IN THE MATTER OF THE INVESTMENT DEALERS ASSOCIATION OF CANADA (ENFORCEMENT DIVISION) AND CHARLES KAMAL DASS

Transcription

1 IN THE MATTER OF THE INVESTMENT DEALERS ASSOCIATION OF CANADA (ENFORCEMENT DIVISION) AND CHARLES KAMAL DASS DISCIPLINARY HEARING OF THE PACIFIC DISTRICT COUNCIL OF THE INVESTMENT DEALERS ASSOCIATION OF CANADA Hearing Date: June 6, 2006 Hearing Panel Members: Counsel: John Rogers, Chair, Ronald Merritt, and Don Teatro Barbara Lohman, Enforcement Counsel for the Investment Dealers Association of Canada Robert Brush and Abbas Sabur of the firm of Groia & Company, for Charles Kamal Dass Pursuant to Part 10 of By-law 20 of the by-laws of the Investment Dealers Association of Canada ( Association ) a Hearing Panel was convened to determine whether Charles Kamal Dass (the Respondent ) contravened by-laws of the Association as alleged by the enforcement division of the Association. Notice of Hearing In accordance with the provisions of Rule 6 of the Association s Rules of Practice and Procedure, October 1, 2004 (the Rules ), a Notice of Hearing was issued and served upon the Respondent by the Association. However, prior to proceeding with a response to this Notice of Hearing in accordance with the Rules, the Respondent advised the Association that he was taking the position that as he has resigned from his employment in the securities industry and as he has no intention of returning to work in the industry, the Association does not have the right to discipline him. To facilitate the determination of the question of the Association s jurisdiction over the Respondent, the Association and the Respondent have agreed that the Notice of Hearing should be sealed pending our decision.

2 2 Notice of Motion Pursuant to Rule 8 of the Rules, the Respondent has applied to the Hearing Panel for: an order that the Association does not have jurisdiction to proceed against the Respondent on the basis that the Respondent is no longer an approved person, his status as a Registered Representative having expired on July 21, The Notice of Motion was properly served and filed by the Respondent and the Association has responded thereto. Agreed Upon Facts Although the Notice of Hearing has been sealed as referred to above, the material before us discloses that: 1. The Respondent became an approved person on January 21, 2002 as an employee with Dundee Securities Corporation ( Dundee ). 2. As an approved person, the Respondent agreed to become subject to the jurisdiction of the Association. 3. When the Respondent applied to become an approved person, he executed a Form 1-U-2000 dated December 10, 2001, entitled Uniform Application for Registration/Approval ( Application ), which document he filed with the Association. 4. The Application contained among other provisions the following agreements by the Respondent and Dundee: We agree that we are conversant with the by-laws, rulings, rules and regulations of the self-regulatory organizations listed in Question 4. We agree to be bound by and to observe and comply with them as they are from time to time amended or supplemented, and we agree to keep ourselves fully informed about them as so amended and supplemented. We submit to the jurisdiction of the self-regulatory organizations and, wherever applicable, the Governors, Directors and committees thereof, and we agree that any approval granted pursuant to this application may be revoked, terminated or suspended at any time in accordance with then applicable by-laws, rulings, rules and regulations. 5. The Association is one of the self-regulatory organizations listed in Question 4 as referred to in the agreements by the Respondent and Dundee in the Application. Therefore, by entering into the Application the Respondent and Dundee agreed to be subject to the by-laws, rulings, rules and regulations of the Association as they exist from time to time. 6. The Respondent resigned his employment with Dundee on July 21, 2004.

3 3 7. Following his resignation, by letter dated January 18, 2005 the Association advised the Respondent that it was commencing an investigation into the circumstances surrounding his resignation. 8. The Respondent does not intend to return to the business of selling securities. Position of the Parties The Respondent takes the position that as he has resigned as an approved person, the Association no longer has jurisdiction to discipline him. The Association asserts that it does have the right to investigate the activities of the Respondent during such time as he was an approved person and, if it believes that there are grounds for doing so, does have the right to discipline him for his conduct during that time. In support of its position, the Association refers to Part 4 of the by-laws of the Association entitled CONTINUING JURISDICTION and to By-Law 20.7, which states: 20.7 Former Members and Approved Persons (1) For the purpose of By-law 19 and By-law 20, any Member and any Approved Person shall remain subject to the jurisdiction of the Association for a period of five years from the date on which such Member or Approved Person ceased to be a Member or an Approved Person of the Association, subject to subsection (2). (2) An enforcement hearing under Part 10 of this By-law may be brought against a former Approved Person who re-applies for approval under Part 7 of this By-law, notwithstanding expiry of the time period set out in subsection (1). (3) An Approved Person whose approval is suspended or revoked or a Member who is expelled from membership or whose rights or privileges are suspended or terminated shall remain liable to the Association for all amounts owing to the Association. As the Respondent in his Application has agreed to be bound by and to observe and comply with the Association s by-laws as they are from time to time amended or supplemented, it is the Association s position that the Respondent has agreed to be bound by By-law The Association therefore retains jurisdiction over the Respondent for a period of five years from the date of his resignation. Application of Respondent In its Notice of Motion, the Respondent disputes the Association s claim of jurisdiction on two grounds.

