i Sources of law

Securities laws in each of Canada’s 10 provinces and three territories provide the legal foundation for regulatory requirements related to the capital markets. ‘Laws’ include any regulations or rules under each provincial Securities Act and any national instruments, blanket rulings, orders and decisions issued by securities regulators and decisions of the courts.

ii Regulatory authorities

Securities matters are not currently federally regulated in Canada. Each province and territory has its own securities regulator and laws. The Canadian Securities Administrators (CSA) is an umbrella organisation and informal body comprising Canada’s provincial and territorial securities regulators.2 Its goal is to achieve consensus on policy decisions and governing principles impacting Canadian capital markets. As a result, securities markets are also governed by National Instruments, promulgated by the CSA, which apply to such matters as the distribution of securities, disclosure obligations, securities transactions such as takeover bids and registration matters.

Enforcement of securities law is achieved in part by provincial securities commissions who function as specialist administrative tribunals. These provincial securities commissions have delegated to certain self-regulatory organisations (SROs), the power to regulate the conduct of securities and mutual fund dealers, under the supervision of CSA members. The primary SROs in Canada are the Investment Industry Regulatory Organization of Canada (IIROC), the Chambre de la Sécurité Financière (CSF), and the Mutual Fund Dealers Association of Canada (MFDA). IIROC governs investment dealers and performs exchange surveillance. The MFDA governs mutual fund dealers in Canada (other than Quebec). The CSF governs mutual fund dealers in Quebec. Exchanges monitor compliance, by listed companies, with their listing agreements, terms and policies. They may deny approval of certain transactions, require corrective action (disclosure), halt or suspend trading or deny or terminate a listing.

The IMET (Integrated Market Enforcement Team), an investigation unit of the Royal Canadian Mounted Police, may investigate securities-related crimes. Public prosecutors in provincial offices or equivalents may prosecute contravention of securities laws, as well as of criminal laws, before a court. In some provinces, enforcement staff of a provincial commission may also bring securities law contraventions before a court.

iii Common securities claims

Regulatory proceedings may vary widely in subject matter. Enforcement statistics from key Canadian regulators are listed in this chapter.

Civil claims from retail investors are often related to the suitability of the investment and to various forms of misrepresentation. They may be brought individually or by class action. Relief by shareholders, officers, directors and other ‘proper persons’ is also at times sought against a corporation by derivative action or the pursuit of an oppression remedy.


i Forms of action

Retail investors with a claim not exceeding C$350,000 may submit, at no cost, a written complaint to the Ombudsman for Banking Services and Investments (OBSI). The OBSI follows an informal process in accordance with its terms of reference to reach a non-binding recommendation for restitution. Quebec’s provincial regulatory, the AMF,3 provides a mediation service to all clients of registered dealers and advisers. With the exception of Quebec and investment fund managers; all market registrants are required to participate in the OBSI process.4 In addition, IIROC and MFDA members also have mandatory requirements with respect to reporting complaints to their SRO and with respect to their handling of such complaints.5 IIROC members must also submit to binding arbitration for any claims of C$500,000 or less at the investor’s option,6 though this option is rarely used as, unlike the OBSI, arbitration costs are incurred.

ii Procedure

Retail investors can also initiate a claim in the civil court system, as individuals or as part of a class action, to seek damages.

Class proceedings legislation exists in most provinces. The legislation is procedural and provides requirements for such matters as the certification of a class, notice, settlement, legal fees and opt-in or opt-out provisions. The test for certification generally requires that a cause of action is disclosed by an identifiable class of two or more persons that raises common issues, and renders a class action the preferable procedure through the appropriate representative plaintiff.7 A class action may still be certified if damages require individual assessments, different remedies are sought for different class members or common issues are not shared by all class members.8

iii Settlements

Settlements of class actions are subject to court approval. The test for approval of a settlement of a class proceeding is whether the settlement is fair and reasonable and in the best interests of the class. On a motion for approval of a settlement of a class proceeding, the court must consider whether: (1) there are any indicators of collusion or conflicts of interest in the settlement or the process leading to the settlement that might call into question its fairness; and (2) the compromise embodied by the settlement falls within the range of reasonableness in the particular circumstances of the case.9 In Ontario, the Court has found the same test to be applicable under the class proceedings legislation of that province as in Section 138.1 of the Ontario Securities Act, RSO 1990, c. Section 5 (OSA) discussed below.10

