Reasons for Decision: In the Matter of Clifford Paul Tindall
R.S.O. 1990, c. S.5, AS AMENDED
AND
IN THE MATTER OF
CLIFFORD PAUL TINDALL
Hearing: August 1, 2, 8, September 1, 2000
Panel:
Howard I. Wetston, Q.C. - Vice-Chair
Morley P. Carscallen, F.C.A. - Commissioner
John F. Howard, Q.C. - Commissioner
Counsel:
For Clifford Paul Tindall
Wendy Berman
Joseph Groia
For the Staff of the Ontario Securities Commission
Sarah Oseni
Mark Mason
Tim Moseley
REASONS FOR DECISION
I. BACKGROUND
On October 14, 1999, a Notice of Hearing was issued in the names of David DeonarineSingh ("Singh") and Paul Clifford Tindall (the "Respondent") pursuant to section 127 of theSecurities Act, R.S.O. 1990, c. S.5, as amended (the "Act"), to consider whether theRespondent acted in a manner contrary to the public interest and whether sanctionsshould be imposed.
The hearing was originally scheduled to commence on October 21, 1999. By order datedOctober 21, 1999, the hearing was adjourned to December 16, 1999. By order datedDecember 9, 1999, the hearing was again adjourned to February 8, 2000. By order datedFebruary 8, 2000, the hearing was adjourned to July 31, 2000.
On July 25, 2000, Singh entered into a settlement agreement which was subsequentlyapproved by the Commission on July 31, 2000.
On November 16, 1999, the Minister of Finance announced proposed amendments to theAct as a part of the Fall 1999 Budget Bill. On December 14, 1999, the Act was amendedto, inter alia add s.127.1, which provides the Commission with the authority to order thatcosts of the investigation or of the hearing be paid by the respondent. The Notice ofHearing was not amended to reflect that Staff would be seeking costs pursuant to thissection. Staff did not indicate its intention to seek costs until July 26, 2000. TheRespondent argued that it was beyond the jurisdiction of the Commission to award costsin this matter as requested by Staff. Written submissions regarding costs were submittedby Staff on August 14, 2000, and by the Respondent on August 16, 2000. TheCommission issued an order indicating that it had jurisdiction to make an order as to costson August 30, 2000.
At the commencement of the hearing, the Respondent proposed to admit a Statement ofAdmitted Facts and waive his rights to a full hearing on the condition that the admissionswould constitute the entirety of the evidence to be brought against him in this matter. Staffcontended that the admissions were incomplete and in some instances incorrect. TheCommission allowed the Respondent to make the admissions, but also permitted Staff tocall evidence on those issues that it deemed necessary to do so. The Commission heardoral arguments on August 8, 2000.
Staff requested the opportunity to make written submissions regarding the procedureadopted for the admissions received during the course of this hearing. Writtensubmissions were received on August 18, 2000 and August 25, 2000.
The Respondent requested an opportunity to speak to costs if the Commission decidedit had jurisdiction. Accordingly, a costs hearing was held on September 1, 2000.
II. PROCEDURE
At the commencement of the proceeding, the Respondent brought a motion for a "sanctionhearing" on the basis that the Respondent would admit to substantially all of theallegations contained in the Statement of Allegations, including an admission that heengaged in conduct contrary to the public interest. The Respondent advised theCommission that he was prepared to surrender his registration or consent to an orderterminating his registration and that he was prepared to acknowledge that an order unders.127 of the Securities Act was appropriate. He requested the opportunity to makesubmissions as to the nature and duration of that order. The Respondent requested thatthe Commission accept the admissions on the condition that the Commission would notpermit Staff to lead any other evidence.
The Commission denied the Respondent's request that Staff not call additional evidence.Accordingly, Staff indicated that it wished to call additional evidence on a limited numberof issues. The Commission provided the Respondent the opportunity to withdraw theStatement of Admitted Facts and proceed with a full hearing. The Respondent advised theCommission that he would not withdraw the Statement of Admitted Facts and that hewished to proceed with the hearing.