4 4 The first ground is that the Association upon being recognized as a self regulatory body by the British Columbia Securities Commission ( BCSC ) attorned to the jurisdiction of the BCSC and the British Columbia Securities Act R.S.B.C., C.418 ( BC Securities Act ). As the BC Securities Act grants jurisdiction to the BCSC, and therefore the Association, to only current registrants under the BC Securities Act, the Respondent argues that the Association loses its jurisdiction the moment an approved person resigns from the Association. Therefore, By-law 20.7 by seeking to extend the Association s jurisdiction following the Respondent s resignation is ultra vires and hence unenforceable. And further, the Respondent maintains, the Association cannot extend its jurisdiction over the Respondent simply by entering into a private contract in the form of the Application. The second ground is based upon the contractual relationship between the Respondent and the Association. It is the Respondent s position that as the law refuses to enforce penalty clauses in contracts, that it is an implied term of the Application, the basis of the contractual relationship between the Association and the Respondent, that the Association loses its jurisdiction over the Respondent the moment the Registrant resigns from the Association. The Chalmers Case In its application, the Respondent relies heavily upon the decision of the Ontario Court of Appeal in Chalmers v. Toronto Stock Exchange [1989] O.J. No.1839, 70 O.R. (2d) 532. Mr. Chalmers was a registered representative of a member firm of the Toronto Stock Exchange ( TSE ). Almost a year after resigning from the brokerage business, the TSE sought to discipline Mr. Chalmers based upon conduct while he was employed as a registered representative. He applied for an injunction restraining the TSE from proceeding with the intended disciplinary process on the grounds that the TSE lost jurisdiction over him upon his resignation from the brokerage business. The Ontario Divisional Court dismissed Mr. Chalmers injunction application. The Ontario Court of Appeal allowed Mr. Chalmers appeal and granted him his sought for injunction. The Supreme Court of Canada dismissed an application for leave to appeal the Ontario Court of Appeal s decision. In Chalmers, the Ontario Court of Appeal notes that the TSE is a creature of statute, taking its existence from the Toronto Stock Exchange Act (the TSE Act ). Section 10(1) of the TSE Act authorizes the regulation of the business conduct of members and their employees. However, the Court observes, there is nothing in the TSE Act which authorizes the TSE to regulate persons who are former employees of a member. Therefore, the Court decided that s (1) of the By-laws of the TSE which purports to extend the jurisdiction of the TSE to former employees of a member for a period of twelve months from the date of their resignation was ultra vires and of no force and effect. As a result, Mr. Chalmers resignation from the brokerage business terminated any jurisdiction the TSE had over Mr. Chalmers and any right the TSE had to discipline him for his business conduct as a broker.

5 5 In its submissions in Chalmers, the TSE argues that unless it could retain jurisdiction over former employees of member firms, any such employee it sought to discipline could frustrate disciplinary proceedings by the simple act of resigning. In his reasons for rejecting these submissions, Finlayson J.A. observes when referring to domestic tribunals similar to the TSE: Their authority is restricted to those who have voluntarily submitted to that authority. It follows from this that the ultimate sanction of the tribunal against one of its members is expulsion. In reality, it is not just the ultimate sanction, it is the only sanction. The tribunal can fine or suspend a member if he or she has agreed to be subject to such penalties, but if he or she ignores their imposition, the only unilateral recourse of the tribunal is expulsion. And in response to the TSE s argument that if it did not maintain jurisdiction over them that former members and employees were capable of frustrating disciplinary proceedings by their resignation he notes: That may well be, but keeping in mind what has been said above, all that an employee achieves by voluntarily removing himself from the business he is engaged in is the maximum penalty that his misconduct could produce, save for the stigma of a finding of misconduct. This is not an insignificant benefit by any means. Mr. Justice Finlayson then goes on to point out that professional organizations such as those governing the conduct of lawyers, dentists, physicians, nurses, optometrists and pharmacists have sought and obtained legislative assistance to expand their powers to maintain jurisdiction over members who have resigned in respect of any disciplinary action arising out of their professional conduct while members. The Respondent s First Ground To fit his position within the decision of the Court of Appeal in Chalmers, the Respondent must first establish that the Association, as in the case with the TSE, derives its jurisdiction to discipline the Respondent by virtue of a statutory provision. If it is successful in establishing the source of the Association s authority as being statutory, the Respondent must then further establish that in seeking to discipline the Respondent the Association is operating outside the authority of such statutory provision. Unlike the TSE, the Association is not a creature of statute. The Nova Scotia Court of Appeal comments on this in Ripley v. Investment Dealers Association [1991] N.S.J. No , Action S.C.A. No , p 5, 108 N.S.R. (2k) 38, where it notes that the Association is an unincorporated association which is not specifically empowered under any statute, although its existence is recognized in some securities legislation. The Association, the Court observes, has its own constitution, by-laws and regulations to which its members bind themselves by contract to comply. The Ontario Court of

