Submissions to the Securities Commission
Re: New Proposals for Securities Regulations
The Law Society of British Columbia is the governing body of lawyers in the province of British Columbia. It is an institution whose origin dates back to 1869, and which has been continued under the Legal Profession Act, S.B.C. 1998 c. 9. Its membership comprises all persons called to the Bar in British Columbia who remain in good standing pursuant to the Legal Profession Act and its applicable rules as set out in the Law Society Rules. The Law Society is governed by the Benchers, being 25 members elected by the membership, together with up to six persons who are not members of the Law Society appointed by the Lieutenant Governor and Council, as well as the Attorney General of the province as an ex-officio Bencher. Every member of the Law Society admitted as a solicitor to the Supreme Court is an officer of all courts in the province.
The Legal Profession Act requires the Benchers to govern and administer the affairs of the Society and provides that the object and duty of the Society is to uphold and protect the public interest in the administration of justice by, inter alia, preserving and protecting the rights and freedoms of all persons and ensuring the independence, integrity, and honour of its members.
Earlier in 2002, the British Columbia Securities Commission released a concept paper entitled "New Concepts for Securities Regulations". The Law Society prepared and submitted submissions to the Securities Commission commenting on Concept 5 of that paper entitled "New Enforcement and Public Interest Powers". Concept 5 proposed that:
A Commission could prohibit professionals from engaging in practice involving that Commission if the professionals' conduct related to trading in securities is so egregious or grossly incompetent as to be contrary to the public interest.
Development of that concept in the Securities Commission Concept Paper suggested that professionals, including lawyers, sometimes engage in behaviour that negatively affects the integrity and efficiency of the capital markets and that Commissions cannot prevent such professionals from continuing to appear before a Commission or from preparing documents that are filed with it. The concept suggested that the Commission would be able to order that a professional, including a lawyer, not appear before it or prepare documents that are filed with it, similar to the powers which exist with the U.S. Securities and Exchange Commission.
In its earlier submissions to the Securities Commission with respect to the Concept Paper, the Law Society stated that it was concerned that Concept 5 as proposed would be detrimental to the public interest by compromising an independent legal profession. Making lawyers subject to potential discipline proceedings by a tribunal before which they appear on behalf of clients would wrongly interfere with the vigorous pursuit of the client's interests which may at times be necessary. Clients are entitled to have their cases placed before the tribunal in the best way possible by counsel of their choice so long as that counsel is a member in good standing of the Law Society.
The Law Society also noted that three of its principal functions are with respect to receiving, investigating, and responding to complaints about lawyers, and that the Legal Profession Act provides that a lawyer who is found guilty of professional misconduct, conduct unbecoming of the profession, or a breach of the Act or Rules may be reprimanded, fined, suspended from practice, or disbarred. The Law Society has legislative authority to govern the conduct of lawyers, and it was therefore unnecessary to impose any other authority governing the conduct of lawyers to ensure the proper regulation of securities practice. The Law Society noted that it is in the best position to fulfill that mandate, is required by statute to do so, and has had over 100 years of experience in performing its role.
III. "New Proposals for Securities Regulation: A New Way to Regulate"
The Law Society has received a copy "New Proposals for Securities Regulation: A New Way to Regulate," outlining a series proposals developed by the Securities Commission from the concepts contained in the Concept Paper. The Law Society notes that Concept 5 has been reduced in scope and that the Commission now proposes that:
The Commission can prohibit a professional from practising before the Commission if the professional has intentionally contravened the securities legislation, or has intentionally assisted others to do so.
The legislation proposed by the Commission is:
|If the Commission, after a hearing,|
|(a) determines that a person has intentionally contravened, or intentionally aided or abetted the contravention of the Act or the regulations, and|
|(b) considers it to be in the public interest,|
|the Commission may order that the person not appear or practice before the Commission.|
|"Appear or practice before the Commission" includes, but is not limited to:|
|(a) preparing, or giving advice about preparing, documents filed with the Commission, and|
|(b) representing a person on a matter that falls within the Commission's jurisdiction.|
Here the Law Society wishes to draw attention to the definition of the "practice of law" as defined in s. 1 of the Legal Profession Act:
"practice of law" includes
(a) appearing as counsel or advocate,
(b) drawing, revising or settling
(ii) a document for use in a proceeding, judicial or extrajudicial,
(iv) a document relating in any way to a proceeding under a statute of Canada or British Columbia,
(e) giving legal advice.
