Appeals Watch: Public or Private Law? SCC grants leave in Langford Sharp v Autorité des marchés financiers
On April 22, 2022, the Supreme Court of Canada (“SCC”) granted leave to an application for appeal in the Quebec Court of Appeal’s (“QCCA”) decision in Langford Sharp v Autorité des marchés financiers 2021 QCCA 1364 (“Langford”). The case concerns the appropriate standard of review when assessing the decisions of financial regulators and the role of private international law in securities litigation. The following is a deep dive into the relevant facts of the case, the issues on appeal, and the reasons provided by the QCCA in its disposition of the appeal.
Autorité des marchés financiers (“AMF”) is a financial regulatory authority in the province of Quebec. The AMF bring any and all claims for alleged breaches of the Quebec Securities Act to the Financial Markets Administrative Tribunal (“FMAT”).
Solo International Inc. (“Solo”) were incorporated in the state of Nevada in 2010. The company became a shell available for purchase in early 2011. In October 2011, Michel Plante, a resident of Quebec, acquired 3,000,000 shares in Solo, becoming its majority shareholder, taking control of the company and its subsidiary, 9252-4768 Quebec Inc (“Subsidiary”). In the fall of 2011, Solo purchased mining claims in Quebec through its Subsidiary. This venture was financed by offshore entities which were linked to the Appellants. By March 2012, a majority of Solo’s original shares were transferred to those offshore entities linked to the Appellants. With the groundwork laid, the Appellants, the AMF alleges, commenced a ‘pump and dump’ operation.
At its most basic, a ‘pump and dump’ operation entails owners of shares in a company spreading false information to artificially raise the value of a stock and, once sufficiently inflated, selling it off at a profit, despite the value having nothing to do with the company’s actual business performance. This consequently causes investors to lose money as the value of the stock plummets upon the transaction being completed.
The Appellants performed both pumps in 2012 by launching a full-blown publicity campaign to court investors. The campaign included, among other things, false claims that Solo was actively undergoing mining exploration activities. Solo’s stock price rose substantially, and the Appellants sold off millions of shares to investors, including some located in Quebec, who ended up losing money as a result.
The AMF alleges that at all material times, Michel Plante, who was also a reporting issuer in Quebec with a business address in Montreal, directed Solo, and was receiving financial support from the Appellants.
On February 28, 2017, the AMF brought an action before the FMAT against the Appellants alleging multiple breaches of the Quebec Securities Act.
On June 7, 2017, the Appellants brought separate motions for a declinatory exception, all of which were dismissed by the FMAT.
On December 21, 2017, the Appellant sought a judicial review of the FMAT’s decision before the Superior Court of Quebec (“SCQ”).
On January 9, 2019, the SCQ dismissed the Appellants’ application for judicial review, finding that the FMAT identified the appropriate standard of review of correctness, properly construed the extraterritorial reach of the FMAT, and correctly applied the law to the facts to find a real and substantial connection between the alleged infraction by the Appellants and the Province of Quebec.
On March 15, 2019, the Appellants were granted leave to appeal the SCQ decision to the QCCA.
Issues at Appeal
There were two issues raised by the Appellants before the QCCA:
First, whether the QSC failed to properly identify the appropriate standard of review and apply it to the FMAT’s decision.
Second, whether the QSC failed the apply rules of private international law inscribed in the Civil Code of Quebec (“CCQ”), therefore misconstruing the extent of FMAT’s extraterritorial jurisdiction. Or, in the alternative, whether the QSC misapplied the law in finding a real and substantial connection with the province of Quebec.
Appellate Court Analysis
Standard of Review
The QCCA relied on the SCC’s decision in Canada (Minister of Citizenship and Immigration v Vavilov) 2019 SCC 65 (“Vavilov”) to conduct its analysis on the first issue, noting that the QSC’s decision was made prior to the SCC’s significant overhaul on the laws governing standard of review in Vavilov. Under Vavilov, reasonableness is presumed for any tribunal decision, unless [a] legislative intent has indicated otherwise, or [b] the rule of law requires that the correctness standard be applied for certain categories of questions. These categories include [i] constitutional questions, [ii] general questions of law of central importance to the legal system as a whole, and [iii] questions related to the jurisdictional boundaries between two or more administrative bodies (Vavilov, paras 16-17).
The QCCA found that the issues on appeal touch on the constitutional applicability of a provincial law to foreigners or to matters with extraterritorial aspects, thus meeting one of the Vavilov requirements for necessitating a correctness standard of review. This standard applies notwithstanding that the determination made by the FMAT concerned a question of mixed law and fact, which generally mandates the reasonableness standard apply.
The QCCA relied on the SCC’s decision in West Coast Energy Inc v Canada (National Energy Board)  1 SCR 322 (“West Coast Energy”) in support of this choice. In West Coast Energy, the SCC held that where the case concerns a question of mixed law and fact, the focus of the analysis in choosing the correct standard of review should be “the purpose for which the finding was made, that is, the question it was intended to answer” (West Coast Energy, para 39). Here, given that the matter arose in the context of whether to grant a motion for declinatory exception, which takes all facts pleaded as true, the QCCA found no danger in giving deference to factual determinations in resolving questions of law.