6 6 Appeal uses similar wording to describe the nature of the Association in Morgis v. Thomson Kernaghan & Co. 65 O.R. (3d) 321. The BC Securities Act However, the Respondent argues, in British Columbia the statutory authority enabling the Association to discipline its members emanates from the BC Securities Act. As the BC Securities Act refers only to current participants in the securities industry, in attempting to discipline the Respondent following the Respondent s resignation, the Association is acting outside the provisions of the BC Securities Act. To arrive at the position that the BC Securities Act applies to the Association s activities in British Columbia, the Respondent starts with the observation that the Association is recognized by the BCSC as a self regulatory body. The Respondent submits that by way of a letter dated February 4, 1987, the BCSC in exercising its authority under the BC Securities Act recognized the Pacific District of the Association as a self regulatory body. It is the Respondent s position that by accepting such designation, the Association, at least with respect to its regulatory functions within the Province of British Columbia, agreed to and in fact did become subject to and bound by the provisions of the BC Securities Act. The Respondent further asserts that confirmation of such attornment by the Association to the jurisdiction of the BCSC and to the BC Securities Act is evidenced by the accepted practice of the BCSC as the appellate body for decisions of Hearing Panels of the Pacific District Council of the Association. Authority for such appellate power being vested in the BCSC is found in Sections 27, 28 and 29 of the BC Securities Act. The relevant provisions of these sections provide that the BCSC may make a decision respecting a direction, decision, order or ruling made by a Hearing Panel and that a person directly affected by such decision, order or ruling may apply to the BCSC for a hearing and review. If the Association at least with respect to its operations in British Columbia was not subject to the jurisdiction of the BCSC and the BC Securities Act, the Respondent reasons, why else would the BCSC have such recognized appellate jurisdiction. In Morgis, the Ontario Court of Appeal in commenting on the effect of the Ontario Securities Commission recognizing the Association as a self regulatory organization under the Securities Act of Ontario observes that such recognition links the Association s activities to a statutory securities scheme which is designed to provide protection to all investors in Canada from unfair, improper or fraudulent practices and to foster fair and efficient capital markets and confidence in capital markets. The Court goes on to observe that the conduct of the Association s affairs and the nature of its regulatory functions were not exclusively self-selected. They were subject to the terms and conditions imposed by the Ontario Securities Commission as a condition of recognition as a self regulatory body under the terms of the Securities Act of Ontario. The Respondent argues that as was observed in Morgis, when the Association became recognized as a self regulated body by the BCSC, it became part of a greater regulatory scheme. There was a form of delegation of responsibility by the BCSC of some of its

7 7 duties and functions to the Association to carry out this regulatory scheme in British Columbia. This delegation included certain authority conferred by the BCSC upon the Association to carry out these duties and functions. By virtue of this delegation of authority, which authority the BCSC received from the BC Securities Act, the Association has become subject to the BC Securities Act. Section 26 (1) Section 26 (1) of the BC Securities Act provides: s. 26 (1) Subject to this Act, the regulations and any decision made by the Commission, a self regulatory body, an exchange or a quotation and trading and trade reporting system must regulate the operations, standards of practice and business conduct of its members or participants, and the representatives of its members or participants, in accordance with its by-laws, rules or other regulatory instruments. Section 26 (1) of the BC Securities Act compels a self regulatory body recognized as such by the BCSC to regulate the conduct of its members or participants in accordance with its by-laws, rules or other regulatory instruments. This requirement, the Respondent observes, does not apply to former members or participants, but only to current ones. The Alberta Securities Act By way of comparison, the Respondent points to the provisions of the Alberta Securities Act, R.S.A. 2000, c. S-4 (the Alberta Act ). In its provisions dealing with the recognition of a self regulatory organization, the Alberta Act in sub-sections 4 and 5 of Section 64 provides: (4) A recognized self regulatory organization shall regulate the operation and standards of practice and business conduct of its members and their representatives in accordance with the bylaws, rules, regulations, policies, procedures, interpretations and practices of the self regulatory organization. (5) The authority of a self regulatory organization to regulate the operations and the standards of practice and business conduct of its members and their representatives under subsection (4) extends to (a) any former member (b) any former representative of a member, and (c) any former representative of a former member, with respect to that person s operations and conduct while a member of the self regulatory organization or a

