Sharp v. Autorité des marchés financiers, 2021 QCCA 1364, 2023 SCC 29 (39920)
“Four British Columbia residents (the “defendants”) are alleged by the administrative agency that regulates Quebec’s financial sector, the Autorité des marchés financiers (“AMF”), to have engaged in a transnational “pump‑and‑dump” securities manipulation scheme. The defendants allegedly acted in concert to (1) acquire the shares of a shell company, (2) give it a legitimate face, (3) promote its business, (4) sell their shares for a profit, and (5) distribute this profit among themselves. The AMF also alleged that the scheme had several ties to Quebec sufficient to apply Quebec’s securities regulatory scheme to the defendants: the shell company was a reporting issuer in Quebec with a Montréal business address; its director was a Quebec resident when the scheme was implemented; its promotional activities were accessible to Quebec residents; and, ultimately, Quebec investors lost money.
The AMF brought an originating pleading before Quebec’s Financial Markets Administrative Tribunal (“FMAT”) alleging that the defendants contravened the Quebec Securities Act. It asked the FMAT to make various orders against the defendants. The defendants filed motions for a declinatory exception challenging the FMAT’s jurisdiction over them as out‑of‑province defendants. The FMAT dismissed the defendants’ motions. It ruled that it had jurisdiction over them under s. 93 of the Act respecting the Autorité des marchés financiers, which grants the FMAT jurisdiction to make determinations under the Securities Act, in light of the Court’s decision in Unifund Assurance Co. v. Insurance Corp. of British Columbia, 2003 SCC 40, [2003] 2 S.C.R. 63, which held that a provincial regulatory scheme constitutionally applies to an out‑of‑province defendant when there is a “sufficient connection” or a “real and substantial connection” between the province and the defendant.
The Superior Court of Quebec dismissed the defendants’ applications for judicial review and held that the FMAT properly assumed jurisdiction. The court stated that the FMAT correctly recognized the limits of its extraterritorial reach by applying the “real and substantial connection” test set out in Club Resorts Ltd. v. Van Breda, 2012 SCC 17, [2012] 1 S.C.R. 572, and that the FMAT correctly applied the Unifund test for the constitutional applicability of provincial legislation. The majority of the Court of Appeal of Quebec dismissed the defendants’ appeals. It concluded that the real and substantial connection test in Unifund addresses the constitutional applicability of the Quebec securities scheme to non‑residents who allegedly engaged in a securities manipulation scheme with connections to Quebec, and that the FMAT correctly concluded there is a real and substantial connection between Quebec and the defendants and properly assumed jurisdiction. The majority also ruled that although the Civil Code of Québec (“C.C.Q.”) acts as suppletive law for many matters, including certain aspects of public law, the private international law rules in Book Ten of the C.C.Q. do not apply when no private rights are at issue. The concurring judge would have held that the FMAT has jurisdiction over the out-of-province defendants under the rules of private international law in Title Three of Book Ten of the C.C.Q., either by analogy under art. 3148 para. 1(3) C.C.Q., or, alternatively, under art. 3136 C.C.Q.”
The SCC (7:1) dismissed the appeal.
Chief Justice Wagner and Justice Jamal wrote as follows (at paras. 5-10, 118-123, 136-137):
“For the reasons that follow, we conclude that the FMAT has jurisdiction over the appellants under the Securities Act and the Act respecting the Autorité des marchés financiers.
The C.C.Q. is the starting point in any interpretive exercise involving the C.C.Q. and special laws. The preliminary provision of the C.C.Q. provides that the C.C.Q. is the jus commune and the foundation of all other laws in Quebec, and that other laws may complement or make exceptions to the C.C.Q.
In this case, the character of the proceedings and the conclusions sought before the FMAT could suggest, at first blush, a regulatory matter that does not concern the C.C.Q. The dispute involves a public regulator seeking prohibitions and administrative penalties under a legislative scheme designed to protect the public interest in the securities markets. One might indeed expect jurisdiction over this regulatory scheme to stand outside the scope of Quebec’s law of general application established by the C.C.Q., which mainly governs “persons, relations between persons, and property” (preliminary provision). But securities law, as enacted by the Quebec Securities Act, is of a hybrid character. On the one hand, the Securities Act has enforcement and administrative law rules in place to protect the public interest that give the legislation a fundamentally regulatory orientation. On the other hand, the Securities Act also has a title bearing on civil actions (Title VIII). While the FMAT’s jurisdiction bears principally on the regulatory orientation of the Securities Act, its authority established by the Act respecting the Autorité des marchés financiers extends to the title on civil actions in the Securities Act, except where excluded by law. Given this hybrid character of securities regulation, the better view is that Book Ten of the C.C.Q., as part of Quebec’s jus commune, is the appropriate starting point for analyzing the “International Jurisdiction of Québec Authorities” in this field, including the FMAT.
This calls for a review of the general and special rules in the C.C.Q. to determine whether the FMAT has jurisdiction over the out-of-province defendants in this case. We conclude that the C.C.Q.’s rules on private international law are applicable. However, here they provide no basis for jurisdiction over the out-of-province defendants, whether under art. 3134 C.C.Q., which sets out the residual rule based on domicile in Quebec, art. 3148 C.C.Q., which specifies the cases in which Quebec authorities have jurisdiction over personal actions of a patrimonial nature, or art. 3136 C.C.Q., which allows a Quebec authority to hear a dispute despite having no jurisdiction provided the dispute has a sufficient connection with Quebec and taking proceedings abroad is impossible or cannot reasonably be required.