Securities Class Actions – deemed reliance

There are various ‘deemed reliance’ provisions in the OSA that render misrepresentation susceptible to class actions in Ontario. Liability arises with respect to these misrepresentations without regard to whether the purchaser relied on the misrepresentation. Part XXIII of the OSA imposes civil liability for misrepresentation in the primary market. There is liability for misrepresentation in an (amended) prospectus, takeover bid circular, director or officer’s circular and issuer bid circular.11 A right of action for misrepresentation, without reliance, lies against such individuals as the issuer, underwriters, directors and others who consented to the disclosure or signed the prospectus.12

Among the defences available is that of a ‘reasonable investigation’. A reasonable investigation provides reasonable grounds for a belief that there was no misrepresentation. It is in turn subject to a standard of reasonableness required of a prudent person in the circumstances.13 Damages recoverable cannot exceed the price at which the securities were offered. For underwriters, damages cannot exceed the total public offering price represented by the portion of the distribution underwritten.14

Part XXIII.I of the OSA imposes civil liability for secondary market disclosure without regard to reliance by the purchaser.15 A right of action for misrepresentation, without reliance, lies against the issuer, officers and directors, ‘influential persons’ and experts, if the misrepresentation is contained in their opinion and they consented in writing to its reliance.16 A right of action also exists for public oral statements17 and for failure to make timely disclosure of a material change.18 Considerations for the assessment of damages are set out in the OSA.19

Multiple misrepresentations or multiple instances of failure to make timely disclosure of a material change that have a common subject may be treated as a single misrepresentation or failure in the discretion of the court.20 Again, among the several defences available is that of a reasonable investigation with the factors for consideration by the court set out in the OSA.21

An action for misrepresentation in the secondary market requires leave of the court, which is granted where the action is brought in good faith and there is a reasonable possibility that the action will be resolved in favour of the plaintiff. The OSA sets out a procedure for affidavit materials, filing and notice requirements.22

A limitation period applies. No action shall be commenced later than the earlier of three years from the date the misrepresentation in the document or public oral statement is made or six months after the issuance of a press release announcing that leave has been granted.23

Other actions against the corporation

Pursuant to the Canada Business Corporations Act, RSC 1985, c. C-44 (CBCA) and similar legislation in other provinces, a ‘complainant’, generally defined as shareholders, officers, directors or ‘any other person who, in the discretion of the Court is a proper person’ may bring a derivative action to pursue a claim on behalf of a corporation.24 A derivative action requires leave of the court, who must be satisfied the complainant is acting in good faith and the action is in the interest of the corporation.25 A complainant may also seek an oppression remedy,26 which does not require leave and which is broad remedy that may extend to many types of ‘unfair conduct’. The court will consider whether there is evidence to support the breach of reasonable expectation asserted by the relevant interest of the stakeholder.27 Complainants may seek both remedies.


i Forms of action

Enforcement actions are brought by provincial securities commissions or SROs. There is a sharing and overlapping of responsibilities between securities commissions and SROs. In addition, a market participant has overlapping of responsibilities to many regulatory bodies and may face a number of investigations by different regulators for the same set of facts.

ii Procedure

These securities regulators may bring allegations of securities misconduct to a hearing before an adjudicative panel of the securities commission or SRO and seek monetary sanctions, suspensions and prohibitions on market participations.

In some jurisdictions, staff of the provincial securities commission may directly prosecute cases of a quasi-criminal nature in court. In others, these cases may be referred to public prosecutors for prosecution in the courts.

Enforcement staff of provincial securities commissions investigate possible market misconduct or breaches of securities legislation under an investigation order issued by the chair (or a designate) of the Commission. The order sets out the scope of the investigation. To carry out their investigation, enforcement staff have the power to compel the production of documents and testimony.

