On May 21, 2019, in Ontario Securities Commission v York Rio Resources Inc., 2019 BCSC 776, the British Columbia Supreme Court (BCSC) enforced Ontario Securities Commission (OSC) disgorgement orders as court judgments from another province.
Background
A joint investigation was conducted by the OSC and the British Columbia Securities Commission (BC Commission) into an $18.2 million fraudulent investment scheme. On March 25, 2013, a panel of the OSC found that Mr. York, Mr. Runic, Mr. Schwartz, and the companies they controlled had committed a fraud, and on March 31, 2014, the OSC issued a $9.2 million disgorgement order. In this petition, the OSC sought payment of funds held by the BCSC under freeze orders issued by the BC Commission to satisfy the disgorgement order. Mr. Koch, who provided accounting services to Mr. Runic, opposed the OSC’s petition to have the funds released to it on the basis that the OSC, among others, did not prove its entitlement to the disputed funds.
Enforcement of the OSC’s Orders
Unlike an ordinary creditor, the OSC is not required to prove its entitlement to the funds. Rather, by virtue of s. 151(1) of the Ontario Securities Act, a decision of the OSC is deemed to be an order of the Ontario Superior Court of Justice (ONSC) upon registration. Since BC comity legislation allows judgments of other provinces to be registered in the BCSC, the OSC decision, once registered with the ONSC was enforceable as if it were an order of the BCSC. As a result, the BCSC held that “[a]ny quarrel Mr. Koch had with the Merits Decision or Sanctions Decision should have been raised in Ontario and cannot be collaterally attacked in this Court”.
Constructive Trust
Mr. Koch also argued that his previous services entitled him to repayment of costs and fees, relying on Supreme Court of Canada decisions Garland v. Consumers’ Gas Co and Pettkus v. Becker. In his view, establishing a constructive trust would place him in priority over payments to the OSC because as a proprietary remedy, trust property that would otherwise be available to the OSC would be directly removed from the estate in favour of the trust. However, Mr. Koch failed to provide adequate evidence of unjust enrichment or that a constructive trust would be an appropriate remedy. Accordingly, the BCSC found that he did not have any proprietary interest in the money through constructive trust.
Takeaway
OSC disgorgement orders, once registered with the ONSC, are directly enforceable by the BCSC.
The author would like to thank Shahroz Ahmad and Vahini Sathiamoorthy, Summer Students, for their contribution to this article.