Proceedings

PDF Version
PDF Version

 

IN THE MATTER OF

THE SECURITIES ACT

R.S.O. 1990, c. S. 5, AS AMENDED

AND

IN THE MATTER OF

UNIVERSAL SETTLEMENTS INTERNATIONAL INC.

NOTICE OF APPLICATION

(for revocation/variation of decision(s) pursuant to Section 144 of the Act)

Hearing:

January 31, 2003

 

 

Panel:

Paul M. Moore, Q.C.

- Vice-Chair (Chair of the Panel)

 

Kerry D. Adams, FCA

- Commissioner

 

Counsel:

Y.B. Chisholm

- For the Staff of the Ontario Securities Commission

 

 

R. Bennett

- For Universal Settlements International Inc.

EXCERPT FROM THE HEARING

CONTAINING THE ORAL REASONS FOR DECISION

The following statement has been prepared for purposes of publication in the Ontario Securities Commission Bulletin and is based on the transcript of the oral hearing, including oral reasons delivered at the hearing, in the matter of Universal Settlements International Inc. The transcript has been edited, supplemented and approved by the panel for the purpose of providing a public record of the panel's decision in the matter.

_______

CHAIR:

This is a hearing under section 144 of the Securities Act based on an application by a certain party requesting the revocation or variation of a section 11 order made by the Commission. Since the existence and content of the section 11 order is confidential, this hearing should be confidential. Therefore, it would be appropriate for any members of the public or the press to leave.

Before we proceed on that basis, I would like to hear from counsel as to whether they agree with me.

My concern is that the content of the section 11 order that we are being asked to look at is subject to confidentiality under section 17 of the Act, and reference to the parties is strictly confidential, except by order of the Commission.

Therefore, before we look at it, I think the public should be excluded and this should be an in camera hearing. I want guidance from both counsel on that.

MS. CHISHOLM:

I take no issue with that, Mr. Chair. It was considered and discussed internally and between counsel, so we weren't blind to this issue.

This is a rather unique situation, in that there's been a rather public exchange between staff, and the applicant indeed has been - as the panel is aware - has been the subject of a court decision and so on.

MR. BENNETT:

It's my understanding that a press release was issued by the commission with respect to the hearing. I second Ms. Chisholm's submission. We're neutral on the matter. There are public issues relating to this. It is a matter of public record and, indeed, my client has been told, prior to the press release issuing, that somebody had heard there was a hearing coming up with respect to this. We are neutral with respect to whether the hearing is in camera or not.

CHAIR:

Thank you. The Act, in section 17 says: "If the Commission considers that it would be in the public interest, it may make an order authorizing the disclosure to any person or company of the nature or content of an order under section 11 or 12, the names of the persons," et cetera...

In view of the publicity surrounding the court case and the dispute, the fact that we're not, at this stage, into the substantive facts, and that counsel are completely neutral on the question, an order under section 17 is appropriate. It is, accordingly, in the public interest to authorize disclosure to the public of disclosures that will be made concerning the section 11 order in this section 144 hearing. We so order. On that basis, it is not necessary to go in camera and, therefore, members of the public do not need to be excluded.

MS. CHISHOLM:

The section 11 order, as you're aware, forms part of the record....

The supporting memorandum to the commissioner who signed the order, as you know, was put before the panel in sealed form. It is something that doesn't cause concern in respect of confidentiality as might some other section 11 memoranda dealing with, for instance, informants. The reason it went in in sealed form was because we did not want to set a precedent of sorts, that by bringing an application, for instance, to quash a summons or an investigation order, one might, by right or by precedent, get their hands on a section 11 memorandum which might, in other cases, cause us grave concern.

CHAIR:

The point is well taken. We do not intend to have the section 11 memorandum introduced as an exhibit and we do not intend it to form part of the record. I understand from the sealed envelope that we received, that this procedure was consented to by both counsel. Is that correct?

MR. BENNETT:

That's correct, sir.

CHAIR:

Thank you.

[Submissions on the merits of the application were then heard. Afterwards, the Chair announced the panel's decision.]

CHAIR:

We've come to a decision. This has been a section 144 application. Section 144 states: "The Commission may make an order revoking or varying a decision of the Commission on the application of the Executive Director, or a person or company affected by the decision if, in the Commission's opinion the order would not be prejudicial to the public interest."

There were three decisions referred to in the application. The first was the Commission's decision to make an order under section 11. The second was the issuance of a summons by a person in the Commission pursuant to that section 11 order. The third was the decision of staff of the Commission to issue Notice 44, giving staff's views on viatical settlements.

We are satisfied that the first decision, namely the decision to make a section 11 order, was a decision of the Commission. It was made by one commissioner as permitted under the Act, which provides that the action of the Commission may be made by one commissioner with respect to a section 11 order.

The issuance of the summons was not a decision of the Commission. However, we were satisfied, after hearing counsel, that if the section 11 order was improperly issued, then we would have the authority to quash that summons. And the action we take on that summons depends on our decision with respect to the section 11 order.

The decision to issue staff Notice 44 was not a decision of the Commission. We do not believe that section 144 gives us the authority to purport to revoke or vary that notice. But if it did, we would not do so because we believe that staff notices, which have no legal standing and are issued by staff, should be decided by staff. Even Commission policy statements, which have no legal binding nature, are only issued after debate and consideration by the Commission as a whole, and should not be changed by a panel on a section 144 application.

The next question we had to face was whether we should revoke or vary the section 11 order. We note that all of the argument we heard today and all of the facts submitted in the affidavit and the cases put before us, relate to facts in existence before the section 11 order was made.