Generally, when an investigation order or examination order is issued, information about the investigation or any examination or evidence of a person must not be disclosed to anyone, other than the counsel representing the examined person. The only exception is where a formal request is made to the provincial commission and the commission consents to disclosure by issuing an order.28

Depending on the nature of the matter and the evidence they have gathered, enforcement staff may initiate a proceeding before the relevant commission,29 or prosecute a respondent for a breach of securities legislation by initiating a quasi-criminal proceeding in the court.

A public proceeding begins with the issuance of a notice of hearing regarding a statement of allegations, which must be proven at a public hearing or resolved by public settlement agreement. Rules applicable to the conduct of hearings and related procedural issues are set out in rules of practice applicable to each commission.

Both MFDA and IIROC also have their own rules of procedure applicable to their proceedings, which vary, in some instances, from those of provincial securities commission.

iii Settlements

Enforcement staff of the multiple Canadian regulators negotiate settlement agreements under which respondents agree to sanctions. Settlement agreements usually involve an agreed statement of facts, admissions of a regulatory breach, and an agreed upon sanction (which can include a reprimand, fine, costs and bans on or suspension from trading and other activities). Further, settlement agreements act as a waiver of the right to appeal.

The process for approval of a settlement agreement may be set out in the applicable rules of procedure for that regulator. By way of example, Rule 12 of the Rules of Procedure of the Ontario Securities Commission sets out the process for settlements with that commission. A settlement agreement is submitted for approval by a panel or a single commissioner. One or more confidential conferences may be held. A notice of hearing for a settlement hearing is then issued and a public settlement hearing takes place. If the panel is satisfied the agreement is in the public interest, the agreement will be approved. Reasons for the decision will also be provided.

Lastly, in Ontario, the Revised Credit for Cooperation Program (released March 2014)30 also allows for no-contest pleas with the Ontario Securities Commission (OSC). This does not exist in other provinces. In Alberta, for example, no-contest pleas are not allowed by the Alberta Securities Commission.

Though investor restitution is not directly within the power of these public remedies, it is a common element to public settlement agreements and a mitigating factor to sanctions.

iv Sentencing and liability

In addition to monetary sanctions, provincial securities commissions may suspend or revoke registration. They may also issue cease trade orders, prohibit individuals from acting as officers or directors or prohibit individuals from trading in securities.

In the event of SRO rule violations, the SROs may impose administrative penalties, which include membership suspension or revocation, restrictions and fines. By way of example, IIROC has issued Sanction Guidelines. Its fines are limited to a maximum of C$5 million per contravention or an amount equal to three times the profit made or loss avoided. In general, either a disciplined individual or IIROC enforcement staff can appeal IIROC disciplinary decisions to the relevant provincial or territorial securities commission or the applicable reviewing body. An appeal will involve a review of the merits of the liability or penalty decision, or both.

In Alberta, an SRO may register a ‘decision’ with the superior court with the result that it then has a civil judgment against the member that it can enforce like all civil judgments. This power does not yet exist in Ontario.


Certain provincial securities commissions have signed multiple memoranda of understanding with a number of foreign securities regulators. These include the United States Securities and Exchange Commission, the Financial Industry Regulatory Authority, the United States Commodity Futures Trading Commission, the Australian Securities and Investments Commission, Autorité des Marches Financiers de France, Abu Dhabi Global Market Financial Services, the Financial Conduct Authority, European Union authorities including the European Securities and Markets Authority, the International Organization of Securities Commissions, the China Securities Regulatory Commission and the Hong Kong Securities and Futures Commission.

A common issue is whether a Canadian province can assume jurisdiction over securities issues involving foreign residents or jurisdictions. This issue has received the following recent judicial treatment.

