capacity as receiver of Triglobal Capital Management Inc.

JEAN ROBILLARD, in his capacity as receiver of PNB Management Inc., 2967-9420 Québec inc., 4190424 Canada Inc. and 4384610 Canada Inc. IMPLEADED THIRD PARTIES – Impleaded third parties JUDGMENT [ 1 ] On appeal from a judgment of the Court of Quebec (the Honourable Judge Henri Richard), rendered on February 4, 2010 , [1] that set aside a decision rendered by the Bureau de decision et de revision en valeurs mobilières [the Bureau] on May 27, 2009, [2] that dismissed the appellants’ application for a partial lifting of the freeze orders it had issued.

1. THE CONTEXT [ 2 ] On December 21, 2007, [3] and January 24, 2008, [4] as part of investigations conducted by the Autorité des marchés financiers [AMF] and in accordance with the applications submitted to it by the AMF, the Bureau issued against the respondents freeze orders, cease trade orders, and orders to cease carrying on business as a securities advisor. These orders were subsequently extended several times and remain in force today.

The Bureau also recommended to the Minister of Finance of Quebec that a receiver be appointed to administer many of the respondent companies. [ 3 ] On December 21, 2007, and January 24, 2008, the Minister appointed Mr.

Jean Robillard, C.A., receiver for these companies. [5] This receivership remains in effect today. [ 4 ] On March 18, 2008, the appellants sued the respondents Themistoklis Papadopoulos and Mario Bright in Superior Court, claiming damages of $14,287,705.99 for the losses they allegedly incurred as a result of the wrongdoing of these two respondents. [ 5 ] On August 15, 2008, the appellants obtained a judgment by default against the respondents Papadopoulos and Bright for the amount of $14,287,705.99.

They then effected seizures by garnishment in execution of this judgment and, on October 6, 2008, the Superior Court ordered the sale of the shares held by the respondents Papadopoulos and Bright in the respondents PNB Management Inc. and 4190424 Canada Inc. [ 6 ] On November 12, 2008, the appellants submitted to the Bureau an application for intervention and for a partial lifting of the freeze orders so as to give effect to the order for sale issued by the Superior Court. [ 7 ] The Bureau heard the parties on February 5, 2009. The respondents were absent.

Given the absence of objection by counsel for the AMF and for the receiver, the Bureau authorized the appellants to proceed with their intervention. On May 27, 2009, it dismissed their application for a partial lifting of the freeze orders. [ 8 ] In June and July 2009, the appellants appealed from the Bureau’s decision of May 27, 2009 to the Court of Quebec. On February 4, 2010, the Court of Quebec set aside the Bureau’s decision. [6] 2.

THE JUDGMENT OF THE COURT OF QUEBEC [ 9 ] At the outset of the hearing of November 17, 2009, [7] the judge of the Court of Quebec raised the following question on his own initiative: Does the Bureau have jurisdiction to partially lift freeze orders when required by a third party that is not the subject of the initial application for and issuance of a freeze order? [ 10 ] In his judgment of February 4, 2010, the trial judge, before ruling on the question he had raised on its own initiative, thought that he first had to determine the standard of review applicable to an appeal before the Court of Quebec from a Bureau [8] decision.

He then devoted 63 paragraphs to an examination of this question and concluded as follows: [TRANSLATION] [71] In view of the foregoing, the Court concludes that: - The analysis of the standard of review described in Dunsmuir flows from the rules of common law; - The non-codified rules of common law are not applicable to Quebec administrative statutes; - The non-codified rules of common law do not govern the Court of Quebec sitting on appeal from a decision of an administrative tribunal such as the BDRVM; - The standards of review applicable to the Court of Quebec sitting on appeal from a decision of an administrative tribunal such as the BDRVM are as follows: (

a) Judges on appeal first and foremost look for one or more errors made by the tribunal; (

b) On appeal, judges need not determine the degree of deference to be accorded to the tribunal; (

c) Since an appeal is not a new trial, judges must first determine whether the question at issue is one of law, one of fact, or one of mixed fact and law; (

d) On questions of law, the basic rule governing the review of a trial judge’s findings is that an appellate court is free to replace the opinion of the trial judge with its own. On appeal, the standard of review on a question of law is that of correctness , as established by the Supreme Court in Housen v. Nikolaisen (“ Housen ”); (

e) On questions of fact, given that the trier of fact is in a privileged position to assess the credibility of witnesses’ testimony at trial, his findings are not to be reversed unless he made a “palpable and overriding error” ( Housen , para. 10 and following); (

f) A question of mixed fact and law is subject to the standard of palpable and overriding error unless it is clear that the trial judge made some extricable error in principle, in which case the error may amount to an error of law ( Housen , para. 37); (

g) These standards flow from the intention of the Quebec legislature expressed in articles 491 and following C.C.P. concerning appeal.

