New Corporate Governance Website Disclosure Requirements for TSX-Listed Issuers In Effect April 1, 2018

Amendments to the TSX Company Manual (the Manual), which places new website disclosure requirements (Requirements) on TSX-listed issuers, are coming into effect on April 1, 2018 in accordance with the newly adopted section 473 of the Manual.

Among other things, the Requirements mandate website publication of any majority voting and advance notice policies that have been adopted, as well as a company’s articles and by-laws.  By-laws (whether majority voting, advance notice, or otherwise) in particular, can be central to proxy fights and other shareholder litigation against an issuer or its Board, and may not be publically available or, as noted by the TSX, can be difficult to locate on SEDAR as a result of varying practices, such as filing certain materials under different categories.  The publication of these documents will make it easier for shareholders of a TSX-listed company to access information relevant to their complaints prior to the commencement of legal action.

The TSX initially proposed new website disclosure requirements in 2016, with publication of the final amendments on October 19, 2017.  The TSX’s impetus for this change is to provide more accessible information to capital market participants who are seeking access to a company’s key securityholder documents, in particular, those relating to corporate governance. The new Requirements now mandate that TSX-listed issuers have their current constating documents, together with certain policies and charters (if adopted) available on their websites for investor review. By doing so, the TSX aims to have companies centralize the location of certain publicly-available documents. In particular, the following constating documents will now be required to be available on an issuer’s website:

  • articles of incorporation, amalgamation, continuation or any other establishing or constating documents of the issuer; and
  • by-laws.

The TSX will also require the following corporate governance-related documents to be uploaded:

  • majority voting policy;
  • advance notice policy;
  • a position description for the chairman of the board;
  • a position description for the lead director;
  • the board mandate; and
  • board committee charters.

The TSX has clarified that the Requirements do not require an issuer to create new policies, but simply to disclose existing versions of policies covered by the Requirements (with the exception being that TSX issuers must comply with the majority voting requirement in section 461.3 of the Manual). As an alternative, issuers can choose to upload a larger document, such as a circular, which may incorporate the documents indicated above. The website which hosts these documents must either be linked to the issuer’s homepage or a page designated for investor relations. If an issuer shares a website with another issuer, each listed issuer is to have a separate, dedicated webpage.

The TSX has carved out exemptions from the Requirements. As defined in the Manual, Non-Corporate Issuers, Eligible Interlisted Issuers and Eligible International Interlisted Issuers will not be required to adhere to the new rules. For all other issuers, this information is to be available online by no later than April 1, 2018.

The author would like to thank Joseph Palmieri, articling student, for his contribution to this article.

Reforming Class Actions in Ontario – Your Input Please!

On March 9, 2018, the Law Commission of Ontario (LCO) released its Consultation Paper entitled “Class Actions: Objectives, Experiences and Reforms”. The Consultation Paper is the next phase of the LCO’s Class Actions Project which is set to conduct a general review of the class action landscape in Ontario, with a view to providing a final report with recommendations for law reform where appropriate.

It has now been 25 years since the passage of the Ontario Class Proceedings Act, and this is said to be the first systematic review of the class action regime in Ontario since the 1990 report of the Ontario government’s Advisory Committee on Class Action Reform.  As can be seen from the questions below, there is the potential that recommendations made during the process could have significant impact on class actions in Ontario, and thus companies operating in Ontario who might be faced with class action litigation.

The LCO has invited views on a series of consultation questions as follows:

  1. How can delay in class actions be reduced?
  2. Given that class actions must provide access to compensation to class members, how should distribution processes be improved?
  3. What changes, if any, should be made to the costs rule in the CPA?
  4. Is the current process for settlement and fee approval appropriate?
  5. Is the current approach to certification under s. 5 of the CPA appropriate?
  6. Are class actions meeting the objective of behaviour modification? What factors (or kinds of cases) increase (or reduce) the likelihood of behaviour modification?
  7. Please describe class members’ and representative plaintiffs’ experience of class actions.
  8. In light of existing constitutional restrictions, what is the most effective way for courts to case manage multi-jurisdictional class actions in Canada?
  9. How should Ontario courts address the issue of carriage in class actions?
  10. What is the appropriate process for appealing class action certification decisions?
  11. What best practices would lead a case more efficiently through discoveries, to trial and ultimately to judgment? Are there unique challenges in trials of common issues that the CPA and/or judges could address? What can judges do to facilitate quicker resolutions and shorter delays?
  12. In addition to the issues listed in this paper, are there provisions in the CPA that need updating to more accurately reflect current jurisprudence and practice? If so, what are your specific recommendations?
  13. Should the Class Proceedings Act or Rules of Civil Procedure be amended to promote mandatory, consistent reporting on class action proceedings and data?

