K.S Westlake, appearing for the appellant. M.L. Skwarock, appearing for the respondent.

¶ 1     LAMBERT J.A. (orally):-- This appeal is brought from a decision of the British Columbia Securities Commission pursuant to leave granted by a judge of this Court, as is required for an appeal from the Commission.  The leave was granted on a single issue among a number which had been brought forward on the leave application.  The leave was on these terms:

THIS COURT ORDERS that leave to appeal the decision of the Respondent is granted on the sole issue as to whether the Respondent erred in law in imposing a sanction on the Appellant without affording the Appellant a hearing to consider evidence and submissions on sanction after liability was determined by the Respondent.

¶ 3     There are three volumes of transcript of the hearing which took several days.  The essentials of the complaints were set out by counsel for the Commission early on in the hearing, but later in argument he stressed the high standard which he described as the United States practice in assessing the duties of directors and perhaps other matters, and he stressed the rejection of a more lenient standard in assessing the duties of directors.  So the Commission was being invited to impose a strict standard for judging the question of whether the duties of directors had been complied with and to apply that strict standard on the facts of this very case.

¶ 4     Counsel for Mr. Watson submitted that there may have been a minor breach or minor breaches, without particularly specifying what they were, but that this was a comparatively minor case and that the penalties should be appropriate.  The question of penalties was specifically addressed by counsel for the Commission in accordance with what was then the customary practice of the Commission of dealing with the penalty phase of their inquiry at the same time as the breach, or liability, phase.

¶ 5     Counsel for the Commission asked for restraints on Mr. Watson in relation to the public markets, and in relation to taking on the duties of a company director, for a period of five years.  Counsel for Mr. Watson had said that no restraint period was fitting, having regard to the nature of Mr. Watson's conduct, and that a small fine or further financial penalty in relation to the cost of the inquiry would be the only penalty that was appropriate.

¶ 6     There was no precise and specific waiver of any rights which Mr. Watson might have to have the penalty hearing take place separately and following any conclusion that was reached on the issue of liability.

¶ 7     At the conclusion of the hearing, the Commission deliberated for some 13 months and then issued careful reasons running to some 50 pages.  In those reasons there was included the penalty which was imposed following findings of what I will call guilt under a number of different headings and on a number of different matters that had been the subject of the inquiry and the hearing.  The penalty that was imposed was 10 years restraint on dealing in the public markets and 10 years restraint on acting as a director of a corporation.

¶ 8     Counsel for Mr. Watson before us said that the penalty phase of the Commission's inquiry ought to have been separated from the liability phase and the Commission should have invited separate submissions on the penalty phase.  In support of that, he argued that until the finding of liability the exact offences, as it were, on which liability was reached and the extent of the culpability in relation to the liability had all been determined by the Commission, it was not possible to make pointed and appropriate submissions in relation to penalty.  If the offences that were found in the end were trivial, perhaps very simple submissions would be required.  If the offences were found to be more severe, then counsel acting for a person in Mr. Watson's position on the penalty hearing would wish to look up previous decisions of the Commission and other Commissions to make a submission about the range into which penalties ought to fall and what penalties would be outside the range.  Counsel might also wish to lead evidence of good character.  In this case, for example, it was said to us that Mr. Watson had been an Associate Professor of Mining or of Geology; that he had twice won the Canadian award for "Geologist of the Year"; that his experience was as a geologist; and that he may well have approached an understanding of his duties as a director as someone with geological expertise but not as someone with financial or securities expertise.  No such submissions were made in this case.

¶ 9     The argument on behalf of the Commission before us essentially turned on the fact that Mr. Watson was represented by a very experienced counsel at the Commission hearing; that the counsel was aware of the possibility of splitting the penalty phase from the offence and liability phase; and that, counsel not having objected to the penalty phase not being explicitly separated during the course of the hearing, on behalf of Mr. Watson he had waived the right to do so.  Authorities on the waiver by counsel of defences, through not having made them at trial, were referred to us.

¶ 10     In my opinion, the separation of the penalty phase from the liability phase is a natural separation.  I accept the arguments of counsel for the appellant that until the fact of liability is known, and the severity of the culpability has been found, and the specific offences on which liability has been found to exist are known, it is not in the usual case possible to make an informed and pointed argument on the question of penalty.  The person who has been found to have been guilty is prejudiced, in counsel's submission which I accept, if he does not know what offences he is answerable for at the time he is making his submission on the question of penalty.  This point was made by Madam Justice Rowles in Doman v. British Columbia (Superintendent of Brokers) (1998), 59 B.C.L.R. (3d) 217, and particularly in para. 49 at p. 239.  It is true that in that case Madam Justice Rowles said:

In the circumstances of this case, it is my respectful view that a single hearing was inadequate to meet the requirements of procedural fairness.  The central issue before the Commission was whether the sales of DIL shares which had taken place on 4 November 1988 came about through information passed from Mr. Doman to R.J. Bennett.  In view of the evidence of the Bennetts and Mr. Doman as to what occurred on 4 November, which amounted to a complete denial of any violation of s. 68 of the Act, I regard the suggestion that submissions could have been made on penalty, before the Commission made its findings as to whether any violations had occurred, as untenable.

[My Emphasis]

¶ 11     Indeed, I would like to suggest that it would be a very rare case in which counsel for a person found guilty should not be permitted to make separate submissions on the question of penalty after the degree of culpability and the nature of the offences in which guilt has been found are known to him.

¶ 12     In large measure this point was recognized by counsel for the Commission who based his strongest argument on the view that counsel for Mr. Watson had waived the right to have a separate hearing.  He said that in Doman there had been no argument whatsoever about penalty at the time when the liability phase took place and that this failure distinguished the Doman case.

¶ 13     I do not doubt that there may be cases where the opportunity to make submissions on penalty can be waived, but I would think that it must be absolutely clear that such a waiver has taken place.  If, for example, the Commission were to say explicitly "Do you waive a separate hearing on penalty if you are found to have committed the offences?" and the answer were given "Yes", then no doubt that would be an effective waiver and it would not be a breach of the requirements of procedural fairness to deal with the penalty phase at the same time.  But something as clear as that is required.  It has to be clear that the opportunity to make proper submissions on penalty has in fact been waived.

¶ 14     In the circumstances of this case and having regard to the arguments in the transcript to which we were referred, in my opinion it is not clear enough that the opportunity to make separate penalty submissions was waived to have the result of denying the procedural fairness which Mr. Watson was entitled to.

¶ 15     For these reasons, I would allow the appeal and remit the question of penalty to the Commission.

LAMBERT J.A.

¶ 16     ROWLES J.A.:-- I agree.

¶ 17     DONALD J.A.:-- I agree.

¶ 18     LAMBERT J.A.:-- So ordered.