- An appeal is an appeal and a judicial review is a judicial review! - In the case at bar, since the question at issue is one of law, this Court is free to replace the opinion of the Bureau[9] with its own. [11] The judge then examined the legal regime applicable to the AMF and to the Bureau. He concluded that the AMF is the onlyentity that can apply to the Bureau for a freeze order. He then determined that a person can intervene before the Bureau only as part of anapplication by the AMF, whether it is an initial application or a renewal application. Then he interpreted

section 323.12 of the SecuritiesAct,[10] now

section 115.14 of the Act respecting the Autorité des marchés financiers,[11] which gives the Bureau the power to “reviewits decisions at any time, except in the case of an error in law”, as allowing it to review its decisions only as part of an application by theAMF. [12] The judge concluded first that the Bureau erred in law in allowing the appellants to intervene in two proceedings where freezeorders had already been issued, since only the AMF could then act.

In addition, he ruled that the Bureau had no jurisdiction to partiallylift one or more freeze orders except in the case of an application for review made by the AMF.

Consequently, the Bureau’s decision ofMay 27, 2009, was, in his opinion, absolutely null [translation] “… since the Bureau is assuming a jurisdiction which it does not have inallowing the appellants to intervene in cases where freeze orders have already been issued and extended”.[12] [13] Although he was [translation] “… aware that the dispute between the appellants and the Autorité was still unresolved…”,[13]the judge set aside the Bureau’s decision of May 27, 2009, in both cases that had been joined. 3.

ANALYSIS [14] In their factum, the appellants raise four questions: I Did the Court of Quebec err in law in ruling that the analysis of the standard of review is inapplicable to appeals from decisionsof the Bureau since

section 115.16 of the Act respecting the Autorité des marchés financiers, R.S.Q., c. A-33.2 provides an appeal as ofright? II Did the Court of Quebec err in law in concluding that the Bureau does not have jurisdiction to partially lift its freeze ordersissued and extended under sections 249 and 250 of the Securities Act, R.S.Q., c. V-1.1? III Did the Court of Quebec err in law in concluding that third parties that are not the subject of an initial application for andissuance of a freeze order cannot intervene before the Bureau in order to apply for a partial lifting of the freeze order already issued?

IV Should the Court of Appeal rule on the question that was at issue before the Court of Quebec, i.e. was the Bureau’s exercise ofits power to freeze ultra vires or unreasonable in its dismissal of the appellants’ application for a partial lifting of freeze orders? [15] On the first three questions, the respondent AMF supports the appellant’s conclusion that the Court should allow the appeal.The receiver, impleaded as a third party, relies on the AMF’s arguments. 3.1 The role of the Court of Quebec in an appeal from a decision of anadministrative tribunal [16] It is now well established, both by the Supreme Court[14] and this Court,[15] that in an appeal from a decision of aspecialized tribunal, as in the case before us, the criteria for intervention of the appellate court are not the same as those in an appealfrom a lower court judgment, but are closer to those of a judicial review.

The appellate court’s intervention is limited, as it is in judicialreview cases, in that it must perform a pragmatic and functional analysis and show deference to the specialized administrative tribunal.Thus, in the case of a question of law that is within the specialized tribunal’s area of expertise, the standard of review is not correctnessbut reasonableness. [17] In the case of an appeal to the Court of Quebec, this principle was reiterated very recently by our colleague, Dalphond J.A.,who was sitting as a single judge: [translation] [13] In fact, Supreme Court case law, applied as it must be by this Court, teaches that a judge of the Court of Quebec, when sitting onappeal from a decision of an expert decision-maker, must show deference not only on questions of fact, but also on questions ofapplication of the law to the facts in evidence, including the definition of the scope of the legal standard, because this exercise goes to thejurisdiction of the expert decision-maker.