The deadline for comment is May 11, 2018.

The LCO’s project is ambitious, and identifies many of the issues that both our clients and our colleagues have identified as being areas of concern. We expect that the LCO will receive significant comment on these issues in the consultation period from plaintiffs, defendants, third party litigation funders and  counsel.  Whether the consultation leads to real reform remains to be seen, but this is certainly a step in the right direction. We will be reviewing the LCO’s paper in detail and our class actions team would be pleased to discuss the process.  We will also keep you advised of developments as they occur.

IIROC Seeks Public Comment on Proposed New Disciplinary Options

On February 22, 2018, the Investment Industry Regulatory Organization of Canada (IIROC) announced that it was launching a public consultation on two new disciplinary approaches for dealing with minor violations of IIROC rules and the resolution of disciplinary cases.

IIROC’s Enforcement Department is specifically responsible for enforcing IIROC’s Dealer Member Rules relating to the sales, business and financial conduct of its Dealer Members and their registered employees, as well as the Universal Market Integrity Rules (UMIR) relating to the trading activity on all Canadian debt and equity marketplaces. Under the current regime, a respondent faced with IIROC disciplinary proceedings has two options: either settle the case before a disciplinary panel or have a full disciplinary hearing, which can result in significant fines, suspensions and permanent bans.

According to IIROC, the proposed new approaches would provide IIROC with added tools and flexibility to more fairly address varying degrees of rule breaches in order to focus resources on matters that are more serious and/or harmful to investors. With these changes, IIROC hopes that disciplinary cases will be resolved more quickly and in a manner that is more proportionate to the offenses in question. Currently, a typical disciplinary case that proceeds from investigation through to the disciplinary process can take a year or more to complete. IIROC expects that the new programs will allow for quicker, more efficient resolution of certain disciplinary cases.

In particular, IIROC is considering two new disciplinary programs:

  1. A new Minor Contravention Program (MCP) under which an Approved Person or Dealer Member would agree to the imposition of a sanction for rule contraventions that are deemed minor. The MCP would provide a more efficient means to resolve cases that cannot be adequately addressed by way of a Cautionary Letter but do not warrant formal disciplinary action; and
  2. The use of Early Resolution Offers to conclude settlement agreements at an earlier point in the enforcement process to promote the efficient resolution of cases, increase the application of the IIROC Staff Policy Statement on Credit for Cooperation, and encourage firms to take remedial measures and address investor harm through voluntary acts of compensation.

IIROC is encouraging stakeholders to review and comment on these proposals. To supplement and engage a broader representation of stakeholders, IIROC will consult directly with Canadian investors to get their views on the proposed alternative forms of disciplinary action. Under its current Strategic Plan, IIROC has committed to actively consulting with retail investors on key policy issues. In line with that commitment, IIROC has established an online pool of 10,000 Canadian investors, from which it consults on key proposals to better understand their needs, experiences and perceptions. IIROC has stated that it intends to draw on a subset of this pool to solicit input on this proposal from retail investors across Canada.

Following the close of the 90-day comment period, IIROC intends to draft a consolidated response to the written comments received and, where appropriate, revise the proposals to address the comments received. IIROC also intends to publish the results of the investor survey. Finally, IIROC staff may also consider inviting those who submit comments to a meeting to discuss issues related to the adoption and implementation of the proposals. Any comments should be made in writing and delivered by May 23, 2018.


No Early Disclosure: Quebec Court of Appeal Confirms Protection for Public Issuer

Plaintiff-shareholders in Quebec are not entitled to early document disclosure when seeking leave to bring claims against public issuers for secondary market liability. The Quebec Court of Appeal’s decision in Amaya[1] confirms that the “screening mechanism” under the Quebec Securities Act[2] to root out frivolous claims by plaintiff-shareholders is analogous to the statutory remedies available in other provinces and is meant to protect public issuers.

This decision should be read as victory for public issuers faced with such secondary market liability claims in Quebec. Except for seeking disclosure of relevant insurance policies, plaintiff-shareholders in Quebec are not entitled to early document disclosure to assist in their leave applications to the court.

