Substantial administrative penalties do not trigger Charter rights

Rowan v. Ontario Securities Commission, 2012 ONCA 208 holds substantial administrative penalties under securities legislation are not offences so as to trigger Charter rights:

[35]     The starting point for analysis of the Charter challenge is the decision of the Supreme Court of Canada in R. v. Wigglesworth, [1987] 2 S.C.R. 541, the seminal case on the meaning of the phrase "charged with an offence" in s. 11. Wigglesworth rejected the proposition that all persons subject to proceedings leading to the imposition of a penalty should be regarded as charged with an offence for the purposes of s. 11. Wilson J., who wrote the majority opinion, took a narrower view and held, at p. 558, that s. 11 should be restricted "to the most serious offences known to our law, i.e., criminal and penal matters".

[36]     There are two categories of "criminal or penal matters". A matter may be a criminal or penal matter either because "by its very nature it is a criminal proceeding", or "because a conviction in respect of the offence may lead to a true penal consequence": p. 559. Matters "of a public nature, intended to promote public order and welfare within a public sphere of activity" are by their very nature criminal or penal while "private, domestic or disciplinary matters which are regulatory, protective or corrective and which are primarily intended to maintain discipline, professional integrity and professional standards or to regulate conduct within a limited private sphere of activity" are not: p. 560. "Proceedings of an administrative nature instituted for the protection of the public in accordance with the policy of a statute are also not the sort of 'offence' proceedings to which s. 11 is applicable": p. 560.

[37]     The appellants do not suggest that the proceedings they faced before the Commission met the "by nature" test as being criminal or penal. The proceedings were clearly regulatory in nature and designed to enhance public confidence in the integrity and reliability of the capital markets. The appellants base their challenge to s. 127(1)(9) on the "true penal consequence" test. They contend that because of the potential magnitude of the AMP the Commission could impose, they were faced with "a true penal consequence" thereby triggering the protection of s. 11 of the Charter.

[38]     Wigglesworth holds that a private, domestic or disciplinary matter that escapes the reach of the first "by nature" test may still be caught by s. 11 because of the matter could lead to "a true penal consequence". This was explained by Wilson J. at p. 561:

[A] true penal consequence which would attract the application of s. 11 is imprisonment or a fine which by its magnitude would appear to be imposed for the purpose of redressing the wrong done to society at large rather than to the maintenance of internal discipline within the limited sphere of activity.

[39]     However, at p. 561-62, Wilson J. added what she described as "two caveats". Both caveats bear directly on the issue posed in this case. Wilson J.'s first caveat was that:

[T]he possibility of a fine may be fully consonant with the maintenance of discipline and order within a limited private sphere of activity and thus may not attract the application of s. 11. It is my view that if a body or an official has an unlimited power to fine, and if it does not afford the rights enumerated under s. 11, it cannot impose fines designed to redress the harm done to society at large. Instead, it is restricted to the power to impose fines in order to achieve the particular private purpose. [Emphasis added.]

[40]     Wilson J.'s second caveat was that only rarely would a proceeding fail to qualify for s. 11 protection under the "by nature" test but fall under s. 11 by virtue of the "true penal consequence test". As Wilson J. put it, it is highly doubtful that "any body or official which exists in order to achieve some administrative or private disciplinary purpose can ever imprison an individual." However, where "an individual is to be subject to penal consequences such as imprisonment - the most severe deprivation of liberty known to our law - then he or she, in my opinion, should be entitled to the highest procedural protection known to our law".

[41]     In my view, Wilson J.'s first caveat is fatal to the appellant's argument that we should strike down s. 127(1)(9) on the ground that it allows for the imposition of a monetary penalty of potential virtually unlimited magnitude. The italicized portion of the passage I have quoted above stands for the proposition that the appropriate remedy to protect the rights guaranteed by s. 11 in the case of an unlimited power to impose a fine is not to nullify the power altogether, but rather to limit the tribunal's discretion so that it may only impose penalties that are consistent with the purpose of maintaining discipline and order within a particular sphere of activity.