A class action was proposed against HSBC Holdings by investors in HSBC Holdings’ shares or its American depository receipts (ADRs). The purchases were made on foreign stock exchanges. The allegation was that investors overpaid for their ADRs because HSBC holdings, which is regulated by foreign regulators, made false disclosures. It was held that an Ontario company does not carry on business in Ontario only by virtue of the fact that it owns shares of a subsidiary that operates in the jurisdiction. Further, it was found that even though the alleged misrepresentation was made in Ontario, it did not constitute a real and substantial connection to Ontario as such a finding would amount to universal jurisdiction for claims arising out of commercial activities. Lastly, the court also emphasised that it would have otherwise declined jurisdiction on the grounds that the United Kingdom was the more appropriate forum, as most of the trading occurred on the London Exchange, the corporation was based in the United Kingdom, where most of the witnesses and evidence were located. The defendants were awarded approximately C$1 million in costs.31

In another case, the Ontario Court of Appeal allowed a class consisting mostly of non-resident investors to proceed in an action against an accounting firm. In this case, the investor class, which was predominantly resident in the United States, had invested in a US company, Southern Livestock International Inc (Southern Livestock), whose subsidiaries owned farming operations in China. Southern Livestock retained a New York-based investment bank to solicit investors. The investment bank distributed a private placement memorandum to accredited investors, which included an audit report by the accounting firm named as the defendant to the class action. The accounting firm was sued for an allegedly negligent audit report. The Ontario Court of Appeal held that Ontario had jurisdiction because the defendant was resident in Ontario, the report was prepared in Ontario and the class comprised a discrete body of investors.32


i Private remedies
Individual investors

Canadian courts have confirmed, through detailed review of fact and law, the duties owed by investment advisers, particularly in respect of the duty to ‘know your client’ and duty to recommend investments that are suitable for their clients’ portfolios. Investors’ claims for breach of such duties have been denied where the courts found that their obligations were met irrespective of market losses owing to market conditions or where portfolios may have been riskier than stated risk objectives. The cases indicate that this will be the outcome where the court is satisfied the defendants adequately explained the risk and strategy.33

Class actions against auditors;

Recently, in Ontario, a motion for summary judgment was brought in a certified class action against the auditor of a defunct securities dealer. Investors who held accounts with the dealer sought damages on the basis of negligent audit reports filed with the OSC. The OSC had placed the securities dealer into receivership because it failed to segregate investor assets and maintain a minimum of net free capital in breach of regulatory requirements. Unsegregated assets had been used by the dealer for its own purposes. As a result, disciplinary proceedings were brought by the OSC against the securities dealer, its principals and its auditors. The respondents admitted they made materially untrue statements in their audited financial reporting to the OSC by misrepresenting the segregation of assets and minimum capital. The issue for the motion was whether a duty of care was owed by the auditors to the investor class. In making its determination on this issue, the Court applied the Anns-Cooper analysis34 to assess (1) whether the facts disclosed a sufficient level of foreseeability and proximity to establish a prima facie duty of care; and (2) if so, whether there were residual policy considerations that would justify a denial of liability. In this case, the facts were held to give rise to a duty of care. Though the investors had little contact with the auditors, the auditors knew their work was being used by the OSC and understood the potential adverse consequences to their ‘client’s clients’ if segregation or capital deficiency information was misstated. From a policy perspective, there was no concern of indeterminate or unlimited liability as the auditor was aware of the investors, and their auditor’s statements were used for the specific purpose for which they were prepared.35

Directors by oppression remedy

In a recent Supreme Court of Canada decision, a director was held personally liable for oppression against the former president, CEO, director and significant minority shareholder pursuant to the CBCA. In reaching this conclusion, it was confirmed that determining the personal liability of a director requires a two-part approach. First, the director must have exercised, or failed to have exercised, his or her powers so as to effect the oppressive conduct. Second, the imposition of personal liability must be ‘fit in all the circumstances’. To determine fitness, the guiding principles for the court are fairness, proportionality and the general principles of corporate law.36

ii Public remedies

Since 2014, illegal distributions, fraud, misconduct by registrants, illegal insider trading, disclosure violations and market manipulations have been the top offences reported by the CSA.37

