On December 12, 2013, the Supreme Court of Canada (SCC) released its fourth major class action decision in two months: AIC Limited et al v Dennis Fischer et al (Fischer). This case concerns whether a class action is the preferable procedure for resolving claims where regulatory proceedings relating to the same conduct have already resulted in a substantial monetary settlement. The SCC held that a class action is the preferable procedure where a comparative analysis indicates that class proceedings can address procedural or substantive access to justice concerns and that these concerns remain even after considering alternative avenues of redress.


In Fischer, the plaintiffs alleged that the defendants, five mutual fund managers, had permitted "market timing" to occur in the funds that they managed. Market timers exploit short-term discrepancies between stale values of securities in a mutual fund's portfolio and the current market values of those securities. These discrepancies result from time-zone differences and the fact that the value of mutual funds is calculated only once a day. Market timing, although not illegal, involves profiting at the expense of long-term investors.

Beginning in 2003, the OSC conducted an in-depth investigation into market timing in the mutual fund industry. This investigation led to the OSC commencing enforcement proceedings against the defendants. All five defendants entered into settlement agreements with OSC staff under which investors in the relevant mutual funds received a payment of $205.6 million.

After a panel of the OSC approved these settlements, the plaintiffs moved for certification of a class action relating to the very same market-timing activities. The plaintiffs claimed that the OSC settlements did not amount to full compensation and that, based on an expert report, their actual damages could be as high as $831.9 million. The plaintiffs also claimed that, since they had not participated in the OSC negotiations or signed the OSC settlement agreements, they had not yet had their day in court.

At the certification hearing, the plaintiffs argued that a class action was the preferable procedure for resolving their claims. The defendants responded that the OSC proceedings had been the preferable procedure, and the motions judge agreed with the defendants. He found that the OSC proceedings and settlements had fulfilled the purposes of the Class Proceedings Act, 1992 (CPA), namely, judicial economy, access to justice and behaviour modification. Therefore, he dismissed the certification motion.

On appeal, the Divisional Court overturned this decision. It found that the OSC proceedings were not the preferable procedure since the class action related to monetary damages well in excess of the amount already recovered. The Divisional Court accepted that there was some basis for the plaintiffs' claim that they were owed excess damages, and it concluded that a class action was the only viable procedure for recovering the balance.

On further appeal, the Court of Appeal agreed with this result but criticized the lower court's approach. It found that the Divisional Court had erred in focusing on the substantive outcome of the OSC proceedings and whether the settlements had generated all or substantially all of the monetary relief sought. The preferability inquiry, it cautioned, should not be reduced to an ex post facto assessment of the adequacy of an award arrived at through the alternative procedure. Instead, the inquiry must focus on the alternative procedure's underlying purpose and nature as compared with a class action. Through the lens of the CPA's goals, courts should consider: (a) the impartiality and independence of the alternative forum; (b) the scope and nature of the alternative forum's jurisdiction and remedial powers; (c) the procedural safeguards that apply in the alternative proceeding; and (d) the accessibility of the alternative proceeding.

After setting out this approach, the Court of Appeal concluded that a class action is the preferable procedure for resolving the plaintiffs' claims for two principal reasons. First, the OSC's jurisdiction is regulatory—that is, protective and preventative—and not compensatory. The OSC exercised its jurisdiction in a different context and for a different purpose as compared with a civil court's jurisdiction in a class action. The OSC was not empowered to order parties to make compensation or restitution or to pay damages to affected investors, and thus its remedial powers were insufficient to fully address the class members' claims. Second, the OSC proceedings had not provided rights of participation to the affected investors comparable to the procedural rights available in a class action. As a result, it agreed with the Divisional Court that the proposed class action should be certified.

The Supreme Court's Decision

The SCC confirmed that the preferability inquiry is a fundamentally comparative analysis conducted through the lens of the three principal goals of class actions: judicial economy, access to justice and behaviour modification. However, the SCC focused on access to justice. The Divisional Court had been mainly concerned with substantive access to justice, whereas the Court of Appeal had been mainly concerned with procedural access to justice. In contrast, the SCC articulated a "Goldilocks" approach subsuming both substantive and procedural components.

