The door to tort claims against the Ontario Securities Commission may have just opened

A recent Ontario Court of Appeal decision could provide needed checks and balances on the OSC

Joseph Groia

Following an important decision in Ontario’s Court of Appeal, the possibility of successfully suing the Ontario Securities Commission appears more real than ever. Cases brought under the two main categories of claim, malicious prosecution and misfeasance in a public office, have for many years been almost a hopeless cause. This new glimmer of hope would be a significant development at a time when real changes are likely to be made in the scope of the OSC’s powers and structure. As Spiderman taught us, “with great power there must also come great responsibility.” If our courts are willing to take a good and hard look at how the OSC exercises its powers, the public interest in the capital markets will undoubtedly be enhanced.

Malicious prosecution claims are traditionally brought in cases where one’s liberty or freedom is at stake. Since the Supreme Court of Canada’s 1989 Nelles v Ontario decision, this tort has been firmly established in Canadian law. Claimants typically fail the test’s final step, which requires a plaintiff to demonstrate that a public officer acted with “malice, or a primary purpose other than that of carrying the law into effect.” In contrast, misfeasance in a public office is relatively new. The Supreme Court of Canada started to seriously develop this tort in its 2003 Odhavji Estate v Woodhouse decision, stating “the public officer must have engaged in deliberate and unlawful conduct.” Both torts require a plaintiff to prove bad faith or malice.

However, Qin v Ontario Securities Commission demonstrates a hopeful shift for claimants bringing bad faith tort claims against regulatory bodies. In Qin, the OSC froze Xundong Qin’s assets under s. 126 of Ontario’s Securities Act for allegedly trading securities without being registered. The motion judge issued the freeze order because there was a “serious issue to be tried.” The OSC eventually lifted the freeze order after discovering Qin had not contravened the OSA, but the damage caused to Qin was irreversible. In response, Qin brought a $100,000,000 malicious prosecution claim against the OSC, which the lower court dismissed on issue estoppel grounds, stating malicious prosecution’s “reasonable and probable cause” element was already resolved. In April 2021, the ONCA overturned the motion judge’s decision, finding that this element had not been addressed. The court’s willingness to allow Qin to advance his malicious prosecution claim for purely financial losses is itself salutary, as it represents a potential slight shift in the power balance between the OSC and those it “protects” and prosecutes.

Any claimant’s first and most daunting hurdle in a case against the OSC is overcoming the OSA’s broad statutory immunity clause. To our knowledge, nobody has successfully sued the OSC through to judgement, but recent cases suggest that some cracks are showing. For example, the British Columbia Court of Appeal held bad faith could be proven where a public official exercises statutory power for the improper or ulterior purpose of injuring the plaintiff. Similarly, the Supreme Court of Canada has defined malice as having a “wider meaning than spite, ill-will or a spirit of vengeance, and includes any other improper purpose.” Accordingly, there appears at least an arguable case that the OSC’s decision to issue a freeze order on Qin’s assets satisfies the element of bad faith or malice, giving his claim a reasonable chance of success.

The OSA and Law Society Act have virtually identical statutory immunity clauses that insulate them from civil claims for damages arising where statutory duties are exercised in good faith. In Potis Holdings Ltd. v The Law Society of Upper Canada, the plaintiffs failed to get around the LSA’s immunity clause. The plaintiffs brought a variety of tort claims against the Law Society of Ontario for allowing lawyers sued for negligence to breach solicitor-client privilege when seeking legal representation. The central issue before the ONCA was whether any tort claims not requiring bad faith as a cause of action could survive a motion to strike. The ONCA dismissed the claims. In Robson v The Law Society of Upper Canada, like Qin, the ONCA permitted a plaintiff to bring malicious prosecution and misfeasance in a public office claims against the LSO. The case was ultimately dismissed because the plaintiff “failed to provide sufficient particulars of the improper purpose or ulterior motive necessary to ground [either] claim.” Proving bad faith or malice is extremely difficult because a plaintiff must adduce convincing, detailed proof to establish a bad faith tort.

A rare example of malice is found in Chhabra v R. There, Chhabra voluntarily provided his incorrect tax documents to CRA agents after being guaranteed that they could resolve his tax problems. The CRA agents took these documents and used them as evidence to support a garnishee order taking 75 per cent of the plaintiff’s gross income. They also demanded an additional, unsubstantiated amount of $45,945.90 and anonymously presented Chhabra’s tax situation on national television. Following these events, Chhabra was forced to close his medical practice. The Federal Court determined the CRA agents’ conduct constituted malice, thereby satisfying the final element of malicious prosecution. Mr. Chhabra was awarded $10,000 in nominal damages.

Bad faith is challenging to establish but required to overcome a regulatory body’s immunity clause. Until Qin, very few cases have allowed plaintiffs to advance malicious prosecution or misfeasance in a public office claims against the OSC. However, this is changing. Proving bad faith or malice will be difficult but allowing the OSC to issue orders unilaterally without fear of consequence under s. 126 of the OSA is problematic. We are hopeful that these new cases, like Spiderman, will help provide the necessary checks and balances on the OSC.

Samuel Cullen, a University of Ottawa law student summering at Groia & Company, assisted with this article.

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