Insofar as the legislation proposed relates to the activities of lawyers, the legislation specifically addresses the prohibition of "practicing law" before the Commission.
While the Law Society is pleased that the Commission no longer includes in its proposal the regulation of the competence of lawyers appearing before it, the Law Society remains concerned with the Commission's proposal that it have the power to prohibit a lawyer from practising law before the Commission.
IV. Concerns with the Proposal
While the legislation proposed by the Commission addresses orders against all professionals, the Law Society's comments will address the proposal only insofar as it affects legal professionals.
In a news release dated July 1991, Clayton Schulz (former Executive Vice-President of the Vancouver Stock Exchange) stated:
British Columbia investors are fortunate to have available the services of an informed, competent securities bar which conducts its practice with great integrity. The exceptions are few in number.
The Law Society believes this statement to be generally true of the situation today, as well. The Law Society investigates all complaints received concerning the conduct of lawyers practicing in the area of securities law, both in a professional and in a non-professional sense. Some of these complaints have come from the Commission itself, and some have come from clients or other members of the public. We have also investigated complaints against lawyers arising from information contained in media reports concerning their conduct with respect to the Commission or the securities markets in general. The number of such complaints, however, represents a small fraction of the number of complaints received by the Law Society in any given year. There does not appear to be any particularly pervasive problem with respect to the conduct of lawyers dealing with the Commission. The exceptions still appear to be "few in number".
Keeping this in mind, the Law Society has several concerns with the proposal concerning orders against professionals:
1. The proposal will adversely affect the independence of the Bar;
2. The proposal is beyond the scope of the powers afforded to the Commission by the Securities Act, and instead falls within the powers given to the Law Society by the Legal Profession Act;
3. Lawyers may be prohibited from disclosing information which may be necessary for their defence to a charge they have "aided or abbetted the contravention of the Securities Act or Regulations";
4. The language of the proposed legislation is overly broad, and could result in the imposition of professional sanctions arising from personal conduct without any evidence that professional judgments would be impaired by virtue of the personal conduct;
5. The proposal would create an unnecessary, and unnecessarily expensive, duplication of investigations and hearings into the same conduct of a lawyer.
1. The Independence of the Bar
The Commission explains that its proposal concerning orders against professionals is not an attempt to regulate the professions, but is rather an effort to deal effectively with conduct that is prejudicial to the public interest in capital markets. With respect, the sanctions presently available to the Commission can address that concern. Trading bans, fines, and the other remedies available to the Commission can "bring home the point" in the event that a lawyer has conducted himself or herself contrary to the Securities Act or Regulations. The Commission can make such orders where it concludes that the lawyer has contravened the Act and Regulations and that conduct is prejudicial to the public interest of the capital markets, just as it can against those individuals involved in the markets who are not lawyers.
To order, however, that the past conduct of a lawyer merits the suspension of the lawyer's future ability to practice his or her profession in a given area is, in the opinion of the Law Society, a regulation of professional conduct. In effect, the Commission would be purporting to place on a lawyer a practice restriction arising from its conclusion about a lawyer's conduct. By determining which lawyers could practice law before the Commission, the Commission would also be in effect regulating the practice of law before it.
In its June submissions addressing the Commission's Concept Paper, the Law Society stressed the importance of the independence of the Bar from the State with a reference to Attorney General of Canada v. Law Society of British Columbia et al. (1982) 137 D.L.R. (3d) 1 at 23. In that case, the Supreme Court of Canada unanimously stated:
The independence of the Bar from the State in all its pervasive manifestations is one of the hallmarks of a free society. Consequently, regulation of these members of the law profession by the State must, so far as by human ingenuity it can be so designed, be free from State interference, in a political sense, with the delivery of services to the individual citizens in the State, particularly in the fields of public and criminal law. The public interest in a free society knows no area more sensitive than the independence, impartiality and availability to the general public of the members of the Bar and through those members, legal advice and services generally.