Class proceedings will serve the goal of access to justice where: (1) there are access to justice concerns that a class action could address; and (2) these concerns remain even when alternative avenues of redress are considered. To determine whether these elements are present, the SCC proposed five questions to inform the comparative analysis:

  1. What are the barriers to access to justice?
  2. What is the potential of the class proceedings to address those barriers?
  3. What are the alternatives to class proceedings?
  4. To what extent do the alternatives address the relevant barriers?
  5. How do the two proceedings compare?

The SCC noted that the most common access to justice barrier is economic, namely, an individual cannot bring a claim because of the high cost of litigation as compared with the claim's modest value. But psychological and social barriers could also exist. On this case's facts, the SCC identified two potential barriers: (1) an economic barrier arising from the nature of the claim; and (2) a potential for no access to a fair process, geared towards protecting the rights of class members, to seek a resolution of the common issues for what could potentially be a class of over a million members.

The proposed class action would address both barriers. It would make it possible to advance on behalf of the class a group of claims that would otherwise not be economically feasible to pursue and it would provide class members with a fair process to resolve their claims. The SCC accepted that the plaintiffs had no realistic litigation alternative. The only alternative procedure was the OSC proceedings and settlements, and so the SCC turned to whether that alternative procedure had addressed the access to justice barriers and whether those barriers remain now that the alternative proceedings are done.

The SCC considered both procedural and substantive dimensions of access to justice. It echoed the Court of Appeal's concern that the OSC's jurisdiction was regulatory and that there was no way to know how the OSC had arrived at the settlement agreements and the quantums involved. It accepted that the lack of investor participation in the OSC proceedings weighed heavily in favour of certifying the class action, but it cautioned that the Court of Appeal was wrong to place almost exclusive weight on this consideration. It also rejected the Court of Appeal's determination that the substantive outcome of the OSC proceedings was irrelevant. The SCC stated that access to justice requires access to just results, not simply to process for its own sake. But the substantive outcome must be examined through the appropriate evidentiary lens. Since the results of the OSC proceedings were already known, the SCC found that the comparative analysis cannot ignore whether a cost-benefit analysis supports certifying the class action.

On the Fischer case's record, the SCC concluded that substantive access to justice concerns still remain and that there is no reason to believe that potential additional recovery would be consumed by the costs of the proceedings. Moreover, it concluded that the plaintiffs had provided an appropriate basis to believe that the proposed class action would overcome access to justice barriers that remained after the OSC proceedings and that a cost-benefit analysis supported that class proceedings were the preferable procedure for the investors to pursue their claims. As a result, the correct legal principles required certification.

The Decision's Implications

Increasingly, defendants face the specter of both regulatory and civil proceedings for the same impugned conduct. Therefore, the Fischer decision provides some clarity regarding the circumstances in which a defendant may avoid a class action by participating in a regulatory settlement. The decision indicates that defendants may have little success relying on regulatory proceedings as the preferable procedure unless those alternative proceedings mitigate concerns about procedural and substantive access to justice. In this sense, the decision is consonant with the SCC's plaintiff-friendly trilogy of indirect-purchaser antitrust class action decisions released on October 31, 2013.

Nonetheless, the Court has left defendants with room to argue in appropriate cases. For example, under section 128 of the Securities Act, the OSC can apply to a judge of the Superior Court for, among other things, an order for the payment of compensation or restitution to the aggrieved parties or an order for the payment of general or punitive damages. The OSC could structure regulatory settlements differently in the future, or it might consider consulting with a committee of investors. Could different facts produce a different cost-benefit analysis? The SCC decision leaves open this possibility.

In any event, the Fischer decision is a must-read for class action counsel on both sides of the bar, particularly those who deal with areas of law potentially subject to the actions of a regulator.