8 8 representative of a member of the self regulatory organization. It is the Respondent s position that as the BC Securities Act, unlike the Alberta Act, does not refer to former members or participants, that Section 26 (1) of the BC Securities Act is intended to apply only to members or participants of the Association in good standing and does not, therefore apply to the Respondent following his resignation. Summary In summary, to fit his situation within Chalmers, the Respondent argues that: 1. the Association in British Columbia is recognized by the BCSC as a self regulatory organization; 2. the BCSC derives its jurisdiction from the BC Securities Act; 3. by being recognized as a self regulatory body by the BCSC, the Association in British Columbia has attorned to the jurisdiction of the BC Securities Act; 4. evidence of this attornment is the fact that the BCSC hears appeals from decisions of Hearing Panels of the Pacific District Council of the Association; 5. the authority granted to the Association by the BC Securities Act does not extend to members and participants who have resigned from the Association; 6. if it was intended that the authority of the Association was to extend to members and participants who have resigned from the Association, the wording of the BC Securities Act would have made reference to former participants, similar to the wording of the Alberta Act; 7. therefore, in accordance with Chalmers, the Association s By-law 20.7 is ultra vires the Association and, as the Respondent has resigned as an approved person, the Association has no jurisdiction to discipline the Respondent. Decision on the Respondent s First Ground We find that the Respondent s attempt to fit his situation within the decision of the Ontario Court of Appeal in Chalmers must fail as the Association is not a separate corporate entity and does not have the legal status to attorn to any statutory jurisdiction. Unincorporated Association As was observed in both Ripley and Morgis, the Association is an unincorporated association which derives its existence from its contractual relationship with its members and approved persons. Unlike the TSE, the Association does not depend upon a statute for its existence. Therefore, the concept of statutory ultra vires does not apply to the bylaws of the Association. As well, not being a creature of statute, the Association is not a separate corporate entity. Not being a separate corporate entity, the Association does not have the legal capacity to attorn to statutory provisions. Rather it is the individual members and approved persons of the Association in the carrying on of their business who are required to comply with the laws of the securities jurisdiction to which they are subject. Such obligation is over and above the obligation they have agreed to by contract to operate in accordance with the by-laws and rules of the Association.

9 9 Effect of Recognition by the BCSC Therefore, the effect of the BCSC s recognition of the Association as a self regulatory organization is not an act of attornment by the Association. Rather it is as the letter of February 4, 1987 confirms a recognition of the Pacific District of the Association as a self regulatory organization. In effect, the BCSC is recognizing as a self regulatory organization those members and approved persons of the Association who are subject to the jurisdiction of the BCSC and who are collectively referred to as the Pacific District. In this context, Section 26 of the BC Securities Act mandates that the self regulatory body designated as the Pacific District regulate the members and approved persons subject to its jurisdiction in accordance with the by-laws, rules or other regulatory instruments of the Association. In providing for such requirement, Section 26 does not in anyway attempt to define or restrict what such by-laws, rules or other regulatory instruments should be. Rather, it is as the Court observes in Ripley, recognition of the activities of the Association in British Columbia by the British Columbian securities regulator. Indeed, the present securities regulatory scheme in Canada could not operate otherwise. The business activities of a member or approved person of the Association in Canada are seldom restricted to a single province or territory. The Association through its by-laws and rules offers a regulatory framework to which each of its members and approved persons by contract subscribe. There is no national regulator in Canada. Rather there is a collection of provincial and territorial regulators. If the effect of the recognition of the Association by each of these regulators in the jurisdiction in which each of these regulators operated was to cause the Association to attorn to the jurisdiction of each such province and territory, the result would be a morass of conflicting jurisdictional issues rather than a common set of by-laws and rules to which all participants in the Association subscribe. Reference to the Application signed by the Respondent and Dundee reflect this multijurisdictional situation. As was referred to above, in executing the Application the Respondent and Dundee agreed to be bound by and to observe and comply with the bylaws, rulings, rules and regulations of the self regulatory organizations listed in Question 4 of the Application. The Association was one of these self regulatory organizations. The Canadian Venture Exchange, the Montreal Exchange, the TSE, and the Winnipeg Stock Exchange were the other self regulatory organizations listed in Question 4. The contractual nature of the relationship between the Respondent, Dundee and the other members and approved persons of the Association permits the Respondent and Dundee to agree to be bound by the by-laws, rulings, rules and regulations of these self regulatory organizations. It is trite to say that outside of the Province of British Columbia the BCSC has no jurisdiction over these self regulatory organizations and no ability to define the relationship of the Respondent with these self regulatory organizations.

