The Appellant real estate agent contracted to sell real estate he owned to the Respondent. The parties agreed that the Appellant would serve as “dual agent” to both the buyer and seller, even though he himself was the seller. The purchase price was nearly double what the Appellant had paid for the property 5 months earlier, and more than $100,000 more than the fair market value. The trial court awarded the Respondent the amount of money over fair market value that the Appellant received from the purchase.

The Court of Appeal affirmed the trial court’s ruling, reasoning that in agreeing to act as agent for the Respondent, the Appellant took on a fiduciary obligation to disclose to her all material facts that may have influenced her decision to purchase the property.

Full text of the decision is available here.

The Securities Commission found Ms. Eilers acted contrary to the public interest and imposed restrictions on when she could return to serve as an officer or director of an issuer. After filing for appeal, Ms. Eilers died. The Court of Appeal considered whether her husband could be substituted in the appeal for the purpose of vindicating Ms. Eilers.

The Court held that it has jurisdiction to make the requested substitution, but whether to do so was discretionary and the decision should be based on the factors relevant to whether a moot appeal should be allowed to proceed. The Court outlined and considered each of those factors, including the appeal’s strength and grounds, adversarial nature, circumstances transcending the death of the appellant, what relief is available, and whether the appeal would constitute legislating.

The Court noted that the general test is whether there exists “special circumstances that make it in the interests of justice to proceed.” The Court found such circumstances did not exist in this instance and denied the request for substitution filed by Ms. Eilers’ husband.

Full text of the decision is available here.

Cases like Morrison v. National Australia Bank (“Morrison”) are called “f-cubed” cases because they involve foreign plaintiffs, foreign defendants, and fraud alleged to have occurred in a foreign jurisdiction.    The Morrisonplaintiffs are Australian shareholders of the Defendant, National Australia Bank (“NAB”).  NAB is incorporated in Australia, headquartered in Australia, and over half of its assets and revenues come from its Australian operations. NAB’s shares are listed for trading on exchanges in Australia, London, Tokyo, and New Zealand.  NAB’s shares are not traded on any US exchange.  Its American Deposit Receipts (ADRs) do trade on the New York Stock Exchange but the proposed class was not based on these securities.

In 1999, NAB owned HomeSide Lending, Inc. (HomeSide), located in Florida.  Homeside was at one time the sixth largest mortgage servicer in the United States. The plaintiffs allege that HomeSide fraudulently overvalued its portfolio, and transmitted falsified financial information to Australia, where the inaccuracies were incorporated into NAB’s Annual Report to investors.  As a result of the overstatements, NAB reduced its valuation of  HomeSide by over US$ 2 billion and NAB’s share price fell by over 13%.

Although Australian law allows shareholders to bring class action suits for misrepresentation, the plaintiffs sought to advance their claim in the United States pursuant to the US Securities and Exchange Commission (“SEC”)’s Rule 10b-5.  The American jurisprudence relating to the implied civil remedy is well developed, and innumerable class actions have proceeded under Rule 10b-5 over the years.  More importantly to plaintiffs like those in Morrison, US courts have embraced the “fraud-on-the-market” theory with greater enthusiasm than have courts in Australia, or Canada.

The “fraud-on-the-market” theory was adopted by the United States Supreme Court in a landmark decision that held that, under certain circumstances, plaintiff investors do not need to show that each of them actually relied on a misrepresentation in order to sue based on that misrepresentation.  The adoption of this doctrine makes it easier to bring securities misrepresentation claims on a class basis.

The Morrison plaintiffs have so far been unable to take advantage of the “fraud-on-the-market” theory, however, as the US Federal Court for the Southern District of New York dismissed the case on the basis that the court lacked jurisdiction to hear the “f-cubed” claim.  The US Court of Appeals for the Second Circuit affirmed that decision, but declined to hold that “f-cubed” suits would always fail, citing the need to stop frauds from being “exported”.

Before the US Supreme Court, the plaintiffs argued that US courts had jurisdiction to hear the claim because the misleading information originated in Florida, even though it was ultimately disseminated overseas.  The plaintiffs relied on the SEC’s submission in the courts below that the antifraud provisions of US securities laws apply to transnational frauds if there is conduct in the US which forms a substantial component of the fraudulent scheme, notwithstanding that the fraud results exclusively or principally in losses abroad.

The defendants were supported by various governments, including the governments of Australia, France, and the United Kingdom.  They relied on the Court’s established presumption against the extraterritorial application of US law.  According to the presumption, if US securities laws were intended by Congress to apply to frauds outside the US, they would have to say so explicitly.

At the hearing, the Supreme Court justices appeared unreceptive to the plaintiffs’ position.  Even if the appeal is unsuccessful, the Court’s holding may advance the law by defining the circumstances under which a “f-cubed” case will be allowed to proceed.

