A real and substantial connection? Saskatchewan Court of Appeal affirms the jurisdictional question for securities regulators

The law has long recognized the geographic limits of governments’ legislative powers. For example, Canada is unable to pass laws which apply in the United States. In Canada, a similar recognition applies amongst Canadian provinces: Saskatchewan does not have the power to pass laws which regulate extra-provincial activity. This limit on provincial powers is a key part of our Constitutional framework.

The Saskatchewan Court of Appeal recently applied the doctrine of “territorial limits” in Berger v Saskatchewan (Financial and Consumer Affairs Authority), 2019 SKCA 89. The Court of Appeal affirmed that a real and substantial connection must exist between non-resident securities’ dealers and the provincial jurisdiction in question, before such dealers are subject to securities regulation.

Background and Facts

In Saskatchewan, the Financial and Consumer Affairs Authority (the “FCAA”) is tasked with administering The Securities Act, 1988 (“the Act”).  Section 27(2)(a) of the Act makes it an offence to trade in securities, or hold oneself out as trading in securities, without being registered with the FCAA.

In June 2013, a Saskatchewan resident, David Evans, contacted a resident of Costa Rica, Andrew Berger, after hearing of Mr. Berger through friends who had invested through Mr. Berger and obtained good returns. Following further correspondence, Mr. Evans decided to invest $100,000 (US) in various futures contracts through a trading account held with Latin Clearing Corporation – a clearing agency based in Latin America.

Trading statements received by Mr. Evans indicated that Mr. Evans’ investments were doing well. However, the relationship between Mr. Evans and Mr. Berger broke down, and resulted in Mr. Evans filing a complaint with the FCAA. The FCAA charged Mr. Berger with trading in securities without being registered with the FCAA, in contravention of the Act.

Decision of the FCAA

Prior to addressing whether Mr. Berger had contravened the Act, the Tribunal had to address whether the Act was applicable to Mr. Berger’s activities at all. The Tribunal concluded that Mr. Berger’s and Latin Clearing’s residence outside of Saskatchewan was “not relevant when determining whether (they) acted as dealers in Saskatchewan.” It reached this legal conclusion by pointing to appeal decisions which found that securities legislation is not limited to solely “intraprovincial matters.”

The Jurisdictional Issue

On appeal, Mr. Berger argued that the FCAA had applied the wrong test in assessing whether it had jurisdiction to deal with the allegations against him. Rather than merely concluding that his out-of-province residency did not deprive the FCAA of jurisdiction, Mr. Berger argued that the Tribunal should have asked whether his alleged conduct had a real and substantial connection to Saskatchewan. In other words, Mr. Berger argued that the Act’s registration requirements were constitutionally inapplicable to him.

Decision of the Saskatchewan Court of Appeal

The Court of Appeal began by summarizing the Supreme Court of Canada’s 2003 Unifund decision and its 2012 Van Breda decision.[1] These decisions establish that Canadian provinces cannot regulate “extraprovincial activity.” The principles of federalism mean that each province has to respect the authority held by other provinces in their own legislative spheres. This concept, the Court of Appeal noted, also operates in relation to the extranational application of provincial laws. Therefore, provinces are not permitted to empower administrative tribunals – such as the FCAA tribunal – to apply laws extraprovincially.

Given the territorial limits doctrine reflected in The Constitution Act, 1867, the Court of Appeal noted that the jurisdictional question is whether the connection between the matter before a tribunal and the province in question is sufficient to give the tribunal jurisdiction. The nature of the necessary connection is summarized in Unifund, where the Supreme Court of Canada organized the principle of constitutional applicability around the following propositions:[2]

1. The territorial limits on the scope of provincial legislative authority prevent the application of the law of a province to matters not sufficiently connected to it;
2. What constitutes a “sufficient” connection depends on the relationship among the enacting jurisdiction, the subject matter of the legislation and the individual or entity sought to be regulated by it;
3. The applicability of otherwise competent provincial legislation to out-of-province defendants is conditioned by the requirements of order and fairness that underlie our federal arrangements; and
4. The principles of order and fairness, being purposive, are applied flexibly according to the subject matter of the legislation.

It follows that the question for a hearing panel operating under the Act is whether there is a “sufficient connection” between Saskatchewan and the matter before the Tribunal to ground provincial jurisdiction. That question has to be answered based on the full range of relevant factors, including the nature of the modern securities industry, the particular provision of the Act in issue, the nature of the impugned conduct, and the particulars of the surrounding circumstances.[3]

The Court of Appeal did not decide whether the allegations against Mr. Berger had a sufficient connection to Saskatchewan to engage the application of the Act. The resolution of that question would have to await the outcome of a fresh fact-finding exercise and clarification of the dealings between Mr. Berger and Mr. Evans. The matter was thus referred back to the FCAA for rehearing.

Key Takeaways

In cases involving non-resident persons, corporations and other entities, the Court of Appeal’s judgment highlights the need for administrative tribunals to carefully assess whether they have jurisdiction over the subject matter before them.  This assessment must engage all relevant factors, including, but not limited to, the nature of the matter and conduct, the surrounding circumstances, and the legislative provision at issue. Conversely, non-resident individuals and entities who are charged with contraventions of provincial legislation and regulations should secure legal advice on preserving their rights to challenge the tribunal’s jurisdiction.

[1] Unifund Assurance Co. v. Insurance Corp. of British Columbia, 2003 SCC 40 at para. 50; Club Resorts Ltd. v. Van Breda, 2012 SCC 17 at para. 21.

[2] Unifund, supra, at para. 56.

[3] Citing McCabe v. British Columbia (Securities Commission), 2016 BCCA 7 at paras. 35-37.