Published by the Litigation Group
Legal Update
McCarthy Tétrault 2013

Regulatory Settlement Will Not Prevent Class Action: SCC Certifies Fischer
by: Timothy D. Chapman-Smith, Julie K. Parla

On December 12, 2013, the Supreme Court of Canada released its much anticipated decision in AIC Limited v. Fischer, 2013 SCC 69. The Court unanimously held that a restitution payment in settlement of regulatory proceedings does not preclude certification of a class action on behalf of the same investors who received compensation through the regulatory process.

Fischer is an important decision for companies, their counsel and the class action bar. First, the Court confirmed that defendant companies may not be able to use regulatory proceedings to defeat a proposed class action on the basis that the regulatory proceedings are the preferable procedure. Second, the Court provided guidance on the preferability analysis at certification and set out a framework for the "access to justice" component of that analysis. Third, the Court reaffirmed that the evidentiary threshold at the certification stage is low.

The overarching theme arising out of the Supreme Court’s recent class actions jurisprudence is that the battleground in class actions is no longer the certification motion. Fischer is the latest direction from Canada’s top court that certification is largely procedural; the evidentiary threshold is low; and arguments about expert methodology, the plaintiffs’ ability to prove their claims or the merits of the case have no place at a certification motion. Certification will still be contested by defendants, but the Court is pushing the real fight into the common issues trial.

Brief Background

Fischer arose out of the market timing scandal in Ontario. Prior to the commencement of the civil action, the Ontario Securities Commission (OSC) investigated several fund managers in relation to allegations that market timing was adversely affecting the funds’ unitholders. The OSC commenced proceedings under its public interest jurisdiction and, eventually, OSC staff negotiated settlement agreements with the fund managers, which included restitution payments of approximately $206 million. The OSC subsequently approved the settlement, and the funds were paid out to affected investors.

After the settlement approval, a proposed class action was commenced by investors against the fund managers for breach of fiduciary duty and negligence, among other allegations. The plaintiffs in the civil proceeding alleged that the OSC settlement agreements did not provide adequate compensation. The defendants argued that the proposed class proceeding was not the preferable procedure; rather, the regulatory process was preferable in light of the significant restitutionary compensation achieved by class members through that process.

At the certification motion, the motions judge agreed with the defendants and refused to certify the action. That decision was reversed on appeal by the Divisional Court, which certified the action on the basis that the regulatory remedy may not have provided investors with all or substantially all of the monetary relief they sought. The Ontario Court of Appeal agreed with the Divisional Court’s decision to certify the class action, but for different reasons. It held that the quantum of the OSC settlements was irrelevant to the analysis. Instead, the preferable procedure inquiry should have focused on the purpose and procedure offered by the alternative proceeding as compared with a class action. There were important procedural distinctions between the two proceedings in Fischer. For example, investors had no participatory rights in the regulatory process, key portions of the OSC hearings were conducted in camera and no rationale was provided for the basis on which OSC staff calculated the amount of restitution. These factors supported the decision to certify the action.

The Supreme Court agreed that a class action was the preferable procedure, but for still different reasons than the appellate courts below.

Unique Features of Fischer

It is important to note that the question of preferability in Fischer was "quite a narrow issue." The parties were in a unique position given that the OSC proceedings were complete and the amount of the restitution obtained by investors was known. As a result, the parties were in substantial agreement on a number of points key to certification. For example, there was no dispute between the parties that a class action would be a fair, efficient and manageable proceeding – often fertile ground for challenging the preferable procedure criterion, which the Fischer decision expressly does not address.

The central issue on appeal was thus limited to whether, in light of the OSC settlements, a class proceeding was the preferable procedure from the viewpoint of the access to justice goal. Due to the narrow issue before the Court, defendants in future actions will likely argue that Fischer is binding only in respect of the access to justice component of the preferability analysis.