Section 144 is appropriate to be used to vary or revoke a decision of the Commission when new facts come to light, or new law is enacted, making it desirable to change the decision that has been rendered. I am not aware of a section 144 proceeding being used to review and second-guess a decision of another panel of the Commission, although there is nothing in section 144 that would prevent us from doing that if we decided it was the right thing to do.

At first, we were reluctant to proceed down the path of reconsidering the section 11 order. We decided that the better course would be to listen to all of the arguments and decide whether or not the section 11 order was made with authority, or, as counsel for the applicant put it, with jurisdiction.

Section 11 says: "The Commission may, by order, appoint one or more persons to make such investigation with respect to a matter as it considers expedient." I accept the reasoning of counsel for staff that "expedient" should be given a broad meaning in this section.

But the real issue is whether paragraph (a) of section 11 has been adhered to. Paragraph (a) includes the words: "for the due administration of Ontario securities law or the regulation of the capital markets in Ontario."

The issue put to us by counsel for the applicant was that, before the section 11 order was properly made, the commissioner making that order should have satisfied himself that the products involved, viatical settlements, were in fact securities so that he had authority to make the section 11 order.

Staff alleged, in its submission to the commissioner making the section 11 order, that staff believed that there may have been a violation of the Securities Act, in particular sections 25 and 53 dealing with registration and prospectus requirements, and that additional facts to be ascertained would clarify whether the products involved were in fact securities. Staff needed to do an investigation pursuant to a section 11 order to find out what the real facts were.

Counsel for the applicant stated that it was necessary that a factual decision be made to determine whether or not viaticals, or the products sold by the applicant, were securities before a section 11 order could be made.

When we look at the plain wording of section 11, which deals with investigations, we do not believe that a definitive fact-finding decision need be made on a premature basis before a section 11 order is made. The whole purpose of a section 11 order is to ascertain facts.

We believe that staff, prima facie, was acting reasonably, and that the commissioner issuing the section 11 order acted reasonably in concluding that the investigation was for the due administration of securities law in Ontario, or the regulation of the capital markets in Ontario. There has been controversy surrounding other transactions called viaticals, as evidenced in the cases cited to us. In at least one other jurisdiction, viaticals are considered securities. There was colour of fact before the commissioner to suspect that the products dealt in by the applicant might well be securities.

A section 144 hearing is not the appropriate mechanism to make a fact-finding decision as to whether the applicant's products are securities. We have no benefit of a record with evidence and fact-finding by the Commission on the earlier decision. There is no statement of allegations. There is no statement of facts. And although there are sample contracts given in the application material, we are concerned that trying to decide the question on the material that was given to us would not be in the public interest. We cannot be sure that we have seen all of the facts.

We agree with the decision of Mr. Justice Campbell, who was faced with a very similar fact situation in Universal Settlements International, Inc. v. Ontario (Superintendent of Financial Services), [2001] O.J. No. 4301, 24 O.S.C.B. 7299 (S.C.J.). In that case, Universal Settlements, the applicant in this matter, asked for declarations that neither the Securities Act nor the Insurance Act applied to USI's business in Ontario. At paragraph 27 of his decision, Justice Campbell wrote:

Ms. Chisholm submitted that it is only within the factual context or factual matrix that comes from a proceeding and hearing before the Commission that it can make a determination as to whether or not the investment vehicle of the applicant offends the Securities Act. It is submitted that the courts should act on no less a record and indeed, given the expertise of the commission, it would benefit from the consideration of the commission of its own jurisdiction, which, in accordance with the decided cases, would be given deference on a standard of reasonableness.

He went on to say at paragraph 29:

"I am satisfied that the motions of the OSC and the Superintendent should be granted and the application for a declaration quashed on the basis of prematurity."

Equating a section 11 order, or a review of a section 11 order under section 144, with a proceeding under section 127, or a proceeding before the court under section 122, or a hearing before the Director on a prospectus application, is not appropriate.

A section 11 order is not a step in a proceeding. Section 11 contemplates an investigation to ascertain facts as to whether or not there might be grounds for a proceeding. It would not be appropriate to turn a section 144 application, which is supposed to deal with the revocation or variation of an existing decision based on an adequate record, into a full-blown hearing with new evidence.

In the final analysis, what we have to determine, in the terms of section 144, is whether in our opinion it would not be prejudicial to the public interest to revoke the section 11 order. Counsel for the applicant has not satisfied us that it would not be prejudicial to the public interest for us to revoke the section 11 order. For that reason, the application is declined.

Commissioner Adams, would you care to add anything?

COMMISSIONER ADAMS:

Nothing. Thanks.

MR. BENNETT:

Can I just ask for a point of clarification? Most of the argument proceeded on the basis that the motion to revoke the order was on the basis that there was no jurisdiction in the Commission to issue the order. And I understood you to say, at the end, that section 144 governs, and that the order is not being revoked because it's not in the public interest to do so?

CHAIR:

Section 144 requires us to make one decision, either to revoke or vary a decision of the Commission where, in our opinion, it would not be prejudicial to the public interest to do so, and that is the basis on which we acted.

We took into account, in coming to that conclusion, whether or not the Commission issuing the section 11 order acted with authority in issuing the order. We determined he did have that authority.

MR. BENNETT:

And the point of clarification was that, if you had found there was no authority to issue the order, would you have revoked - would you have the authority to revoke it under section 144?

CHAIR:

If you're asking me a hypothetical question - would it be in the public interest for the Commission to act without authority? I would say "no". I would be satisfied it was not in the public interest for this Commission to act without authority; therefore, you can draw the conclusion that the Commission would do whatever was necessary to rectify a situation where the Commission was satisfied that it had acted without authority.

Approved for release by the Chair of the Panel.

Paul M. Moore, Vice-Chair