B.C. Court provides Commission another chance to collect from fraudster’s spouse

In March 2020, landmark amendments to the British Columbia Securities Act, RSBC 1996, c 418 (the “Act”) came into force that conferred upon the British Columbia Securities Commission (the “Commission”) some of the strongest enforcement powers in the country (the “March 2020 Amendments”). Notably, in certain circumstances, the March 2020 Amendments expanded the Commission’s statutory authority to commence collection proceedings against family members and other third parties of persons found to have contravened the Act.

The recent decision British Columbia (Securities Commission) v. Pasquill, 2021 BCSC 1047 (”Pasquill”) highlights the impact the March 2020 Amendments could have on the Commission’s ability to collect from fraudsters’ families and their related holding companies.

Background

In August 2018, the Commission commenced collection proceedings against Earle Pasquill and his wife, Vicki Pasquill, seeking to enforce a $21.7 million dollar judgement (the “Collection Action”). The Commission then amended its pleadings (the “Commission’s Amended Pleadings”) to add Vicki Pasquill’s company, Vicker Holdings Ltd., as party to the action.   

Years prior, in 2015, Earle Pasquill, his then business partner Michael Lathigee, and the three corporate entities that they controlled and directed (the “FIC Group”) were found to have fraudulently raised $21.7 million from investors in contravention of the Act, and were held jointly and severally liable for this amount pursuant to section 161(1)(g) of the Act (the “Sanction Action”). However, Vicki Pasquill and Vicker Holdings Ltd. were not parties to the Sanction Action. Moreover, no findings of fact were made in the Sanction Action that either Vicki Pasquill or Vicker Holdings Ltd. directed or controlled the FIC Group, or received any funds fraudulently raised by the FIC Group.

In October 2019, Vicki Pasquill and Vicker Holdings Ltd. accordingly applied to, among other things, set aside and strike the Commission’s amended pleadings in the Collection Action for failing to disclose a cause of action. At the request of the Commission, the application was adjourned to allow it time to consider whether the then proposed amendments to the Act would impact its pleadings.

In October 2020, following a delay due to the COVID-19 pandemic, the Commission applied to further amend the Commission’s Amended Pleadings (the “Commission’s Further Amended Pleadings”) to seek relief based on the new statutory causes of action created by the March 2020 Amendments. In particular, the Commission’s Further Amended Pleadings allege that Vicki Pasquill and Vicker Holdings Ltd. received property and assets undervalue from Earle Pasquill that are subject to recovery by the Commission under the new amended sections 164.9 and 164.10 of the Act.

In Pasquill, the Court considered the above applications together. In particular, the Court considered:

• Whether to strike the Commission’s Amended Pleadings for want of statutory authority and being bound to fail; and
• Whether to allow the Commission’s Further Amended Pleadings, which rely upon the March 2020 Amendments.

The Commission’s Amended Pleadings

First, the Court granted the application brought by Vicki Pasquill and Vicker Holdings Ltd. to strike the Commission’s Amended Pleadings in large part.

The Court concluded that the Commission did not have the statutory authority to bring and maintain the Collection Action on the basis of the Commission’s Amended Pleadings. The Court reasoned that the Act confers upon the Commission the power to initiate proceedings in the Supreme Court of British Columbia only in limited situations directly related to its regulation of the securities market. However, the Court concluded that none of the claims in the Commission’s Amended Pleadings seeking compensation and restitution from Vicki Pasquill and Vicker Holdings Ltd. for the acts of Earle Pasquill are authorized by the Commission’s regulatory powers under the Act as it read prior to the March 2020 Amendments.

Further, the Court concluded that, with limited exceptions, the Commission’s claims against Vicki Pasquill and Vicker Holdings Ltd. in the Commission’s Amended Pleadings were all bound to fail.

The Commission’s Further Amended Pleadings

Second, the Court denied the Commission’s application to amend in the form of the Commission’s Further Amended Pleadings to the extent these pleadings simply re-cast, re-organized or particularized allegations the Court previously found as being bound to fail in its consideration of the Commission’s Amended Pleadings.

However, the Court concluded that the Commission should be allowed to further amend its pleadings to rely upon the new statutory causes of action created by the March 2020 Amendments, which the Court referred to as “the first of their kind in Canada.” Given their novel nature, the Court further commented that issues related to these new statutory causes of action “should not and cannot be summarily dismissed at the amendment stage”.

Key takeaways

The Court’s decision in Pasquill provides a clear example of how the March 2020 Amendments could impact the Commission’s ability to recover amounts obtained through contravention of the Act from family members and other third parties connected to fraudsters. Were it not for the March 2020 Amendments, in all likelihood, the Commission could not have continued to proceed against Vicki Pasquill and Vicker Holdings Ltd. to enforce the $21.7 million dollar judgement ordered against Earle Pasquill. The new statutory causes of action created by the March 2020 Amendments now provide the Commission with an opportunity to collect from these parties while acting within its statutory authority.

It remains to be seen, however, whether the Commission will ultimately be successful. Indeed, various defences, including Charter challenges and remedies, may be available to Vicki Pasquill and Vicker Holdings Ltd. that address both the specific allegations of the Commission and the scope of its powers pursuant to the March 2020 Amendments.

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