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Securities - Securities Act - Insider Trading (2). Kraft v. Ontario (Securities Commission)
In Kraft v. Ontario (Securities Commission) (Ont Divisional Ct, 2025) the Divisional Court dismissed an appeal, here from "two decisions of the Capital Markets Tribunal (the “Tribunal”) in regulatory proceedings brought under the Securities Act, R.S.O. 1990, c. S.5 (the “Securities Act” or the “Act”) by the respondents the Ontario Securities Commission (the “OSC”) and the Chief Executive Officer of the OSC".
Here the court considers an optimistic Charter s.2(b) 'commercial expression' argument regarding the prohibited SA s.76(2) 'tipping':IX. Charter
[81] Mr. Kraft argued before the Tribunal that if it accepted that the test for establishing the NCOB exception in s. 76(2) was an objective one, then the section violated the Charter.
[82] Given its conclusion that the NCOB exception is objective, the Tribunal considered Mr. Kraft’s constitutional challenge to s. 76(2). As outlined above, the Tribunal found that s. 76(2) is a prima facie infringement of the freedom of expression right guaranteed by s. 2(b) of the Charter, but that it was a reasonable limit under s. 1 of the Charter.
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[84] The Tribunal began its analysis on s. 1 by agreeing with the OSC that the infringement at issue involved economic speech “that is at the outer edges of constitutional protection and also that the infringement in question is not serious. The prohibition on expression is only partial and the impacted expression involves the selective disclosure to a single or few persons of only a narrow category of business information (MNPI) in circumstances where such disclosure is not in the necessary course of business”: Merits Decision, at para. 366.
[85] With respect to the specific elements of the s. 1 analysis, the Tribunal accepted that the limitation on freedom of expression was prescribed by law. In doing so, it also accepted that “objective necessity in the NCOB exception provides an intelligible standard and thus is not vague”: Merits Decision at para. 368.
[86] The Tribunal correctly found that there was no dispute that the limitation in s. 76(2) addresses a pressing and substantial objective.
[87] With respect to proportionality, the Tribunal found that the limitation in s. 76(2) was rationally connected to its legislative objective, which was broader than merely seeking to prevent intentional or morally culpable tipping activity. On the issue of minimal impairment, the Tribunal accepted the OSC’s position that at this stage of the analysis the Legislature’s choices are to be given some deference; it is not to be held to a standard of perfection. This is particularly true with respect to s. 76(2) since the speech at issue is economic speech and the limitation only places a partial restriction on a narrow class of speech. The Tribunal also accepted the OSC’s argument that “the objective standard to establish the NCOB exception is a feature of the legislation intended to ensure that individuals are cautious before they make selective disclosure of MNPI and that the Legislature was deliberate about this for good reason”: Merits Decision, at para. 392. The Tribunal rejected Mr. Kraft’s expert evidence that an objective/subjective standard would equally achieve the legislative objective and found that his expert’s opinion as to the chilling effects of an objective standard for necessity was overstated. In this regard, the Tribunal preferred the evidence of the OSC’s expert because it was “more in keeping with common sense”, there is helpful guidance available to market participants about the NCOB exception and there was no evidence before it that s. 76(2) “is actually having or has actually had a chilling effect on corporate insiders’ willingness to seek external advice or willingness to serve as directors”: Merits Decision, at paras. 396-97. Given these findings, the Tribunal concluded that “what is accomplished by s. 76(2) is more than proportional to the minimal intrusion”: Merits Decision, para. 400. Therefore, it dismissed Mr. Kraft’s Charter challenge.
[88] Mr. Kraft submits that the Tribunal erred in finding that s. 76(2) was saved under s. 1 of the Charter. First, he argues that the Tribunal erred in concluding that the expression at issue was on the “outer edges of constitutional protection” and that the infringement in question was not serious. With respect to the test under s. 1, while he accepts that the infringement of his right to free expression was prescribed by law and addresses a pressing and substantial objective, he argues that a purely objective test fails the minimal impairment branch of the proportionality analysis.
[89] All parties accept that this issue raises a question of law that must be reviewed on the correctness standard.
[90] According to Mr. Kraft, the Tribunal’s devaluation of commercial or economic expression is inconsistent with Supreme Court of Canada jurisprudence, particularly Ford v. Quebec (Attorney General), 1988 CanLII 19 (SCC), [1988] 2 S.C.R. 712, in which the court states, at para. 59:In our view, the commercial element does not have this effect. Given the earlier pronouncements of this Court to the effect that the rights and freedoms guaranteed in the Canadian Charter should be given a large and liberal interpretation, there is no sound basis on which commercial expression can be excluded from the protection of s. 2(b) of the Charter. It is worth noting that the courts below applied a similar generous and broad interpretation to include commercial expression within the protection of freedom of expression contained in s. 3 of the Quebec Charter. Over and above its intrinsic value as expression, commercial expression which, as has been pointed out, protects listeners as well as speakers plays a significant role in enabling individuals to make informed economic choices, an important aspect of individual self-fulfillment and personal autonomy. The Court accordingly rejects the view that commercial expression serves no individual or societal value in a free and democratic society and for this reason is undeserving of any constitutional protection. [91] According to Mr. Kraft, he disclosed information to Mr. Stein for the purpose of enabling WeedMD to make a more informed economic choice. Far from being “on the outer edges”, Ford makes it clear that this was “an important aspect of individual self-fulfillment and personal autonomy.”