Legislative Context

Like other provinces, Quebec has enacted a legislative remedy for plaintiff-shareholders who allege they have suffered losses in the secondary market for publicly-traded securities due to wrongful conduct by public issuers.[3] Under Quebec’s Act, plaintiff-shareholders are partially relieved from establishing that the public issuer caused their loss — an element they would be otherwise required to establish under the general civil liability regime of the Civil Code of Quebec.[4]

This advantage for plaintiff-shareholders, however, is balanced with the requirement that they first secure leave of the court to bring a claim against the public issuer for secondary market liability. This requirement, under s. 225.4 of Quebec’s Act,  serves as a  “screening mechanism” to protect public issuers and their shareholders from frivolous or bad faith actions, sometimes called “strike suits”, brought by investors who seek to take advantage of the favourable statutory recourse by bringing meritless actions.[5]

The plaintiff-shareholders in Amaya sought production of certain Amaya documents, including any insurance policies, to establish that their claims were not meritless. The motions judge held that Quebec’s Act was silent on the right to early document disclosure and, in that legislative gap, he applied the Code of Civil Procedure[6] to enable an albeit limited document request by the plaintiff-shareholders.

The Appeal Decision

The Court of Appeal held that the motions judge’s interpretation of s. 225.4 was incorrect. Kasirer JA, writing for the unanimous panel, held that document disclosure should not be allowed at this early stage of the proceedings because it is incompatible with the legislative policy pursued in the screening mechanism under section 225.4 of the Act.[7]  While the underlying policy for the statutory remedy is to make available a remedy for aggrieved shareholders, the underlying policy of the screening mechanism requiring leave is to protect public issuers against frivolous lawsuits brought by investors who have no meaningful evidence to show their loss. The screening mechanism, Kasirer JA held, contributes to protect the public confidence in the capital markets and avoids costs and wasted time on meritless litigation.[8]

As such, the screening mechanism cannot be the opportunity for the plaintiff-shareholder to conduct a fishing expedition of the public issuer. At this early stage, the evidentiary bar is lower and the plaintiff shareholder must only show some credible evidence that the suit is not destined to fail. They are not, at this early stage, entitled to document disclosure to assist them.[9] The Court of Appeal cited similar decisions in Ontario courts under its corresponding legislation, aligning the interpretation of Quebec’s Act with those in other provinces.[10]

The Court of Appeal, however, did uphold the motions judge’s decision to compel the early disclosure of the insurance policies held by the public issuer.


The nominal differences in wording between the Quebec Act’s statutory remedy and those in other provinces do not warrant a departure from the policy common to securities legislation among the provinces: while the statutory remedy has been made available for plaintiff-shareholders to bring claims for secondary market liability, the screening mechanism is in place to prevent its abuse.

To provide plaintiff-shareholders with early document disclosure, apart from any insurance policies, undermines this balance struck in the legislation.

The Amaya decision reinforces the protection for public issuers — and their innocent shareholders — and balances the statutory remedy against its abuse.


[1] Amaya inc. c. Derome, 2018 QCCA 120. [Amaya]

[2] CQLR c V-1.1. [the Act]

[3] An Act to amend the Securities Act and other legislative provisions, S.Q. 2007, c. 15.

[4] CQLR c CCQ-1991.

[5] Theratechnologies Inc. v. 121851 Canada Inc., 2015 SCC 18 (CanLII), [2015] 2 S.C.R. 106, para. [39].

[6] CQLR c C-25.01.

[7] Amaya, para. 103.

[8] Amaya, para. 84.

[9] Amaya, para. 105

[10] See, e.g., Ainslie v. CV Technologies Inc., 2008 CanLII 63217 (Ont. S.C.J., per Lax, J.), section 138.8(1) of the Ontario Securities Act, the screening mechanism analogous to s. 225.4 of the Quebec Act.  In the class action context, see, e.g., Mask v. Silvercorp Metals Inc., 2014 ONSC 4161 (Ont. S.C.J., per Belobaba, J.), leave to appeal refused, 2014 ONSC 4647 (Div. Ct., per Perrell, J.).

Supreme Court Holds Individuals Must Report to the SEC to Qualify as Whistleblowers under Dodd-Frank

On Wednesday, February 21, 2018, the Supreme Court resolved a circuit split by unanimously holding that an employee must report suspected securities law violations to the SEC in order to qualify as a whistleblower entitled to protection from retaliation under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”).  Dodd Frank’s anti-retaliation protections do not extend to employees who only report such concerns internally to their employer.