[42]     The appellants contend that the italicized passage cannot mean what it appears to say given the actual decision in Wigglesworth. In his careful argument, Prof. Hogg pointed out that in Wigglesworth, the accused RCMP officer was charged with a disciplinary offence for which he could be fined and sentenced to imprisonment by the tribunal. The officer was given a modest fine and not sent to jail, yet the Supreme Court of Canada held that the possibility of imprisonment brought the proceedings within s. 11 because the officer faced the possibility of "true penal consequences". Professor Hogg submits that the actual holding in Wigglesworth was to assess whether s. 11 applied ex ante, on the basis of the potential penalty, not ex post, on the basis of the actual penalty. He submits that we should take the same approach and effectively disregard the italicized passage as non-binding obiter dictum.

[43]     I am unable to accept that argument for the following reasons.

[44]     It is clear from Wilson J.'s "second caveat" that she regarded Wigglesworth as an exceptional case. What made Wigglesworth exceptional was that a domestic tribunal was given the power to imprison, a possibility that Wilson J. regarded as difficult to imagine. When explaining her conclusion that the RCMP officer did face "true penal consequences", she wrote, at p. 563-64: "This would seem, therefore, to be that unusual case where proceedings have failed the 'by nature' test but have passed the 'true penal consequence' test." The power to order imprisonment is so obviously penal in nature and so exceptional in the setting of administrative tribunals that the mere possibility of a sentence of imprisonment was sufficient, in Wilson J.'s view, to colour the proceedings as having "true penal consequences" and thereby to trigger the protection of s. 11.

[45]     In my view, we should decline the invitation to follow and to extend reasoning intended to meet the exceptional and rarely encountered power to imprison to the circumstances of this case. Instead, I would apply the plain language of the passage in Wigglesworth dealing with the power to fine that is commonly encountered in administrative proceedings. 

[46]     There is now an established line of authority holding that the power of an administrative tribunal to impose substantial monetary penalties is to be assessed on the basis of the penalty imposed rather than on penalties that are theoretically possible. This is consistent not only with the language of Wigglesworth, but also with the general principles that "legislation conferring an imprecise discretion does not confer the power to infringe the Charter unless that power is conferred expressly or by necessary implication" and that "[l]egislation conferring an imprecise discretion must therefore be interpreted as not allowing the Charter rights to be infringed": Slaight Communications Inc. v. Davidson, [1989] 1 S.C.R. 1038, at p. 1078-79.

[47]     In Lavallee v. Alberta (Securities Commission), 2010 ABCA 48, 317 D.L.R. (4th) 373, the Alberta Court of Appeal upheld the power of the Alberta Securities Commission to impose administrative penalties of $1 million per infraction. Similarly, in Canada (Attorney General) v. United States Steel Corp., 2011 FCA 176, 333 D.L.R. (4th) 1, the Federal Court of Appeal upheld a provision of the Investment Canada Act, R.S.C. 1985, c. 28 (1st Supp.), s. 40, authorizing a penalty of up to $10,000 per day for failure to comply with a ministerial directive. The court held, at para. 80:

A statutory power to impose fines that comes along with little statutory guidance will not be subject to s. 11 as long as it is exercised in a way so as to achieve proper administrative aims. If, as U.S. Steel contends, the procedure provided for in section 40 does not meet the standard of subsection 11(d) of the Charter, this simply means that the Court is limited in the goals it can consider in imposing monetary fines… [This] accords with the principle that we should not assume before the fact that judges will exercise their discretion in an unconstitutional way...

[48]     The appellants contend that both cases were wrongly decided and that we should set Ontario law on a different course. I disagree. These decisions are consistent with Wigglesworth and I am not persuaded that we should depart from the established pattern in the jurisprudence.

[49]     Penalties of up to $1 million per infraction are, in my view, entirely in keeping with the Commission's mandate to regulate the capital markets where enormous sums of money are involved and where substantial penalties are necessary to remove economic incentives for non-compliance with market rules. The recommendation of the Securities Act Five Year Review Committee that the Commission be given the power to impose administrative penalties of up to $1,000,000 per contravention was based on the need to ensure that the administrative penalty would not simply be viewed as a "cost of doing business" or a "licensing fee" for unscrupulous market participants: Ontario, Five Year Review Committee Final Report: Reviewing the Securities Act (Ontario) (Toronto: Queen's Printer, 2003), at p. 214. The Committee noted the importance of allowing "the Commission to send an appropriate deterrent message, having regard to, among other things, the gravity and impact of the conduct under consideration and the nature of the respondents that are the subject of the proceedings."