Both parties provided written submissions as to the procedure. The Respondent submittedthat he should be entitled to admit the allegations and speak to the appropriateness of thesanction. The Respondent submitted that such an approach is novel, but should beavailable even when the respondent is unwilling or unable to admit all of the allegations,provided that the admissions include all of the elements necessary to make adetermination in the public interest. It was further submitted that such an abridgedprocedure assists in the efficient and fair administration of justice and is accordingly in thepublic interest. Counsel referred to Re Andrus (1998), 21 O.S.C.B. 4777, where theCommission and Staff recognized the utility of an abridged hearing during the course ofprocedural arguments.
Staff submitted that the Respondent's characterization of the procedure described aboveas a "new procedure" is erroneous. Furthermore, Staff submitted that the Respondentshould have proposed the conditional admissions to Staff and not to the panel hearing themerits.
In their submissions, Staff outlined the procedure for a respondent that wishes to make"conditional" admissions. The respondent should first propose the conditional admissionsto Staff and ask what evidence, if any, Staff would propose to call if the admissions weremade. Staff would reply and would identify those issues with respect to which evidencewould still need to be called. The respondent would decide either to make the admissionor not. If the respondent does decide to make admissions, then at the outset of thehearing those admissions would form part of the factual record. Staff would proceed to callthe additional evidence previously identified.
If on the other hand, the respondent is not satisfied with Staff's position, the respondenthas a number of options which include making a different proposal to Staff, proceedingwith a contested hearing on all the issues, or requesting that a pre-hearing conference beheld, pursuant to Rule 2.1(1) of the Commission's Rules of Practice.
Additionally, Staff submitted that the process suggested by the Respondent is akin toengaging in "alternative dispute resolution" with the panel as mediator. As such, Staffsubmitted that this is an inappropriate role for the Commission.
After considering the submissions of counsel, it is our opinion that the procedure outlinedby Staff appears most sensible. The Commission, when hearing a case on its merits,functions as a neutral arbiter of disputes. Its role is to apply its jurisdiction in a fair andreasonable way to specific facts. Staff's recommended procedure clearly avoids any biasissues, is more efficient and recognizes the important role of the pre-hearing conferenceor conferences.
III. PURPOSE
The purpose of the hearing, as set out in the Notice of Hearing, was to consider whetherit is in the public interest for the Commission to:
(a) order that the registration of the Respondent be terminated or suspended orrestricted for such period as the Commission may order or that terms andconditions be imposed on his registration;
(b) make an order that the Respondent cease trading in securities, permanentlyor for such time as the Commission may direct;
(c) make an order that the Respondent be reprimanded; and/or
(d) make such other order as the Commission may deem appropriate.
IV. FACTS
Except as noted, the following facts represent those admitted to by the Respondent.
1. Clifford Paul Tindall was, at all material times registered under the Act as asalesperson employed by Fortune Financial Corp., which was, at the material time,a registered securities dealer.
Advanced Radar Technologies Inc.
2. In late 1994, Jack Rashid ("Rashid"), an acquaintance of Tindall's, told Tindallabout an advanced radar braking technology (the "Technology") developed byVehicle Radar Safety Systems Inc. ("VRSS"), a company formerly owned byRashid's father. Rashid advised Tindall that he had acquired the rights to theTechnology and had entered into an agreement with a BMW/Masco Corporationjoint venture ("BMW/Masco") to sell the rights for US $750,000,000. Rashid furtheradvised Tindall that he had entered into discussions with Northwest Airlines("Northwest"). Rashid did not incorporate Advanced Radar Technologies Inc.("ART") until in or around December 1995.
3. Tindall invested US $50,000 with Rashid. Tindall promised to seek financing fromhis Fortune clients.
4. Initially, Rashid advised Tindall that he would receive a percentage of the funds heraised. The arrangement was subsequently changed so that Tindall would receivea percentage of the revenue generated by the deals with BMW/Masco andNorthwest, and the Canadian distribution rights to the Technology.