In 2010, Congress passed Dodd-Frank, which, among other things: (1) provides for the payment of monetary awards to whistleblowers under certain circumstances whose tips to the SEC lead to the SEC’s recovery of more than $1 million; and (2) prohibits employers from retaliating against whistleblowers who provide information to the SEC, participate in SEC investigations or actions, or make disclosures that are required or protected by other securities laws, including the Sarbanes-Oxley Act of 2002.[1]  Dodd-Frank included a directive to the SEC to promulgate rules implementing the whistleblower provisions of the statute.  Although the statute explicitly defined a whistleblower as “any individual who provides . . . information relating to a violation of the securities laws to the Commission,[2] the SEC nevertheless passed Rule 21F-2, which said that Dodd-Frank’s definition of a whistleblower only applied to the monetary award portion of the statute, and that it was inapplicable to the anti-retaliation portion of the statute.  In subsequent litigation about whether employees who reported concerns internally but not to the SEC were covered by Dodd-Frank’s anti-retaliation provisions, a circuit split ensued, with some courts affording so-called Chevron deference—determining first if a statute is ambiguous, and if so, deferring to the interpretation of the agency entrusted with the statute’s administration— to the SEC’s interpretation of the Dodd-Frank whistleblower provisions.[3]  The Supreme Court resolved this split of authority in Digital Realty Trust v. Somers.[4]

In Digital Realty, the plaintiff, Paul Somers, alleged that Digital Realty terminated him shortly after he informed senior management of suspected securities law violations.[5]  Somers, who never reported his concerns to the SEC, sued the company for violating Dodd-Frank’s anti-retaliation provision.[6]  Digital Realty moved to dismiss the claim, arguing that Somers did not qualify as a “whistleblower” under Dodd-Frank because he did not report any alleged violations to the SEC.  The Northern District of California denied the motion, finding the statutory scheme ambiguous, and therefore deferring to the SEC’s Rule 21F-2, which does not require a report to the SEC.[7]  The Ninth Circuit affirmed.[8]  The Supreme Court reversed because the statute’s definition of the term “whistleblower” clearly contained an SEC reporting requirement.  Importantly, the Supreme Court declined to provide Chevron deference to the SEC’s rulemaking on the issue, explaining that “[w]hen a statute includes an explicit definition, [the Supreme Court] must follow that definition.”[9]  In short, the Court concluded that because the Dodd-Frank’s anti-retaliation provision was unambiguous in its definition of whistleblower, Chevron deference to the SEC’s contrary view adopting a more expansive interpretation of the statute was not warranted.

While individuals who fail to report potential securities law violations to the SEC are not protected by Dodd-Frank’s anti-retaliation provision, those individuals are still protected under the Sarbanes-Oxley Act. The Sarbanes-Oxley Act, however, requires individuals to first file a complaint with the Secretary of Labor before proceeding to court, and recoveries are limited to actual backpay with interest (whereas Dodd-Frank provides for double backpay).  Further, the SEC itself is not empowered to bring retaliation claims under the Sarbanes-Oxley Act—the claim must be brought by the individual who purportedly suffered the retaliation.  The SEC is empowered to bring retaliation claims and seek statutory penalties under Dodd-Frank.  The Supreme Court’s ruling in Digital Realty now restricts the SEC’s ability to sanction companies for improper retaliation to those situations where the individual actually reported information to the SEC.



[1] 15 U.S.C. § 78u-6(h)(1)(A)(i)–(iii) (2016).

[2] 15 U.S.C. § 78u-6(a)(6) (emphasis added).

[3] Compare Berman v. Neo@Ogilvy LLC, 801 F.3d 145, 155 (2d Cir. 2015) (holding that Dodd-Frank prohibits retaliation for both internal reporting and disclosure to the SEC), with Asadi v. G.E. Energy (USA), L.L.C., 720 F.3d 620, 629 (5th Cir. 2013) (holding that Dodd-Frank prohibits retaliation only for disclosure to the SEC).  Norton Rose Fulbright represented the defendant in Asadi.

[4] No. 16-1276 (Supreme Court of the United States February 21, 2018).

[5] Id. at 7.

[6] Id. at 8.

[7] Id.

[8] Id.

