Executive Summary: Key Legal and Evidentiary Issues

• Scope of the AMF’s jurisdiction to compensate victims of financial fraud through the Fonds d’indemnisation des services financiers when the investors resided outside Canada at the time of the impugned transactions.
• Centrality of the representative’s Quebec registration (inscription) and whether he acted “dans le cadre de son droit de pratique” when selling securities to investors domiciled in the United States.
• Interpretation of article 258 LDPSF and related regulations in determining eligibility criteria for indemnification, including whether residence or domicile is an implied condition.
• Weight to be given to factual indicators of domicile (family move, employment abroad, ties maintained with Quebec, location of REERs) in deciding if residence abroad was temporary or permanent.
• Proper reading and reach of the Supreme Court’s Sharp v. AMF decision and whether its reasoning on extraterritorial enforcement of securities law extends to the indemnity scheme of the Fonds.
• Allegation of unfairness in the AMF invoking residence as a ground of refusal at a late stage, and whether the AMF nonetheless afforded procedural fairness by disclosing its concern and inviting submissions.

Background and facts of the case

Mylène Arnold and James Castonguay are Quebec investors who later moved with their family to the United States. Several years after their departure, while domiciled in the U.S., they purchased financial products through a representative of Gestion financière Cape Cove inc. The transactions at issue were linked to a Ponzi-type fraud involving certain issuers identified by the Autorité des marchés financiers (AMF). The impugned investments were made into Registered Retirement Savings Plan (REER) accounts that Arnold and Castonguay had opened and maintained in Canada before they left Quebec. After the fraud came to light, the AMF sent them a letter in October 2022 advising that they could submit claims to the Fonds d’indemnisation des services financiers as potential victims of fraud. The letter summarized high-level criteria: the investor must have dealt with a duly registered representative at the time of the events, been offered a financial product or service by that representative, and been the victim of fraud, dol, or misappropriation. Arnold and Castonguay duly filed claims using the prescribed forms, describing their dealings with the Cape Cove representative and the losses suffered in the alleged Ponzi scheme. The factual record before the AMF showed that the couple had left Quebec in June 2016 without keeping a home in the province, that two minor children moved with them to the U.S., that a third child remained in Quebec to study, and that they had moved to take employment in the United States for an indefinite period with no fixed return date. They maintained certain secondary connections with Quebec, including visits, some investments (such as their REERs), and family ties, but their primary residence, work, and everyday life were in the U.S. at the time of the transactions.

The indemnity scheme and policy framework

The case turns on the statutory and regulatory framework governing the AMF and the Fonds d’indemnisation. Under the Loi sur l’encadrement du secteur financier (LESF), the AMF’s core missions include overseeing the distribution of financial products and services in Quebec and administering consumer protection and indemnity programs, including compensation funds. The Loi sur la distribution de produits et services financiers (LDPSF) and the Loi sur les valeurs mobilières (LVM) work together to require that intermediaries (brokers, advisers, dealers, and representatives) be registered (inscrits) with the AMF before they may sell or advise on financial products. Registration is the pivot of the regulatory system: it allows the AMF to supervise, discipline, and impose obligations of honesty, loyalty, competence, complaint handling, disclosure, and conflict management on intermediaries. The Fonds d’indemnisation des services financiers, created by article 258 LDPSF, is a dedicated fund financed primarily by the financial industry through registration fees and recoveries. It is a patrimony by appropriation, earmarked to compensate victims of fraud, fraudulent schemes, or misappropriation relating to financial products and services provided or offered by persons or entities duly registered in Quebec. Article 258 specifies that the Fund pays indemnities where fraud, dol, or misappropriation is committed in relation to products or services offered by a registered representative, firm, independent representative or partnership (and certain trainees), and clarifies that coverage remains after suspension or revocation of registration, provided specific temporal conditions are met. The text, however, presupposes that there is a valid Quebec registration in place and that the conduct falls within the scope of that registration. The AMF argued in its written submissions, and the court accepted, that the entire compensation regime is “intrinsically tied” to the intermediary’s Quebec inscription. In other words, the very first analytical step in any claim is to determine whether the alleged acts of fraud occurred in the exercise of a valid Quebec registration. The regulatory framework also includes National Instrument 31-103 (Règlement 31-103) and National Instrument 35-101, which create limited mobility and registration exemptions within Canada—for example, allowing a Quebec-registered representative to continue serving a client who moves elsewhere in Canada, or providing conditional exemptions for certain U.S. brokers. Crucially for this case, these exceptions do not extend to a client who moves outside Canada. Under Règlement 31-103, the mobility exemption operates only when a client relocates to another Canadian jurisdiction, not to a foreign country.

