Canada: Settlements With Ontario Securities Commission Do Not Preclude Class Action Claims

Last Updated: March 27 2012
Article by Michael Schafler and Soloman Lam

On January 27 2012 the Ontario Court of Appeal released its decision in Fischer v IG Investment Management Ltd.1 The court held that capital markets participants which reach a settlement agreement with the Ontario Securities Commission (OSC) with respect to securities law infractions may still be exposed to civil liability in class actions.


In 2004 the OSC initiated regulatory proceedings against certain mutual fund managers for failing to act in the public interest in relation to market timing activity, which harmed the financial interests of the mutual funds' long-term investors.2 The OSC eventually reached settlement agreements with the mutual fund managers which required them to pay $205.6 million to the affected investors, but the settlements constituted only a fraction of what the investors believed that they had lost. The investors brought a motion for the certification of a class action against the mutual fund managers for the remaining amount, asserting that the mutual fund managers had breached fiduciary and other duties owed to the investors.

Preferable procedure: class action or regulatory proceeding?

The primary issue was whether a class action was the preferable procedure to resolve the investors' claims, given that they had already received compensation from the mutual fund managers as a result of the OSC settlements. Section 5(1)(d) of the Ontario Class Proceedings Act, 19923 provides that "the court shall certify a class proceeding on a motion if...(d) a class proceeding would be the preferable procedure for the resolution of the common issues".

The motion judge denied certification of the proposed class action,4 holding that while the investors had satisfied all other criteria of class action certification, they had failed to meet the 'preferable procedure' requirement of Section 5(1)(d). The motion judge stated that the OSC proceeding had already provided a reasonably available means of resolving the investors' claims. While the resulting settlements may have 'left money on the table', the investors were not denied access to justice because the OSC had helped them to obtain restitution through a process that was adequate.

The investors appealed to the divisional court, which reversed the motion judge's decision and granted certification of the class action.5 The divisional court found that because the investors' proposed class action was for monetary damages that were significantly more than the amount recovered in the OSC proceedings, it was illogical for the motion judge "to characterise the OSC proceeding as the preferable procedure for recovering money which the OSC proceeding failed to recover in the first place".6 Instead, the class action was the preferable procedure because there was no other viable alternative for the investors to recover all, or substantially all, of the remaining shortfall from the OSC settlement.

Ontario Court of Appeal decision

In a unanimous opinion penned by Chief Justice Warren K Winkler, the court of appeal upheld the divisional court's decision to have the class action certified. However, the court found that both the motion judge and the divisional court had erred in their analyses of the preferable procedure requirement for certification.

The court stated that the lower courts had incorrectly focused on the substantive outcome of the OSC proceeding (in other words, the fact that the OSC had secured payments to the investors), when they should instead have examined the procedural characteristics of the two types of proceeding. He provided the following analytical framework:

"[I]n considering whether an alternative means of resolving the class members' claims is preferable to the mechanism of a class action, a court must examine the fundamental characteristics of the proposed alternative proceeding, such as the scope and nature of the jurisdiction and remedial powers of the alternative forum, the procedural safeguards that apply, and the accessibility of the alternative proceeding. The court must then compare these characteristics to those of a class proceeding in order to determine which is the preferable means of fulfilling the judicial economy, access to justice and behaviour modification purposes of the [Class Proceedings Act, 1992]. In a given case, certain characteristics will drive the preferability analysis more than others."

The court found that there were two fundamental characteristics of the OSC proceeding that, when compared to class actions, did not give investors comparable or adequate access to justice to have their claims resolved. First, the OSC's jurisdiction and remedial powers are regulatory, not compensatory, in nature. The goal of an OSC proceeding is to protect the public and prevent market inefficiency, not to assess the specific claims of injured market participants or to quantify their losses. Hence the OSC's remedial powers, as provided by Section 127 of the Ontario Securities Act,7 could not enable the OSC to address fully the investors' compensatory claims in the proposed class action. The fact that the OSC settlements included some form of monetary payment to the investors did not alter the regulatory objectives of the OSC proceeding.

Second, the OSC proceeding provided no participatory rights for the investors – rights which they would have as class members in a class action. The OSC and mutual fund managers arrived at the settlement terms, including the quantum of compensation, without any participation from the investors. The investors also received no direct notice of the hearings to approve the settlement, which were conducted in private. The regulatory purpose of the OSC proceeding meant that the OSC did not, and never intended to, include the investors as parties to the proceeding.

These two fundamental characteristics of the OSC proceeding meant that it did not afford the same level of access to justice as the investors would enjoy in a class action. The OSC proceeding was therefore not a preferable procedure for the adjudication of the investors' claims. The OSC proceeding was only "a parallel or complementary proceeding to any civil action brought by the investors";8 it did not displace the availability of class actions. The court noted in passing that the settlement agreements expressly stated that the mutual fund managers remained open to civil liability in relation to the conduct that gave rise to the OSC proceedings; hence, not even the parties themselves contemplated that the settlements would limit the investors' recourse to the courts, whether individually or as a class.


The court of appeal's decision is significant for capital markets participants because it clarifies that a participant embroiled in a regulatory proceeding with the OSC may find itself vulnerable to class action liability even if it reaches a settlement with the OSC. Although it has long been recognised that an OSC settlement does not necessarily preclude civil liability, prior to Fischer it was unclear whether parties that were injured by the market participant's conduct could bring a class action, especially if they had already received substantial compensation from the regulatory proceeding for their losses. One of the immediate effects of Fischer is that it may discourage a defendant in an OSC proceeding from agreeing to compensate injured parties as part of a settlement with the OSC, since any injured parties that are unhappy with the settlement amount could still assert a class action in civil courts for the remaining amount of their damages.


1. Fischer v IG Investment Management Ltd, 2012 ONCA 47.

2. Market timing in the mutual fund industry involves taking advantage of the fact that mutual funds are valuated only once a day. Due to time zone differences, the price of foreign equity in a mutual fund may already be 12 to 15 hours old by the time that the mutual fund is valuated. Short-term investors purchase temporarily undervalued mutual funds and sell them once the valuation is made. Market timing activity, while not illegal in Ontario, can negatively impact on long-term investors (the vast majority of unit holders in mutual funds), by causing an annual loss in the value of the mutual funds and adding to transaction costs. See Fischer, supra note 1, paras 11 and 19.

3. Class Proceedings Act, 1992, SO 1992, c 6.

4. Fischer v IG Investment Management Inc, 2010 ONSC 296.

5. Fischer v IG Investment Management Inc, 2011 ONSC 292 (Div Ct).

6. Fischer (Div Ct), supra note 5, para 41.

7. Securities Act, RSO 1990, c S5.

8. Fischer (CA), supra note 1, para 9.

About Fraser Milner Casgrain LLP (FMC)

FMC is one of Canada's leading business and litigation law firms with more than 500 lawyers in six full-service offices located in the country's key business centres. We focus on providing outstanding service and value to our clients, and we strive to excel as a workplace of choice for our people. Regardless of where you choose to do business in Canada, our strong team of professionals possess knowledge and expertise on regional, national and cross-border matters. FMC's well-earned reputation for consistently delivering the highest quality legal services and counsel to our clients is complemented by an ongoing commitment to diversity and inclusion to broaden our insight and perspective on our clients' needs. Visit:

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions