Reasons and Decision: In the Matter of Marchment & Mackay Limited et al.
R.S.O. 1990, c. S.5, AS AMENDED
AND
IN THE MATTER OF
MARCHMENT & MACKAY LIMITED, AMIT JAMES SOFER,
CHARLES LORNE ORNSTEIN, JERRY MURRAY SALTSMAN,
GREGORY CHARLES OSBORNE AND FRASER JOHN EDWARD PLANT
Decision and Reasons on Motion for Stay of Penalties
Hearing:
November 2, 1999
Panel:
David A. Brown, Q.C., - Chair
Derek Brown - Commissioner
Counsel:
David Hausman - For the Staff of the Ontario Securities Commission
Counsel:
Jane Kelly - For Amit James Sofer and Charles Lorne Ornstein
DECISION
1. BACKGROUND
The hearing into the allegations against Marchment & Mackay Limited and the sixindividual Respondents commenced on June 22, 1998 and continued during 38 sittingdays until June 24, 1999 at which time the receipt of evidence and argument relating to thematters set out in the Notice of Hearing and amended Statement of Allegations wascompleted.
On July 16, 1999, the Panel delivered its decision on the findings with respect to theconduct of Marchment & Mackay Limited, Charles Lorne Ornstein, Amit James Sofer, JerryMurray Saltsman, Gregory Charles Osborne and Fraser John Edward Plant set out in theamended statement of allegations dated August 2, 1996 without giving reasons for thedecision (published at (1999), 22 OSCB 4359). On July 27, 1999, the Panel issued itsreasons for the decision (published at (1999), 22 OSCB 4705).
On August 3, 1999, the hearing was reconvened for the purpose of receiving evidence andmaking submissions with respect to any orders to be issued imposing remedies orpenalties. At the outset of the proceedings held on August 3, 1999, the Panel was advisedthat Marchment & Mackay Limited had filed an assignment in bankruptcy and would notbe making any submissions with respect to penalty.
After considering the evidence and submissions received on August 3, 1999, the Panelissued an Order effective August 3, 1999 as against Marchment & Mackay Limited,Charles Lorne Ornstein, Amit James Sofer, Jerry Murray Saltsman, Gregory CharlesOsborne and Fraser John Edward Plant (published at (1999), 22 OSCB 4835). OnOctober 8, 1999 the Panel issued its Reasons for the Order (published at (1999) 22 OSCB6446).
On August 25, 1999, Marchment & Mackay Limited, Charles Lorne Ornstein and AmitJames Sofer filed a Notice of Appeal indicating their intention to appeal the decisionsdated July 27, 199 and August 3, 1999 to the Divisional Court. Messrs. Ornstein and Sofer(the "Motion Respondents") subsequently brought a motion before the Commission Panelrequesting a stay of the portion of the penalty dealing with personal transactions pendingthe apeal. The motion requesting a stay pending appeal was heard on November 2, 1999.
2. PURPOSE OF THE MOTION
The purpose of the motion, as set out in the Notice of Motion, was to consider whether theCommission should issue an order staying the penalty decision dated August 3, 1999, asagainst the Motion Respondents. Counsel for the Motion Respondents advised the Panelthat the Respondent Marchment & Mackay Limited is awaiting the decision of theBankruptcy Court as to whether it is prohibited from appealing the Panel's decisionbecause it is a bankrupt.
In a letter dated October 5, 1999, counsel for the Motion Respondents requested that theMotion Respondents be "able to carry on some sorts of business". The letter containedthe following specific requests:
[That the Motion Respondents have the ability to:]
1. Have an opportunity to purchase companies (either publicly or privatelytraded companies) in order to develop them. Neither Mr. Ornstein or Mr.Sofer have any intention of trading any of the stocks of those companies.They would simply like an opportunity to purchase and/or sell thesecompanies whether or not they are trading CDN, TSE or NASDAQ, etc., ifallowed. Both will report all transactions to the OSC as they occur.
2. Both Mr. Sofer and Mr. Ornstein would like to participate in a stock optionplan if that is made available to them.
3. They would like to purchase a money market funds or bonds with theirsavings.
4. Both Mr. Ornstein and Mr. Sofer would like an opportunity to sell any privatecompany interest that they currently own and purchase any new interest ina private company in the future should those opportunities becomeavailable.
5. Both Mr. Ornstein and Mr. Sofer would like an opportunity to build a stockportfolio in the TSE in excess of one percent (1%) allowed by the Order ofthe Panel.
6. Both gentlemen would like to purchase or sell mutual funds.
At the hearing, counsel for the Motion Respondents also requested that the 2 yearmoratorium for Mr. Ornstein and the 1 year moratorium for Mr. Sofer be eliminated.