The Commission finds that, initially, the Respondent was advised that he was toreceive a thousand (1000) percent return on the funds he raised of which heintended to distribute three hundred (300) percent to his clients.
5. Tindall believed that Rashid had entered into an agreement with BMW/Masco, thatRashid would enter into an agreement with Northwest and that the information wasconfidential. Between February and May 1995, Tindall purchased and sold sharesof Northwest.
6. Between November 1994 and November 1995, Tindall arranged for some of hisclients to lend money to Rashid personally and/or to ART. Tindall held a numberof investor meeting at which he described the Technology and discussed theinvestment in the Technology. Tindall advised his clients that:
i. he had invested US $50,000 of his own money;
ii. the investment would provide a 300% rate of return;
iii. the minimum investment was US $50,000;
iv. Rashid had shown him documentation verifying the agreement withBMW/Masco, that this agreement was highly confidential, and verifying thediscussions with Northwest. Tindall had verified that the representatives ofMasco Corporation and Northwest, whose names he had seen on thedocumentation shown to him by Rashid, did in fact hold positions with thesecompanies;
v. the investment was secured by funds in an escrow account in the UnitedStates;
vi. the only two risks associated with the investment were (a) the risks that theconfidentiality of the agreement entered with BMW/Masco would bebreached which could lead to the termination of the agreement and the lossof the funds in escrow and (b) the risk that Rashid was a fraud;
vii. he was 99.9% sure that Rashid was not a fraud; and
viii. this was a once in a lifetime opportunity.
7. Tindall did not disclose his interest in the Technology to his clients other than thathe had invested money with Rashid. Specifically, Tindall did not disclose that hewas receiving the Canadian distribution rights.
The Commission finds that Tindall did not disclose to his clients that he wouldreceive a percentage of the revenue generated by the deals with BMW/Masco andNorthwest.
8. For many of his clients, Tindall completed a Fortune "Order for Investment" form fortheir investment in the Technology to create the false impression that theinvestment was approved by Fortune should First Marathon Securities Ltd.("FMSL"), Fortune's carrying broker, review the files.
9. Tindall sold investments in the Technology which were not approved by theFortune. It is Tindall's position that David Singh, the President of Fortune, wasaware of Tindall's involvement in this investment beginning in late 1994 and thatDavid Singh raised no objections to these activities.
10. Tindall also represented to FMSL that the investment in the Technology was not asecurity, but was a personal loan to Rashid. Tindall acknowledges that he shouldhave known in November 1994 that the investment was a security and thus thisrepresentation was false.
11. After many of his clients had invested, Tindall discovered two potential illegalitiesof the investment: the investment was a security for which no prospectus was filedwith or receipted by the Commission; and the interest rate violated the prohibitionin the Criminal Code against interest rates higher than 60% per year. Tindall tookthe following steps:
(a) Advanced Radar Technologies Canada Inc. ("ART Canada") wasincorporated for the purpose of issuing promissory notes under theexemption contained in clause 35(2)4 and clause 73(1)(a) of the Act.Tindall's brother, sister-in-law and Rashid were named as directors of ARTCanada;
(b) Tindall asked his clients who had already invested to provide him with newcheques payable to ART Canada for an amount greater than their originalinvestment;
(c) Tindall had all of these cheques copied and then either returned theoriginals to the clients or had the originals destroyed;
(d) Tindall then provided his clients with new promissory notes,certificates/releases, guarantees and subscription agreements;
(e) Tindall asked his clients to return their promissory notes in return for newnotes which were dated September 1995; and
(f) Tindall advised his clients that if they were not comfortable with having newpromissory notes issued then he could refund their money as there wereother investors waiting to take their place.
12. Tindall's activities were designed to deceive FMSL.
13. Tindall subsequently discovered that Rashid was a fraud. By that time, he hadraised a total in excess of US $2.3 million from 41 clients. The majority of Tindall'sclients have been unable to recover any funds.