In Wilder v. Ontario Securities Commission, (2001) 197 D.L.R. (4th) 193 (C.A), the Ontario Court of Appeal dismissed an argument that powers given to the Ontario Securities Commission pursuant to s. 127(1) of the Securities Act (Ontario) (broadly speaking, this section relates to penalties) ought to be interpreted so as not to apply to lawyers acting in their professional capacity. The Court of Appeal agreed with the Divisional Court which held:
In proceedings such as these the [OSC] is not usurping the role of the Law Society, as its objective is not to discipline the lawyer for professional misconduct; rather its concern is to remedy a breach of its own Act which violates the public interest in fair and efficient capital markets, and to control its own processes.
The Ontario Securities Commission was not, in the Wilder case, seeking to control the practice of professionals before it. Rather, it simply purported to exercise its public interest jurisdiction to determine whether an individual should be reprimanded (within the powers available to the Commission) because of a violation of the Securities Act.
As the Commission is responsible for the administration of the Securities Act, it must have the ability to remedy a breach of that Act. The Law Society agrees that one is not immune from the Commission's existing enforcement and penalty powers simply because one is a lawyer, in the same way that a lawyer is not, simply owing to his or her professional designation, immune to prosecution under the Criminal Code for any acts that may violate the criminal law.
The legislatures of all the provinces and territories of Canada have recognized the principle stated in Attorney General of Canada v. Law Society of British Columbia by enacting legislation vesting the regulation of professional conduct of lawyers and the provision of legal services through an independent self-regulating body. If the legislation proposed by the Commission were enacted, the Commission, an agent of the State by virtue of s. 5 of the Securities Act would, by prohibiting a lawyer from practicing law before the Commission, interfere with the delivery of services to the individual citizens of the State in an area of public law. In essence, the issue is that an agent of the State ought not to be the body that makes the determination as to whether a lawyer can practice in a given area of law. In order to protect the independence of the Bar from the State, that determination must be made by a body independent of the State.
2. The Proposal Is Beyond the Scope of the Powers Afforded to the Commission by the Securities Act.
As stated above, all provinces and territories in Canada have vested the regulation of professional conduct of lawyers and the provision of legal services in an independent self-regulating body. In British Columbia, section 3 of the Legal Profession Act gives the Law Society of British Columbia the statutory mandate of protecting the public interest in the administration of justice. The Law Society's mandate also requires, as a secondary duty, that it "regulate the practice of law".
There is judicial approval for self-administration and regulation of the legal profession. In Attorney General of Canada v. Law Society of British Columbia et al. (cited above) the Court stated that:
The uniqueness of the position of the barrister and solicitor in the community may well have led the province to select self-administration as the mode for administrative control over the supply of legal services throughout the community.
As stated in the Law Society's earlier submissions to the Commission, the Legal Profession Act provides that a lawyer who is found guilty of professional misconduct, conduct unbecoming a member of the profession, or a breach of the Legal Profession Act or Law Society Rules, may be:
2. fined up to $20,000;
3. suspended from practice; or
"Conduct unbecoming a lawyer" is defined in s. 1 of the Legal Profession Act as follows:
"conduct unbecoming a lawyer" includes a matter, conduct or thing that is considered, in the judgment of the benchers or a panel,
(a) to be contrary to the best interest of the public or of the legal profession, or
(b) to harm the standing of the legal profession;
(emphasis not in the original)
In Re Prescott (1971) 19 D.L.R. (3d) 446 the British Columbia Court of Appeal held (at p. 452) that:
The Benchers are the guardians of the proper standards of professional and ethical conduct. The definition, in my judgment, shows that it is quite immaterial whether the conduct complained of is of a professional character, or otherwise, as long as the Benchers conclude that the conduct in question is "contrary to the best interest of the public or of the legal profession, or that tends to harm the standing of the legal profession." The benchers are elected by their fellow professionals because of their impeccable standing in the profession and are men who enjoy the full confidence and trust of the members of the legal profession of this Province. One of the most important statutory duties confided to that body is that of disciplining their fellow members who fail to observe the proper standards of conduct and/or ethics which are necessary to keep the profession on that very high plane of honesty, integrity and efficiency which is essential to warrant the continued confidence of the public in the profession.
