On December 12 the Supreme Court of Canada (SCC) released its decision in AIC Limited v Fischer. The SCC found that notwithstanding an Ontario Securities Commission (OSC) investigation and settlement in relation to claims over allegedly unreasonable market timing practices, the proposed class proceeding remained the “preferable procedure for the resolution of the common issues” since it would best ensure access to justice, a key objective of the Class Proceedings Act, 1992.1

The OSC proceeding and settlement were not deemed preferable because they limited an investor’s ability to participate in the determination of its rights, and additional recovery for the potential class members remained possible, even in the face of increased costs of the proceedings.


The OSC investigated the appellants, mutual fund managers, for unreasonable “market timing” practices that resulted in investment losses to the respondents. The OSC evaluated whether the appellants’ steps had reasonably safeguarded against the harm inherent in frequent trading. Ultimately, the appellants paid a total of $108.1 million to investors pursuant to a settlement agreement. The settlement agreement did not preclude further civil action in relation to the market timing practices, and following the settlement agreements, the investors moved to certify a class action for the same market timing allegations.

Justice Perell denied the motion for certification, finding that the proposed class action was not the preferable procedure under section 5(1)(d) of the Act. On appeal, the Divisional Court granted certification, which was ultimately upheld by the Court of Appeal. Each court, however, considered the preferability question in a different manner.

The decision

Plaintiffs must establish five requirements under section 5(1) of the Act before a class action will be certified.2 The only issue before the SCC in AIC Limited v Fischer was the preferability requirement. The SCC concluded that, “The preferability analysis is not solely focused on procedural considerations but must, within the proper scope of the certification process, consider both substantive and procedural aspects.”3 The SCC also noted that the Canadian preferability analysis differs from the United States superiority test, which also invites a comparison between the proposed class action and other forms of court action.

The SCC found that the preferability inquiry in Canada involves three steps. First, all reasonably available manners of determining the parties’ claim, including alternatives to litigation, are considered. Second, common issues are examined in the context of the action as a whole, which is generally achieved through a cost-benefit analysis without regard to the merits of the claim. Finally, the analysis must contemplate the three objectives of class actions: judicial economy, behaviour modification and access to justice.

Although all three objectives are important, the focus of AIC Limited v Fischer was whether a class action would be the preferable procedure from an access to justice perspective. The SCC identified the following five questions, noting that these questions are to be addressed in the confines of the certification application, without a detailed assessment of the merits or the likely outcome of the class action or the alternatives.

  • What are the barriers to access to justice?
  • What is the potential of the class proceedings to address those barriers?
  • What are the alternatives to class proceedings?
  • To what extent do the alternatives address the relevant barriers?
  • How do the two proceedings compare?

The SCC found that economic, procedural and substantive barriers to access to justice existed in this case. In relation to traditional litigation, the value of each investor’s claim did not make individual litigation economically feasible. Furthermore, given the nature of the claim, adequate procedural protection could not be ensured for a potential class of over one million members.

The only realistic alternative advanced was the OSC proceeding, which had already been completed. In assessing how the OSC proceeding addressed barriers to access to justice, the SCC found that the OSC’s purpose was regulatory, protective and preventive, not remedial or punitive. Investors had only limited rights to participate in OSC proceedings. These factors demonstrated that the OSC proceeding had not adequately addressed procedural barriers.

In assessing the substantive access to justice question, the SCC found the following to be relevant: the causes of actions were properly pleaded, the OSC settlement was on a without prejudice basis, and the expert evidence tendered by the plaintiffs estimated investors only received between 14% and 31% of the compensation they might otherwise be entitled to.4 These factors provided some basis in fact to support the conclusion that a class proceeding would overcome access to justice barriers that remained after the completion of the OSC proceeding.

The SCC emphasized that the preferable procedure analysis does not involve an assessment of the merits of the class action or any alternatives. Rather, any substantive issues must be considered in the “proper evidentiary framework that applies at the certification stage.”5 This case was, however, unique since the alternative procedure had already taken place and the substantive outcome was already known at the time of the certification motion.

The SCC noted it was because of this unique scenario that the Divisional Court compared the results from the OSC proceeding to “likely outcomes” in the proposed class action, which was improper. Although the outcome of the OSC proceeding was germane to the court’s analysis, the evidentiary requirement at the certification stage should not change. The courts must not assess the merits of a claim, but the plaintiffs must establish that there is some basis in fact that the class action is the preferred proceeding for resolving the dispute.


The SCC’s decision makes clear that the focus of the preferability inquiry is not merely on the procedural aspects of a proceeding, but on substantive aspects as well. Parties to proposed class proceedings must now be prepared to address the basis in fact to support their positions on the preferable procedure, addressing both procedural and substantive barriers. Access to justice remains the critical focus of the analysis, consistent with the general purpose behind class proceedings legislation and the case law to date.

This decision also demonstrates that parties subject to OSC proceedings, or any regulatory proceedings, can also be subject to class proceedings if the regulatory proceedings do not dispose of the final claims of would-be class members. It is therefore critical to consider how regulatory proceedings affect potential class members’ claims and, in particular, how limitations inherent in those proceedings might affect the future preferability analysis if a party is going to rely on the regulatory proceedings as a basis for arguing that a class proceeding is not preferable. The proper co-ordination of regulatory and civil proceedings will be more important than ever before.

Relevant links

The authors wish to thank Kristine Spence, articling student, for her help in preparing this legal update.