14. The investment in Technology was a wholly unsuitable investment for some of theclients from whom Tindall solicited funds, in view of their investment objectives, risktolerance and level of sophistication.
Canadian States Gas
15. Canadian State Gas ("CSG") was engaged in mining exploration in the Voisey Bayregion. The shares of CSG traded on the Canadian Dealing Network and were aspeculative and risky investment.
16. Tindall advised numerous clients that they should invest in CSG. He made thefollowing representations to them:
a. that research suggested that the shares of CSG could double, could be tentimes the original investment, could rise to $100, or could rise to $50 in sixmonths; and
b. that he had been told by those who controlled CSG that it had recentlyapplied to be listed on the TSE.
17. Shares of CSG were unsuitable for some of the clients to whom Tindallrecommended them.
18. Tindall sent a letter to his clients that had purchased CSG. The letter enclosed anacknowledgement form to be signed by the clients, indicating that they understoodthe speculative nature of CSG and the risk involved with the purchase of thatinvestment. The letter further advised that failure to sign and return these forms toFMSL could result in the sale of the CSG investment within their account. Tindallmisrepresented the nature of the risk acknowledgement forms to some clients byrepresenting that they were signing a "standard release".
19. By engaging in the conduct as set out above, Tindall admits that he acted in amanner contrary to the public interest.
V. ANALYSIS
General Principles
Based solely on the Respondent's admissions, a finding could be made that Tindall actedin a manner contrary to the public interest. Indeed, Tindall admitted to this in theStatement of Admitted Facts. However, even on the basis of the admission, the partiesdisagreed on the severity of the sanction. The questions which must be determined arewhether sanctions are appropriate, and, if so, what they should be.
In determining what orders ought to be made in the public interest, the general principlesare well established. In Re Mithras Management Ltd. (1990), 13 O.S.C.B. 1600, theCommission said at page 1610:
"Under section 26, 123 and 124 of the Act, the role of this Commission is toprotect the public interest by removing from the capital markets - wholly orpartially, permanently or temporarily, as the circumstances may warrant -those whose conduct in the past leads us to conclude that their conduct inthe future may well be detrimental to the integrity of those capital markets.We are not here to punish past conduct; that is the role of the courts,particularly under section 118 [now section 122] of the Act. We are here torestrain, as best as we can, future conduct that is likely to be prejudicial tothe public interest in having capital markets that are both fair and efficient.In so doing, we must, of necessity, look to past conduct as a guide to whatwe believe a person's future conduct might reasonably be expected to be;we are not prescient, after all. And in so doing, we may well conclude thata person's past conduct has been so abusive of the capital markets as towarrant our apprehension and intervention, even if no particular breach ofthe Act has been made out. Equally, however, even if there has been atechnical breach of the Act, we may well conclude that, in the circumstances,no sanction is necessary to protect the public interest."
In Re Belteco Holdings Inc. et. al. (1998), 21 O.S.C.B. 7743, the Commission statedat page 7746:
"...we have been referred to decisions of this Commission which indicate that indetermining both the nature of the sanctions to be imposed as well as the durationof such sanctions, we should consider the seriousness of the allegations proved;the respondent's experience in the marketplace; the level of a respondent's activityin the marketplace; whether or not there has been a recognition of the seriousnessof the improprieties; and whether or not the sanctions imposed may serve to deternot only those involved in the case being considered, but any like-minded peoplefrom engaging in similar abuses of the capital markets."
In order to determine an appropriate sanction, it is necessary to examine both thespecific conduct admitted to by Tindall and the additional evidence adduced by Staff.
Conduct admitted to by Tindall:
During argument the Respondent stated that his admissions did not include anadmission that:
(1) he violated certain provisions of the Securities Act; and
(2) his trading in BMW/Masco and Northwest Airlines was based upon materialundisclosed information.