The Supreme Court clearly stated this principle in Pezim v. British Columbia (Superintendantof Brokers), (SCC), [1994] 2 S.C.R. 557, and has reiterated it many times since, including in a recent case involving anappeal before the Court of Quebec, Association des courtiers and agents immobiliers du Québec v. Proprio Direct inc., [2008] 2 S.C.R.195, 2008 SCC 32.

It is therefore wrong to claim that this principle is not applicable in Quebec and only in common lawjurisdictions.[16] [18] As more specifically concerns the Bureau, this Court has already decided that the standard of reasonableness is the one thatmust be applied by the Court of Quebec sitting on appeal from its decisions, including when the Bureau applies its incorporating act.[17] [19] It appears that the Court of Quebec judge who set aside the Bureau’s decision is the only one to have put forward theargument he raised in this case concerning the role of the Court of Quebec sitting on appeal from a decision of the Bureau.[18] [20] This is an error in law that could have and should have been avoided by applying the stare decisis principle.

Dufresne J.A., of

this Court, explained this well when sitting as a single judge in Simard v. Vien , [19] a case where the Court of Quebec judge had made the same argument regarding the role of the Court of Quebec as an appellate court: [ translation ] [28] Before concluding, something must be said about the determination of the standard of review by the Court of Quebec judge. When sitting in appeal from a decision by a specialized decision-maker or administrative tribunal, he nevertheless continues to apply the standard of intervention of judicial appeals.

He is the only Court of Quebec judge to do so, at least according to the many judgments of the other magistrates of that court who make mention of it. This position is likely to provoke pointless judicial reviews, carrying the risk for litigants of incurring additional fees without reason. [29] Of course, in practice, there are similarities between the standard of intervention of an appellate court and the standard of judicial review on questions of fact, as opposed to issues of law and questions of mixed fact and law. That being said, the teachings of the Supreme Court cannot simply be set aside.

Since the Supreme Court judgments in Dunsmuir and more particularly in Proprio Direct , supra , any doubt, if ever there was any, concerning the applicable standard in appeals to the Court of Quebec of rulings by specialized administrative decision-makers has evaporated.

In this context, the parties in appeal of such a ruling are entitled to expect that the appellate court will respect the principle of stare decisis . [ 21 ] The Court concurs with these observations of Dufresne J.A., which are even more justified when, as in the present case, the judge acts proprio motu . [ 22 ] A source of stability and structure for the legal system, stare decisis is one of the cornerstones of the rule of law.

This principle not only affords litigants predictability in judicial decision-making, but it also protects them against the arbitrary exercise of this power. [ 23 ] The legal security of litigants is one of the underlying values of stare decisis in public law.

As Dufresne J.A. rightly points out, refusal to follow the precedents established by the highest court in the land obliges citizens to incur needless costs to try to reverse decisions or, when they cannot afford such costs, to suffer the injustices that are likely result from an error on the standard of review. 3.2 The power of the Bureau to allow the intervention of third parties [ 24 ] The judge started from the premise that under sections 249 to 256 S.A. , only the AMF and no one else can apply to the Bureau for a freeze order. [20] In this case, it was in fact the AMF that initiated the application to the Bureau as part of its investigation.

It is therefore not necessary for the purposes of the appeal to rule on whether a person or an entity other than the AMF could, on their own initiative, apply to the Bureau for the issuance of such an order. [ 25 ] However, assuming that the judge was right concerning the AMF’s exclusive right to apply for a freeze order, it does not necessarily follow that once the AMF has duly applied to the Bureau, no one else can be authorized to intervene before it, as the judge wrote. [ 26 ]

Section 323.1 S.A. , as it was worded at the time, [21] gave the Bureau the power to determine the rules of procedure applicable to its hearings.