10 10 BCSC Delegation of Authority In its recognition of the Pacific District as a self regulatory organization, the BCSC has delegated certain elements of its authority to regulate securities transactions within the Province of British Columbia. But this is not an absolute delegation. The BCSC has retained for itself, in accordance with the provisions of Sections 27, 28 and 29 of the BC Securities Act, the opportunity to review decisions made by Hearing Panels of the Pacific District Council of the Association. This review opportunity does not in any way suggest an attornment of the Association to the provisions of the BC Securities Act. Rather, the BCSC has retained the authority to ensure that in carrying on their activities within the Province of British Columbia the members and approved persons who are part of the Pacific District designation for the Association operate in a manner which the BCSC considers to be in the public interest. If such members and approved persons, collectively defined as the Pacific District, do not carry on their activities in British Columbia in a manner which the BCSC believes to be in the public interest, the BCSC has the powers under the said sections of the BC Securities Act to take the appropriate action. This does not mean that the Association is subject to the provisions of the BCSC. Rather it means that the members and approved persons of the Association which constitute the Pacific District must conduct themselves in accordance with the securities laws and regulations of the Province of British Columbia. As we have found that the Association in conducting its affairs in the Province of British Columbia does not derive its authority from the BC Securities Act, nor has the Association attorned to the provisions of the BC Securities Act, we need not consider whether or not the provisions of Section 26 of the BC Act restricts the Association s disciplinary jurisdiction to only current members and approved persons. In summary, we find that the Association is not in any way a creature of statute, but rather of contract and that the Application is an extension of this contractual relationship between the Respondent and the Association. We are therefore not persuaded by the Respondent s first ground of argument to grant the order sought. The Respondent s Second Ground Relationship Founded on Contract The Respondent s second ground is based upon the relationship between the Association and the Respondent being founded on contract prior to his resignation. Under this contractual relationship, the Respondent argues, he voluntarily agreed to submit to the authority of the Association. However, the Respondent s resignation terminated this contractual relationship between himself and the Association. Such resignation had the same effect as the Respondent withdrawing his consent to submit to the authority of the Association and the Association s jurisdiction over him. Imposition of a Penalty The Respondent observes that the result of a disciplinary proceeding against the Respondent might result in a penalty being imposed against the Respondent. If imposed

11 11 under contract law, the Respondent argues, such a penalty would not be enforceable against him if he has resigned. It is, therefore, the Respondent s position that the Association currently has no jurisdiction to discipline him, that any penalty a disciplinary hearing might impose would be unenforceable, and that therefore the order sought by the Respondent should be granted. The Respondent referred us to the decision of the Supreme Court of Canada in H.F. Clarke Ltd. v. Thermidaire Corp. [1976] 1.S.C.R. 319 ( Clarke ). In this case Chief Justice Laskin speaking for the majority of the Court states: The primary concern in breach of contract cases (as it is in tort cases, albeit in a different context) is compensation, and judicial interference with the enforcement of what the courts regard as penalty clauses is simply a manifestation of a concern for fairness and reasonableness, rising above contractual stipulation, whenever the parties seek to remove from the courts their ordinary authority to determine not only whether there has been a breach but what damages may be recovered as a result thereof. As the remedial principal underlying contract law, the Respondent argues, is compensatory in nature and not disciplinary or penal, the Association must accept the Respondent s resignation as what Mr. Justice Finlayson in Chalmers calls the maximum penalty and acknowledge that it has lost the jurisdiction to discipline the Respondent. Decision on the Respondent s Second Ground We find that the Respondent s argument on the second ground must also fail. Issue is Process not Penalty The issue before us is not one of whether or not the Association has the ability to enforce a penalty against the Respondent once he has resigned from the Association. Rather, the issue is whether or not the Association has the jurisdiction to proceed with a disciplinary hearing against the Respondent. Such a disciplinary hearing may or may not result in a finding that the Respondent has acted contrary to the by-laws and rules of the Association. And such finding may or may not result in a finding of a penalty against the Respondent. In Clarke the question was the enforcement of a penalty, not whether or not the process leading to the determination of a penalty was able to proceed. Indeed, to borrow the words of Chief Justice Laskin in Clarke, one must ask whether the disciplinary process sought to be pursued by the Association against the Respondent reflects the Court s wish for a manifestation of a concern for fairness and reasonableness. Or is it, as the Respondent contends, unfair and unreasonable as the Respondent has already suffered the maximum penalty in resigning.