Even so, we conclude that the FMAT has jurisdiction over the appellants under Quebec securities legislation. The Act respecting the Autorité des marchés financiers provides the FMAT with jurisdiction to make determinations under the Securities Act, including when there is a “real and substantial connection” between Quebec and out-of-province defendants. In our view, the allegations that the appellants used Quebec as the “face” of their securities manipulation and injured Quebec investors establish such a connection to give the FMAT jurisdiction over the appellants.
Put another way, the Quebec securities legislation constitutionally applies to the appellants. The Quebec legislature has exercised its prescriptive legislative jurisdiction — its power to enact binding rules applicable to out-of-province parties with a real and substantial connection to Quebec. Those rules are engaged in the circumstances of this case. As a result, the FMAT also has adjudicatory jurisdiction, or the authority to hear this matter involving the appellants.
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The “real and substantial connection” test has been described both as a single test that applies in a variety of different contexts (Van Breda, at paras. 23-31), and as a collection of different tests with a common family resemblance (J. Blom and E. Edinger, “The Chimera of the Real and Substantial Connection Test” (2005), 38 U.B.C. L. Rev. 373, at pp. 373-74). Although both views have merit, we refer to the “real and substantial connection” test as a family of tests to emphasize that the same formula of words — that is, “real and substantial connection” — involves different considerations in each of the varying contexts in which the formula is employed.
For example, in Morguard Investments Ltd. v. De Savoye, [1990] 3 S.C.R. 1077, this Court ruled that a court in one province should recognize and enforce a judgment of the court of another province if there is a “real and substantial connection” between that other court and the subject matter of the litigation (pp. 1107-8). In Beals v. Saldanha, 2003 SCC 72, [2003] 3 S.C.R. 416, the Court extended the principles in Morguard to foreign judgments and ruled that Canadian courts should recognize and enforce a judgment of a court outside Canada when there is a “real and substantial connection” between the cause of action and the foreign court (paras. 32 and 37).
In Van Breda, this Court developed a “real and substantial connection” test in the context of deciding whether a court can assume jurisdiction over a tort claim brought by Canadian residents who were injured abroad. The Court identified presumptive connecting factors that prima facie entitle a court to assume jurisdiction over a tort dispute and explained how such a presumption of jurisdiction is subject to rebuttal. The Court also clarified that this version of the “real and substantial connection” test is a common law test. In Quebec, “the Civil Code of Québec contains a list of factors that must be considered in order to determine whether a Quebec authority has jurisdiction over a delictual or quasi-delictual action (art. 3148)” (para. 77; see also Spar Aerospace, at paras. 55-56).
This Court also developed a version of the real and substantial connection test in Libman v. The Queen, [1985] 2 S.C.R. 178, to determine whether a transnational crime, which took place partly in Canada, could be prosecuted in Canada. The Court held that such a crime can be prosecuted in Canada when there is a “real and substantial link” between the offence and this country (pp. 212-13).
As a final example, this Court has developed a “real and substantial connection” test in the context of determining whether provincial legislation is constitutionally applicable to out-of-province defendants or circumstances (see Blom (2017), at pp. 288-89). In Hunt v. T&N plc, [1993] 4 S.C.R. 289, the Court decided that a Quebec “blocking” statute prohibiting the transfer of documents to other jurisdictions was constitutionally inapplicable to other provinces. The Court confirmed that “courts are required, by constitutional restraints, to assume jurisdiction only where there are real and substantial connections to that place”, and held that “the presence of such blocking statutes is an anachronism . . . inimical to [interprovincial] litigation if applied on the interprovincial level” (p. 328). In Unifund, this Court built on Hunt and ruled that provincial regulatory legislation is constitutionally applicable to out-of-province defendants when there is a “sufficient connection” between the province and the out-of-province defendants, subject to the principles of order and fairness (para. 56). The appellants’ argument and the Superior Court’s conclusion that the Van Breda “real and substantial connection” test should apply here are misplaced. Van Breda set out the real and substantial connection test in the context of tort claims at common law and does not apply in Quebec. The counterpart to the Van Breda test for personal actions of a patrimonial nature in Quebec is contained in art. 3148 C.C.Q. (Van Breda, at para. 77). In any event, in the present case, the Court is asked to determine whether Quebec’s securities regulatory scheme constitutionally applies to the out-of-province appellants as a matter of prescriptive legislative jurisdiction. Consequently, the Unifund test applies.
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In closing, it bears noting that while prescriptive legislative jurisdiction and adjudicatory jurisdiction are distinct concepts (Unifund, at para. 58), in this case the FMAT’s adjudicatory jurisdiction flows from the province’s prescriptive legislative jurisdiction. Section 93 of the Act respecting the Autorité des marchés financiers stipulates that the FMAT shall exercise jurisdiction under the Securities Act. Since the Quebec legislature has decided that the FMAT shall adjudicate alleged breaches of the Securities Act and the appellants’ alleged conduct has a real and substantial connection with Quebec, the FMAT necessarily has jurisdiction over the appellants in respect of their alleged contraventions. The special legislation, properly interpreted, thus provides for the FMAT’s adjudicatory jurisdiction.
The jurisdictional rules of the Quebec securities scheme are constitutionally applicable to the out-of-province appellants. These provisions grant the FMAT jurisdiction over the appellants’ alleged contraventions of the Securities Act. Based on the facts alleged by the AMF, there is a sufficient connection between Quebec and the appellants to justify applying Quebec’s security regulatory scheme to them. As a result, the FMAT correctly concluded that it has jurisdiction over the appellants.”