The Rules of procedure of the Bureau de décision et de révision [22] provides that a person who wishes to intervene in an application before the board must file a written application and show sufficient interest. [23] In addition, a member who hears a case may, during the hearing, “authorize an intervention on an oral application recorded in the minutes of the hearing ”. [24] The member may even, on his or her own initiative, order the impleading of any person whose interests may be affected by its decision . [25] [ 27 ] For the Court of Quebec judge,

section 42 of the Rules of procedure does not allow a person other than the AMF to apply for the issuance, extension, or review of a freeze order. While a person can intervene in an application made to the Bureau, in this case an application for a freeze order made by the AMF, [ translation ] “… once it is decided upon, no other application to intervene can be allowed”. [26] He therefore decided, on his initiative, that the Bureau had made an error in law in allowing the appellants to intervene before him when the order had already been issued. [ 28 ] In so deciding, the judge made a second error in law. Such an

interpretation is justified neither by the applicable statutes and regulations nor by any rule of

interpretation. It is clear that once the AMF applies to the Bureau, the freeze order file remains open before the Bureau, as evidenced by the fact that in this case, several applications were made to extend the order, given its temporary nature. As the Bureau is still seized of the matter, it can certainly allow someone to intervene who shows an interest, as expressly provided in

section 42 of its Rules of procedure . An initial application to the Bureau by the AMF should not be confused with an intervention once the proceedings have begun. [ 29 ] The judge’s

interpretation also leads to an absurd result. If a third party affected by a freeze order issued by the Bureau at the request of the AMF cannot intervene before the Bureau to apply for the total or partial lifting of the order, the third party will have to persuade the AMF to file such an application on its behalf.

Such a result cannot have been the Quebec legislature’s intent, because it makes the AMF both judge and party, as the AMF rightly points out in its factum. 3.3 The power of the Bureau to partially lift a freeze order [ 30 ] A third error in law was made by the Court of Quebec judge when he decided that the Bureau did not have the power to partially lift a freeze order issued at the request of AMF. [ 31 ]

Section 323.12 S.A. , as it was worded at the time, [27] gives the Bureau the power to review its decisions “at any time”, except in the case of an error in law. According to

section 323.13 S.A. , [28] a n application to the Bureau for a review of a decision “does not suspend the execution of the decision, unless the [Bureau] decides otherwise”.

[ 32 ] These sections are clear and unambiguous. The fact that only the AMF could apply to the Bureau for a freeze order does not mean that an interested third party could not apply to the Bureau for a total or partial review of its decision. The issuance of a freeze order is clearly a decision, and the wording of

section 323.13 confirms this by stating that the filing of an application for review does not suspend the effect of the decision, unless the Bureau decides otherwise. [ 33 ] The restrictive

interpretation according to which the Bureau’s power to review could be exercised only upon application by the AMF is inconsistent with the Quebec legislature’s intent to create an administrative tribunal that could act expertly, promptly and with flexibility in this area of economic activity. As Professor Garant writes in speaking of the power to review [ translation ] “... it is a last chance for the litigant to have the dispute settled promptly before having to appeal to the Superior Court”. [29] Furthermore, new developments, as in the case before us, are recognized as valid grounds for review of a decision. [30] An

interpretation that betrays the legislature’s intent and prevents its achievement cannot be what the legislature wanted and must be set aside. [31] [ 34 ] These errors are critical and vitiate the Court of Quebec’s decision of February 4, 2010. [ 35 ] Leave to appeal on the first three issues raised by the appellants was granted by Doyon J.A. of this Court pursuant to

section 115.22 A.A.M.F.

He deferred to the Court the application for leave to appeal on the fourth issue as to whether this Court should rule on the substantive issue, the object of the appeal before the Court of Quebec, [32] as the appellants requested. [ 36 ] At the end of the hearing, the Court dismissed from the bench the application for leave to appeal on the fourth issue raised by the appellants. [ 37 ] FOR THESE REASONS, THE COURT: [ 38 ] ALLOWS the appeal, without costs; [ 39 ] SETS ASIDE the judgment of the Court of Quebec judgment of February 4, 2010; [ 40 ] REFERS the matter to another judge of the Court of Quebec to hear the appeal from the decision of the Bureau de décision et de révision en valeurs mobilières of May 27, 2009.

YVES-MARIE MORISSETTE, J.A. LORNE GIROUX, J.A. NICHOLAS KASIRER, J.A. Mtre Patrick Désalliers Stikeman Elliott For the appellants Mtre Éric Blais Autorité des marchés financiers For the respondent Autorité des marchés financiers Mtre Miguel Bourbonnais McCarthy Tétrault For the impleaded party Jean Robillard Hearing date: February 2, 2011