The Bank of Montreal filed suit against a mortgage specialist, a financial services manager, and the financial services manager’s husband, in connection with an alleged scheme wherein the mortgage specialist and financial services manager approved mortgages by accepting fraudulently altered appraisals.  The mortgage specialist would then split the commission with the financial services manager by paying half the commission to the latter’s husband.

The Court of Appeal upheld the trial court’s dismissal of the unjust enrichment claim against the husband because the bank was not deprived by his accepting of the payments, since it had already made the commission payment to the mortgage specialist.  The Court also upheld the dismissal of the conspiracy claim against the husband, because without unjust enrichment, there was no unlawful act on his part alleged that could support a conspiracy claim. Finally, the Court of Appeal ruled that the Bank did not need to allege damages specific to the conspiracy claim and independent of the breach of contract and breach of fiduciary claims against the mortgage specialist and financial services manager.

Full text of the decision is available here.

The executive director issued a temporary order prohibiting the trading in the securities of Microline Veneer & Forest Products Corp. (“Microline”) and prohibiting Peter William Arthur Wise from performing a variety of actions related to investor relations activities. After two weeks, the Commission dismissed the application to extend the order until a hearing because Staff had failed to provide prima facie evidence that misconduct had occurred.

The evidence provided by Staff included affidavits that Staff had telephone conversations with three investors, who Staff stated were not accredited at the time they made investments in Microline. However, Staff did not provide any factual basis for these conclusions. The Commission held that the conclusions alone were insufficient to constitute prima facie evidence of misconduct. Further, Staff alleged “concerns” that illegal trades may occur, but failed to provide a solid factual basis for their concern, when all of the trades at issue except one occurred in 2007.

Full text of the decision is available here.

The Commission evaluated allegations that executives in The Hear Now Incorporated (“THN”) had breached the Securities Act by making prohibited representations to investors and by conducting trades without the requisite registration or exemption.

THN sought to use the “private issuer” exemption from the registration and prospectus requirements, which is available for distributions of securities to an aggregate of not more than 50 investors.  The plan was to keep the number of direct THN shareholders below 50, regardless of how many investors were actually involved through the intermediate companies. While those ultimate investors were, technically, purchasing shares in an intermediate company, the subscription money was used by that intermediate company to purchase an equal number of shares in THN.  The Commission held that this investment structure was wholly inconsistent with the purpose and spirit of the private company exemption, breached the terms of the exemption, and was clearly contrary to the public interest.

The Commission also examined the financial forecast outlined in a letter sent to “potential investors”, and concluded that it was unjustifiably optimistic.  Although Staff did not take the position that the executive signing the letter intended to mislead, and the executive claimed he signed the letter without reading it, the Commission found that the executive ought to have known that the contents were misleading and by signing it, he made “it his statement to the addressee ‘potential investors.’” The Commission accordingly held that the THN executives had contravened the Act, and set a schedule for submissions on sanctions.

Full text of the decision is available here.

Staff alleged the two corporate Respondents contravened Alberta securities laws by failing to file, or by filing deficient continuous disclosure. Staff further alleged the president of one of the corporate respondents, McLeod, was responsible for these deficiencies. The corporate Respondents argued that to the extent the filings were deficient, they contained mere “technical defects.” The Commission rejected this argument, stating, “We cannot overemphasize the importance we place on reporting issuers’ scrupulous compliance with all continuous disclosure reporting obligations.”

The Commission examined the Financial Statements, MD&A, and Certifications of Interim and Annual Filings. The Financial Statements were deemed not prepared in accordance with GAAP because they failed to provide sufficiently clear information about mineral interests, which were a significant asset of corporate respondents. The Impugned MD&A was held not prepared in accordance with NI 51-102 and Form 51-102F1. Three Interim Certificates were required, and only one was filed, that one being deficient under MI 52-109.

The Commission found the corporate respondencts contravened Alberta securities laws and acted contrary to the public interest, and McLeod was deemed responsible for the contraventions. The Commission entered a scheduling order for the submission of written statements on sanctions.

Full text of the decision is available here.

Weyerhaeuser Company Limited (“Weyerhaeuser”) appealed with leave from an order of the Supreme Court that dismissed its appeal from a decision of the Property Assessment Appeal Board (the “Board”). Weyerhaeuser owned two vacant waterfront properties, and the Board rezoned these lots from rural (RU) to CD-5, which resulted in increased property taxes. The issues on appeal were whether the Board’s decision, which turned on the interpretation of one of its own statutes, should be reviewed on a correctness or reasonableness standard and, correspondingly, whether the Board’s decision was incorrect or unreasonable.

The Court of Appeal applied the four-part analysis fromDunsmuir v. New Brunswick, 2008 SCC 9 (CanLII), 2008 1 S.C.R. 190, to determine that the reasonableness standard of review applied, noting that under Nolan v. Kerry (Canada) Inc., 2009 SCC 39 (CanLII), 309 D.L.R. (4th) 513, the reasonableness standard requires deference to a tribunal interpreting its own statute. The Court then looked at the interpretation made by the Board and concluded that it was neither “indefensible” or “outside a range of reasonable possible outcomes.” Accordingly, the Court upheld the Chamber judge’s decision and dismissed the appeal.

