Real and Substantial Connection

It is generally accepted that regulators have authority over the conduct of their registrants regardless of where that conduct occurs. What is less clear is the jurisdiction of regulators over people who contravene the rules that apply to unregistered persons or entities. For example, can a regulator assert authority over those from outside of the regulator’s territorial jurisdiction who are engaging in unauthorized practice, use of title, or other prohibited activities that has an impact within the jurisdiction?


In Ontario College of Pharmacists v. 1724665 Ontario Inc. (Global Pharmacy Canada), 2013 ONCA 381 (CanLII), an injunction was granted in respect of a company located in Belize that sent drugs purchased from India to US purchasers because the company had a call and processing centre in Ontario. The Ontario Court of Appeal said there was a “sufficient connection” to the province for the Ontario pharmacy regulator to require compliance (by the Belize company) with the Ontario rules. However, in College of Optometrists of Ontario v. Essilor Group Inc., 2019 ONCA 265 (CanLII), leave to appeal refused 2019 CanLII 96491 (SCC), the same court found that the connection to Ontario was insufficient to authorize the College of Optometrists of Ontario to prevent persons in British Columbia from delivering contact lenses ordered online to Ontario residents where the only connection to Ontario was the location of the recipients.


Canada’s highest court wades into the issue in Sharp v. Autorité des marchés financiers, 2023 SCC 29 (CanLII). There the Quebec securities regulator initiated proceedings against four residents of British Columbia for engaging in a “pump and dump” investment scheme that involved promoting a company with little value, driving up the value of its shares through misleading means, and then selling the shares at a higher price. The four individuals argued that the Quebec regulator had no jurisdiction over them because they did not reside in Quebec. The majority of the Court held that the Quebec regulator did have jurisdiction because there was a “real and substantial connection” between Quebec and the four individuals:


…there is a sufficient connection between Quebec and the out-of-province appellants, all of whom allegedly participated in a fraudulent securities manipulation scheme with important ties to Quebec. The appellants allegedly used Quebec as the “face” of their alleged pump-and-dump scheme by promoting Solo’s mining activities in Quebec. They participated in marketing or financing efforts and partly targeted Quebec residents. Solo, the company through which the appellants operated their scheme, was a reporting issuer in Quebec, and Solo’s director was a Quebec resident. There was thus a clear connection between Solo and the appellants, on the one hand, and the province of Quebec on the other. In the circumstances, it would defeat the purpose of the cross-border nature of modern securities regulation to allow the appellants to escape the reach of Quebec’s regulatory oversight.


The Court cited the Ontario College of Pharmacists decision and seemed to equate the phrase “sufficient connection” used in that decision by the Ontario Court of Appeal with the “real and substantial connection” test being applied in the context of the Quebec matter.


It is likely that this approach will be applied by courts to other regulators where extra-jurisdictional conduct by unregistered persons might defeat the public interest being protected.


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