12 12 The Constitution of the Association includes the following provisions: (b) To encourage through self-discipline and self-regulation a high standard of business conduct among Members and their partners, directors, officers and employers and to adopt, and enforce compliance with, such practices and requirements as may be necessary and desirable to guard against conduct contrary to the interests of Members, their clients or the public; (c) To establish, and enforce compliance with, standards and requirements relating to capital market participants for the protection of Members, their clients and the public; To paraphrase these provisions of the Constitution, the Association s mandate is to determine what the high standards of business conduct should be among its members and approved persons to best serve the public interest, and, once established, to enforce compliance with these standards. As the environment in which the Association s members and approved persons operate is a rapidly changing one, such high standards of business conduct cannot be static, but must evolve to meet the requirements of these changing conditions. One of the methods of enabling such a dynamic evolution is through the disciplinary process conducted by the Association. In this disciplinary process the current by-laws and rules of the Association are applied and tested in actual situations. If found wanting in definition or lacking in scope through this disciplinary process, such by-laws and rules can be amended to better reflect the public interest. And the resulting decisions in this disciplinary process serve as useful precedents enabling members and approved persons of the Association to govern their activities in accordance with the decisions reached. Therefore, the purpose of the Association s disciplinary hearing process is not strictly for the benefit of the member or approved person appearing before the Hearing Panel. The findings of a Hearing Panel are published together with the reasons for its decision. Such publication serves an educational purpose permitting members and approved persons to keep abreast of the current developments in the evolution of the by-laws and rules of the Association, and, more importantly, how these by-laws and rules are currently being interpreted by their peers on a Hearing Panel. Collateral Benefits The purpose of the disciplinary process involving the Respondent is not, therefore, strictly for the purpose of determining whether or not the Respondent has committed a breach of the by-laws and rules of the Association. As a collateral benefit, it is also to provide the opportunity to other members and approved persons of the Association to review the reasons of the Hearing Panel and how the by-laws and rules of the Association have been interpreted by a Hearing Panel.

13 13 Nor is this collateral benefit restricted to the members and approved persons of the Association. The public interest is served when disciplinary proceedings are held and the decisions of the Hearing Panels published. Disciplinary proceedings are open to the public and the decisions of Hearing Panels are published on the Association s web site. Members of the public are thus able to follow the disciplinary process and to see in its culmination the decision of a Hearing Panel. Such exposure of the disciplinary process to the public leads to maintaining public confidence in the investment industry and the capital markets. We suggest that such a collateral benefit from the intended disciplinary hearing process for the Respondent meets the test of a concern for fairness and reasonableness as set out by Chief Justice Laskin in Clarke. We therefore find that the fact that the Respondent has resigned from the Association does not bar the disciplinary process from proceeding against him. Although such a disciplinary hearing might result in the finding of a penalty against the Respondent and such penalty might not be enforceable against the Respondent if he is no longer an approved person, the collateral benefit from such a proceeding as above identified justifies it taking place. Benefit to Respondent We also believe that by continuing with the disciplinary proceeding against the Respondent there is indeed a benefit to the Respondent, no matter how obtuse. The Respondent at the present time has no intention of seeking to renew his previous status with the Association. However, should he wish to do so, how is he to determine what obstacles, if any, he has to surmount to achieve such a renewal? If the disciplinary process continues and a finding is made by a Hearing Panel, if there is a finding against the Respondent by such a Hearing Panel and a penalty assessed, at the least the Respondent will have notice of the hurdle he must overcome should he seek to renew his status in the Association. Indeed, expulsion from the Association is only one of the penalties that might be assessed by a Hearing Panel against the Respondent. Therefore, the Respondent may find that he has indeed paid the maximum penalty in resigning from the Association when a Hearing Panel at the culmination of the disciplinary process comes to the conclusion that his actions did not justify such a penalty. Our Interpretation of Chalmers Our reading of reasons of the Ontario Court of Appeal in Chalmers differs from those of the Respondent. We believe that Chalmers deals with and should be restricted to domestic tribunals which are created by and govern by statute, such as the TSE. In writing for the Court, Mr. Justice Finlayson observes that there were numerous examples of enabling legislation governing a domestic tribunal where such legislation extended the jurisdiction of the domestic tribunal to former members of the organization over which the domestic tribunal had jurisdiction. If the enabling legislation did not so extend the jurisdiction, then the resignation of the member was indeed the maximum

14 14 penalty and the domestic tribunal loses its jurisdiction upon the resignation of the member. As was discussed above, the Association is an unincorporated association which derives its existence from its contractual relationship with its members and approved persons. There is no enabling legislation governing the Association and therefore no ability for a legislature to extend the jurisdiction of the Association to former members and approved persons. Under the Respondent s interpretation of Chalmers, unlike the organizations enumerated by Mr. Justice Finlayson for which their governing statute was amended to extend their jurisdiction to former members of the organization, the Association having no governing statute will never be able to achieve such an end, no matter how beneficial the purpose. To accept the Respondent s interpretation of Chalmers suggests that any unincorporated association similar to the Association would be faced with the resignation of a member constituting a loss of jurisdiction over that member with respect to the relationship between the member and the association. If this interpretation were accepted, an unincorporated association which generated revenue for its members and which by agreement required an accounting between the association and the member upon the member ceasing to be a member would immediately lose jurisdiction over that member upon the member s resignation. This would occur despite the agreement between the parties and might see the association required to account to the former member without being entitled to deduct from such accounting those obligations which the member might be found to owe to the association. We cannot accept an interpretation of Chalmers which causes such a restriction on the freedom of parties to contract and which would adversely affect such voluntary associations as social groups, philanthropic organizations or sport clubs. We believe that if this were the intention of the Ontario Court of Appeal, that the Court in its reasons would have been much more explicit as to this restriction on the freedom of parties to contract. We therefore find that the decision of the Ontario Court of Appeal in Chalmers does not apply to the matter at hand. Definition of Membership The Respondent in his argument suggests that the provisions of By-law 20.7 seeks to unilaterally extend the jurisdiction of the Association over an approved person for a period of five years following the resignation from the Association by the approved person. However, rather than interpreting By-law 20.7 as such a unilateral act on the part of the Association, we believe that By-law 20.7 defines the term of membership in the Association of a member or approved person. In effect, By-law 20.7 constitutes an agreement between a member or approved person and the Association setting the term of such party s membership to be from the date such membership commences up until such member or approved person resigns from the Association and then, but only for the