[9] Id. at 9 (citing Burgess v. United States, 553 U.S. 124, 130 (2008)).

Ontario Securities Commission Revamps Whistleblower Program for In-House Counsel


In 2016, the Ontario Securities Commission (OSC) adopted OSC Policy 15-601 (the Policy) which established its Whistleblower Program (the Program). The Program is intended to encourage whistleblowers to report serious violations of securities law, such as insider trading, fraud, misleading financial statements or trading-related misconduct. Under the Program, individuals who voluntarily offer such information to the OSC may be eligible for financial compensation if the information (i) was of meaningful assistance to the OSC in investigating the matter and obtaining a decision under section 127 of the Securities Act (Ontario) or section 60 of the Commodity Futures Act (Ontario), and (ii) results in an order for monetary sanctions and/or voluntary payments of $1,000,000 or more.

Ineligibility of In-House Counsel

Last month, the OSC proposed an amendment to clarify the eligibility of in-house counsel for the payment of a whistleblower award. In specific, the amendment will make in-house counsel ineligible for a reward where the reporting lawyer proffers information in breach of the applicable provincial/territorial bar or law society rules. This amendment is intended to protect against the violation of counsel’s professional obligations. According to the OSC’s notice, the following aspects of the policy are aimed at discouraging any violation:

  • the definition of “original information” that may qualify for a whistleblower award expressly excludes information that a whistleblower has obtained through a communication that was subject to solicitor-client privilege;
  • subsection 14(3) of the Policy provides that no whistleblower award will be provided for information that is subject to solicitor-client privilege;
  • subsection 15(1) of the Policy provides that a lawyer will generally be considered ineligible for a whistleblower award, unless the disclosure of the information would otherwise be permitted by the lawyer under applicable provincial or territorial bar or law society rules or equivalent rules applicable in another jurisdiction; and
  • Part 4, Item F of the Whistleblower Submission Form A requires in-house counsel to state whether disclosure of the information he or she is providing is permitted under applicable provincial or territorial bar or law society rules or the equivalent rules applicable in another jurisdiction.

The only instances in which in-house counsel would be eligible for a reward are when reporting client misconduct would otherwise be permitted under applicable law society rules or if in-house counsel is not acting in a professional legal capacity. In determining whether counsel is eligible in the former scenario, counsel will have to carefully consider the circumstances and capacity in which they acquired the information. As a result of the proposed changes, issuers may be able to take comfort in the protections provided by solicitor-client confidentiality.

The OSC will be accepting comments on the proposed amendments until March 20, 2018.


The author would like to thank Joseph Palmieri, articling student, for his contribution to this article.


CBA Proposal for a Framework to Facilitate Court to Court Communication and Coordination of Overlapping Class Actions Clears the First Hurdle

(The author was a member of the CBA National Class Actions Task Force 2016-2017)

At the CBA Annual Meeting on February 15, 2018, a resolution to approve, as best practices, a revised Canadian Judicial Protocol for the Management of Multi-Jurisdictional Class Actions was approved.  The resolution also urges Canadian courts that administer class actions to adopt the revised Canadian Judicial Protocol.

The Revised Protocol builds on the existing CBA Protocol providing for the creation of a Notification List of all counsel involved  in class actions involving the same or similar subject matter, and the approval and administration of settlements through Multi-jurisdictional Class Settlement Approval Orders.

The Revised Protocol establishes best practices by which multi-jurisdictional class actions may be coordinated among courts in circumstances that do not involve settlements. It includes the following:

  • A requirement that prior to a date for the first case management conference in any of the actions being set, Plaintiff’s counsel post the pleading in its action on the CBA Class Action Database and compile a Notification List listing the names of all known counsel and judges in any actions, with all known contact information;
  • A framework for communication between judges in different provinces dealing with potentially overlapping class actions, allowing them to speak to each other and to conduct a joint case management hearing if the judges in both jurisdictions agree; and
  • A requirement that a party bringing a motion to stay or dismiss proceedings based in whole or in part on the existence of other actions, or for certification if  certification would involve class members in other actions, to provide all judges and all counsel in the relevant actions with a copy of the Notification List and a copy of the notice of motion or application.

The  Revised Protocol is the product of a reconstituted CBA National Class Actions Task Force composed of lawyers with expertise in class actions drawn from both the plaintiff and defence bar, and members of the judiciary from 5 provinces.

