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Administrative - Administrative PenaltiesThe term 'administrative penalties' refers to a new and specific types of regulatory financial penalty which is largely replacing the offence provisions in most Ontario regulatory statutes. They are preferred by the government as they are cheaper and easier to administer than prosecutable offences heard in the Ontario Court of Justice, which are governed by the Provincial Offences Act. As well, as these 'administrative penalties' do not include the possibility of incarceration (however short) they are also attractive to regulators as they have no Charter s.7 ['life, liberty and security of the person'] defences.
. Kitmitto v. Ontario (Securities Commission)
In Kitmitto v. Ontario (Securities Commission) (Div Court, 2024) the Divisional Court considers (and dismissed) related appeals from two Capital Markets Tribunal (CMT) decisions, one respecting 'merits' and one respecting 'sanctions' [under Securities Act (SA), s.10(1)], here addressing SA 76 "which prohibits insider trading and tipping" ['Part XVIII - Continuous Disclosure ' ('Trading where undisclosed change' and 'Tipping')].
Here the court considers an appeal against tribunal-assessed securities 'penalties' [para 169] - though also referred to as 'sanctions' by the tribunal [para 164] - while holding that they are not 'punishments' [para 179] [SS: a distinction that I am not comfortable with]:[3] In the “Sanctions Decision” dated January 20, 2023 (reported at 2023 ONCMT 4), the Tribunal imposed various sanctions, including market participation bans, administrative monetary penalties, disgorgement of profits, and costs.
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[5] In the alternative, Mr. Kitmitto and Mr. Goss submit that the Tribunal erred in the Sanctions Decision, including by imposing punitive sanctions that were not proportionate to their conduct and that did not properly take into account mitigating factors applicable to them individually.
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[177] The Supreme Court of Canada has recognized that the Tribunal has “very wide discretion” to intervene in the public interest, including when imposing sanctions designed to prevent likely future harm to Ontario’s capital markets: Committee for the Equal Treatment of Asbestos Minority Shareholders v Ontario (Securities Commission), 2001 SCC 37, [2001] 2 S.C.R. 132, at paras. 39-45; see also Cartaway Resources Corp (Re), 2004 SCC 26, [2004] 1 S.C.R. 672, at paras. 45, 63. The circumstances in which an appellate court may interfere with the exercise of that discretion are very limited. The weight given to any individual sanctioning factor will vary from case to case and falls within the Tribunal’s discretion. No one factor should be considered in isolation “because to do so would skew the textured and nuanced evaluation conducted by the Commission in crafting an order in the public interest”: Cartaway, at para. 64.
[178] The arguments of Mr. Kitmitto and Mr. Goss relating to penalty and costs do not meet the high bar for appellate intervention. In large measure, they repeat the submissions they made before the Tribunal at the sanctions hearing, which the Tribunal considered and rejected after due consideration.
[179] I do not agree that the penalties the Tribunal imposed are properly characterized as punitive. The Tribunal, at para. 6, correctly enunciated its preventive (rather than punitive) role when imposing sanctions, noting that its role “is not to punish past conduct, but to restrain “future conduct that is likely to be prejudicial to the public interest in having capital markets that are both fair and efficient”, citing Mithras Management Ltd (Re) (1990), 13 OSCB 1600, at p. 1611. The Tribunal, at para. 7, also recognized that the sanctions must be appropriate and proportionate to the circumstances of each respondent, emphasizing again that punishment is not a permissible goal of sanctions: see Azeff (Sanctions), at paras. 7, 10. After careful consideration of the circumstances of the culpable defending parties, both collectively and individually, the Tribunal imposed the sanctions outlined previously and explained the reasons for doing so. I see nothing in the Tribunal’s analysis to suggested that they erred in principle in doing so.
[180] Previous case law has recognized that participation in the capital markets is a privilege, not a right: see Erikson v. Ontario (Securities Commission) (2003), 169 O.A.C. 80 (S.C.), at para. 55, citing Manning v. Ontario (Securities Commission) (1996), 94 O.A.C. 15 (Div. Ct.), at paras. 10-11. Significant market bans, including director and officer bans, are well established market protective measures that have been imposed, and upheld on appeal, in other insider tipping and trading cases: see Azeff (Sanctions)[4], at paras. 9, 21, 28, 40, 42; Agueci (Sanctions), at para. 87, aff’d 2016 ONSC 6559, 133 O.R. (3d) 81 (Div. Ct.). The Tribunal, at para. 25, amply addressed and justified director and officer bans in this case, having considered Mr. Goss’ submissions to the contrary. I see no basis for appellate intervention.