3. LEGAL PRINCIPLES
The three stage test for whether an injunction or a stay should be granted was articulatedin Metropolitan Stores (M.T.S.) Ltd. v. Manitoba Food & Commercial Workers, Local 832(1987), 38 D.L.R. (4th) 321 (S.C.C.), and was reiterated and applied more recently in RJR-Macdonald Inc. v. Canada (Attorney-General) (1994), 111 D.L.R. (4th) 385 at 400 (S.C.C.):
First, a preliminary assessment must be made of the merits of the case toensure that there is a serious question to be tried. Secondly, it must bedetermined whether the applicant would suffer irreparable harm if theapplication were refused. Finally, an assessment must be made as to whichof the parties would suffer greater harm from the granting or refusal of theremedy pending a decision on the merits. It may be helpful to consider eachaspect of the test and then apply it to the facts presented in the case.
Laskin, J.A. considered the application of the three tests Circuit World Corporation v.Lesperance (1997), 33 O.R. (3d) 674 (Ont. C.A.). At page 677 he observed that "thesethree criteria are not watertight compartments. The strength of one may compensate forthe weakness of another. Generally, the court must decide whether the interests of justicecall for a stay".
(1) Serious Question
Whether there is a serious question to be tried should be determined on the basis ofcommon sense and an extremely limited review of the merits. There are no specificrequirements to be met and the threshold is a low one. "Once satisfied that the applicationis neither vexatious nor frivolous, the motions judge should proceed to consider the secondand third tests, even if of the opinion that the plaintiff is unlikely to succeed at trial. Aprolonged examination of the merits is generally neither necessary nor desirable" (RJR-Macdonald, supra at 403).
(2) Irreparable Harm
At the second stage, the applicant must establish that it will suffer irreparable harm if therelief is not granted.
"Irreparable" refers to the nature of the harm suffered rather than itsmagnitude. It is harm which either cannot be quantified in monetary termsor which cannot be cured, usually because one party cannot collectdamages from the other. Examples of the former include instances whereone party will be put out of businesses by the court's decision (R.L. CrainInc. v. Hendry (1988) 48 D.L.R. (4th) 228, 67 Sask. R. 123, 8 A.C.W.S. (3d)380 (Q.B.)); where one party will suffer permanent market loss or irrevocabledamage to its business reputation (American Cyanamid, supra); or where apermanent loss of natural resources will be the result when a challengedactivity is not enjoined (MacMillan Bloedel Ltd. v. Mullin, [1985] 3 W.W.R.577, 61 B.C.L.R. 145 (C.A.)).
(RJR-Macdonald, supra at 405).
(3) Balance of Convenience
At the third stage, the assessment of the balance of convenience will include considerationof the damage each party alleges it will suffer. Numerous factors may be considered atthis stage of the test depending on the particular facts at issue. Also included in theassessment of the balance of convenience is the consideration of the public interest.
The public interest is a "special factor" to be considered in the balance of convenience testand must be "given the weight it should carry" (Metropolitan Stores, supra at 349). Thecourt in RJR-Macdonald, supra at 407 quoted with approval the words of Blair, J. in inAinsley Financial Corp. v. Ontario (Securities Commission) (1993), 106 D.L.R. (4th) 507 atp. 530, 10 B.L.R. (2d) 173, 14 O.R. (3d) 280:
...The interests of the public, which the agency is created to protect, mustbe taken into account and weighed in the balance, along with the interestsof the private litigants.
Where the case involves a public authority, RJR-Macdonald, supra at 409 states:
...the onus of demonstrating irreparable harm to the public interest is lessthan that of a private applicant. This is partly a function of the nature of thepublic authority and partly a function of the action sought to be enjoined.The test will nearly always be satisfied simply upon proof that the authorityis charged with the duty of promoting or protecting the public interest andupon some indication that the impugned legislation, regulation, or activitywas undertaken pursuant to that responsibility. Once these minimalrequirements have been met, the court should in most cases assume thatirreparable harm to the public interest would result form the restraint of thataction.
4. DECISION
(1) Serious Question
Counsel for Mr. Ornstein and Mr. Sofer advanced little argument concerning the first testof whether there is a serious question to be tried. Staff counsel argued that the Notice ofAppeal does not establish that there is a serious issue to be tried.
While we were not persuaded that there is a serious issue to be tried, we are not inclinedto base our decision on the application of the first branch of the test as it is a low thresholdtest. Rather we will consider arguments on each of the tests.