This represents yet another step in the CBA’s efforts to facilitate the co-ordination of overlapping class actions in different jurisdictions, in the absence of a constitutional framework that would permit the creation of an equivalent to the U.S. Judicial Panel on Multidistrict Litigation.

More information can be found at:

Supreme Court of Canada Clarifies RJR-MacDonald Test for Mandatory Injunctions: R v CBC, 2018 SCC 5

The Supreme Court of Canada (SCC) has clarified the test for mandatory injunctions under the RJR-MacDonald framework and resolves conflicting case law concerning the strength of the case that the applicant must establish in order to succeed by requiring that the applicant  demonstrate a strong prima facie case that it will likely succeed at trial, as opposed to a serious issue to be tried. This higher threshold reflects the serious nature of the mandatory relief.


An accused was charged with first degree murder of an individual under the age of 18.  The Crown requested — and a judge subsequently ordered — a mandatory ban under s. 486.4(2.2) of the Criminal Code to prohibit the publication, broadcast, or transmission in any way of information that could identify the victim.  The Canadian Broadcasting Corporation (CBC) refused to remove from its website the victim’s identifying information published prior to the order granting the ban.

The Crown filed an Originating Notice seeking an order citing CBC for criminal contempt, and an interlocutory injunction directing removal of the information from CBC’s website.  The chambers judge of the Alberta Court of Queen’s Bench applied a modified version of the tripartite test for interlocutory injunctions as laid out in RJR-MacDonald.  This required the Crown to prove a strong prima facie case for finding CBC in criminal contempt, that the Crown would suffer irreparable harm if the application was refused, and that the balance of convenience favoured granting the injunction.  The chambers judge concluded that the Crown had not satisfied any of the requirements for a mandatory injunction and dismissed the application.

Court of Appeal

The majority of the Alberta Court of Appeal allowed the appeal and granted the injunction. The majority held that the Originating Notice had a “hybrid” aspect to it, in that it sought both a citation for criminal contempt and the removal of the victim’s identifying information from CBC’s website.  Here, the strong prima facie case that the Crown was bound to show was not for criminal contempt, but rather for an entitlement to a mandatory order directing removal of the identifying material from the website. Upon reframing the issue, the majority found that the Crown had satisfied the test.

In dissent, Greckol JA held that a literal reading of the Originating Notice did not support the majority’s conclusion.  Rather, the wording of the Originating Notice shows that the Crown brought an application for criminal contempt and sought an interim injunction in that proceeding.  There was only one claim and a corresponding remedy; not two separate claims.  Accordingly, Greckol JA would have dismissed the appeal as the chambers judge had accurately characterized the issue.  The chambers judge’s exercise of discretion to refuse an injunction was entitled to deference.

Supreme Court of Canada

The SCC agreed with Greckol JA and found that each prayer for relief in the Originating Notice did not launch an independent proceeding; rather, both related to the alleged criminal contempt.  Accordingly, the Court held that the chambers judge was correct in finding that the Crown had the burden to demonstrate a strong prima facie case of criminal contempt.

In so doing, the SCC clarified the applicable framework for granting mandatory injunctions.  It held that an applicant must meet the following test:

  1. The applicant must demonstrate a strong prima facie case that it will succeed at trial. This entails showing a strong likelihood on the law and the evidence presented that, at trial, the applicant will be ultimately successful in proving the allegations set out in the originating notice;
  2. The applicant must demonstrate that irreparable harm will result if the relief is not granted; and
  3. The applicant must show that the balance of convenience favours granting the injunction.[1]

In applying the test, the SCC found that there was no reason to disturb the chambers judge’s decision – the Crown had failed to discharge its burden that it could “likely succeed at trial” with respect to the finding of criminal contempt.  As this finding was dispositive, the Court did not see the need to consider the other two stages of the modified RJR-MacDonald test.

As Canadian courts have, since RJR-MacDonald, been divided on the appropriate framework for mandatory injunctions, this decision provides welcome guidance.

The author would like to thank Peter Choi, articling student, for his contributions to this article.

[1] 2018 SCC 5 at para 18.

Ontario provides protection to “whistleblowers” against reprisals

In December 2017, Ontario instituted a civil cause of action for employees who experience reprisals from their employers for providing information or assisting in certain other ways in regulatory or criminal investigations or proceedings involving contraventions of securities or commodity futures laws (whistleblowing).