[181] I also see no basis for concluding that the administrative penalties were punitive. As the Court of Appeal and this court have repeatedly recognized, insider tipping and trading are serious breaches of securities laws that erode public confidence in the capital markets: see Finkelstein, at paras. 22-25; Fiorillo v Ontario (Securities Commission), 2016 ONSC 6559, 133 O.R. (3d) 81 (Div. Ct), at para. 289. In Rowan v. Ontario (Securities Commission), 2012 ONCA 208, 110 O.R. (3d) 492, at para. 49, the Court of Appeal stated that administrative penalties of up to $1 million per infraction (the maximum amount that the Tribunal may impose under s. 127(1)9 of the Securities Act) were entirely in keeping with the OSC’s mandate to regulate the capital markets where (as here) large sums of money are involved and where substantial penalties are necessary to remove economic incentives for non-compliance with market rules. The court recognized that an administrative penalty must not be viewed as “a ‘cost of doing business’ or a ‘licencing fee’ for unscrupulous market participants”: Rowan, at para. 49.
[182] I also see no error in the Tribunal’s methodology in calculating the administrative penalties. As the Tribunal explained at para. 27-28, the $200,000 per breach baseline was determined with due consideration of the seriousness of the misconduct, precedents set by past cases (in particular Azeff (Sanctions), at para. 33, and Agueci (Sanctions), at paras. 38, 40, 45, which respectively ordered $150,000 and $250,000 per illegal tip or trade), and the significant passage of time since those earlier (2015) decisions. The Tribunal, at para. 29-30, then assessed whether any variation from the per-breach benchmark was appropriate for each individual, with due consideration to mitigating and aggravating factors.
[183] As well, I am not persuaded by Mr. Kitmitto’s submission that the sanctions imposed on him were out of line with those imposed in previous cases, notably Agueci (Sanctions) and Cheng (Sanctions). In those cases, there were distinguishing factors that justified a different result, in the exercise of the Tribunal’s discretion: see Agueci (Sanctions), at para. 29; Cheng (Sanctions), at paras. 7, 10. For example, Mr. Cheng acknowledged and admitted his wrongful conduct, cooperated with OSC staff’s investigation and agreed to testify as a witness. In determining penalty, it would be an error in principle to consider as an aggravating factor Mr. Kitmitto’s failure to admit his wrongdoing and cooperate with OSC staff, since to do so would be inconsistent with his right of make full answer and defence: see Sanctions Decision, at para. 15. However, the fact remains that it was open to the panel in Cheng (Sanctions) to consider Mr. Cheng’s admission and cooperation as a mitigating factor in determining penalty, a consideration that was not open to the Tribunal when determining the appropriate sanction for Mr. Kitmitto.
[184] More generally, I do not agree that the Tribunal erred by failing to consider mitigating factors and individual circumstances for sanctions purposes. The Tribunal explicitly considered the facts and circumstances of each offending party, including those highlighted by Mr. Kitmitto and Mr Goss. The Tribunal rejected certain facts and arguments as mitigating in all the circumstances of the case, including after giving due consideration to the factors militating in favour of significant sanctions: see Sanctions Decision, at paras. 8, 17, 30, 33-40 (re Mr. Kitmitto) and 60-71 (re Mr. Goss). It was within the Tribunal’s discretion to do so. Mr. Kitmitto and Mr. Goss have identified no reversible errors of principle associated with the Tribunal’s exercise of its discretion, nor are the penalties imposed clearly unfit. . Kitmitto v. Ontario (Securities Commission)
In Kitmitto v. Ontario (Securities Commission) (Div Court, 2024) the Divisional Court considers (and dismissed) related appeals from two Capital Markets Tribunal (CMT) decisions, one respecting 'merits' and one respecting 'sanctions' [under Securities Act (SA), s.10(1)], here addressing SA 76 "which prohibits insider trading and tipping" ['Part XVIII - Continuous Disclosure ' ('Trading where undisclosed change' and 'Tipping')].
