The Ontario Securities Commission (OSC) has traditionally been regarded by the Ontario Divisional Court1 as a specialized administrative tribunal entitled to significant deference on appeal and judicial review proceedings. On this deferential approach, the Divisional Court would review decisions of the OSC on a "reasonableness" standard of review—the Court would follow the Dunsmuir approach and defer to the OSC provided that the decision fell within a range of reasonable outcomes. As a practical matter, this meant that it was very difficult to successfully challenge a decision of the OSC on substantive legal grounds.
But the Divisional Court's recent decision in Quadrexx Hedge Capital Management Ltd. v. OSC, 2020 ONSC 4392, has clarified that statutory appeals from the OSC will no longer automatically be reviewed on a deferential standard of review. Applying the framework articulated in Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65 (the Supreme Court of Canada's recent, seminal decision on administrative law), the Divisional Court held that statutory appeals from decisions of the OSC will now be reviewed on appellate standards of review. On this approach, questions of law will attract a "correctness" standard of review; and questions of fact or mixed fact and law will attract a "palpable and overriding error" standard of review. In the final analysis, the Divisional Court's decision following the Vavilov standard signals not only a likely material increase in the prospects of a successful appeal on questions of law, but also a potential increase in the number of appeals from decisions of the OSC.
The Traditional Approach
Prior to the Supreme Court's decision in Vavilov, the governing approach to determining the standard of review in respect of administrative decision-making was the approach articulated in Dunsmuir v. New Brunswick, 2008 SCC 9. The Dunsmuir approach applied to both judicial review and statutory appeals from administrative decision-makers.
The Dunsmuir framework articulated certain categories of administrative decisions that would attract a "reasonableness" standard of review, and a much more limited group of categories that would attract a "correctness" standard of review. For example, a "reasonableness" standard of review would presumptively apply where the administrative decision-maker was interpreting or applying a provision of its "home statute" or a statute closely linked to the tribunal's functions. Where the issue raised did not fall within the previously-recognized review categories, the reviewing court would conduct a "standard of review analysis" (sometimes referred to as the "pragmatic and functional" approach) and weigh various factors relevant to determining the standard of review. This included the purpose of the administrative tribunal; the nature of the question at issue; and the relative expertise of the tribunal.
The Dunsmuir framework placed considerable emphasis on the relative expertise of the administrative tribunal in determining the appropriate standard of review. Since provincial securities commissions were regarded as highly-specialized administrative tribunals, this invariably led to decisions from provincial securities commissions being reviewed on a deferential, "reasonableness" standard of review.2
Importantly, the Dunsmuir framework applied even where a statutory right of appeal was provided from the administrative tribunal's decision. The existence of a statutory right of appeal or privative clause was regarded as only one factor in determining the appropriate standard of review. The essential result of this approach was that, while s. 9 of the Securities Act, R.S.O. 1990, c. S.5, codified a statutory right of appeal to "any person or company directly affected by a final decision" of the OSC, the appeal functioned essentially as an application for judicial review (on a deferential standard of review).
The Vavilov Framework3
In Vavilov, the Supreme Court jettisoned the "pragmatic and functional approach" framework articulated in Dunsmuir in favor of a more streamlined standard of review analysis. In particular, Vavilov introduced a simple presumption of "reasonableness" review for all administrative decision-making, which could be rebutted in certain specified circumstances. Importantly, one of those exceptions was that the presumption of reasonableness review would be rebutted where the legislature provided for a statutory right of appeal from administrative decisions.
Under the Vavilov approach, where a statutory right of appeal exists, administrative decisions are reviewed on the traditional appellate standard of review, which distinguishes between questions of law and questions of fact or mixed fact and law. A "correctness" standard of review now applies to questions of law (and to questions of mixed fact and law where there is an "extricable" question of law or principle). On a correctness standard of review, the reviewing court asks whether the decision is "correct"—i.e., would the reviewing court have reached the same decision as the administrative tribunal, if asked at first instance? A more deferential standard of "palpable and overriding error" will now apply to questions of fact and questions of mixed fact and law. On this standard of review, the applicant must establish that the administrative tribunal made an error that is both "readily or plainly seen" based on the evidence that was before it, and determinative of the result reached by the administrative tribunal.