Regulatory Proceedings Do Not Insulate Defendants

The Supreme Court’s decision in Fischer sends a clear message to defendant corporations: regulatory proceedings do not necessarily protect defendants from exposure to class proceedings. This is true even where the result of the regulatory proceeding is a settlement that directly compensates the very persons who make up a majority of the proposed class, as in Fischer.

It is still open to defendants to argue that a regulatory proceeding is the preferable procedure. However, defendants must be careful to frame this argument in terms of both the participatory and other procedural rights of individuals and the substantive outcome of the regulatory proceeding, as discussed more fully below.

Guidance on Preferability Analysis

The Fischer decision provides guidance on how a certification judge should approach the preferability criterion of the certification test. While preferability must be determined with reference to the goals of class proceedings legislation – behaviour modification, judicial economy and access to justice – the parties in Fischer disputed only one aspect of the analysis: access to justice.

In setting out a framework for the access to justice analysis, the Supreme Court emphasized that both the process and the substantive outcome of the alternate proceeding are essential components. A class action will serve the goal of access to justice if:

  1. there are access to justice concerns that a class action could address; and
  2. the access to justice concerns remain even when alternative avenues of redress are considered.

The Court articulated the following questions to be asked in determining whether these two elements are present:

  • 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?

Given the regulatory mandate of the OSC proceedings, the limited participation rights for investors and the absence of information about how OSC staff calculated restitution, the Supreme Court concluded that significant procedural access to justice concerns remained which the proposed class action could address.

Regarding the substantive aspect of the analysis, the record showed that access to justice concerns also remained given the plaintiffs’ expert evidence that they have not been compensated for some $335 million of losses.

Evidentiary Threshold

Fischer is also important because of the Court’s comments on the evidentiary threshold as it pertains to the preferability analysis. Citing Hollick and Microsoft, the Court reaffirmed that the plaintiffs’ evidentiary burden continues to be the low threshold of the "some basis in fact" test. The framework set out in Fischer, in particular the analysis as to the substantive component of access to justice, must be assessed within the confines of the certification process, that is, consistent with the low evidentiary burden. Certification is not the time to "engage in a detailed assessment of the merits or likely outcome of the class action or any alternatives to it." Nor is it the time to address the likely success of these claims or the merits of the expert’s methodology in calculating loss. The Court reiterated that the "some basis in fact" test does not require a certification judge to resolve disputed facts and evidence.


The Supreme Court of Canada’s decision in Fischer represents an important development in the law for companies and their regulators. The Court’s finding that the OSC settlements did not preclude investors from certifying a class proceeding may affect the ability of regulators in general to reach settlements with corporations. Perhaps more importantly, when considering whether to co-operate with regulators, corporations should carefully evaluate the procedure and potential outcome of any settlement. A central problem for the defendants in Fischer was the lack of investor participation throughout the OSC process. Procedurally, companies may consider ways in which investors could be given the opportunity to participate in the regulatory process – by providing adequate notice or through consultation with an investors’ committee, for example – to proactively address concerns that the regulatory process is inadequate. Substantively, companies should, at the very least, be able to explain and defend the method of calculating any compensation to show that the outcome of the regulatory proceeding is just.

The evidentiary and preferability analysis in Fischer dovetails with the Supreme Court’s recent class actions jurisprudence, where it confirmed that indirect purchasers could adjudicate claims through a class proceeding. In our view, the overarching theme in the Supreme Court’s dicta is a clear message to litigants: the battleground is no longer certification. Fischer represents the latest signal from Canada’s top court that certification is largely procedural; the evidentiary threshold is low; and arguments about expert methodology, the plaintiffs’ ability to prove their claims or the merits of the case have no place at a certification motion. Certification will still be contested by defendants, but the Court is pushing the real fight into the common issues trial. It is there that the evidence and merits are relevant. And, on the heels of the Microsoft trilogy and Fischer, parties are starting to prepare themselves for this paradigm shift.