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Law Times • march 2, 2009 The law is an ass — blame the government T hey're baaaaack! We tend to think the government is only working when the legislative assembly is in session, but in reality the wheels of process are ever- turning, albeit slowly and sometimes against them- selves. Much like the law itself. The resumption of the House of Commons sets the stage for a series of events, probably the most important being the bud- get March 26. This week, how- ever, Conservative leader John Tory will try and win a seat in Haliburton-Kawartha Lakes- Brock and thus actually be able to sit in the House, all the better to attack the government. Also, this week the NDP will elect a new leader to re- place Howard Hampton who is stepping down. Then of course, there's the rescue package, par- ticularly for GM and Chrysler, the green energy act which will bulldoze the NIMBYs, and at some point, passing bill 133 to reform the Family Law Act. So the hard work is just beginning. But let us break from the economic doom and gloom, the fear of another tax and spend budget and instead consider the dilemma of Ted Kindos who is the current poster child for, "Why the law is an ass." Kindos, for those unfamiliar, owns Gator Ted's Tap and Grill in Burlington and was dragged to the Ontario Human Rights Commission because a patron complained he was refused the right to smoke medicinal mari- juana on the premises four years ago. The restaurateur spent $40,000 in legal fees only to be presented with a "settle- ment" which would have paid the complainant Steve Gibson $2,000 for his suffering, and forced Kindos to post signs saying the bar "accommodates medical marijuana users." There's only one problem. Another provincial institution, the Alcohol and Gaming Com- mission of Ontario, says if Gib- son lights up at the bar, they'll lift Gator Ted's liquor licence because he's allowing the use of controlled substances on the premises. Two other marijuana smokers have filed similar com- plaints saying if bars put aside outside areas for tobacco smok- ers, they should have the right to toke their medicinal herb of choice. It's quite a dilemma and pretty silly to boot. Back in my day you'd simply get arrested for smoking pot on a restaurant pa- tio. Not that I indulged in any- thing like that. Really. Ted McMeekin MPP for Ancaster-Dundas-Flambor- ough-Westdale, and minister of government and consumer services, is a little red-faced about it all, telling the House: "I know Gator Ted. He runs an establishment in my home- town. He's a wonderful fellow who works very, very hard to try to make ends meet. He's caught between, sadly, a regulatory rock Inside Queen's Park By Ian Harvey and a hard place . . . (and it) is something that this government won't stand for, and we'll make sure that this is sorted out." With the shadow cast by our sinking economy, this may seem trivial but the root of the issue here is entangled around how the average voter perceives the law. Having provincial agencies issue conflicting edicts is not just embarrassing but brings law into some disrepute. It's a sick joke which will dine out in bars across the province for years to come. Of course, this is the same agency whose chief commis- sioner, Barbara Hall, last year laid into writer Mark Steyn over excerpts from his book America Alone: The End of the World As We Know It, which were pub- lished in Maclean's magazine. While she agreed the OHRC couldn't investigate complaints that Steyn's arguments were hate-mongering because of a technicality in the law, she wasted no time in saying she thought they were "Islamapho- bic," essentially making a rul- ing without holding a hearing, something I thought only the Soviet Bloc used to do. Earlier last month Steyn re- butted her comments before the legislative committee on gov- ernment agencies and lobbed a few firebombs of his own, label- ling Hall a "commissar," skew- ering her because the OHRC has been silent on the issue of Muslim "honour killings" and calling for the agency to be scrapped. While most of the OHRC critics wouldn't go that far, Pre- mier McGuinty himself recently lamented the layers of regula- tions and rules which bind On- tario business and slow down commerce though ironically he's wasted no time introducing a slew of others, including forc- ing homeowners to get an en- ergy audit before they sell their homes. But, back to the OHRC. Yet here's another example of an entity whose mandate has gone far beyond what was first envi- sioned. With a budget of nearly $18 million perhaps the finance minister can use some of that excess to apply toward more worthy causes when he tables the budget in March? Lamentably it may mean fewer billables for those practi- tioners who haunt Hall's halls, but isn't restoring some dig- nity to the law a much more worthy cause? LT Ian Harvey has been a journal- ist for 32 years writing about a diverse range of issues including legal and political affairs. His e-mail address is ianharvey@ rogers.com. COMMENT PAGE 7 n January, the Expert Panel on Securities Regu- lation appointed by the federal government to make recommendations respecting improve- ments to the current securities regulatory system, delivered its report to federal Finance Minister Jim Flaherty. The central recommendation of the re- port, the creation of a single federal securities regu- lator to replace the current system of provincial se- curities regulation, is posited as a structural change which will reduce the risk of systemic failure in the financial system. However, given that the expert panel also recommended that the new federal secu- rities statute should substantially replicate existing provincial securities statutes, the basis for the expert pan- el's claim is not clear. The timing for delivery Status quo not good enough I BY ALEXANDRA RAPHAEL For Law Times Speaker's of the report was propitious. Given the deterioration in world economic conditions, the instability in the world's financial markets, and the obvious limitations of securities regulators in every country, including Canada, to predict, diag- nose, or pre-empt the sell-off in the world's stock markets, the expert panel could not have asked for a more receptive audience for its report. In the for- ward to the report, Thomas Hockin, the chairman of the expert panel, writes: "The lack of a Canadian securities regulator also raises wider concerns about systemic risk as there is no national entity accountable for the stability of our national markets. Systemic risk is no longer confined to just banking institutions; it now increas- ingly presents itself in capital markets, as the current financial crisis has clearly demonstrated. Neither the Canadian