The Respondent submitted that the above allegations are legal conclusions to bedetermined by the Commission. The Respondent did, however, admit to the followingconduct:
a) Making prohibited representations with respect to the future value of ART andCSG
In the Statement of Admitted Facts, the Respondent admitted that he advised clients thatan investment in ART would yield a return of 300%. Likewise, Tindall admitted that headvised clients that "shares of CSG could double, could be ten times the originalinvestment, could rise to $100, or could rise to $50 in six months." In our opinion, theserepresentations relate to the future value of the securities in question and constitute aclear violation of s.38(2) of the Act which states that:
"No person or company, with the intention of effecting a trade in a security,shall give any undertaking, written or oral, relating to the future value orprice of such security."
b) Selling of securities not approved by the sponsoring dealer
In the Statement of Admitted Facts, the Respondent admitted that he sold investmentswhich were not approved by Fortune. In our opinion, this conduct amounts to acontravention of s.25(1)(a) of the Act which forbids a salesperson from selling securitiesnot approved by the sponsoring dealer. S.25(1)(a) states that:
"No person or company shall, trade in a security or act as an underwriterunless the person or company is registered as a dealer, or is registered asa salesperson or as a partner or as an officer of a registered dealer and isacting on behalf of the dealer" [emphasis added].
Not only did Tindall engage in conduct contrary to the Act, he aggravated the matterfurther by making false representations to his employer when confronted.
During the course of the proceeding Staff called Jennifer Dewling ("Dewling"), the formerChief Operating Officer at Fortune Financial to give testimony concerning theRespondent's involvement with ART. She stated that on July 12, 1995 Tindall attendeda meeting with various officers of First Marathon, Fortune Financial's sponsoring dealer,to discuss his involvement with ART. The Respondent was asked about the nature ofART, the number of investors involved, his personal involvement and his compensationwith respect to the investments in ART. Additionally, on July 17, 1995 the Respondentwas asked to sign a letter which essentially documented the questions asked at themeeting, together with his responses. Dewling indicated that it later became evident thatthe answers provided in the letter were completely false.
c) The creation of a "Paper Trail"
Only after many of his clients had invested did Tindall realize the two potential illegalitiesof the ART investment. First, the investment was a security for which no prospectus hadbeen filed and for which no receipt had been issued. Second, the 300% return promisedto investors violated the prohibition against annual interest rates higher than 60% foundin the Criminal Code.
Tindall intentionally went to great lengths to cover-up the truth with regard to the ARTinvestment. ART Canada was incorporated for the purpose of issuing promissory notesunder the exemption contained in clause 35(2)4 and clause 73(1)(a) of the Act.Additionally, Tindall required his clients, who had already invested, to provide him withnew cheques payable to ART Canada. Investors were asked to issue cheques for anamount greater than their actual investment in order to conceal the fact that investors wereto receive a rate of interest in violation of the Criminal Code. Investors were then askedto return the original promissory notes in exchange for new notes reflecting the artificiallyinflated amounts.
d) Tindall placed his clients in wholly unsuitable investments
The Respondent has admitted that his advice to invest in ART and CSG was whollyunsuitable for some of his clients. As their adviser, Tindall was obliged to consider hisclients investment objectives, risk tolerance and level of sophistication prior to dispensinginvestment advice. He did not. Although some of his former clients have recovered themoney they lost, many have not.
e) Prohibited representation with respect to listing on the TSE
Subsection 38(3) of the Act provides for a prohibition against making representations withrespect to listing. It states:
"Subject to the Regulations, no person or company, with the intention ofeffecting a trade in a security, shall, except with the written permission of theDirector, make any representation, written or oral, that such security will belisted on any stock exchange or quoted on any quotation and trade reportingsystem, or that application has been or will be made to list such securityupon any stock exchange or quote such security on any quotation and tradereporting system, unless,
(a) application has been made to list or quote the securities being traded; andsecurities of the same issuer are currently listed on any stock exchange or quotedon any quotation and trade reporting system; or
(b) the stock exchange or quotation and trade reporting system has grantedapproval to the listing or quoting of the securities, conditional or otherwise, or hasconsented to, or indicated that it does not object to, the representation."