15 15 limited purposes of By-laws 19 & 20, for a period of five years following such resignation. SFSC Decision In their submissions, counsel for the Respondent referred us to the decision of the Saskatchewan Financial Services Commission ( SFSC ) in Wade Douglas MacBain, Karl Edward Neufeld and Frederick Henry Smith and the Investment Dealers Association (February 6, 2006) ( MacBain ). This was an appeal from an Association Appeal Panel which had dismissed an earlier appeal from an Association Hearing Panel. One of the issues facing the SFSC was whether or not the Association had the jurisdiction to discipline Messrs. MacBain and Neufeld as they were no longer approved persons. The SFSC found following Chalmers that if the Association has no statutory authority to regulate Messrs. MacBain and Neufeld as former members, then any by-law purporting to do so is ultra vires and of no force and effect. The SFSC further found in accordance with Mr. Justice Finlayson s observations in Chalmers that the only effective sanction a domestic tribunal can impose on its members is expulsion and since Messrs. MacBain and Neufeld were no longer members, the Association, notwithstanding the contractual provisions of By-law 20.7, has no jurisdiction to discipline them. Unfortunately, our interpretation of Chalmers differs from that of the SFSC. We acknowledge that the Association does not have the ability to make laws of general application and that the Association has no statutory authority. However, our interpretation of the source of the Association s jurisdiction over its members is contractual and not statutory. Therefore, we are not able to interpret the Ontario Court of Appeal s finding in Chalmers in such a manner as to find that By-law 20.7 is ultra vires the Association. We acknowledge, as stated above, that if a member or approved person has resigned from the Association, that the Association might have lost the ability to enforce any disciplinary sanctions against that member or approved person unless they reapply for membership in the Association. However, again for the reasons stated above, we believe that such inability to enforce an imposed sanction does not prevent the Association from holding a disciplinary hearing and determining sanctions against a member or approved person. Motion Dismissed We therefore dismiss the Respondent s motion. Re-Opening of the Hearing Prior to the delivery of the above decision and reasons to the National Hearing Coordinator of the Association (the NHC ), the Association applied to the NHC to reopen this hearing on the Respondent s motion. The purpose given by the Association for its application is that the Association wishes the Hearing Panel to consider an additional

16 16 argument to be made by the Association in opposing the Respondent s application for the motion referred to above (the New Argument ). The Association s Position In the Association s application to the NHC to re-open the hearing, it notes that the same argument as the New Argument was heard by a Hearing Panel of the Ontario District Council on June 26, The matter before this Ontario Hearing Panel involved the same issue as the matter before us, namely the Association s jurisdiction to discipline an approved person once that approved person has terminated his or her employment and left the securities industry. As the Association believes that it is important that we and this Ontario Hearing Panel should have the opportunity to hear all relevant arguments considering that both Hearing Panels will be deciding exactly the same issue, the Association believes that it is in the public interest that this hearing be re-opened and that the Association be permitted to put before us the New Argument. In its application to re-open, the Association, as well, observes that counsel for the Respondent appeared as counsel for the respondent in the matter before the Ontario Hearing Panel. Counsel for the Respondent will, therefore, have had notice of the New Argument and therefore will not be unduly prejudiced by its introduction. Finally, and to expedite the process, the Association has expressed a willingness to argue the New Argument through written submissions. In support of its application, the Association directs our attention to Yanor [2005] I.D.A.C.D. No. 46, Bulletin No. 478, November 21, In Yanor, the Hearing Panel of the Pacific District Council upon the application of the respondent, Mr. Yanor, reopened a hearing prior to rendering a decision on the matter before it. The Hearing Panel determined that By-law 20.2 of the Association by-laws and Rule 1.5 of the Rules provide it with very broad powers in determining how a hearing is to be conducted and found that it was in the public interest to use these powers to order that the hearing be reopened. The Respondent s Position The Respondent opposes the Association s application to re-open the hearing. The Respondent takes the position that if the Association had included the New Argument in the original argument that the Association made before us, that the Respondent s argument in response would have been markedly different. It would therefore be fundamentally unfair to re-open the hearing and to permit the Association to raise the New Argument weeks after the hearing has concluded. Nor, in the opinion of the Respondent, will written submissions be adequate to properly deal with the New Argument as the New Argument took a half a day to argue before the Ontario Hearing Panel.

