Neufeld et al v The Manitoba Securities Date:, 2017 MBCA 107

Citation: Neufeld et al v The Manitoba Securities Date: 20171102 Commission, 2017 MBCA 107 Docket: AI17-30-08884 IN THE COURT OF APPEAL OF MANITOBA BETWEEN : JACK HIEBERT NEUFELD AND THE ) T. J. D. Kormylo and JACK NEUFELD FAMILY CHARITABLE ) R. S. Literovich FOUNDATION ) for the Applicants ) Applicants ) S. A.

Gingera ) for the Respondent - and - ) ) Chambers motion heard: THE MANITOBA SECURITIES ) October 12, 2017 COMMISSION ) ) Decision pronounced: Respondent ) November 2, 2017 Corrected Judgment: A corrigendum was issued on January 29, 2018; the corrections have been made to the text and the corrigendum is appended to this judgment. Burnett JA Introduction [ 1 ] The applicants seek an order pursuant to sections 30(1) and 30(1.1) of The Securities Act , CCSM c S50 (the Act ) for leave to appeal a decision of the Manitoba Securities Commission (the Commission) dated June 12, 2017.

Unless otherwise indicated, all references to sections in this decision are references to sections in the Act . [ 2 ] At issue is whether The Limitation of Actions Act , CCSM c L150 (the LAA ) applies to proceedings under the Act and whether certain sections of the Act can be applied retroactively. Background [ 3 ] Pursuant to a notice of hearing dated March 6, 2015, the Commission gave notice of its intention to hold a public hearing to consider whether or not: 1. it is in the public interest to order, pursuant to

section 148.1(1), that the applicants pay an administrative penalty; and 2. pursuant to

section 148.2(3), that the applicants be ordered to pay to certain claimants compensation for financial loss. There is no provision in the Act which requires the Commission to commence proceedings under sections 148.1 and 148.2 within a specified period of time. [ 4 ] The notice of hearing was amended on June 10, 2016 to include notice that the Commission would also consider whether or not: 3. it is in the public interest to order, pursuant to

section 148.3(1), that the applicant Jack Hiebert Neufeld be prohibited from being a director or officer of an issuer; and 4. it is in the public interest to order, pursuant to section 19(5), that sections 19(1) and 19(2) do not, with respect to the trades and securities referred to in those sections, apply to the applicants. [ 5 ] In the amended statement of allegations that accompanied the amended notice of hearing, Commission staff alleged that the applicants:

a) traded and distributed securities by issuing and/or offering to certain investors promissory notes and/or shares in companieswithout having been registered and without prospectus, in contravention of sections 6 and 37;

b) made misrepresentations to investors that were, in material aspects, misleading or untrue, or did not state facts that were requiredto be stated or were necessary to make the statements not misleading, in contravention of

section 74.1; and

c) failed to deliver a prospectus to investors as required by the Act. [6] The applicants filed a preliminary motion before the Commission seeking an order dismissing the claims for anadministrative penalty, financial compensation and alleged contraventions of the Act on the basis that the Commission had notcommenced the proceedings within the limitation periods contemplated by the LAA and the proceedings were therefore statute barredand/or that the Commission had violated its duty of procedural fairness. The applicants also said that the Commission lackedjurisdiction to find that they contravened

section 74.1, as that

section had not been enacted when the contraventions were alleged to haveoccurred and, even if it had been enacted at the relevant times, it applied only to registrants. [7] The Commission dismissed the applicants’ motion and concluded that the LAA did not apply to the proceedings. TheCommission rejected the applicants’ submissions that

section 74.1 and 148.1(1.1) could not be applied retroactively and that theCommission had violated its duty of procedural fairness. The Proposed Questions [8] The applicants say that leave to appeal should be granted on the following questions of law (the questions): 1. Do the limitation periods found in the LAA apply to the proceedings brought against the applicants? 2. If the answer to question 1 is yes, should the proceedings against the applicants be dismissed? 3.

Is the Commission entitled to apply sections 74.1 and 148.1(1.1) of the Act against the applicants given that those sections hadnot been enacted when the contraventions were alleged to have occurred? The Test for Leave [9] The accepted test for granting leave to appeal has three components: 1. Do the applicants raise a question of law or jurisdiction? 2. Is there an arguable case of substance; does the question have a reasonable chance of success? 3. Is the question of sufficient importance to warrant consideration by the province’s highest court?

See Bartel v Manitoba Securities Commission, 2004 MBCA 181 at para 11; Fillion v Manitoba Public Insurance Corp, 2004 MBCA 61at paras 4-6; Winnipeg Airports Authority Inc v EllisDon Corp, 2011 MBCA 51 at para 1; and Canadian Multicultural Disability CentreInc v Director, Child and Family Services, 2017 MBCA 29 at para 2. The Applicants’ Position [10] The applicants submit that the Commission erred in law by failing to apply the limitation periods found in the LAA tothe proceedings and in finding that

section 74.1 and 148.1(1.1) can be applied retroactively. The applicants assert that the rationale forthe application of statutory limitation periods set out by the Supreme Court in M(

K) v M(H), (SCC), [1992] 3 SCR 6 at29-30, makes it clear that the LAA should apply to the proceedings. Relying on Hupe v Manitoba, 2009 MBCA 27, they also submit thatthe Commission erred when it determined that the proceedings were not “civil proceedings” and thus an “action” for the purposes of theLAA, even though not an action in court (Hupe at para 33).