Since 2012, suitability, due diligence and handling of client accounts, inappropriate personal financial dealings, misappropriation, misrepresentation, and discretionary or unauthorised trading have been the top prosecutions for individuals disciplined by IIROC. Firms are disciplined by IIROC for supervision or infraction of the Universal Marketing Integrity Rules, namely, the failure to meet best execution.38 Further, MFDA enforcement statistics show pre-signed forms, signature falsification and suitability to be among the top infractions for that regulator.39

For several years, illegal insider trading has been a significant focus for provincial regulators. A very recent decision from the Ontario Court of Appeal held that it was reasonable to identify certain factors arising out of circumstantial evidence in order to reach conclusions about whether a ‘tippee’ had ‘inside information’. These include: the relationship between the tipper and tippee, the profession of the tipper, the professional qualifications of the tipper, how specific the information is and the length of time between the receipt of the information and the impugned trade.40

Other issues facing market participants who breach the applicable rules are the size of the monetary penalties that the regulators are prepared to impose and the use of the power to order the disgorgement of profits. The British Columbia Court of Appeal addressed both issues as follows. Several individuals were found to have engaged in a market manipulation by the British Columbia Securities Commission (BCSC), which ordered the disgorgement of C$7.3 million in profits to be paid jointly and severally. It also ordered penalties against each of the individuals totalling C$21.5 million. In a different decision, the BCSC directed that two individuals who had fraudulently misused C$21.7 million that had been raised from investors disgorge the C$21.7 million on the basis that the two individuals who were the ‘directing minds’ were jointly and severally liable. The BCSC also imposed a C$15 million administrative penalty against each of them. The Court of Appeal held that a joint and several disgorgement order would only be made where one party exercised direction and control over another to the extent that they were essentially acting as one individual.41

The BCSC imposed, among other things, a C$33 million administrative penalty against a woman who had perpetrated a C$110 million Ponzi scheme. In separate criminal proceedings, she was convicted on criminal charges and sentenced to six years in jail. Her appeal to the British Columbia Court of Appeal was rejected on the basis that the substantial penalty was not punitive and that she could face an administrative penalty, a jail sentence and a restitution order.42


Securities class actions in Canada are limited in number. Six new Canadian securities class actions were filed during 2017 – two-thirds the number filed during 2016, and two more than the four cases filed during 2015.43 As stated by Nera Economic Consulting:

In 2017, only a handful of Canadian securities class actions were filed, and an equal number of cases were resolved so that the total number of pending cases remained unchanged from the end of 2016. This development provides additional evidence that a slower rate of filings can be considered the new norm.44

We are not currently aware of any factors that would cause any immediate change to these statistics.

We note that the general areas of enforcement by Canadian regulators has remained consistent this past year as with previous years. The OSC in particular has prosecuted technical or historical breaches of continuing disclosure requirements and breaches of mutual fund sales practices, which may continue to inform their enforcement practices. Canadian regulators have also expressed repeated interest in issues related to aging retail investors.

Individual retail investors have multiple low cost options outside of litigation, which we expect will continue to be pursued with frequency in Canada. Accordingly, litigation will be reserved for a small minority of cases.

1 Laura Paglia and Matthew J Epp are partners at Borden Ladner Gervais LLP.

2 The Canadian Securities Administrators is comprises the Alberta Securities Commission, the British Columbia Securities Commission, the Manitoba Securities Commission, the Financial and Consumer Services Commission (New Brunswick), the Office of the Superintendent of Securities Service Newfoundland and Labrador, the Office of the Superintendent of Securities (Northwest Territories), the Nova Scotia Securities Commission, the Nunavut Securities Office, the Ontario Securities Commission, the office of the Superintendent of Securities (Prince Edward Island), L’Autorite des Marches Financiers (Quebec), the Financial and Consumer Affairs Authority of Saskatchewan and the Office of the Yukon Superintendent of Securities.

3 Autorité des Marches Financiers.

4 National Instrument 31-103: Registration Requirements, Exemptions and Ongoing Registrant Obligations, Sections 13.14–13.16.