Quadrexx: End of Deference to the OSC on Statutory Appeals
Section 9(1) of the Securities Act, provides for a statutory right of appeal from final decisions of the OSC:
A person or company directly affected by a final decision of the Commission, other than a decision under section 74, may appeal to the Divisional Court within thirty days after the later of the making of the final decision or the issuing of the reasons for the final decision.4
The Vavilov approach suggested that statutory appeals from decisions of the OSC should be reviewed on an appellate standard of review. This approach was indeed ultimately affirmed by the Divisional Court in Quadrexx, which was the first appellate decision to apply the Vavilov framework to statutory appeals from the OSC. Following Quadrexx, the "reasonableness" standard of review will no longer apply to appeals from decisions of the OSC. Instead, a "correctness" standard of review will apply to all questions of law—including questions of statutory interpretation relating to the Securities Act, and related National Instruments and regulations, and to other issues that pose an extricable question of law. On the other hand, a "palpable and overriding error" standard of review will apply to all factual findings, and determinations of mixed fact and law, made by the OSC.
Crucially, these appellate standards of review will apply even if the matter under appeal touches on the OSC's specialized subject-matter expertise. As a result, the scope for judicial intervention is much greater on questions of law (and on questions of mixed fact and law where there is an "extricable" question of law or principle). Notably, the Divisional Court also affirmed the appellate standards of review are not displaced or modified by section 9(5) of the Securities Act, which restricts the remedial power of a court reviewing an OSC decision. As a result, OSC decisions will be reviewed no differently from any other administrative decision-maker subject to a statutory right of appeal.
The Divisional Court's decision in Quadrexx—applying the Supreme Court's decision in Vavilov—is likely to have significant implications for capital market participants and parties to proceedings before the OSC:
- Prior to Vavilov, statutory appeals from OSC decisions were generally regarded as long-shots, given the significant deference owed to the OSC as a specialized administrative tribunal. The Divisional Court would defer to the underlying decision from the OSC, provided it fell within a range of reasonable outcomes. But under the Vavilov framework, the Divisional Court is empowered to intervene on questions of law on a correctness standard. Provided an appellant can identify a question of law in the underlying OSC decision and provide a compelling basis for suggesting that that question of law has been wrongly decided, this should significantly increase the prospects of a successful appeal.
- With a greater prospect of success on an appeal to the Divisional Court in such cases, capital market participants should expect to see more appeals from decisions of the OSC. While decisions from the OSC may have previously been, practically speaking, final in most cases, Vavilov will likely invite more appeals to the Divisional Court. Participants in OSC proceedings should be mindful of the potential for an appeal, which would delay a final decision and increase legal costs.
- While Quadrexx codifies a correctness standard of review from the decisions of the OSC on questions of law, as a practical matter, the Divisional Court may continue to give significant weight to decisions of the OSC—particularly where the underlying decision concerns a matter of policy or on issues firmly within the OSC's specialized expertise. The Divisional Court hears statutory appeals and applications for judicial review from a wide range of administrative tribunals, and does not have any particular expertise with respect to securities law. As a result, we expect that the Divisional Court will continue to give significant weight to the legal conclusions expressed by the OSC. In addition, many decisions of the OSC will turn on questions of fact or mixed/fact and law, which will be reviewed only for "palpable and overriding error." For this reason, participants in administrative or enforcement proceedings must continue to put their "best foot forward" before the OSC.
If you or your business have any questions, please contact a member of the Bennett Jones Securities Litigation group.
- The Divisional Court is branch of the Ontario Superior Court of Justice. As an intermediate appellate court, the Divisional Court hears statutory appeals from designated administrative tribunals and applications for judicial review. The Divisional Court hears appeals from the OSC pursuant to s. 9 of the Securities Act, R.S.O.1990, c. S. 5.
- See e.g. Pezim v. British Columbia (Superintendent of Brokers),  2 SCR 557, and McLean v. BC Securities Commission, 2013 SCC 67.
- For a detailed review of Vavilov, please see Supreme Court of Canada Reforms Judicial Review.
- The sole exception is for decisions of the OSC under s. 74 of the Securities Act, which concerns rulings for exemptive relief from the requirements of the Securities Act and related regulations.