The phrase "professional misconduct" is not defined in the Legal Profession Act. However, in Pearlman v. The Manitoba Law Society Judicial Committee,  2 S.C.R. 869 the Supreme Court of Canada stated (at page 880):
.courts have recognized that Benchers are in the best position to determine issues of misconduct and incompetence. For example, in Re Law Society of Manitoba and Savino (1983), 1 D.L.R. (4th) 285 (Man. C.A.) the Court of Appeal said (at pp 292-293):
No one is better qualified to say what constitutes professional misconduct than a group of practicing barristers who are themselves subject to the rules established by their governing body.
Courts clearly recognize that Benchers have the qualifications and expertise to determine what professional misconduct and conduct unbecoming a lawyer is. The legislation allows a lawyer to be suspended (and therefore lose the right to practice his or her profession) only where Benchers have made a determination that the lawyer's conduct amounts to professional misconduct or conduct unbecoming a lawyer. Legislation generally does not allow any other body to suspend the ability of a lawyer to practice law, presumably because no other body has the qualification or expertise to determine what constitutes professional misconduct or conduct unbecoming a lawyer. Nor does legislation give to any other body the mandate to regulate the practice of law.
The Securities Commission's examination of the public interest relates to the protection of securities markets, not the public interest in the administration of justice or the regulation of the practise of law. The determination as to whether any violation of the Securities Act or Regulations would result in the suspension of a lawyer's ability to practise law before the Commission would thus depend on the Commission's determination of the public interest in the protection of the markets rather than whether the lawyer's conduct was professional misconduct or conduct unbecoming a lawyer.
Although the issue of whether or not the lawyer has acted contrary to the provisions of the Securities Act or the Regulations often has relevance to the course of a Law Society investigation or hearing, the Law Society must assess whether the lawyer's conduct, if proven, amounts to professional misconduct or conduct unbecoming a lawyer. Such an assessment is not within the jurisdiction of the Commission. Facts which may be irrelevant to the Commission's analysis of whether the conduct in question is contrary to the Securities Act may be very relevant to whether the conduct amounts to professional misconduct or conduct unbecoming a lawyer.
Additionally, if the legislation proposed by the Commission were enacted, the Commission would find itself regulating the provision of legal services before it, and would be permitted to prevent a lawyer, otherwise entitled by the Legal Profession Act to practise law, from providing those services without making a finding that the lawyer's conduct amounted to professional misconduct or conduct unbecoming a lawyer. The result would be that an agent of the government could exercise a discretion to interfere in the provision of legal services - exactly what the Supreme Court of Canada cautioned against in Attorney General of Canada v. Law Society of British Columbia.
It would therefore be unwise to give the Commission the power to prevent a lawyer practicing law before it. As an agent of the government, and without the mandate to regulate the practice of law and without the ability to make findings of professional misconduct or conduct unbecoming a lawyer, the Commission ought not to interfere with the provision of legal services before it.
This is not to say that the lawyer's conduct should necessarily go unpunished. As is presently the case, the Law Society must, pursuant to the Legal Profession Act, investigate a complaint into a lawyer's conduct from whatever source. When notified about a lawyer's alleged or actual transgression of the Securities Act, the Law Society by virtue of its Rules would be required to investigate the conduct in a professional regulatory sense. The determination as to whether the lawyer's conduct amounts to professional misconduct or conduct unbecoming a lawyer (and, if so, what sanction ought to be imposed) lies with the Benchers of the Law Society.