17 17 In support of its opposition to the Association s application, the Respondent relies upon the decision of the British Columbia Court of Appeal in Sykes v. Sykes [1995] B.C.J. No. 821,para 12 where the British Columbia Court of Appeal found that the wish to advance an alternative argument which could easily have been advanced at the time of the original trial was not a proper basis upon which to exercise the Court s discretion to reopen a trial. Our Decision We dismiss the Association s application to re-open the hearing held on June 6, In Sykes, the British Columbia Court of Appeal notes that a trial judge has an unfettered discretion to re-open a hearing, a discretion which the trial judge should exercise sparingly. In Yanor, the Pacific District Council found that we have the authority to reopen a hearing if the Hearing Panel believes that it is in the public interest to do so. These precedents suggest that we should exercise our power to re-open a hearing sparingly and with a proper consideration of the public interest. The Association argues that the public interest is best served if the hearing is re-opened and the New Argument presented to us so that we will have before us the same position as that take by the Association before the Hearing Committee of the Ontario District Council. Although not specifically stated by the Association in its submission, we would assume that the reasoning behind the Association s argument lies within the provisions of Bylaw 20.4 which states as follows: 20.4 Territorial Application of Decisions (1) Any decision made under this By-law shall have effect in all of the Districts, unless otherwise ordered by the Decision-maker or unless such extension or application of the decision is limited by law. In other words, as the decision of a Hearing Panel has effect in all of the districts of the Association no matter in which district the Hearing Panel making the decision sat, it is desirable that Hearing Panels having before them the same issue also have before them the same arguments made by the parties on that issue. This lessens the possibility of conflicting decisions between Hearing Panels. Such an outcome is obviously a desirable one and in the public interest. However, there is another aspect of the public interest which should be considered. That is the fairness of the disciplinary process to the participants. In any disciplinary hearing involving an individual, there is an obvious imbalance of power in favour of the Association. The Association has the resources of all of its members behind it while the individual respondent has only his or her own limited resources. The Association has behind it the power of its by-laws, many of which are formulated in favour of the collective good at the expense of what some might perceive as fairness to the individual interest. And the Association has its own enforcement staff, skilled in the investigation

18 18 and prosecution of matters involving breaches of the Association s by-laws. To ensure that the disciplinary process is fair to individual respondents, a Hearing Panel must on occasion take into account this imbalance and hold the Association to a higher level of performance than that expected of the individual respondent. In considering the matter at hand, we must take into account this aspect of the public interest and expect from the Association a higher standard than that which might possibly be expected from an individual respondent. The Pacific District Council considered this aspect of the public interest in Yanor. It determined to re-open the hearing to give Mr. Yanor, who was not represented by counsel, the opportunity to introduce additional evidence in his defense and to respond to the Association s position on an appropriate penalty. To ensure that Mr. Yanor received a fair hearing, his hearing was re-opened despite the fact that Mr. Yanor had without apparent explanation absented himself from the hearing half way through its duration thereby causing unnecessary expense and delay. The hearing of the matter before us was held on June 6, The hearing of the matter before the Hearing Committee of the Ontario District Council was held on June 26, 2006, a matter of 20 days later. As well, notices for these hearings were most certainly given well in advance of the actual hearing dates. Surely there is sufficient communication between the members of the Association s enforcement staff in British Columbia and the members of the Association s enforcement staff in Ontario to enable coordination of positions and arguments, especially when both the opposing counsel and the issue for consideration is the same. On the other hand, the Respondent for this hearing on June 6, 2006 had the expense of retaining counsel, traveling with his counsel to British Columbia, and spending a day attending this hearing. To require him to repeat this exercise and expense to accommodate the Association s application to re-open this hearing would be patently unfair to the Respondent. Especially as the Respondent is no longer working in the investment industry and has indicated that he has no desire to return to the industry. We therefore find that the public interest is better served by considering the element of fairness to the Respondent rather than the possibility of conflicting decisions facing the Association. Finally, if our dismissal of the Respondent s motion as above set out conflicts with the decision to be rendered by the Ontario Hearing Panel to the extent that such conflict can not be distinguished on matters of fact or law, there is the appeal process to rectify such conflict. On such an appeal, there will surely be ample opportunity for the Association to present the New Argument to the appropriate appellate body. Over and above the reasons we set out above, it is clear that the decision of the British Columbia Court of Appeal in Sykes directly applies to the matter at hand. In its application to re-open this hearing, there was no suggesting by the Association that the