Reasonable and Probable Grounds

Most regulators must have reasonable and probable grounds in order to appoint an investigator to conduct a formal investigation. However, articulating the reasonable and probable grounds test is difficult. The Supreme Court of Canada has stated that reasonable and probable grounds as “at the point where credibly-based probability replaces suspicion”: Hunter et al. v. Southam Inc., [1984] 2 SCR 145, https://canlii.ca/t/1mgc1. Recently the Ontario Court of Appeal has provided additional guidance in: Qin v. Ontario Securities Commission, 2021 ONCA 165 (CanLII), https://canlii.ca/t/jds7p.

Mr. Qin had been subject to an interim order freezing his assets as the regulator investigated concerns that he and his companies were selling securities without registering under the legislation. Mr. Qin challenged the freeze order in court. In maintaining the freeze order the court found that there was a serious issue to be heard about Mr. Qin’s compliance with the legislation. When the matter was finally heard, the tribunal concluded that Mr. Qin and his companies were not selling securities. Mr. Qin then sued the regulator for malicious prosecution. The regulator brought a motion to dismiss the action on the basis that the earlier court had found there were reasonable and probable grounds for the investigation. If there were reasonable and probable grounds the action could not succeed.

Thus the Court of Appeal had to assess whether the earlier court finding that there was a serious issue to be heard was equivalent to the reasonable and probable grounds test. The Court stated that the serious issue to be heard test was a low hurdle and essentially screens out frivolous and vexatious case. The Court concluded that the reasonable and probable grounds test was qualitatively higher:

The reasonable and probable cause standard invites scrutiny of the record to determine the likelihood or probability, at the time the proceedings were commenced, that the OSC could ultimately establish the allegations….

[Reasonable and probable cause] … requires a determination of whether, objectively viewed, the facts known to the prosecution when it was undertaken, provided reasonable and probable cause to initiate the proceeding. This exercise engages an examination of all of the facts known to the prosecution when it initiated proceedings. Those facts include facts known to the prosecution which could exculpate the would-be targets of the prosecution. Further, as set out above, the totality of the facts known to the prosecution must be measured, not against the “serious issue to be tried” standard, but against the more demanding reasonable and probable cause standard.

This discussion provides a bit more information for regulators on what constitutes reasonable and probable grounds.

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