[50]     As the Commission indicated in its Sanctions decision, the level of penalty permitted by s. 127(1)(9) is in keeping with legislation in other provinces. One million dollar penalties are authorized in Nova Scotia, Alberta, and British Columbia, while Quebec allows for penalties of up to two million dollars: Securities Act, R.S.N.S. 1989, c. 418, s. 135; Securities Act, R.S.A. 2000, c. S-4, s. 199; Securities Act, R.S.B.C. 1996, c. 418, s. 162; Securities Act, R.S.Q., c.V-1.1, s. 273.1. The United States Securities and Exchange Commission can impose administrative fines of varying levels up to a maximum of $100,000 for natural persons and $500,000 for companies: Securities Exchange Act of 1934 (U.S.), 15 U.S.C. § 78u–2(b)(3). There is no specified maximum on administrative monetary penalties that can be imposed by the United Kingdom Financial Services Authority: Financial Services and Markets Act 2000 (U.K.), c. 8, s. 206. Penalties at the $1 million level are also in keeping with those levied by self-regulatory agencies operating in the securities field: see paras. 53-55 of the Commission's Sanctions reasons.

[51]     Penalties at the level of $1 million almost certainly have a deterrent purpose, but that does not make them penal in nature. As the Supreme Court of Canada held in Re Cartaway Resources Corp., 2004 SCC 26, [2004] 1 S.C.R. 672, in carrying out their regulatory and preventative mandate provincial securities commissions may legitimately consider deterrence when imposing a monetary penalty. Writing for the court, Le Bel J. stated, at para. 60, that "it is reasonable to view general deterrence as an appropriate, and perhaps necessary, consideration in making orders that are both protective and preventative." See also Martineau v. Canada (Minister of National Revenue), 2004 SCC 81, [2004] 3 S.C.R. 737, at para. 38.

[52]     I agree with the the Commission's conclusion, at para. 56, that an administrative penalty of $1 million is not prima facie penal:

In pursuit of the legitimate regulatory goal of deterring others from engaging in illegal conduct, the Commission must, therefore, have proportionate sanctions at its disposal. The administrative penalty represents an appropriate legislative recognition of the need to impose sanctions that are more than "the cost of doing business". In the current securities regulation and today's capital markets context, a $1,000,000 administrative penalty is not prima facie penal.

[53]     Nor am I persuaded that the AMPs imposed by the Commission on the appellants were at a level to bring them within the "true penal consequence" category. The constitution does not impose a defined limit on what is permissible by way of administrative monetary sanctions. The limit can only be determined by reference to the purpose of the penalty in relation to the regulatory mandate of the tribunal.  In Martineau, the Supreme Court of Canada considered a penalty under s. 124 of the Customs Act, R.S.C. 1985, c. 1 (2nd Supp.), which conferred a power to require a cash payment with no statutory maximum. The key question, as stated at para. 60, is whether the penalty "constitutes a fine that, by its magnitude, is imposed for the purpose of redressing a wrong done to society at large, as opposed to the purpose of maintaining the effectiveness of customs requirements" (emphasis in original).

[54]     In my view, the Commission did not err in concluding that magnitude of the AMP was geared to its regulatory mandate. The maximum AMP for one contravention is one fifth of the maximum penalty that can be imposed in a prosecution under the Act: see s. 122(1). The amount of an AMP is determined by regulatory considerations distinct from the principles of criminal liability and sentencing. No criminal record results. A further indication of the internal rather than criminal purpose of the AMPs is that the proceeds of the AMPs imposed were allocated by the Commission for the benefit of third parties pursuant to s. 3.4(2)(b) and not paid to the Consolidated Revenue Fund: see Wigglesworth, at p. 561.

[55]     Given the very large number of infractions involving over a billion dollars worth of securities and over $2 million dollars in commissions, fines totalling $1,220,000 were within the constitutionally permissible range.