The Facts:
The Appellants, four British Columbia residents were alleged to have improperly manipulated the price of stock in contravention of the Quebec Securities Act. Specifically, they allegedly engaged in a “pump and dump” scheme in relation to the shares of Solo International Inc. (“Solo”). This scheme is alleged to have injured investors, including investors in Quebec.
Quebec’s securities regulator brought these allegations against the Appellants before Quebec’s Financial Markets Administrative Tribunal (the “FMAT”), a Quebec administrative tribunal.The Appellants challenged the FMAT’s jurisdiction over them as out-of-province defendants. However, the FMAT rejected this challenge. Applying the test from Unifund1, it ruled that it had jurisdiction over the matter because of a real and substantial connection between the infractions and Quebec. The FMAT highlighted five key factors which established a real and substantial connection: 1) Solo was a reporting issuer in Quebec; 2) Solo had a business address in Montreal; 3) Solo was under the direction of a Quebec resident at all material times; 4) the promotion of Solo’s activities was available to Quebec residents; and 5) some Quebec residents ultimately were defrauded by the Appellants’ scheme.
The Superior Court dismissed the Appellants’ application for judicial review. The Appellants appealed to the Court of Appeal. The Court of Appeal upheld the Superior Court’s decision.
The Appellants appealed to the Supreme Court.
Decision:
Appeal dismissed (per Wagner CJ and Karakatsanis, Brown, Rowe, Martin, Kasirer, Jamal and O’Bonsawin JJ; Côté J dissenting). The FMAT has jurisdiction over the Appellants.
The parties agreed that the standard of review for the FMAT’s decision is correctness. The FMAT’s decision raises a constitutional issue regarding the territorial reach of provincial legislation. Therefore, the presumption of the reasonableness standard is rebutted and the standard of review is correctness. In the alternative, even if the jurisdiction issue could be resolved by applying the Quebec Civil Code (“CCQ”), the standard would still be correctness because this is a general question of law of central importance to the legal system as a whole. Whether the CCQ grants jurisdiction over out-of-province parties requires a uniform answer because of its implications for many other statutes.
The private international law rules in the CCQ do not give the FMAT jurisdiction over the Appellants. First, art. 3134 CCQ provides that Quebec authorities have jurisdiction if the defendant is domiciled in Quebec. The Appellants are not domiciled in Quebec. Second, art. 3148 stipulates that, in personal actions of a “patrimonial nature”, Quebec authorities have jurisdiction if “a fault was committed in Québec, injury was suffered in Québec, an injurious act or omission occurred in Québec or one of the obligations arising from a contract was to be performed in Québec”. However, the allegations against the Appellants were not of a “patrimonial nature” because they could not result in a transfer between patrimonies.
Nevertheless, the FMAT does have jurisdiction over the Appellants under the Quebec Securities Act and the Act respecting the regulation of the financial sector. As neither statute expressly provides that the FMAT can assert jurisdiction over out-of-province parties, they must be interpreted in light of the Unifund test. Interpreted in light of Unifund, the Quebec securities scheme provides for jurisdiction over out-of-province parties with a “sufficient connection” or a “real and substantial connection” to Quebec. Thus, the jurisdictional question turns on where there a real and substantial connection between the Appellants and Quebec? The answer is yes. The Appellants participated in a fraudulent securities manipulation scheme with important ties to Quebec. The Appellants allegedly used Quebec as the face of their securities manipulation and injured Quebec investors. Therefore, the FMAT has jurisdiction over the Appellants.
Commentary:
From an administrative law framework, this case is notable as a rare example of the courts applying the correctness standard of review. It demonstrates a broad acceptance of the correctness standard when a Tribunal’s territorial jurisdiction is challenged.
The judgment clarifies that whether a provincial tribunal has jurisdiction over residents of another province is a constitutional question, attracting the correctness standard. This ruling is consistent with Vavilov2,in which the SCC explained that the extent of a legislature’s power, including when delegated to an administrative body, is a constitutional issue. In her dissenting decision, Côté J argues that the Appellants’ claim is merely a jurisdictional issue not a constitutional one. However, the extent of a legislature’s power is a constitutional question; “extent” should be interpreted to include geographical limits. Furthermore, the division of powers between provinces is a constitutional issue. In other words, if a province asserts power without jurisdiction it acts unconstitutionally.
The majority of the Court goes even further here, claiming that the territorial jurisdiction question would attract the correctness standard, even if it was not a constitutional question. In the alternative, the Court held that the correctness standard would be applicable because the application of the jurisdictional provisions of the CCQ to the securities regime is a “general question of law of central importance to the legal system as a whole” that requires a uniform answer. This potentially provides a greater opening for the use of the correctness standard whenever a Tribunal’s territorial jurisdiction is challenged.
Finally, this decision is a useful reminder that it is not always obvious whether a decision is a question of law or fact. At first blush, whether the Appellants have a substantial connection to Quebec appears to be a factual question, or at least a mixed question of fact and law. However, because of the nature of the Appellants’ challenge, the alleged facts are assumed to be true. Therefore, the Court could not consider whether the FMAT’s factual findings were justified. The Court’s role was limited to applying the Unifund test to the factual findings. It is not clear how much deference would apply when a party alleges that a tribunal had improperly claimed jurisdiction on the basis of an unjustified factual finding. Would the courts show any deference to a Tribunal’s factual findings underlying its conclusions on territorial jurisdiction.