Here the court cites an appellate SOR for administrative penalty decisions, here in a securities context but by citing some related RHPA law:[168] The standard of review that applies on appeal of a tribunal’s penalty decision or costs award is one of considerable deference.
[169] An appeal court will interfere with a tribunal’s penalty decision only if the tribunal made an error in principle or the penalty is clearly unfit: College of Physicians and Surgeons of Ontario v. Peirovy, 2018 ONCA 420, 143 O.R. (3d) 596, at para. 38. A penalty will be clearly unfit where the decision does not fall within “a range of possible, acceptable outcomes which are defensible in respect of the facts and law”: Peirovy, at para. 38, citing Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190, at para. 47. . Ramirez v. Registrar, Alcohol, Cannabis and Gaming Regulation and Public Protection Act
In Ramirez v. Registrar, Alcohol, Cannabis and Gaming Regulation and Public Protection Act (Div Court, 2023) the Divisional Court considered (and dismissed) a JR against a LAT decision to uphold an 'order for monetary penalty' issued by the Registrar of the Alcohol and Gaming Commission of Ontario (“AGCO”) under s.14.1 of the Alcohol, Cannabis and Gaming Regulation and Public Protection Act, 1996[2] (“ACGRPPA”). The case is unremarkable, argued largely on the denial of an adjournment - but is useful to illustrate such procedures.
. 1048547 Ontario Inc. v Dairy Farmers of Ontario
In 1048547 Ontario Inc. v Dairy Farmers of Ontario (Div Court, 2023) the Divisional Court allowed a Milk Act tribunal [the 'Agriculture, Food and Rural Affairs Appeal Tribunal' (AFRAAT)] to assess chargeable milk usage at it's highest rate (by default) where the JR applicant had not provided verifiable milk usage records. On JR the applicant argued unsuccessfully that this practice constituted an administrative penalty, which was unauthorized by the involved statute:The penalty/surcharge issue
[26] The Tribunal also considered the Applicant’s argument that by charging the highest price for milk purchased during the audit period, the DFO created a surcharge that acts as a penalty on the Applicant, which is inconsistent with the Act and an impermissible reading in of words which were not intended. The Applicant pointed to s. 7(1)6 of the Milk Act, which grants 6 regulation-making powers to the Commission, including the use of penalties where there has been a contravention of the Act, regulations or order of the Commission. In addition, s. 7(3) of the Milk Act limits any penalty for non-producers of milk to no more than 10 per cent of the price payable to the producers for the product in the preceding twelve-month period.
[27] The Tribunal concluded that the deemed highest price levied on the Applicant was not a “penalty” used to deter non-compliance with the legislative scheme; rather it was part of the scheme for ensuring fair payment to milk producers. It preferred to refer to the increased amount owing as a “surcharge.” This seems quite appropriate, and reasonable; a surcharge, dictionaries tell us, is an additional charge or payment, or something added to the original cost or quoted price.
[28] On the other hand, the Applicant submits that any disadvantage imposed by a statute amounts to a penalty, relying on Regina v. Budget Car Rentals (Toronto) Ltd. (1981), 1981 CanLII 1751 (ON CA), 31 O.R. (2d) 161 (C.A.), in which the Court of Appeal for Ontario cited the Shorter Oxford English Dictionary definition of penalty: “a punishment imposed for breach of law, rule, or contract; a loss, disability, or disadvantage of some kind, either fixed by law for some offence, or agreed upon in case of violation of a contract”. The Applicant points to examples of other regulatory actions which have been found to constitute penalties, such as licence revocations, or milk quota reduction: see Dimi Meat Products v. Director, 2010 ONAFRAAT 8; Senn and Suter v. DFO, 2015 ONAFRAAT 2.
[29] These cases provide examples of regulatory disadvantages, which might also include fines, imposed in reaction to a breach of a law or rule. In contrast, s. 24(2) of the DFO Regulation is based on an expectation of accurate milk usage reporting. While there may be an economic disadvantage to being deemed to have purchased milk at the highest price, the information required to support a claim to lower pricing is wholly within the control of the processor, and the failure of the processor to support a lower price simply means it is charged the higher price. The provisions do not function as “punishment”, nor is the surcharge a fine; rather, the ability to increase the price is simply a mechanism to ensure, as the Tribunal noted (at para. 110), that dairy farmers receive “fair and proper compensation.”
