Most regulators cannot be sued for damages (money) unless they act in bad faith. More than two decades ago, the Supreme Court of Canada said that serious carelessness or recklessness could, in some circumstances, amount to bad faith: Finney v Barreau du Québec, 2004 SCC 36 (CanLII), [2004] 2 SCR 17. There, the regulator failed to act promptly in the face of urgent concerns about the competence of a lawyer. The complete lack of diligence in the circumstances, including after the regulator received alarming reports and additional complaints about the lawyer, amounted to bad faith. Since then, very few courts have found that serious carelessness or recklessness by a regulator amounts to bad faith. In fact, the necessity of pleading details of alleged bad faith prevents most lawsuits against regulators from proceeding at all. Until now.
In Wei v Ontario, 2026 ONSC 1782 (CanLII), a Court permitted financial investors to sue a financial regulator and its senior staff for misfeasance in public office. Under the legislation, the plaintiffs need the court’s permission (leave) to proceed with the action. To obtain leave, the investors must demonstrate that there is a reasonable chance of success, including that there may have been bad faith. The Court found that the investors “may be able to show that the defendants’ conduct was so inexplicably and seriously careless that a trial judge should infer that they acted in bad faith.”
The Court found that there was evidence that the regulator failed to act on serious concerns about inadequate disclosure of high-risk, and possibly fraudulent, syndicated mortgages by a mortgage brokerage, Tier 1. The evidence led on the motion indicated that a major bank had warned the regulator that several mortgage brokers, including those associated with Tier 1, were involved in a Ponzi scheme. There was further evidence that the regulator failed to take steps to obtain further information from the bank despite its offer to provide it. There was evidence that the regulator also failed to use its statutory investigative powers with Tier 1 when concerns about it arose during the investigation of another entity. The Court also expressed concern about the regulator’s lack of enforcement action, generally, against other questionable players in the syndicated mortgage market.
The Court acknowledged that the regulator was not required to provide its defence at this stage of the proceedings and that it might be able to explain how it had been reasonably diligent. However, in the absence of such evidence, there is a reasonable chance that a court would infer that the serious carelessness amounted to bad faith.
This decision, if it stands, suggests that at some point a lack of diligence by a regulator about concerns that are serious enough to potentially harm the public can lead to civil liability.
Interestingly, the Quebec Court of Appeal has just granted leave to appeal in another matter where the contours of Finney will also be explored. There, the failure of a discipline panel to accept a joint submission is in issue: Conseil de discipline de l’Ordre des comptables professionnels agréés du Québec c. Duval, 2026 QCCA 660 (CanLII).