To read the full text of the decision click here.

Appellants appeal an order by a case management judge that set forth a procedure for expert testing of a section of tube suspected of causing a costly factory explosion. The testing process was acknowledged by all parties to create a risk of destruction to the object. The order included provisions that (1) gave the testing party privilege over the test results, data, and analysis, (2) required an impartial Monitor be present to attempt to prevent destruction if possible, although the Monitor was not permitted to speak to any of the parties or disclose anything he saw, and (3) the appellants were entitled to have a representative present to observe the testing, but those representatives were not allowed to participate, or to obtain or record any test results unless the same was produced in discovery.

The Court of Appeal considered the litigation privilege and concluded that in light of the substantial risk of destruction to the object, the appellants ought to have full consultation during the testing, and their experts allowed to attend and voice objections, with veto power remaining with the Monitor. The Court found the case management order to be unduly restrictive, and therefore allowed the appeal.

To read the full text of the decision click here.

The Alberta Securities Commission clarified the definition of illegal “advising”, and found that the Respondents made misleading statements to Alberta Investors in Hav-Loc Private Wealth Partners Inc., Re, 2010 ABASC 43.

Staff of the Alberta Securities Commission commenced proceedings against Hav-Loc Private Wealth Partners Inc. (“Hav-Loc”), an Alberta company, and Thierry Gevaert (“Gevaert”), a resident of Ontario, who had served as Hav Loc’s president and chief executive officer.  Neither Hav-Loc nor Gevaert had ever been registered under the Securities Act (“the Act”) in any capacity.  Instead, Hav-Loc was at one time registered as a “limited market dealer” and Gevaert to sell mutual fund securities, but neither registration was active during the time period relevant to this proceeding. Gevaert reported Hav-Loc had become a shell of a company, indebted but without income or assets. Both Hav-Loc and Gevaert were alleged to have (1) performed illegal “advising” and (2) made misleading statements to Alberta investors.

The Commission considered the representations made by Hav-Loc on its website and in its investor handout in evaluating the allegations. On its website, Hav-Loc represented:

The Hav-Loc team is constantly researching and developing private equity opportunities to present to our investors…

[Hav-Loc] is unique to our competition [sic] by being able to investigate and develop private equity investments in a variety of industries. Since Hav-Loc does not (nor will not) own these companies, there will never be any opportunity for a conflict of interest to arise. This allows [Hav-Loc] to complete due diligence in an objective manner, keeping the interests of their clients as their primary goal.

In its investor handout, Hav-Loc represented:

We share a responsibility with our clients to ensure that each product introduced meets three fundamental elements within a Hav-Loc Product Framework before they are introduced to the public. Each product offered must meet the elements of balance between capital preservation, risk and return combined with overall tax effectiveness all of which are firm standards at [Hav-Loc].

There was also testimony from two Hav-Loc sales people who stated Gevaert had verbally told them that Hav-Loc had completed due diligence investigations and that only high-quality securities were being sold.  Testimony from Gevaert revealed that Hav-Loc was not making independent evaluations of securities. Instead, Hav-Loc relied on the companies they were promoting to accurately report and evaluate their financials and forecasts.

Staff alleged that Hav-Loc’s representations constituted illegal advising under Section 75(1)(b) of the Act, which made it illegal to “act as advisor” in respect of securities unless the party was registered to advise with the Commission’s Executive Director. “Advisor” was defined in Section 1(a) of the Act as:

“ a person or company engaging in or holding out the person or company as engaging in the business of advising others with respect to investing in or the buying or selling of securities . . .”

The Commission explained that Staff read the definition of “advising” too broadly. In evaluating whether Hav-Loc and Gevaert had “advised” by way of the materials described, the Commission explained the test was whether they expressed an opinion or made a recommendation as to a particular investment.  There was no evidence on record that either Hav-Loc or Gevaert had done so, and accordingly the Commission dismissed the allegations of illegal advising.

The Commission considered the same materials to determine whether Hav-Loc and Gevaert had made misleading statements to investors and found in the affirmative. Gevaert conceded that Hav-Loc made no additional investigation other than to review the offering memoranda provided by the prospective companies. By representing to the public that Hav-Loc was only offering securities that had been subject to a rigorous internal investigation, when no investigation at all had been performed, the Commission held that Hav-Loc was indeed making a misrepresentation to clients.

Accordingly, the commission sustained the allegations of misrepresentation against both Hav-Loc and Gevaert, but dismissed the allegations of unregistered advising.  The Commission set a hearing to follow where it would consider whether orders should be issued against Hav-Loc and Gevaert in light of these findings.

To read the full text of the decision click here.