The identical amendments to s. 121.5 of Ontario’s Securities Act and s. 54.1 of the Commodity Futures Act are wide in scope and protect “whistleblowers” as follows:

  • The new civil cause of action may entitle the employee to reinstatement or to payment of two times the amount of any remuneration they were denied as part of the reprisal;
  • Employees are protected against reprisals for providing cooperation, testimony, information or other assistance to regulators or law enforcement authorities or in investigations, or even for merely “[seeking] advice about providing information” or “[expressing] an intention to provide information” about a contravention;
  • The protections extend to assistance to regulators such as the Ontario Securities Commission (OSC), the Investment Industry Regulatory Organization of Canada (IIROC), the Mutual Fund Dealers Association (MFDA), or law enforcement agencies;
  • The employee need only “reasonably believe” the reported conduct is contrary to Ontario securities or commodity futures law or IIROC or MFDA regulations or by-laws: it is not necessary that misconduct be ultimately proven;
  • Prohibited reprisals under the new provisions including termination, demotion, suspension, other penalties, threatening any such consequences, or intimidation or coercion of the employee; and
  • The demands for compensation for reprisal may be pursued before an arbitrator under a collective agreement, in a civil proceeding before the Superior Court of Justice, or pursuant to other avenues such as private arbitration, if available.

The amendments add to existing provisions instituted in 2016 under Ontario’s Securities Act and the Commodity Futures Act which allow regulators to take action against employers who retaliate against whistleblowers, and which invalidate any term in an employment contract that prevents employees from whistleblowing.

As a result of these changes, employers are well advised to ensure that appropriate internal whistleblower policies and training are in place to minimize the risk of disgruntled employees alleging that they experienced reprisals.  In particular, employers should be cognizant of whistleblower protections when disciplining or dismissing any employee who has been involved in any regulatory investigation or proceeding.

The Ontario Court of Appeal Affirms the Test for Tippee Liability: Finkelstein v. Ontario Securities Commission

In the recently released decision in Finkelstein v. Ontario Securities Commission, the Ontario Court of Appeal (the Court) considered for the first time the definition of “person in a special relationship with an issuer” found in s. 76(5)(e) the Securities Act (the Act) as it applies to successive tippees who possess material, non-public information about an issuer.

The decision confirms that a person may be found to have contravened the insider trading or tipping provisions of the Act where he ought reasonably to have known that the source of the material non-public information about the issuer in his possession emanated from a “person in a special relationship” with the issuer. Subjective knowledge that his information source was in fact “in a special relationship with the issuer” is not required.

The Commission hearing panel (the Panel)’s identification and reliance upon certain factors or types of circumstantial evidence that could assist in drawing inferences as to whether it was more likely or not that insider trading or tipping had occurred, including the professional qualifications of the alleged tipper and tippee and their access to information about transactions, was upheld as reasonable.


The Ontario Securities Commission (the OSC) initiated proceedings under s. 127 of the Act against five individuals including Mitchell Finkelstein (Finkelstein), Howard Miller (Miller) and Francis Cheng (Cheng), alleging that they breached the Act’s insider trading and tipping provisions and acted contrary to the public interest by recommending to family and clients the purchase of shares in Masonite International Corporation (the Corporation).  The OSC alleged that the material, non-public information (MNPI) flowed through a chain of five people, originating with Finkelstein, a mergers and acquisitions lawyer who was working on a take-over bid involving the Corporation.  Finkelstein shared the MNPI with a friend who worked as an investment advisor, who in turn shared it with L.K., an accountant.  L.K. shared the information with Miller who then conveyed it to Cheng.

At the conclusion of a contested hearing, the Panel found that all of the Respondents were in a special relationship with the Corporation, and had informed or “tipped” others of MNPI concerning the Corporation before that information had been generally disclosed, contrary to s. 76(2) of the Act. As well, the Panel determined that Miller and Cheng had contravened the prohibition against insider trading in s. 76(1) by purchasing the Corporation’s securities with knowledge of undisclosed material facts.

All five respondents appealed the Panel’s decision to the Divisional Court. All but Cheng’s appeal was dismissed. The Divisional Court held that the Panel made a number of factual errors in its analysis of the evidence concerning Cheng that undermined the foundation upon which the Panel concluded Cheng ought to have known he was receiving inside information.

Miller obtained leave to appeal to the Court of Appeal. The OSC appealed the Divisional Court’s decision to allow Cheng’s appeal from the decision of the Panel.