5 IIROC Dealer Member Rules (2 January 2018), (IIROC Rules), Rule 2500B (Client Complaint Handling) and Rule 3100B (Reporting Obligations); Rules of the Mutual Fund Dealers Association (4 January 2016) (MFDA Rules), Rule 2.11 (Client Complaint Handling) and Rule 1.4 (Reporting Obligations).

6 IIROC Rules, Rule 37.

7 Class Proceedings Act, 1992, SO 1992, c6, Section 5 (CPA).

8 CPA, Section 6.

9 McDonald v. Home Capital Group, 2017 ONSC 5004.

10 CPA, Section 29(2); McDonald v. Home Capital Group, 2017 ONSC 5004.

11 Ontario Securities Act, RSO 1990, c. Section 5 (OSA), Sections 130 (1) and 131(1)–(3).

12 OSA, Section 130(1).

13 OSA, Sections 130(4), (5), 131(5)(d) and 132.

14 OSA, Sections 130(6) and 130(9).

15 OSA, Section 138.3(1).

16 OSA Section 138(1).

17 OSA, Section 138.1(2).

18 OSA, Section 138.1(4).

19 See for example: OSA, Section 138.5.

20 OSA Section 138.3(6).

21 OSA Section 138.4(6)(7) The OSA also distinguishes ‘core documents’ from others in Section 138.4(1)(3).

22 OSA Section 138.1(1).

23 OSA Section 138.14.

24 Canada Business Corporations Act, RSC 1985, c. C-44 (CBCA), Section 238.

25 CBCA, Section 239.

26 CBCA, Section 241.

27 BCE Inv v. v. 1976 Debenture holders, 2008 SCC 69 (CanLII).

28 For example, OSA, Section 17.

29 For example, OSA Section 127.

30 Ontario Securities Commission (OSC), OSC Staff Notice 15-702 (13 March 2014) available online: http://www.osc.gov.on.ca/en/SecuritiesLaw_sn_20140311_15-702_revised-credit-coop-program.htm.

31 Yip v. HSBC Holdings PLC, 2017 ONSC 6848 (Can LII).

32 Excalibur Special Opportunities LP v. Schwartz Levitsky Feldman LLP, 2016 ONCA 916.

33 Kerr v. CIBC World Markets Inc. et al., 2017 ONSC 777; Shinoff et al. v. BMO Nesbitt Burns Inc. et. al., 2017 QCCS 3479.

34 Anns v. Merton London Borough Council, [1978] AC 728; Cooper v. Hobart, 2001 SCC 79 (CanLII).

35 Lavender v. Miller Bernstein, 2017 ONSC 3958 (CanLII).

36 Wilson v. Alharayeri, [2017] 1 SCR 1037.

37 Canadian Securities Administrators, Enforcement Report (2016) available online: http://www.csasanctions.ca/CSA_AnnualReport2016_English_Final.pdf. Among these statistics, the OSC has entered into some significant settlements the details of which are beyond the scope of this chapter. These include breach of National Instrument 81-104, which limits payments and gifts by mutual funds to registered dealers and their representatives who sell the funds’ securities. These also include breach of continuous disclosure requirements.

38 IIROC, Enforcement Report (2016) available online: http://www.iiroc.ca/news/Documents/IIROC2016EnforcementReport_en.pdf.

39 MFDA, Annual Enforcement Report (2016) available online: http://mfda.ca/news-and-publications/annual-enforcement-reports/.

40 Finkelstein v. Ontario Securities Commission, 2018 ONCA 61 (CanLII).

41 Poonian v. British Columbia Securities Commission 2017 BCCA 207.

42 R v. Samji, 2017 BCCA 415.

43 Nera Economic Consulting, Trends in Canadian Securities Class Actions: 2017 Update (20 February 2018) available online: http://www.nera.com/publications/archive/2018/trends-in-canadian-securities-class-

44 Nera Economic Consulting, Trends in Canadian Securities Class Actions: 2017 Update (20 February 2018).