3. Lawyers would be Prohibited from Disclosing Information which may be Necessary for their Defence
In the Commission's Proposal Paper, the Commission states at page 99:
.issuing a cease trade order is not effective in stopping a lawyer whose advice facilitates a client's breach of securities laws. In those circumstances, professionals whose conduct has harmed our capital markets may continue to appear and practice before the Commission and continue to harm our markets.
It is this concern which, in part, results in the Commission's proposed legislation.
For reasons of solicitor-client privilege, however, lawyers are prohibited from divulging the advice they have given to a client unless the client has voluntarily waived the privilege. The Law Society foresees that in many circumstances the client would also be under investigation and would be unlikely to consent to the release of information subject to solicitor client privilege, because to do so would likely constitue a waiver of that privlege for all other purposes. Therefore, the Commission would be left to conjecture as to what advice the lawyer had given to the client, without any direct objective evidence as to what that advice is. Making a finding on this basis that the lawyer had acted contrary to the public interest and therefore he or she ought to be banned from practicing law before the Commission would be problematic indeed.
On the other hand, ss. 88(1), (2), (3) and (7)) of the Legal Profession Act provide that:
88 (1) A lawyer who, in accordance with this Act and the rules, provides the society with any information, files or records that are confidential, or subject to a solicitor client privilege, is deemed conclusively not to have breached any duty or obligation that would otherwise have been owed to the society or the client not to disclose the information, files or records.
(2) Despite section 14 of the Freedom of Information and Protection of Privacy Act, a person who, in the course of carrying out duties under this Act, acquires information, files or records that are confidential or are subject to solicitor client privilege has the same obligation respecting the disclosure of that information as the person from whom the information, files or records were obtained.
(3) A person who, during the course of an investigation, audit, inquiry or hearing under this Act, acquires information or records that are confidential or subject to solicitor client privilege must not disclose that information or those records to any person except for a purpose contemplated by this Act or the rules.
(7) Despite section 14 of the Freedom of Information and Protection of Privacy Act, the benchers may make rules for the purpose of ensuring the non-disclosure of any confidential information or information that, but for this Act, would be subject to solicitor client privilege, and the rules may be made applicable to any person who, in the course of any proceeding under this Act, would acquire the confidential or privileged information.
If a client consented, privileged information necessary for the investigation could, by virtue of the above subsections, be released to the Law Society without a danger of the privilege being waived by the client for all other purposes. This protection is not available under the Securities Act. While the provision of the information would still require client consent, it is much more likely that a client would provide such consent where the body obtaining it (the Law Society) was under the same duty to protect it as was the lawyer who discloses it.
4. The Proposed Legislation is Overly Broad
a. Personal Acts May affect Professional Standing
The language of the proposed legislation is so broadly worded that it would allow any act by a lawyer contrary to the Securities Act or Regulations to result in the removal of his or her ability to practice law before the Commission. It would not matter whether the act was committed in a professional sense, or whether it was committed during the lawyer's non-professional dealings with the Commission, such as in the capacity of being a director of a public company, even (conceivably) if there were no evidence to suggest that the lawyer's act affected his or her professional integrity or professional judgment.
b. The Proposed Legislation may have a Negative Effect on Lawyer Directors of Public Companies
One might legitimately also wonder whether the legislation proposed by the Commission would cause lawyers who practice in the area of securities law to resign directorships of public companies. There are no doubt many good securities lawyers who serve as directors of such companies and are able to offer to the company their knowledge of business and regulatory regimes. If such lawyers were fearful that any breach by them (even if unintended) of the Securities Act or Regulations could result in precluding their ability to practice law before the Commission for their clients, it is possible that many would resign their directorships, meaning companies would lose the valuable input of such individuals as directors. Such a loss would not be in the public interest.
5. The Proposal Would Result in Unnecessary Duplication
If the legislation proposed by the Commission were approved, there would be an overlap in regulation between the Law Society and the Securities Commission concerning a lawyer's conduct.