In the Statement of Admitted Facts, Tindall admits to making representations that CSG hadrecently applied to be listed on the TSE. These representations were made to encouragehis clients to invest in CSG. His conduct clearly contravened subsection 38(3) of the Act.
Conduct Established by Staff:
f) Tindall traded while in possession of undisclosed material information
Tindall bought shares in BMW/Masco and Northwest Airlines believing that thesecompanies were seriously contemplating purchasing the ART technology. This positionis buttressed by taped conversations demonstrating that Tindall had advised clients toinvest in these companies based on what he believed and stated to be inside information.
g) Interference with the Commission's investigation
During the course of the proceeding, it became evident that to some extent theRespondent attempted to discourage his clients from making a formal complaint to theCommission. Tindall insisted that involvement by the Commission would jeopardize everyinvestor's ability to recover their money.
VI. SANCTIONS
In contemplating an appropriate sanction, the general principles enunciated in both ReMithras and Re Belteco, supra must be considered. The purpose of sanctions are to bothrestrain the conduct of the wrongdoer and deter others from engaging in like behaviour.The sanctions in this case must also be considered in the context of the Respondent'sexperience, level of activity in the marketplace and the seriousness of his improprieties.
Staff proposed that the appropriate sanctions would be:
- a permanent cease trade order with respect to Mr. Tindall;
- a cancellation of his registration;
- a reprimand from the panel; and
- payment of a portion of the costs with respect to this investigation.
Counsel for Tindall proposed that the appropriate sanctions would be:
- cancellation of Tindall's registration; and
- a cease trade order of five years with carve-out provisions allowing Mr. Tindall to trade on his own account.
On August 30, 2000 the Commission issued an order finding that Tindall, while acting inthe capacity of salesperson with a registered dealer, engaged in conduct contrary to thepublic interest. The list of admissions tendered by the Respondent demonstrate a blatantdisregard for Ontario securities law.
Tindall's wrongdoings are numerous. He advised many of his clients to place their moneyin investments which were wholly unsuitable. He sold securities that were not approvedby his sponsoring dealer and which were in violation of the Act and the Criminal Code.Upon realizing the illegality of the investment, Tindall conjured up an elaborate plan in anattempt to legitimize the investment. He then attempted to interfere with a potentialCommission investigation by persuading anxious clients from lodging formal complaints.Moreover, Tindall made prohibited representations with respect to the future value of ARTand CSG. He also made prohibited representations regarding CSG's listing on the TSE.Finally, Tindall traded in the shares of BMW/Masco and Northwest Airlines while believingthat he was in possession of undisclosed material information.
These serious violations required us to consider specific as well as general deterrence indetermining the order we made in the public interest. The conduct of Mr. Tindalldemonstrates that he clearly poses a threat to the public interest and capital markets.
Notwithstanding Tindall's violations, his efforts to reach a settlement agreement with Staffought to be taken into account when determining sanctions. Settlement agreementssignificantly reduce the length and expense of hearings and are also indicative of theacceptance of personal responsibility on the part of a respondent. While a settlement wasnot reached in this matter, the Respondent's Statement of Admitted Facts reduced thelength of the hearing substantially and also, in part, indicates the Respondent'sacceptance of personal responsibility.
We ordered that:
- pursuant to clause 6 of subsection 127(1) of the Act, that Tindall be reprimanded;
- pursuant to clause 1 of subsection 127(1) of the Act, the registration of Tindall is terminated; and
- pursuant to clause 2 of subsection 127(1) of the Act, Tindall, will cease trading insecurities for a period of seven (7) years effective the date of this Order; provided,however, that Tindall may trade in securities for his own account or for the accountof his registered retirement savings plan (as defined in the Income Tax Act(Canada)).