The Decision

The primary issue on the appeal was the Panel’s interpretation and application of s. 76(5)(e) of the Act, in particular, whether it reasonably interpreted that section to find that Miller and Cheng ought reasonably to have known that their respective tippers stood in a special relationship with the Corporation. According to the Court, s. 76(5)(e) is intended to catch tippees “who, themselves, convey information they have received to others”, making a person who was ‘tipped” a person in a special relationship with the issuer.

Cheng and Miller did not challenge the Panel’s finding that the inquiry into successive tippees under section 76(5)(e) must ask “whether the tippee received material facts, which he reasonably knew or ought to have known came from someone who, in turn, knew or reasonably ought to have known came from a person in a special relationship”. Similarly, the parties did not dispute the Panel’s articulation of the objective knowledge test or the Panel’s determination that a tippee need not necessarily know the identity of the initial tipper.  There was also no dispute that neither Cheng nor Miller had actual, subjective knowledge that the person who tipped each of them was in a special relationship with the Corporation.

Rather, the focus of the appeal was on how the Panel applied the objective test set out in s. 76(5)(e) to the specific facts. In particular, Miller and Cheng took issue with the factors (the Factors) used by the Panel to guide the application of the “ought reasonably to have known” element of s. 76(5)(e) of the Act:

  1. What is the relationship between the tipper and tippee? Are they close friends? Do they also have a professional relationship? Does the tippee know of the trading patterns, including successes and failures, of the tipper?
  2. What is the professional qualification and standing of the tipper? Is he a lawyer, businessman, accountant, banker, investment adviser? Does the tipper have a position which puts him in a milieu where transactions are discussed?
  3. What is the professional qualification of the tippee? Is he an investment adviser, investment banker, lawyer, businessman, accountant, etc.? Does his profession or position put him in a position to know he cannot take advantage of confidential information and therefore a higher standard of alertness is expected of him than from a member of the general public?
  4. How detailed and specific is the MNPI? Is it general such as X Co. is “in play”? Or is it more detailed in that the MNPI includes information that a takeover is occurring and/or information about price, structure and timing?
  5. How long after he receives the MNPI does he trade? Does a very short period of time give rise to the inference that the MNPI is more likely to have originated from a knowledgeable person?
  6. What intermediate steps before trading does the tippee take, if any, to verify the information received? Does the absence of any independent verification suggest a belief on the part of the tippee that the MNPI originated with a knowledgeable person?
  7. Has the tippee ever owned the particular stock before?
  8. Was the trade a significant one given the size of his portfolio?

Miller submitted that the Factors diverged from the plain language of the provision, and therefore constituted an unreasonable interpretation. Cheng argued that two of the Factors, 5 and 6 above, were not relevant.

The Court rejected these arguments, finding that the Factors constituted an appropriate guideline to use when applying the objective test of “ought reasonably to have known.” Given that circumstantial evidence usually forms the bulk of the evidence in insider trading cases, it was reasonable for the Panel to identify certain groups of circumstantial evidence, such as the Factors, to assist in drawing logical and reasonable deductions about the tippee’s “state of knowledge of the relationship between the tipper and the issuer or another person in a special relationship” with the Corporation.  The probative value of such circumstantial evidence will be dependent upon the specific circumstances and the totality of the evidence.

The Court also rejected Miller’s argument that the Panel’s finding that he contravened the tipping and insider trading prohibitions was unreasonable because the Panel failed to determine that the person from whom Miller received the Corporation’s MNPI, L.K. (who was not named as a respondent in the OSC proceeding), was in a special relationship with the Corporation. The Court ruled that, in treating L.K. as a “knowledgeable person”, the Panel had implicitly found that he had a special relationship with the Corporation.

Finally, the Court granted the OSC’s appeal with respect to the Divisional Court’s decision to overturn the Panel’s finding that Cheng contravened the tipping and insider trading provisions, finding that the Divisional Court had impermissibly re-weighed the evidence, and substituted inferences it would have made had it been in the Panel’s position. The Court confirmed that the role of the reviewing court is to determine whether the tribunal’s decision “contains an analysis that moves from the evidence before the tribunal to the conclusion that it reached”, not whether the decision is the one that the reviewing court would have reached. The findings of fact and inferences drawn by the Panel were reasonably supported by the record.


The authors would like to thank Fahad Diwan, articling student, for his contribution to this article.