If on the basis of the proposed legislation the Commission, after a hearing, were to make a finding that a lawyer's transgression of the Securities Act or Regulations warranted an order that the lawyer must stop practicing law before the Commission, it is more than likely that a complaint about that lawyer's conduct would be made to the Law Society and an investigation for essentially the same purposes would be undertaken.
An order by the Commission is not equivalent to an order by a Court. It is doubtful that the Law Society could tender to a hearing panel the Commission's order as proof of a finding of a breach of the Securities Act or Regulations. Consequently, the Law Society would likely be required, in a hearing before the Benchers, to prove the breach. The lawyer would therefore be required to re-argue his or her defence or, possibly, be able to argue new defences or advance additional evidence.
The Law Society may, of course, come to the same conclusion as the Commission concerning a breach of the Securities Act. It is possible, however, that the lawyer's conduct in this regard is so egregious that more than simply an order by the Commission prohibiting that lawyer from practicing or appearing before the Commission would be required. Perhaps the conduct warrants a general suspension from practice, or even a disbarment. Therefore, the Law Society would be required to conduct a hearing into the same conduct, perhaps even on the same facts, to impose a greater penalty. Two hearings would have been held when only one was necessary.
On the other hand, the Commission may conclude that there was a breach of the Securities Act and that the lawyer should be prohibited from practicing law before the Commission but the Benchers, after a hearing, conclude that the although the lawyer had breached the Securities Act, the breach did not amount to professional misconduct or conduct unbecoming a lawyer. In the result, the Law Society would not suspend the lawyer from practice. There would therefore be a conflict between the Legal Profession Act and the Securities Act. Which would govern? Why should clients be precluded counsel of their choice in dealings with the Commission if the Benchers of the Law Society have, in discharging their mandate of protecting the public in the administration of justice, determined that the lawyer should be entitled to practice law?
For the purposes of regulating whether the lawyer should be allowed to practice law before the Commission, it would be preferable and logical to have the conduct dealt with by one body, rather than two. This would save resources and costs and bring more finality to the decision-making process.
As the Commission's mandate cannot extend into regulating matters beyond its jurisdiction, the Law Society, with its mandate of regulating the practice of law and regulating all lawyers' professional conduct as well as conduct which amounts to conduct unbecoming a lawyer, would be the logical body to perform this task, as it presently does.
Experience has proven that some lawyers have conducted themselves unethically with respect to the practice of securities law. There is not, however, any indication of a pervasive problem of lawyers violating securities laws. The Law Society has, in its earlier submissions, explained its commitment to investigating and, where appropriate, sanctioning lawyers whose conduct in securities markets amounts to professional misconduct or conduct unbecoming a lawyer. As we are confident the Commission would agree, a violation of the Securities Act or the Regulations will not in every case amount to conduct that, in the interests of protecting the public, warrants a professional sanction.
The concerns raised in these submissions could be expected to be raised by legal professionals who find themselves the subject of a hearing under the legislation proposed by the Commission. Subsequent litigation of these issues, if necessary, would be expected to considerably delay the Commission's ability to sanction conduct contrary to the Securities Act.
Maintaining the status quo, on the other hand, would permit the Commission to more rapidly impose sanctions already available under the Act for conduct contrary to the Act. Issues concerning the imposition of professional regulatory sanctions would remain with the Law Society, which has the statutory mandate and jurisdiction to regulate the professional and non-professional conduct of lawyers (including the ability to suspend or disbar lawyers whose conduct fails to meet a required standard) and to regulate the practice of law (including the practice of law before the Commission) in the Province.
As stated earlier, referencing the comment from Clayton Schulz, the British Columbia securities bar is generally informed and competent and practices with great integrity. The exceptions were few in number in 1991, and the exceptions appear to remain few in number today. In the Law Society's submissions, the "few exceptions" do not warrant the significant departure in regulation which would result from the proposal made by the Commission. For the reasons described in these submissions, it would be improper and unwise to expand the Commission's powers to include being able to prevent lawyers from practicing law before the Commission.