When trading on his own account, the Respondent must trade in securities referred to inclause 1 of subsection 35(2) of the Act. In the case of securities other than those referredto in subsection 35(2), the securities must be listed and posted for trading on a stockexchange in Canada. Neither Tindall nor any member of his family may be an insider,partner or promoter of the issuer of the securities and the Respondent is not permitted toown directly, or indirectly through another person or company or through any person orcompany acting on his behalf, more than five (5) percent of the outstanding securities ofthe class or series of the class in question. Tindall was entitled to dispose of the securitieshe owned as of the date of the order.
VII. COSTS
Introduction
Staff has estimated its total costs to be approximately $450,000. Staff sought a cost awardin the amount of $75,000. These funds would be used to partially indemnify theCommission for the investigatory and pre-hearing costs incurred. Staff acknowledged thatits cost request of $75,000 was based on a less than formal and somewhat arbitrarymethod of calculation.
The Respondent objected to costs on jurisdictional grounds. The Respondent claimed thatthe application of costs is akin to a penalty and therefore substantive in nature. As such,the Respondent submitted that the Commission lacks the jurisdiction to retrospectivelyapply section 127.1 of the Act. In the alternative, the Respondent took the position thatthe principle of fairness, as well as s.6(2) of the Statutory Powers Procedure Act, R.S.O.1990, c.S.22 [hereinafter SPPA], requires notice of costs and that Staff's failure to givenotice precludes the Commission from making such an order.
Staff submitted that the Commission has the jurisdiction to award costs and that in seekingcosts there is no principle of fairness necessitating the enumeration of s.127.1 in theNotice of Hearing in this case.
Issues
The following two issues must be addressed with respect to costs.
1. Does s.127.1 apply retrospectively in this matter?
2. Is Staff required to provide notice of its intention to seek costs?
2.1 Does s.6(2) of the SPPA require notice for costs?
2.2 Does the principle of fairness require Staff to provide notice of its intention to seekcosts?
Analysis
1. Does s.127.1 apply retrospectively in this matter?
It is common ground that for the Commission to have the jurisdiction to retrospectivelyapply s.127.1, the costs must be procedural rather than substantive in nature. Staff reliedon the Ontario Court of Appeal's decision in Shea v. Miller, [1971] 1 O.R. 199 at 202, asstanding for the principle that "matters of cost are procedural in nature and therefore havea retrospective effect." Counsel for the Respondent, however, while not disagreeing withShea v. Miller, submitted that the Commission's power to order costs under s.127.1 is asanction more akin to a fine or penalty.
The Respondent argued that while s.127.1 provides that an order can be made for arespondent to pay costs, there is no specific corresponding authority allowing for arespondent to seek costs. It was suggested that the Respondent's lack of a correspondingright distinguishes a cost award made under s.127.1 from the finding of the OntarioDivisional Court in Re Kanerva and Ontario Association of Architects et al. (1986), 56 O.R.(2d) 518. Staff relied on this case for the proposition that costs of disciplinary proceedingsare procedural in nature.
Madame Justice L'Heureux-Dubé, on behalf of the Supreme Court, discussedretrospectivity in Brosseau v. The Alberta Securities Commission, [1989] 1 S.C.R. 301.
"The so-called presumption against retrospectivity applies only to prejudicialstatutes. It does not apply to those which confer a benefit. As Elmer Driedger,Construction of Statutes (2nd ed. 1983), explains at p.198:
...there are three kinds of statutes that can properly be said tobe retrospective, but there is only one that attracts thepresumption. First, there are statutes that attract benevolentconsequences to a prior event; they do not attract thepresumption. Second, there are those that attach prejudicialconsequences to a prior event; they attract the presumption.Third, there are those that impose a penalty on a person whois described by reference to a prior event, but the penalty isnot intended as further punishment for the event; these donot attract the presumption.
A subcategory of the third type of statute described by Driedger is enactmentswhich may impose a penalty on a person related to a past event, so long as thegoal of the penalty is not to punish the person in question, but to protect thepublic" [emphasis added].