The AMF’s analysis and refusal decisions

During its review of the claims, the AMF focused on whether the Cape Cove representative was acting within his Quebec right of practice when he sold the disputed financial products to Arnold and Castonguay. In August 2024, the AMF issued a pre-refusal notice explaining that, based on the information provided, the claim appeared not to meet all statutory criteria. The AMF stated that, although the representative held a valid Quebec right of practice at the relevant time, he did not offer the products in question “within the scope” of that Quebec practice because the claimants were no longer domiciled in Quebec when they subscribed to the issuers’ securities. The AMF emphasized that the Fund’s coverage is “intimately linked” to Quebec registration, which in turn gives intermediaries the right to offer products and services on Quebec territory to consumers domiciled in Quebec. It explained that the applicable legislation is determined by the investor’s domicile: where an investor is domiciled outside Quebec and has not simply moved elsewhere in Canada under the Canadian mobility regime, the representative’s Quebec registration does not authorize the servicing of that client abroad. In the claimants’ case, the AMF identified a number of factors demonstrating that they had established their domicile in the United States by the time of the contested investments: their June 2016 departure without retaining a home in Quebec, the relocation of their minor children, the fact that they resided and worked in the U.S. for the vast majority of the time, and the open-ended nature of their stay with no planned return date. Their continued family, social, and financial ties to Quebec, including the maintenance of REERs, were characterized as secondary ties insufficient to sustain Quebec domicile. The AMF expressly invited them to provide additional submissions or evidence if they wished to contest these conclusions. Through counsel, Arnold and Castonguay responded, raising several points: they argued that their domicile should not matter in light of the Supreme Court of Canada’s decision in Sharp v. AMF; they stressed that their investments were made in REERs, which under federal tax legislation may be maintained in Canada after a taxpayer becomes non-resident; they contended that Quebec law and Règlement 31-103 did not clearly prohibit a Quebec-registered representative from serving clients physically located outside Canada; and they complained that the AMF had not originally flagged residence as a condition of eligibility in its initial communications. In March 2025, after considering the submissions, the AMF issued two final decisions (one per claimant) rejecting the claims. It held that the Fund is competent only over actions of individuals or firms duly registered with the AMF “and acting within that registration,” a condition rooted in article 258 LDPSF. In its view, determining whether a claimant living abroad is covered requires deciding first whether the residence abroad is temporary or permanent. Only if the claimant’s permanent residence remained in Quebec at the time of subscription, such that any foreign stay was merely temporary, could the claim potentially fall within the Fund’s scope. Applying a series of indicia—duration abroad, family move, transfer of household goods, tax and voting connections, benefits, citizenship, and other residential ties—the AMF concluded that Arnold and Castonguay’s permanent domicile at the time of the transactions was in the United States. It considered their Quebec REERs and other secondary links but found them insufficient to sustain a Quebec domicile in light of the predominant foreign ties. On that basis, the AMF held that the Cape Cove representative’s offer of the impugned investments did not take place under his Quebec registration, because he was servicing clients domiciled outside Quebec (and outside Canada) in a context not covered by any of the statutory or regulatory mobility exemptions. As a result, one of the fundamental conditions for coverage under article 258 LDPSF—acts committed in the exercise of a valid Quebec registration—was not met, and the Fund lacked jurisdiction to indemnify them.