In addition, the applicants say that the Commission is not the Crown and istherefore not exempt from the requirements of the LAA. [11] With respect to sections 74.1 and 148.1(1.1), the applicants say that those sections did not exist when the allegedcontraventions occurred, and that there is a strong presumption that legislation does not apply retroactively. [12] The applicants argue that the questions raise issues of law that are important, not just to the immediate parties, but alsoto persons that the Commission will bring proceedings against in the future, and with respect to Commission practices in the future.

The Commission’s Position [13] The Commission says that the LAA does not apply to its proceedings. According to the Commission, its proceedingsare in the public interest, non-prosecutorial, not penal in nature and are to be contrasted with civil proceedings to enforce private rights. The Commission does not enforce private rights, and its mandate is to protect the public interest.

Section 148.1 and other relevantsections of the Act specifically refer to the public interest. Further, as the Commission noted in its reasons for dismissing the applicants’motion, it is not a “plaintiff”, and

Part II of the LAA, specifically section 15(3), only contemplates applications to continue an actionbegun by a plaintiff. [14] The Commission notes that the applicants rely on section 2(1)(

a) of the LAA, which provides:

Limitations 2(1) The following actions shall be commenced within and not after the times respectively hereinafter mentioned: (

a) actions for penalties imposed by any statute brought by an informer suing for himself alone or for the Crown as well as himself, orby any person authorized to sue for the same, not being the person aggrieved, within one year after the cause of action arose; [emphasis added] The Commission submits that because the proceedings are not penal in nature and because the sanctions contemplated by sections 19(5),148.2 and 148.3 are not punitive in nature and do not impose penalties, section 2(1)(

a) of the LAA cannot apply to proceedings broughtpursuant to those sections. The Commission says while

section 148.1 refers to an “administrative penalty”, that is not what is intended. [15] The Commission says that question 2 is not a question of law alone, that the issues raised are not of sufficientimportance to justify leave, that the applicants have remedies under administrative law to deal with alleged delays and that the concernswith retroactive application of sections 74.1 and 148.1(1.1) do not have any importance beyond this case. With respect to the allegedretroactive application of

section 74.1 and 148.1(1.1), the Commission adds that because the amendments were designed to protect thepublic, the presumption that they should not have retrospective effect has been rebutted. [16] Significantly, the Commission submits, in the alternative, that if the Court determines that the LAA applies to itsproceedings, it is entitled to the benefit of

section 49 of The

Interpretation Act, CCSM c I80, on the same basis as the director of theResidential Tenancies Branch in Hupe.

Section 49 of The

Interpretation Act provides: Crown not bound unless expressly stated 49

An Act does not bind Her Majesty or affect Her Majesty’s rights or prerogatives unless it expressly states that Her Majesty isbound.

Decision [17] I am satisfied that the test for leave has been met with respect to questions 1 and 3. [18] The Commission did not seriously dispute that questions 1 and 3 are questions of law, and in my view, those questionsmeet the “arguable merit standard” described by the Supreme Court in Sattva Capital Corp v Creston Moly Corp, 2014 SCC 53 (at para74): The arguable merit standard is often used to assess, on a preliminary basis, the merits of an appeal at the leave stage (see for exampleQuick Auto Lease Inc. v. Nordin, 2014 MBCA 32, 303 Man. R. (2d) 262, at para. 5; and R. v.

Fedossenko, 2013 ABCA 164 , atpara. 7). “Arguable merit” is a well-known phrase whose meaning has been expressed in a variety of ways: “a reasonable prospect ofsuccess” (Quick Auto Lease, at para. 5; and Enns v. Hansey, 2013 MBCA 23 , at para. 2); “some hope of success” and“sufficient merit” (R. v. Hubley, 2009 PECA 21, 289 Nfld.& P.E.I.R. 174, at para. 11); and “credible argument” (R. v. Will, 2013 SKCA4, 405 Sask. R. 270, at para. 8).

In my view, the common thread among the various expressions used to describe arguable merit is thatthe issue raised by the applicant cannot be dismissed through a preliminary examination of the question of law.

In order to decidewhether the award should be set aside, a more thorough examination is necessary and that examination is appropriately conducted by thecourt hearing the appeal once leave is granted. [emphasis added] [19] On a preliminary examination of questions 1 and 3, I am satisfied that there should be a more probing analysis as towhether the limitation periods in the LAA apply to proceedings commenced under the Act and whether sections 74.1 and 148.1(1.1) canbe applied retroactively.

In particular, and without restricting any other argument which the applicants may wish to advance, there wouldappear to be a credible argument that proceedings seeking payment of financial compensation pursuant to

section 148.2 are similar tocivil proceedings which are subject to the limitation periods in the LAA and that proceedings taken pursuant to

section 148.1(1.1)contemplate payment of a penalty and cannot be applied retroactively. [20] It is also my view that questions 1 and 3 are of sufficient importance to warrant consideration by this Court. [21] I agree with the Commission’s submission that question 2 depends on contested facts as to when the allegedcontraventions took place and when staff knew all of the facts on which the proceedings were based. Question 2 is clearly a question of

mixed fact and law specifically relating to the Commission’s proceedings against the applicants; it is not a question of sufficient importance to warrant the attention of this Court. As such, question 2 does not raise a proper issue for leave. [ 22 ] There will be an order for leave with respect to questions 1 and 3. JA CORRIGENDUM January 29, 2018 TO WHOM IT MAY CONCERN: Re: Neufeld et al v The Manitoba Securities Commission , 2017 MBCA 107 Docket No. AI17-30-08884 Released on January 29, 2018 The attached decision replaces the previous decision which was released November 2, 2017. The references to

section 148.1(1) in paras 7, 8, 10, 11, 15 and 19 have been changed to read

section 148.1(1.1) .