Two Ontario regulators have won a motion to maintain their regulatory turf. Meanwhile, a company proposing to sell investments viatical settlements — discounted purchases of death benefits of life insurance policies of the terminally ill or seniors — will have to await to find out the outcome of its business fate.

This week, the Ontario Superior Court upheld a motion by the OSC and FSCO to quash a court application by Universal Settlement International. USI was seeking a court order declaring that neither the Securities Act, nor the Insurance Act, give the OSC and FSCO the ability to regulate its business. The OSC and FSCO argued that an application should not be brought before the court until USI had gone through appropriate regulatory channels.

OSC staff advised USI on June 19, 2001, that USI is marketing interests which fall within the definition of a “security” under the Securities Act. In other words, securities were being sold in contravention of s.53 – which requires the filing of a prospectus, and s.25 — which requires registration of persons trading in securities.

But USI did not bring any kind of proceeding before the OSC in response. There hasn’t been any regulatory proceeding by USI, or the OSC, to deal with the issues raised in the staff letter. There is a pending hearing before the Financial Services Tribunal, requested by USI, in which the company intends to argue that the FSCO lacks jurisdiction to regulate the activities of USI.

In it reasons, the Ontario Superior Court said that it accepts that it “may have jurisdiction over the subject matter of the application but the issue for this motion is whether any jurisdiction should be exercised at this time, given that there has been no hearing before either regulatory agency.”

Several administrative law cases show, stated the court that “deference [must be] accorded [to] regulatory tribunals which have important public protection functions, are experts in complicated regulation and who have a hearing process that provides the opportunity to advance full argument which can be considered by the tribunal within the context of its mandate.”

Therefore the court ruled that USI court application was premature. “I am satisfied that the motions of the OSC and the Superintendent should be granted and the application for a declaration quashed on the basis of prematurity,” ruled Judge C. Campbell.

Furthermore, Campbell accepted the OSC’s submissions that “except in the most extraordinary circumstances a court should not grant declaratory relief where the regulatory authority has not been fully engaged and does have a process for doing so. There is a danger that a court which would make a pronouncement on hypothetical facts might well undermine the policy direction of a regulatory tribunal which has not only a particular case before it, but many policy factors to consider in determining the scope and extent of appropriate regulation.”