In a lengthy decision released yesterday, the BC Court of Appeal concluded that the disgorgement remedy available under s. 161(1)(g) of the Securities Act is limited to those that where the particular wrongdoer has obtained an amount, or avoided a payment or loss, directly or indirectly, as a result of that wrongdoer’s contravention.

The decision will likely make it more difficult for the BC Securities Commission to issue disgorgement penalties on a "joint and several basis" against multiple parties unless there is evidence establishing control and direction as between the parties (i.e. persons acting as alter egos of corporate entities). This will ensure parties associated with a wrongdoer (i.e. spouse or partner) are not necessarily made a party to any disgorgement order unless there is evidence demonstrating they had some greater involvement in the underlying acts giving rise to the order.

The Court outlined the following principles regarding disgorgement remedies:

1. The purpose of s. 161(1)(g) is to deter persons from contravening the Act by removing the incentive to contravene, i.e., by ensuring the person does not retain the “benefit” of their wrongdoing.

2. The purpose of s. 161(1)(g) is not to punish the contravener or to compensate the public or victims of the contravention. Those objectives may be achieved through other mechanisms in the Act, such as the claims process set up under Part 3 of the Securities Regulation or the s. 157 compliance proceedings in the Act.

3. There is no “profit” notion, and the “amount obtained” does not require the Commission to allow for deductions of expenses, costs, or amounts other persons paid to the Commission. It does, however, permit deductions for amounts returned to the victim(s).

4. The “amount obtained” must be obtained by that respondent, directly or indirectly, as a result of the failure to comply with or contravention of the Act. This generally prohibits the making of a joint and several order because such an order would require someone to pay an amount that person did not obtain as a result of that person’s contravention.

5. However, a joint and several order may be made where the parties being held jointly and severally liable are under the direction and control of the contravener such that, in fact, the contravener obtained those amounts indirectly. Non-exhaustive examples include use of a corporate alter ego, use of other persons’ accounts, or use of other persons as nominee recipients.