B.C. Appeal Court holds a fraudster’s registered retirement accounts are safe from seizure
In the recent decision Pasquill v. British Columbia (Securities Commission), 2021 BCCA 424 (“Pasquill”), the British Columbia Court of Appeal held that the B.C. Securities Commission does not have the statutory authority to issue preservation orders to restrict a fraudster from withdrawing or transferring funds from their registered retirement accounts. The Court reasoned that such preservation orders would amount to “seizure” of the fraudster’s registered retirement income and is therefore prohibited by the Pension Benefits Standards Act, S.B.C. 2012, c. 30 (“PBSA”) and the regulations thereunder.
The Court’s decision in Pasquill overturns the Commission’s decision released in November 2020 -- which we have written about previously here -- to dismiss an application brought by Earle Pasquill to have the preservation order revoked. The Commission’s decision came after sweeping amendments were made to the Securities Act, RSBC 1996, c 418 (the “Securities Act”) and the Court Order Enforcement Act, R.S.B.C. 1996, c. 78 (“COEA”) that collectively conferred upon the Commission the strongest enforcement powers in the country. The Commission’s decision affirmed that these enhanced powers included the issuance of preservation orders for fraudsters’ funds even in respect of their registered retirement income. However, the Court’s decision in Pasquill clarifies that the Commission’s powers under the Securities Act and COEA are limited at least insofar as they are superseded by protections for registered retirement income under the PBSA.
Background
Mr. Pasquill and his business partner were participants in one of British Columbia’s largest ever frauds. In 2015, the Commission found Mr. Pasquill jointly and severally liable with his business partner to pay $21.7 million as disgorgement for fraudulently obtained funds, and ordered that Mr. Pasquill pay an additional $15 million in administrative penalties. However, as of November 2019, Mr. Pasquill had not made any payments towards his substantial debt to the Commission. Regardless, Mr. Pasquill continued to receive monthly draws of approximately $6,575 from his “life income fund” (“LIF”), a type of registered retirement income fund with monies derived entirely from pension income that he had earned while he was an employee.
In March 2020, the Commission issued a preservation order ex parte to freeze Mr. Pasquill’s LIF accounts. Mr. Pasquill then applied to lift the preservation order. The application was dismissed and Mr. Pasquill subsequently appealed. On appeal, the Court considered two key questions:
COEA and “seizure” under the PBSA?; and - Does the COEA conflict with and take precedence over the PBSA and regulations thereunder?
Preservation orders as an “enforcement process” and as “seizure”
On the first question, the Court held that a preservation order constitutes part of the Commission’s “enforcement process” under the COEA and amounts to “seizure” under the PBSA. In doing so, the Court rejected the Commission’s argument that a preservation order only maintains the status quo and is therefore distinct from other enforcement processes such as “attachment”, “garnishment”, “execution” and “seizure”, each of which involve an action taken for the purpose of realizing on a judgment or similar instrument. The Court reasoned that although the Commission’s preservation order only froze Mr. Pasquill’s LIF accounts and did not actually transfer any funds to the Commission, the order was nevertheless the first step in the Commission’s enforcement process because it effectively placed the funds under the control of the justice system.
Conflict and precedence between the COEA and the PBSA
On the second question, the Court held that the relevant provisions of the PBSA and regulations thereunder were much “narrower in focus” than the relevant provisions of the COEA because the PBSA provisions specifically reference both “registered retirement accounts” and “LIFs” and provide for their protection. In doing so, the Court rejected the inverse argument made by the Commission that the COEA provisions were narrower in focus because they specifically reference “orders arising out of the Securities Act”. In light of the rule of statutory interpretation that the specific overrides the general, the Court then held that the PBSA and regulations thereunder should prevail over the COEA. Accordingly, since the PBSA prohibits “seizure” of funds in registered retirement accounts and LIFs, the Court held that the Commission did not have the statutory authority to issue the preservation orders in respect of Mr. Pasquill’s LIF accounts.
Key takeaways
The Court’s decision in Pasquill clarifies an important limitation to the enforcement powers of the Commission to make preservation orders in respect of registered retirement accounts. This is a setback for the Commission as the March 2020 amendments to the Securities Act and COEA were intended to provide it with new and better tools to go after bad actors such as Mr. Pasquill who break the law. In light of this legislative intention, it is possible that the Court’s decision in Pasquill will be appealed to the Supreme Court of Canada. It is also possible that the PBSA will be amended to remove the protections for registered retirement income and LIFs in circumstances involving enforcement processes under the Securities Act and COEA.
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