(2) Irreparable Harm
As stated above, irreparable harm refers to the nature of the harm suffered rather than itsmagnitude. The Motion Respondents have not identified specific businesses or securitiesthat will be compromised due to the imposition of penalties, nor have they identified abusiness that could not be revived or share values that would lapse unless a stay ofpenalties is granted. Instead, the motion asks that the Motion Respondents be permittedto engage in new enterprises which, among other activities, would involve the purchasesand sales of the shares of private and public corporations.
We are not satisfied that irreparable harm will result to the Motion Respondents if a stayis not granted, and the Motion Respondents have not met this stage of the test.
(3) Balance of Convenience
Before we consider the application of the balance of convenience test, we are of the viewthat it is necessary to revisit some key findings in the Reasons for Order dated October 8,1999.
As stated in the Reasons for Order, the focus of the Panel in these proceedings has beenthe protection of the public and not the punishment of a Respondent. The Commissionhas repeatedly held that orders should be made where there is a reasonable likelihoodthat objectionable conduct may continue in the future unless the Commission moves toprevent a recurrence.
Accordingly, with respect to Mr. Ornstein, in our Reasons for Order we stated at p. 6448:
We are satisfied that if the conduct of Mr. Ornstein is permitted to continue,there would be serious risk to the integrity of the capital markets as well asto the protection of the public interest...
In our view, taking into consideration the findings made against Mr. Ornstein,it is in the public interest that the registration of Mr. Ornstein be terminatedpursuant to paragraph 1 of subsection 127(1) of the Act. In addition, in orderto prevent Mr. Ornstein from participating in any capacity in the capitalmarkets in Ontario, we are of the view that it is necessary and appropriateto impose sanctions pursuant to paragraph 3 of subsection 127(1) of the Act.These sanctions remove Mr. Ornstein's trading exemptions as set out in theOrder. In removing the trading exemptions available to Mr. Ornstein, wespecifically considered that exceptions should be made with respect topersonal trading in certain limited circumstances after a two year period. Weare of the view that the orders made in respect of paragraph 3 of subsection127(1) of the Act are necessary in order to protect the public interest.
With respect to Mr. Sofer, in our Reasons for Order we stated at p. 6448:
We are satisfied that if Mr. Sofer were to seek to re-enter the securitiesindustry, there would be a serious risk that he would engage in similarconduct. We are also satisfied that if we were to permit such re-entry, therewould be a serious risk to the integrity of the capital markets as well as to theprotection of the public interest...
In our view, taking into consideration the findings made against Mr. Sofer, it is in the publicinterest that the registration of Mr. Sofer be suspended for a period of ten years pursuantto paragraph 1 of subsection 127(1) of the Act. In addition, in order to prevent Mr. Soferfrom participating in any capacity in the capital markets in Ontario, we are of the view thatit is necessary and appropriate to impose sanctions pursuant to paragraph 3 of subsection127(1) of the Act. These sanctions remove Mr. Sofer's trading exemptions as set out inthe Order for a period of ten years. In removing the trading exemptions available to Mr.Sofer, we specifically considered that exceptions should be made with respect to personaltrading in certain limited circumstances after a one year period. We are of the view thatthe orders made in respect of paragraph 3 of subsection 127(1) of the Act are necessaryin order to protect the public interest.
The Supreme Court of Canada has held that the balance of convenience test will nearlyalways be satisfied simply upon proof that the authority is charged with the duty ofpromoting or protecting the public interest and upon some indication that the impugnedlegislation, regulation, or activity was undertaken pursuant to that responsibility. Thepublic interest mandate of the Ontario Securities Commission is stated in s.1.1 of theSecurities Act:
The purposes of this Act are,
(a) to provide protection to investors from unfair, improper orfraudulent practices; and
(b) to foster fair and efficient capital markets and confidence incapital markets.
Further, s.127, under which authority the orders against Mr. Ornstein and Mr. Sofer weremade, grants the Commission the discretion to make one or more of the enumeratedorders if it is in the public interest to do so.
The Commission is charged with the protection of the public interest, and the Order wasmade pursuant to legislative discretion in the public interest. In our Reasons for Orderreferred to above, we found that there would be a serious risk to the integrity of the capitalmarkets as well as to the protection of the public interest if the conduct of the MotionRespondents was permitted to continue. Accordingly we found that it was in the publicinterest that the restrictions quoted above be imposed on Messrs. Ornstein and Sofer.Aside from a desire to engage in some new business enterprises, there is no evidence ofinconvenience to the Motion Respondents. Accordingly, we find that the balance ofconvenience clearly favours the protection of the public interest and that the MotionRespondents have not met this stage of the test.
The Motion Respondents have established neither irreparable harm, nor that the balanceof convenience lies in their favour. Consequently, the interests of justice do not call for astay. The motion is denied.
November 29th, 1999.
"David Brown" "Derek Brown"