Securities Administrators nor the provin- cial and territorial securities regulators can provide a counterpart to the Bank of Canada or the Office of the Superintendent of Financial Institutions, fed- eral agencies that are accountable for their role in the stability of Canada's financial sector." Whether the important factor here is the nature of accountability between the proposed new federal securities regulator and the federal government, or the nature of systemic risk, there is unfortunately very little in the federal proposal, which would ex- plain Hockin's faith that a new federal regulator will reduce systemic risks in the capital markets. I say this because apart from the fairly elaborate governance structure of the proposed new federal regulator, the expert panel recommends few changes to current provincial securities laws. The expert panel was charged with the respon- sibility of developing a model securities act to be administered by the proposed new federal securi- ties commission. Since the expert panel had less than a year in which to do its work and in view of the need to recommend an act which would be acceptable to the provinces, the expert panel adopted the practical approach of working with existing provincial legislation. As Canadian securities law practitioners are well aware, existing provincial securities law has been shaped by the needs of the passport system of se- curities regulation over the past 10 years. Since the passport system is premised on one province be- ing able to rely upon the decision made by another province's regulator, the success of this system has required the development of a highly co-operative network of provincial regulators administering a highly harmonized set of rules. Since the securities regulators were provided with the authority to make rules having the force of law in the mid 1990s, regu- lators have taken a much larger role in establishing securities regulatory policy and legislators have taken a correspondingly smaller role. Most would agree that the gradual emptying out of securities statutes across Canada so as to allow securities regulators the flexibility to make the passport system work, has not been an entire- ly positive development. Securities law is less ac- cessible to non-specialist legal practitioners than it was 10 years ago. In Ontario, the Securities Act runs about 160 pages while the national and lo- cal rules run about 2,300 pages. Not surprisingly, some of the matters regulated in the rules are not covered by the act. In a significant number of www.lawtimesnews.com Corner cases, contrary to law and drafting conventions, the rules override the act. Increasingly, only those who know what they are looking for, venture into the act to find out what the law is on a particular securities matter. The proposed federal act is faithful to this draft- ing style notwithstanding that under a federal reg- ulatory system, there would be no administrative advantage to place substantive law in commission rules. The securities statutes now administered by provincial securities commissions don't contain much of the law relating to financings, takeover bids, or insider trading. Rather, this law is found in the rules developed by the provincial commissions. If one were to analogize to the Income Tax Act, this drafting style would result in a very slim statute which contained no refer- ence to capital gains exemp- tions, dividend tax credits, or small-business tax credits. The act would simply set out the requirement for the payment of taxes leaving all of the provisions of most interest to taxpayers and their advisers, relating to exceptions from the tax regime, to be established by the CRA. While the expert panel might see this type of criticism as "formal" and content themselves with the idea that lawyers will always debate drafting style, I do not think this response is adequate. The result of the expert panel's decision to adopt the existing passport-style provincial securities acts is to sanction the status quo in Canadian securities regulation. It is impossible to reconcile this deci- sion with the claims of the expert panel that the new federal regulator will improve upon the regu- lation of Canada's capital markets. Canada's current securities laws were shaped by the limitations of provincial regulatory jurisdic- tion, particularly in relation to banks. Since banks were permitted to purchase securities dealers in the late 1980s, provincial regulators have struggled with the effective regulation of securities dealers where the parent banks of the dealers are regulated federally. Similarly, provincial regulators have had to compromise their respective policy objectives in order to achieve harmonization, in a system where consensus had an inordinately high prior- ity. Although the provincial system of regulation has been very effective, it clearly makes no sense to carry forward into a federal system of regulation; a body of law which reflects the limitations of the provincial system it is replacing. Since the asset backed commercial paper crisis began unfolding in Canada in the fall of 2007, there have been several examinations of its ori- gins. In fact, one of the best of these studies was conducted by John Chant, an economics profes- sor at Simon Fraser University, at the request of the federal expert panel. As a result of the dramat- ic international stock market slide in the fall of 2008 and the associated collapse of a number of major U.S. investment banks including Lehman Brothers and Merrill Lynch, many more studies have been conducted in an attempt to discover why the financial market regulators worldwide were apparently unaware of the imminent risk of financial crisis. The findings contained in these reports are highly relevant to anyone interested in better regulation of the capital markets. However, they apparently did not inform the expert panel's recommendation that the existing provincial se- curities statutes should be carried forward in a new federal securities statute. In Canada, it appears as if the current financial crisis may have given the federal government the opportunity that it was looking for, and arguably deserved, to press its case for a federal presence in the regulation of the capital markets. However, it is important that the federal government recognize that this opportunity is not purely political. It is also an opportunity to make some progress in re- forming Canada's securities laws. The status quo is obviously not good enough. LT Alexandra Raphael is counsel at the Ontario Ministry of Finance, legal branch, and a former counsel at the Ontario Securities Commission. The views expressed in this article are her own. Her e-mail address is alexandra. raphael@ontario.ca.