[30] Further, if milk usage is later established by verified records, s. 24(3) allows for an adjustment downward. This is a pricing scheme that is subject to validation, for known pre-set price classifications, and it is up to the processors to support their claim for a lower price.
[31] The Applicant submitted that the Tribunal did not discuss or consider the effect of s. 24(3) of the DFO Regulation, arguing that it was not available to it once the word “verifiable” was read into s. 24(2). However, in para. 109 of its decision, the Tribunal addressed s. 24(3), stating the Applicant’s position that “since [the Applicant] can never provide a verifiable MUV declaration, the savings clause becomes a penalty clause.” Although the Tribunal did not respond directly to this point, as we have already stated, the Applicant’s inability to support an adjustment to a lower price does not make being charged the higher price a penalty; it is, as the Tribunal said, simply a mechanism to ensure that dairy farmers receive “fair and proper compensation.”
[32] The Tribunal also observed that the penalty provisions referenced in s. 7 of the Milk Act, as well as the limits on penalties, relate to penalties that flow following a hearing to determine whether an applicant “has failed to comply with or has contravened… any provision of this Act, regulations, any plan, order or direction of the Commission or marketing board.” That is a different regulatory response and procedure than is found in the operation of the price provisions in s. 24(2) of the DFO Regulation.
[33] The practical impact of the Applicant’s position would allow processors to avoid the implications of s. 24(2) and thereby create an incentive, flowing from the 10 per cent limit on penalties, to engage in large scale deceptive record-keeping practices in order to take advantage of the price classification system as a cost of doing business. This would be at odds with the goal of fairly compensating milk producers based on the use of their product.
[34] In our view, therefore, the Tribunal made a reasonable decision in finding that the operation of s. 24 does not give rise to a “penalty” at all, let alone one which is subject to the limiting provision in s. 7(3) of the Milk Act.
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[37] The evidence before the Tribunal, summarized by it at paras. 58 – 64 of the decision, was that the Applicant’s records were incomplete. There were discrepancies in reported production and sales numbers, inconsistencies between production and manufacturing records, and material differences in volumes of milk used for certain products and total purchases. Numerous records were requested but not provided. . 2099065 Ontario Inc. v Ontario (Health and Long-term Care)
In 2099065 Ontario Inc. v Ontario (Health and Long-term Care) (Div Ct, 2021) the Divisional Court commented on administrative penalties:[61] It is well established that in order to overturn a penalty imposed by an administrative decision maker, it must be shown that the decision maker made an error in principle or that the penalty was “clearly unfit.” The courts have used a variety of expressions to describe a penalty that reaches this threshold, including “demonstrably unfit”, “clearly unreasonable”, “clearly or manifestly excessive”, “clearly excessive or inadequate” or representing a “substantial and marked departure” from penalties in similar cases. To be clearly unfit, the penalty must be disproportionate or fall outside the range of penalties for similar offences in similar circumstances. A fit penalty is guided by an assessment of the facts of the particular case and the penalties imposed in other cases involving similar infractions and circumstances, College of Physicians and Surgeons of Ontario v. Peirovy, 2018 ONCA 420 at para. 56.
[62] In my view, the Executive Officer’s decision on remedy is reasonable and is one to which the court ought to defer in light of the Executive Officer’s particular expertise with this complicated system: AS169988 Consultants Inc. v. Her Majesty the Queen (in the right of the Province of Ontario), Ministry of Health and Long-Term Care (Ontario), 2019 ONSC 2967 (Div. Ct.) (Warden Pharmacy), para. 48.
[63] I would adopt the words of Myers J. in Warden Pharmacy when he wrote, in para. 45, that “having decided to make an honour system available to registered professionals so as to minimize enforcement costs and thereby to maximize the availability of funds for needy beneficiaries, it is not at all surprising that termination would be the usual remedy for significant abuse of the honour system. The applicant’s position would require the Ministry to incur ongoing enforcement costs monitoring the pharmacy.” So it is here.
[64] Although it is true that rehabilitation is an important objective in the penalty process, so is the preservation of the public purse and general deterrence. This is especially true in the context of a large, province-wide benefit program operated on the honour system. The potential for abuse is high, as is the harm to the public given that drug benefit resources are not unlimited.
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