[92] While Ford clearly recognizes the value of commercial speech, it does so to find that it is the type of speech that is worthy of constitutional protection. In Rocket v. Royal College of Dental Surgeons (Ontario), 1990 CanLII 121 (SCC), [1990] 2 S.C.R. 232, at pp. 246-47 McLachlin J. (as she then was) emphasized the importance of evaluating the nature of the expression under s. 1, and stated the following regarding commercial expression:While the Canadian approach does not apply special tests to restrictions on commercial expression, our method of analysis does permit a sensitive, case-oriented approach to the determination of their constitutionality. Placing the conflicting values in their factual and social context when performing the s. 1 analysis permits the courts to have regard to special features of the expression in question. As Wilson J. notes in Edmonton Journal v. Alberta (Attorney General), 1989 CanLII 20 (SCC), [1989] 2 S.C.R. 1326, not all expression is equally worthy of protection. Nor are all infringements of free expression equally serious. [93] As Rocket recognizes, the aim of commercial expression is economic – to increase profit. Mr. Kraft’s desire to communicate MNPI was driven by his view that he wished Mr. Stein’s input on whether the lease deal at issue was a good one for WeedMD, that is, would it make WeedMD more profitable. The core values of free expression are “(1) seeking and attaining the truth is an inherently good activity; (2) participation in social and political decision-making is to be fostered and encouraged; and (3) the diversity in forms of individual self-fulfillment and human flourishing ought to be cultivated in an essentially tolerant, indeed welcoming, environment not only for the sake of those who convey a meaning, but also for the sake of those to whom it is conveyed ”: Irwin Toy Ltd. V. Quebec(Attorney General), 1989 CanLII 87 (SCC), [1989] 1 S.C.R. 927 at 976. As Rocket points out at p. 476, restricting communication where the risk is loss of profit “might be easier to justify” than restrictions where there is a “loss of opportunity to participate in the political process or the ‘marketplace of ideas’, or to realize one’s spiritual or artistic self-fulfillment.”
[94] In R. v. Keegstra, 1990 CanLII 24 (SCC), [1990] 3 S.C.R. 697, the Supreme Court confirmed that the nature of the expressive activity at issue should be considered in the s. 1 analysis. As put by the Court at pp. 759-60:[T]he interpretation of s. 2(b) … gives protection to a very wide range of expression. Content is irrelevant to this interpretation, the result of a high value being placed upon freedom of expression in the abstract. This approach to s. 2(b) often operates to leave unexamined the extent to which the expression at stake in a particular case promotes freedom of expression principles. In my opinion, however, the s. 1 analysis of a limit upon s. 2(b) cannot ignore the nature of the expressive activity which the state seeks to restrict. While we must guard carefully against judging expression according to its popularity, it is equally destructive of free expression values, as well as the other values which underlie a free and democratic society, to treat all expression as equally crucial to those principles at the core of s. 2(b). [Underline in original, italics added]. [95] In 3510395 Canada Inc. v. Canada (Attorney General), 2020 FCA 103, [2021] 1 F.C.R. 615, at para. 197, the Federal Court of Appeal held that “the Supreme Court’s discussion of commercial expression in both Keegstra and Rocket leaves no doubt that this form of expression lies some distance from the core of s. 2(b)”. Similarly, in College of Midwives of British Columbia v. MaryMoon, 2020 BCCA 224, 40 B.C.L.R. (6th) 151, the British Columbia Court of Appeal found at para. 106 that “[l]imiting commercial expression is generally easier to justify because of the tenuous connection of commercial expression to the values underlying s. 2(b)”.
[96] Thus, contrary to the submissions of Mr. Kraft, the jurisprudence is clear that the Tribunal was correct when it found that commercial expression is considered of “less value” than other forms of expressive activity that are more closely connected to the core values that underlie the s. 2(b) right.