Application of Private International Law Rules
The QCCA wanted to set the background for its analysis on the second question. It began by surveying the statutory background of the dispute, finding that the alleged breaches of the Quebec Securities Act by the Appellants all remain silent on the question of the FMAT’s extraterritorial jurisdiction. The QCCA found that the extraterritoriality of the FMAT was not at issue at all. The relevant question was the extent of the FMAT’s territorial jurisdiction over out-of-province defendants for alleged actions that have a connection with the Province of Quebec.
The Appellants main contention on this issue was that the CCQ solely concerns issues of private law, and thus Book 10 of the CCQ, where rules of private international law are laid out, should be relied upon to dispose of the conflict of laws dispute before the QCCA. The QCCA disagreed. Given that the CCQ’s preliminary provision makes reference to the jus commune, which encompasses matters beyond private law, and the fact that its rules of private law necessarily implicate judicial and administrative tribunals (bodies of public law), it can be concluded that the CCQ – in certain contexts – does have jurisdiction on issues of public law. Thus, the QCCA found no issue of conflict of laws in this case. The FMAT sought to apply a provincial statute – the Quebec Securities Act – over which it has exclusive territorial jurisdiction to make determinations on and, where appropriate, administer administrative sanctions for breaches. Moreover, there is prior precedent, from the SCC’s decision in Dunne v Quebec (Deputy Minister of Revenue) 2007 SCC 19, specifically in the context of taxation, which finds that provincial laws do apply to persons who do not reside on its territory for actions that occur or have an impact on its territory. In determining that private international law has no relevance to this case, the QCCA turned their attention to the test for forum non conveniens laid out in the common law.
Real and Substantial Connection
The test for forum non conveniens was laid out by the SCC in Club Resorts Ltd v Van Breda 2012 SCC 17, requiring that there be a real and substantial connection between the subject matter of the litigation and the forum where it is being disputed. The SCC then elaborated further on this test in Unifund Assurance v Insurance Corp of B.C.  2 SCR 63 (“Unifund”), finding that this sufficient connection test depends on the “relationship among the enacting jurisdiction, the subject of the legislation and the individual or entity sought to be regulated by it” (Unifund, para 56). Finally, to round out this analytic framework, the QCCA cited the British Columbia Court of Appeal’s (“BCCA”) decision in Torudag v British Columbia (Securities Commission) 2011 BCCA 458 (“Torudag”), where it found that the factors listed in Unifund “may be of greater significance in determining a real and substantial connection, than the physical location of the actors of their trading activities” in the context of global financial transactions” (Torudag, para 12).
In applying the test to the facts of the dispute, the QCCA found that, given the press releases were published in part in Quebec; the mining claims were made in Quebec; the reporting issuer was in Quebec; the business was claimed to be operating in Quebec; the main director’s business address was in Quebec; and among those harmed were investors in Quebec, there was a real and substantial connection between the province of Quebec (forum) and Appellants’ alleged violations of sections 195.2 and 199.1 of the Quebec Securities Act (subject matter of the litigation).
Finally, the QCCA addressed the Appellant’s final contention, that international comity should compel the QCCA to rule in favour of declinatory exception. International comity is a general principle of law that involves states mutually recognizing each other’s sovereignty, legal jurisdiction, and legal determinations, to the extent that it is compatible with its own sovereign status and principles of law. The QCCA found that on the facts of this case, international comity does not require denial of FMAT’s jurisdiction over the subject matter of the litigation. The QCCA explained that it is in the interest of the community of nations to employ all measures available to them to prosecute highly transnational, sophisticated, and coordinated schemes of securities fraud where the opportunity presents itself.
Appellate Court Ruling
Given the reasons provided above, the QCCA dismissed the appeal with legal costs.
This case requires preserving a finely spun web of jurisdictional boundaries and hierarchies that concern the interests of multiple levels of government and regulations. The SCC, in making clear, definitive pronouncements on the issues on appeal, assumes the risk of destabilizing the entire order if its decision begins to redraw the boundaries and restructure the hierarchy in ways that frustrate any one of the stakeholders.
On the other hand, given the QCCA’s firm stance on the issues on appeal, and the mixed reactions from said stakeholders, the SCC can also take the opportunity to engender some balance among the competing interests in light of the appellate judgment.
For example, the QCCA’s holding that the CCQ’s role in this dispute is superseded by the common law, based on an ambitious attribution that the CCQ can, in certain contexts, touch on public law, generates a multitude of further questions. First, how exactly does this ‘public law dimension’ of the CCQ function in other contexts and what exactly is the extent of its operation? Second, how does this finding reconcile with s.92 (13) of the Constitution Act, 1867, given that it moves into the sphere of public law what the Government of Quebec would consider as falling under questions of civil and property rights? Third, does a finding of the CCQ’s public law dimension necessarily preclude the application of the rules of private international law, as inscribed in the CCQ, in this case? And finally, is it a valid assumption to make that foreign states would not find the FMAT’s assumption of jurisdiction on this matter in tension with the principle of international comity?
In providing answers to these questions, the SCC can – and should – be mindful of the secondary, downstream effects its decisions may have on the carefully curated mosaic of jurisdictions that preceded the disposition of this case.