The judicial review and issues raised

Arnold and Castonguay brought a judicial review (pourvoi en contrôle judiciaire) before the Quebec Superior Court, challenging the AMF’s refusal decisions as unreasonable. They did not dispute the applicable standard of review: both parties accepted that the AMF’s decisions were subject to the standard of reasonableness, and the court confirmed this under the Supreme Court’s framework in Vavilov and Mason. The central issue framed by the court was whether the AMF’s determination—that the representative acted outside the limits of his registration by selling financial products to persons resident outside Canada, and that the claims were therefore inadmissible—met the standard of reasonableness in light of the governing legal and factual constraints. The applicants advanced three main substantive lines of attack. First, they argued that the residence-based ground of refusal had emerged only mid-process and was not part of the original eligibility criteria communicated by the AMF, suggesting an arbitrary shift in reasoning. Second, they contended that neither the LDPSF nor the Règlement on admissibility explicitly listed residence or domicile as a condition of eligibility, and that the AMF was effectively adding a requirement not found in the text. Third, they maintained that the Supreme Court’s decision in Sharp v. AMF, which recognized an expansive extraterritorial reach of Quebec securities law where there is a “real and substantial connection” to the province, ought to have led the AMF to accept that the Fund could cover their situation despite their residence abroad.

The court’s treatment of the legal framework and residence criterion

The Superior Court began by reiterating the high degree of deference required when reviewing the merits of a specialized administrative decision under the reasonableness standard. The question for the court was not whether it would have decided differently, but whether the AMF’s reasoning was internally coherent, intelligible, and defensible in light of the statutory scheme and the factual record. The judge emphasized that the AMF is the designated expert body in financial markets regulation and consumer indemnification, and that its reading of its enabling statutes and regulations is owed particular respect, provided it remains within the bounds set by the legislature. Turning to the LDPSF, LVM, LESF, and the associated regulations, the court endorsed the AMF’s view that the Fund’s compensation regime is structured around the concept of registration (inscription). The Fund is financed by the Quebec financial industry, and its purpose is to socialize the cost of fraud committed by registered intermediaries acting within the scope of their Quebec-regulated activities. By contrast, when intermediaries act outside their registration—whether by operating without registration at all or by servicing clients for whom their Quebec registration does not authorize them to act—the rationale for Quebec-funded indemnity falls away. The court placed weight on the carefully delimited mobility exemptions in National Instrument 35-101 and Règlement 31-103. These instruments show that, where the Canadian regulators intended to extend the reach of registration (and thus regulatory oversight and related protections) beyond strict provincial borders, they did so expressly and on a Canada-wide basis. Notably, the regulations allow a Quebec-registered representative to continue serving a client who has moved to another Canadian province or territory and create limited exemptions for certain foreign (especially U.S.) intermediaries. However, there is no harmonized regime or exemption for the situation in which a Quebec client moves outside Canada. In that case, as the court noted, it is the law of the foreign forum that applies to the relationship, and any authorization granted by foreign authorities to the representative does not equate to an authorization under Quebec law for purposes of the Fund. Against that background, the court accepted as reasonable the AMF’s inference that, even though article 258 LDPSF does not explicitly mention residence or domicile, the claimant’s domicile is a necessary implied factor in deciding whether the intermediary’s acts fall within the ambit of a Quebec registration. If the investor is domiciled outside Canada and does not fall under any recognized intra-Canadian mobility exemption, the representative’s dealings with that investor are necessarily outside the permission conferred by Quebec registration, and so outside the coverage of the Fund.

