In a judgment handed down on November 17, 2023, the Supreme Court of Canada confirmed that the Financial Markets Administrative Tribunal (the "FMAT"), an administrative tribunal that decides disputes involving securities in Québec, had jurisdiction over out-of-province defendants who had allegedly been engaged in a transnational "pump-and-dump" scheme.
The facts that pointed to Québec having jurisdiction over the matter were the following:
- The President and Chief Executive Officer of the corporation, Solo International Inc. ("Solo"), whose securities were promoted, was a resident of Québec;
- Solo was a reported issuer in Québec and the named individual defendants were the shareholders of Solo;
- Solo had offices in Montréal;
- The advertising campaigns originated in Québec;
- A subsidiary of Solo, having the same CEO, had acquired mining claims in Québec; and
- Québec investors had suffered losses.
The Autorité des marchés financiers (the "AMF"), as the Québec securities commission is known, was apprised of the alleged pump-and-dump scheme and filed an enforcement proceeding before the FMAT. The AMF asked the FMAT for a monetary administrative penalty, for an order compelling the defendants to cease engaging in securities transactions and an order prohibiting them from acting as director or officer of an issuer. The defendants responded with a declinatory argument by claiming that the FMAT did not have jurisdiction over them on the basis that they were not residents of Québec, that they were in fact residents of British Columbia, that Solo was a company incorporated under the laws of the State of Nevada and that Solo's shares were traded in the over-the-counter market in New York.
The FMAT dismissed this declinatory argument of jurisdiction (ruling available in French only).
The Superior Court of Québec dismissed the application for judicial review (ruling in English).
The Court of Appeal dismissed the appeal (ruling in part in English and in part in French).
Even though all the judges of the Court of Appeal were of the opinion that the appeal should be dismissed, their reasons differed on one issue: two judges were of the view that it was unnecessary to rely on the private international law rules of the Civil Code of Québec (the "CCQ") and that the proper approach was to rely on the rules of public law and focus on whether there was a "real and substantial connection" between the litigation and Québec. The other judge took the view that the CCQ private international law rules should be applied.
The Supreme Court of Canada settled the debate and rejected the views of all three judges of the Court of Appeal, those relying on public law and that relying on the rules of the CCQ dealing with private international law.
The majority of the Supreme Court of Canada approached the issue from a different perspective, emphasizing the CCQ, in particular the preliminary provision which establishes that the CCQ is the "jus commune" of Québec i.e. the law of general application, and acts as a suppletive law when a question of interpretation and application of laws arises. In this case, however, it is not the CCQ which confers jurisdiction on the FMAT, but rather Québec securities legislation. The Act respecting the Autorité des marchés financiers (now known as the Act respecting the regulation of the financial sector) grants the FMAT jurisdiction to make decisions under the Securities Act, among other things.
These two statutes do not explicitly provide that the FMAT has jurisdiction over parties outside Québec. That said, in order to determine whether these two statutes apply in the circumstances, we must examine if there is a sufficient connection between the province of Québec, the purpose of these laws and the persons sought to be regulated.
The Court added that the analysis of such sufficient connection "must recognize the transnational nature of modern securities regulation and the public interest in addressing international market manipulation." (para. 128)
On the facts of this case, the Supreme Court ruled that such sufficient connection was established and that the FMAT therefore had jurisdiction over the defendants.
It will be interesting to observe the developments in this matter when the defendants return before the FMAT for the hearing on the merits.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.