In Morabito v. British Columbia (Securities Commission), 2024 BCCA 377, released on Nov. 15, Justice Janet Winteringham held that the blended hearing process established by a panel of the B.C. Securities Commission (BCSC) violated rules of procedural fairness.
“The executive director was to tender their evidence to prove the substantive charges against the appellants. At the same hearing, the appellants were to elicit evidence to prove their abuse of process claims. The two tasks were incompatible, in part because of the conflicting burdens of proof,” the judge wrote.
In 2018, the appellant, Mark Morabito, the chair of Canada Jetlines Ltd. (now Global Crossing Airlines Group Inc.), made a trade of his shares in the company to his spouse. In August 2018, the respondent, the B.C. Securities Commission, initiated an investigation into Morabito and his spouse over concerns about insider trading.
The commission alleged that Morabito engaged in insider trading while knowing about the termination of a letter of intent to lease aircraft, which would enable Jetlines to launch low-cost flights, but before the information was disclosed to the public.
During the investigation, Michael Pesunti, the commission’s lead investigator, attended the Morabito home and confronted the appellant’s spouse after he had gone to work.
In December 2019, the commission issued a freeze order on all cash, securities or other property in Morabito’s account at his wealth management firm.
In May 2020, Morabito’s father received a demand for production of documents seeking a broad range of information relating to the Morabito Family Trust, of which he was the sole trustee. Pesunti later demanded additional information from the appellant’s father.
However, the investigation was moving slowly and in January 2021, the Morabitos applied to the BCSC under s. 171 of the Securities Act for an order revoking the investigation order.
In October 2021, the commission dismissed the application and issued a notice of hearing the following day.
Morabito sought leave to appeal the dismissal of his application to revoke the investigation order. The court granted leave solely to address the issue of who bears the onus in an application under section 171 of the Securities Act.
In Morabito v. British Columbia (Securities Commission), 2022 BCCA 279 (Morabito 2022), the B.C. Court of Appeal held that the onus lies on the applicant for an order revoking an investigation order under s. 171.
However, the court also noted that in circumstances where an applicant adduces evidence supporting allegations of unprofessional conduct or abuse of some kind, the evidentiary burden may shift to the director to explain why a particular tactic was followed or why an investigation has been inordinately delayed.
The appellant also brought multiple disclosure applications. Through these applications, the appellant learned that the executive director had failed or refused to disclose that a material witness was terminally ill and about to die.
The appellant submitted that Stanley Gadek, the CEO of Jetlines at the time, was critical to proving an essential element of the insider trading charge and the executive director’s non-disclosure of this was an abuse of process. Morabito deposed that he had learned the executive director was informed of Gadek’s illness in June 2021, two months before he died, but that the executive director only disclosed this information in March 2022.
In February 2023, Morabito filed an application seeking an order that the BCSC proceedings be permanently stayed as an abuse of process.
In March 2023, at a case management conference, the chair of the panel stated that the panel would be in the best position to decide the applications after hearing the evidence introduced by the executive director in the liability hearing.
In the hearing, the executive director only called Nicole Henwood, a commission investigator to prove liability. Henwood was assigned to the investigation in November 2021 and did not have first-hand knowledge of any investigative steps taken before her involvement.
When the appellant attempted to inquire into issues relevant to their abuse of process applications, the executive director objected, citing relevance. The panel sustained these objections.
The panel adopted the executive director’s position that Gadek’s testimony was not critical to the appellant’s case and that while the conduct of commission staff in the investigation had been imperfect, the executive director’s actions had not individually or collectively compromised hearing fairness.
Morabito appealed the decision.
The appellant argued, among other things, that the appellant failed to require the executive director to discharge an evidentiary burden to answer allegations of abusive conduct substantiated with some evidence, including by failing to consider that the executive director shielded investigators from cross-examination.
The respondents submitted if the appellant wanted to call Pesunti or another commission investigator, they could have done so.
Justice Winteringham noted that while the panel was empowered to create a procedure to best determine the abuse of process applications, it had a duty to use a fair and open procedure that provided an opportunity for the appellant to put forward their views and evidence fully and have them considered by the panel.
“The procedure adopted by the Panel frustrated the appellants’ ability to advance their claims of abuse of process — to the extent that the appellants were denied a fair hearing,” the judge wrote.
The judge observed that the suggestion that the appellant could have called Pesunti as part of his case demonstrated the confusion created by the blended hearing.
“In my view, in the circumstances presented, it was unfair to insist that the appellants call an adverse (or hostile) witness in their own case,” the judge wrote.
The judge held that fairness dictated that the executive director call Pesunti to answer at least some of the allegations, especially in light of Morabito 2022, in which the B.C. Court of Appeal noted when the evidentiary burden may shift to the executive director.
“Instead, the executive director proceeded in a manner that shielded Mr. Pesunti (and other investigators) from answering the allegations, including those related to the investigative steps taken by Mr. Pesunti and the executive director’s failure to disclose Mr. Gadek’s terminal illness, to cite just two examples,” Justice Winteringham wrote.
She also noted that the nature of the objections launched by counsel for the executive director also showed the confusion caused by the blended hearing.
The judge noted that the panel had seemingly only considered relevance in the context of the substantive case but not in relation to the claim of abuse of process when addressing such objections and had, as a result, prevented the appellant from eliciting evidence to substantiate his abuse of process claims.
The court also noted that the panel had unfairly narrowed the abuse of process application to disclosure delays and the failure to disclose Gadek’s terminal illness.
The judge allowed the appeal, setting aside the panel’s decision. Justice Winteringham ordered that the matter be remitted to a newly constituted hearing panel of the British Columbia Securities Commission.
Justices David Harris and Peter Voith concurred in the decision.
Counsel for the appellant, Robert Deane of Borden Ladner Gervais LLP, said that Morabito was pleased that the Court of Appeal had confirmed that the approach wrongly taken by the panel and the Executive Director denied him a fair hearing.
“If it [the case] proceeds, the investigators and others involved in these events, which the Court found raised credible allegations of state misconduct, will have to testify and explain themselves. However, one must wonder why the Executive Director would continue directing scarce resources towards this proceeding which, as the Court of Appeal remarked, involves a single trade made seven years ago, which was properly self-reported at the time it was made,” he told Law360 Canada in an email.
Counsel for the remaining parties were not immediately available for comment.
Paige Burnham of Borden Ladner Gervais LLP also acted as counsel for the appellant.
Counsel for the respondent, Global Crossing Airlines Group Inc., were Sean Boyle and Jenna Green of Blake, Cassels & Graydon LLP.
Counsel for the respondents, Executive Director of the British Columbia Securities Commission and British Columbia Securities Commission were Deborah Flood, Matthew Smith and Amirmohammad Ghorbani Abdehgah of the B.C. Securities Commission.
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