Additionally, the Commission found it instructive to examine certain decisions of theAlberta Securities Commission. In W.H. Stuart Mutual Ltd. et al. (2000), 9 A.S.C.S. 648the Alberta Securities Commission stated:
"The Commission's power to order payment of costs, under s.167.1 of the Act, maybe viewed as another power to impose sanctions for the purpose of protecting thepublic interest. Under some circumstances, it will be appropriate to order thatperson pay the costs of the hearing for the same reasons as other sanctions areimposed (e.g. to deter like-minded people from engaging in similar abuses of thecapital markets). But the more important function of this power, in our view,is to enable the Commission to exert some control over the hearing process"[emphasis added].
It is clear that the intent of a costs award under s.127.1 is not to punish but rather has anumber of purposes. Cost awards, are intended, among other things, to indemnify theCommission for expenses incurred and provide the Commission with the ability to exertsome control over the hearing process. As such, notwithstanding the lack ofcorresponding authority for a respondent to seek costs, the Commission is of the opinionthat the application of this section does not attract the presumption against retrospectivity.
2. Is Staff required to provide notice of its intention to seek costs?
Counsel for the Respondent submitted that Staff's failure to give notice of its intention toseek costs, by way of the Notice of Hearing, precluded Staff from seeking such an order.Counsel also submitted that the principle of fairness dictates that Staff provide notice ofits intention to seek costs.
Staff argued that it is not required either by the SPPA or the principles of fairness toprovide notice of an intention to seek costs.
2.1 Does subsection 6(2) of the SPPA require notice for costs?
Section 6 of the SPPA outlines the form and content of a notice of hearing. In particular,subsection 6(2) states that "the notice of a hearing shall include a reference to thestatutory authority under which the hearing will be held." The question is thus whethersubsection 6(2) requires a notice of an intention to seek costs.
It is our opinion that while it is clearly preferable to request costs in the notice of hearing,s.127.1 does not form part of the statutory authority under which the hearing will be held.As such, subsection 6(2) cannot be said to require Staff to provide notice of an intentionto seek costs.
2.2 Does the principle of fairness require Staff to provide notice of its intentionto seek costs?
It is uncontested that Staff notified Mr. Tindall of its intention to seek costs shortly beforethe commencement of the hearing. Late notice of the request does not prevent theCommission from making an order as to costs particularly where the respondent has beengiven sufficient opportunity to make submissions and adduce evidence with respect tocosts. The Respondent took this opportunity and indeed requested that he be paid hiscosts in the amount of $10,000.
In this case, the lateness of the notice should be considered in determining the quantumof a cost award. In order to facilitate early settlements Staff should provide notice as soonas possible. Preferably, as stated previously, this should occur in the Notice of Hearing.The $75,000 cost award sought by Staff is significant and early notice may have beenbeneficial.
Decision
Staff's notice regarding costs was clearly late. The Respondent submits, moreover, thathe attempted to reach a settlement agreement with Staff, but that Staff adopted anadversarial position throughout. We are unable to conclude that Staff somehow actedimproperly. Given the order issued by the Commission, Staff limited its request for costsup to July 25, 2000 and did not include any hearing costs.
It should be noted that the admissions of Tindall did reduce the length of the hearingsubstantially and that as mentioned previously, Staff's notice was at the eleventh hour.Moreover, we are of the opinion that s.127.1 does not provide the Commission with theauthority to make an award of costs in favour of a respondent, nor does this authority flowfrom any inherent authority to make such an order.
Given the fact that the power to award costs is recent, we suggest that Staff examinewhether rules of procedure regarding costs need to be adopted by the Commission. Wenote Rules 191.1 and 191.2 of the Alberta Securities Commission Rules.
As mentioned previously, Staff have requested costs of $75,000.00. We have concluded,after considering the submissions and the available information, that costs in the amountof $40,000.00 shall be paid by the Respondent.
October 3rd, 2000.
"Howard I. Wetston"
"J. F. Howard"
"Morley P. Carscallen"