[97] The suggestion that the Tribunal erred in its analysis of the seriousness of the impairment also has no merit. Assessing proportionality requires looking at the extent to which the impugned provision actually impairs expression. The Tribunal was correct when it found that “[t]he prohibition on expression is only partial and the impacted expression involves the selective disclosure to a single or few persons of only a narrow category of business information (MNPI) in circumstances where such disclosure is not in the necessary course of business.” Section 76(2) only applies to people who are in a special relationship with the issuer; it only prohibits the disclosure of a limited category of information (MNPI); the limitation is time limited as once public disclosure has occurred the prohibition ceases to apply and the general prohibition is subject to the NCOB exception. In Ramsden v. Peterborough (City), 1993 CanLII 60 (SCC), [1993] 2 S.C.R. 1084, at pp. 1105-6, the Supreme Court confirmed that a “time, place or manner restriction” on expression is easier to justify under s. 1 than a “complete ban” on expression.
[98] Mr. Kraft’s argument that the Tribunal erred in its minimal impairment analysis is essentially an argument that the Tribunal should have accepted that the test for the NCOB exception was a subjective/objective one as this would impair the right to free expression less than the purely objective test. The problem with this submission is that the legislature “is not required to search out and to adopt the absolutely least intrusive means of attaining its objective”: R. v. Chaulk, 1990 CanLII 34 (SCC), [1990] 3 S.C.R. 1303, at 1341. As long as the means chosen falls within a range of reasonable alternatives, deference is owed to the legislature’s choice. The standard is not one of perfection: RJR-MacDonald Inc. v. Canada, 1995 CanLII 64 (SCC), [1995] 3 S.C.R. 199, at para. 160. Further, a higher degree of deference is owed where, as here, the challenged law is part of a regulatory response to a complex social problem. As put by the Supreme Court in Hutterian Brethren of Wilson Colony v. Alberta, 2009 SCC 37, [2009] 2 S.C.R. 567, at para. 37:Where a complex regulatory response to a social problem is challenged, courts will generally take a more deferential posture throughout the s. 1 analysis than they will when the impugned measure is a penal statute directly threatening the liberty of the accused…. The bar of constitutionality must not be set so high that responsible, creative solutions to difficult problems would be threatened. A degree of deference is therefore appropriate. [99] In this case, the complex contextual factors support a more deferential approach to minimal impairment. Section 76(2) is part of a regulatory scheme designed to address multiple policy objectives. How to foster these objectives involves choosing among a number of different solutions without being able to be certain as to which will be the most effective. While expert evidence can assist in assessing the impact of s. 76(2), the harms of insider tipping are not capable of precise demonstration. Providing the legislature with a margin of appreciation under s. 1 recognizes that there may be more than one way to address the harms of insider tipping in the manner that complies with the Charter. . Kraft v. Ontario (Securities Commission)
In Kraft v. Ontario (Securities Commission) (Ont Divisional Ct, 2025) the Divisional Court dismissed an appeal, here from "two decisions of the Capital Markets Tribunal (the “Tribunal”) in regulatory proceedings brought under the Securities Act, R.S.O. 1990, c. S.5 (the “Securities Act” or the “Act”) by the respondents the Ontario Securities Commission (the “OSC”) and the Chief Executive Officer of the OSC".
Here the court considered the SA s.76(2) 'tipping' element of "necessary course of business" (NCOB), and whether it that judged on a subjective or an objective standard:[52] Whether the NCOB exception is established on an objective test or on a subjective/objective test is an issue of statutory interpretation, which is a question of law, attracting a correctness standard of review.
[53] The Tribunal rejected Mr. Kraft’s submission that the absence of the terms “reasonably” or “reasonable” from s. 76(2) of the Act implies that the drafters of the legislation did not intend for a purely objective test to be used when considering the applicability of the NCOB exception. While acknowledging that the inclusion of these terms tends to imply an objective standard, the Tribunal identified that the absence of the words “reasonably” or “reasonable” does not automatically mean that a subjective/objective test is required. We agree. The Tribunal correctly noted that the caselaw relied on by Mr. Kraft does not further his point: Merits Decision, at para 251.
[54] The Tribunal identified that language that typically imports a subjective/objective approach is also absent from s. 76(2) of the Act. The Tribunal cited s. 76(4) wherein a defence to the tipping prohibition is available if it can be proven that a person or company in a special relationship with the issuer “reasonably believed” that the material fact had already been disclosed. Another instance where the Legislature has expressed itself to indicate that the test to be applied contains a subjective element is in the regulations which provide an exemption from s. 76(2) where a respondent proves they “reasonably believed” that the tippee knew of the MNPI: General, R.R.O. 1990, Reg. 1015, s. 175(5). As the Tribunal correctly noted, this demonstrates that when a subjective/objective test is to be applied within the Act, it is plain and obvious: Merits Decision, at para. 255.
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[60] An objective test to determine whether the selective disclosure of MNPI is necessary in the course of business is consistent with the Tribunal’s narrow interpretation of the NCOB exception and the purpose of securities regulatory framework as a whole. Accordingly, we find that the Tribunal correctly concluded that s. 76(2) requires that the NCOB exception be proven by reference to an objective standard.
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