Assessment of domicile and factual findings

On the evidentiary front, the court gave deference to the AMF’s assessment of the domicile of Arnold and Castonguay at the time of the transactions. The AMF had borrowed analytic tools from tax authorities such as Revenu Québec, which distinguish core “residential ties” (home, spouse, dependants) from “secondary ties” (bank accounts, investments, social connections, memberships, seasonal property, etc.). Using this framework, the AMF evaluated the duration of residence abroad, the move of family and household, employment location, tax, electoral, and benefit statuses, and other indicia to determine whether the foreign residence was temporary or permanent. The AMF concluded that the applicants had established a permanent domicile in the United States; their Quebec REERs and other secondary connections were not enough, on their own, to sustain Quebec domicile. The court found no unreasonableness in this conclusion. It stressed that, while another decision-maker might have weighed the ties differently, the AMF’s analysis was coherent and grounded in objective evidence, and fell within the range of acceptable outcomes. As to the complaint about late reliance on residence, the court observed that the AMF had clearly signalled the residence issue in its August 2024 pre-refusal letter and had offered the applicants an opportunity to present further facts and arguments. They did so, through counsel, and the AMF addressed those submissions in its reasons. There was therefore no unfair surprise or denial of the chance to be heard, and even if the argument had been framed in terms of procedural fairness, it would not have succeeded on these facts.

Sharp v. AMF and extraterritorial reach

A key plank of the applicants’ legal theory was the Supreme Court of Canada’s 2023 decision in Sharp v. AMF, which considered whether the Tribunal administratif des marchés financiers (TAMF) had jurisdiction to sanction non-Quebec residents for a fraudulent market manipulation scheme that had significant links to Quebec. Applying the constitutional test from Unifund, the Supreme Court held that Quebec securities law could, consistent with federalism principles, apply extraterritorially to persons and conduct with a “real and substantial connection” to Quebec, and that the TAMF had international competence over the foreign actors involved in the manipulation. Arnold and Castonguay argued that, given Sharp’s recognition of an expansive, transnational reach for Quebec securities enforcement where there is a sufficient link to Quebec, there was no principled reason to deny them access to the Fund simply because they resided in the United States when the fraud occurred. The Superior Court accepted and adopted the AMF’s distinction between Sharp and the present case. Sharp dealt with the reach of a public-interest enforcement and sanctions regime designed to deter and punish market misconduct and protect the integrity of markets. By contrast, the Fonds d’indemnisation is a compensatory scheme financed by Quebec’s financial industry, aimed at indemnifying certain categories of victims of fraud committed by intermediaries acting under Quebec registration. The fact that Quebec can constitutionally apply its securities laws to foreign actors who perpetrate fraud with a real and substantial connection to Quebec does not mean that the legislature has chosen to extend its indemnity schemes to all victims worldwide who can trace their loss to such conduct. The court found it entirely reasonable for the AMF to interpret Sharp narrowly, as confirming the reach of the enforcement apparatus but not altering the carefully calibrated legislative choices embedded in article 258 LDPSF and the funding structure of the Fund.

Outcome and relief granted

Having reviewed both the factual matrix and the statutory and regulatory context, the Superior Court concluded that the AMF’s decisions were reasonable. The AMF had articulated a clear and internally coherent rationale: that the Fund’s coverage is intrinsically linked to Quebec registration; that such registration does not authorize a representative to serve clients permanently domiciled outside Canada absent a specific exemption; that Arnold and Castonguay were in fact domiciled in the United States at the time of the impugned transactions; and that, as a result, the Cape Cove representative’s dealings with them lay outside the scope of his Quebec right of practice and thus outside the Fund’s coverage. The court rejected the applicants’ arguments regarding the late emergence of residence as a criterion, the alleged absence of a residence condition in the LDPSF and regulations, and the supposed application of Sharp to extend the Fund’s reach to non-residents. Finding no decisive flaw in logic, no disregard of the relevant legal constraints, and no misapprehension of the salient evidence, the court dismissed the application for judicial review. In the final dispositive paragraphs, the Superior Court ordered that the judicial review be rejected, with costs (“avec frais de justice”), thereby confirming the AMF as the successful party in the litigation. The judgment, however, does not specify any exact monetary amount for indemnity, damages, or costs; the total monetary award in favour of the AMF cannot be determined from the text of the decision alone, and any taxable costs would follow the applicable tariff or subsequent assessment rather than an amount fixed in the reasons.