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Cryptocurrency. Shirodkar v. Coinbase Global, Inc.
In Shirodkar v. Coinbase Global, Inc. (Ont CA, 2025) the Ontario Court of Appeal dismissed an appeal, here from a class action motion order finding that Ireland was the "preferable forum for the adjudication of the appellant’s claims".
Here the court illustrates one of the several cryptocurrency venture in the world at present:[5] Coinbase is one of the world’s largest platforms for the transaction of digital assets such as cryptocurrency and cryptocurrency contracts. In the words of the respondents’ affiant, Dhawal Sharma, the Coinbase platform “functions as a marketplace that allows users to enter into transactions with other users to buy and sell digital assets.” Coinbase has no “bricks and mortar” locations through which it offers services. Its platform is accessible only online.
[6] The parent company, Coinbase Global, is a publicly traded holding company domiciled in Delaware. Its subsidiary, Coinbase Inc., also headquartered in Delaware, operates the software that identifies potential transactions on Coinbase by matching users wishing to buy or sell digital assets, and then processes and settles the transactions. Parties wishing to use the Coinbase platform must enter into user agreements with subsidiaries of Coinbase Inc. or of Coinbase Global, such as Coinbase Europe (incorporated and domiciled in Ireland) and Coinbase Canada (incorporated and domiciled in Canada). . Lochan v. Binance Holdings Limited
In Lochan v. Binance Holdings Limited (Ont CA, 2025) the Ontario Court of Appeal dismissed a class action appeal, here from "the certification of an action brought on behalf of Canadian investors who purchased cryptocurrency derivative products through an asset trading platform operated by the appellants".
Here the court explains cryptocurrency 'derivatives':[5] A derivative is a financial instrument whose value is derived from or based on an underlying interest or asset (the “Underlying Asset”).[1] The purchaser of a derivative does not necessarily own the Underlying Asset but, rather, is contracting to deal in that Asset for a certain price or value at a later time. In effect, the holder of the derivative is speculating or hedging against the price movement of the Underlying Asset, depending on the nature of the contractual commitment they undertake.
[6] The cryptocurrency derivatives sold through the Binance website (the “Cryptocurrency Derivatives”) were contracts which derived their value based on the price movement of cryptocurrencies. Retail investors could purchase Cryptocurrency Derivatives by registering and opening an account on the Binance website, loading funds or other assets into a digital wallet, and then clicking on the type of Derivative they wished to purchase. Binance operated a retail business in Canada involving three types of Cryptocurrency Derivatives: futures contracts, options contracts, and leveraged tokens. While each of these has distinct characteristics, they are all based on cryptocurrencies as the Underlying Asset.
[7] Binance did not register with the Ontario Securities Commission (“OSC”) to engage in the business of trading in securities, nor did it file or deliver a prospectus to purchasers of Cryptocurrency Derivatives. In April 2021, the OSC notified Binance that it was contemplating enforcement proceedings with respect to Binance‘s failure to register or comply with the applicable prospectus requirements. Various discussions ensued between the OSC and Binance over the next two years, which eventually resulted in the OSC issuing an investigation order and summons to Binance pursuant to ss. 11 and 13 of the OSA in May 2023.
[8] There is ongoing litigation between the OSC and Binance with respect to these matters: see e.g., Binance Holdings Limited v. Ontario Securities Commission, 2024 ONCA 805. In the meantime, in May 2023, Binance announced it would withdraw from operating in Canada and asked users to close any open positions by September 30, 2023.
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[45] The absence of adequate disclosure appears particularly concerning in relation to Cryptocurrency Derivatives which, as the motion judge observed, have been described by the CMT as “novel and complex products that are inherently risky”: citing Polo Digital Assets, at para. 68 The CMT has also identified “serious investor protection concerns” with offering retail investors cryptocurrency derivatives, arising from “their inherent risks, complexity, the use of margin or leverage and the potential volatility of the underlying assets”: Mek Global, at para. 64. This only highlights the importance of prospectus requirements in relation to Cryptocurrency Derivatives and renders an interpretation of the OSA which would deny Class members a civil remedy for failure to file a prospectus seem out of step with the overall purposes of the statutory scheme. . Lochan v. Binance Holdings Limited [arbitration and statutory tort]
In Lochan v. Binance Holdings Limited (Ont CA, 2024) the Ontario Court of Appeal dismissed a defendant cryptocurrency operation's appeal, here from an order "dismissing its motion for a stay of proceedings in favour of arbitration, pursuant to s. 9 of the International Commercial Arbitration Act 2017".
Here the court sets out the cryptocurrency operation's business behaviour, and the dismissal of it's "motion for a stay in favour of arbitration":[3] The appellant operates the world’s largest cryptocurrency trading platform. Between 2019 and early 2022, the appellant sold cryptocurrency derivatives to Canadians through its website. The motion judge found that cryptocurrency derivatives contracts are novel, complex, and risky securities, which present investor protection concerns. A seller is required to file a prospectus prior to selling cryptocurrency derivatives. The appellant did not register with the Ontario Securities Commission or seek an exemption from registration. The appellant did not file a prospectus with respect to any of its securities offerings.
[4] The respondents are representative plaintiffs who commenced a proposed class action in June 2022. The claim is based on s. 133 of the Ontario Securities Act, R.S.O. 1990, c. S.5, which provides purchasers with a right of action for recission or damages against a company selling securities for failure to file or deliver a prospectus. The statement of claim proposes a class defined as everyone in Canada who, from September 2019 to the date of certification of the proposed class proceeding, purchased cryptocurrency derivatives from the appellant.
[5] The appellant[1] moved to stay the proceeding on the basis that the terms of use contract agreed to by users of the Binance website requires that any disputes be resolved by arbitration.
[6] The motion judge dismissed the motion for a stay in favour of arbitration. He found that exceptions to the competence-competence principle applied that justified the Ontario court deciding whether the arbitration clause was void as contrary to public policy or on the basis of unconscionability. He found that a stay in favour of arbitration should be refused because the arbitration clause was void both as contrary to public policy and because it was unconscionable.
[7] In coming to the conclusion that the arbitration clause was contrary to public policy and unconscionable, the motion judge’s findings included the following:. The appellant’s website prompted users to open accounts in “under 30 seconds”, during which the users purported to agree to roughly 50 pages of terms, including the arbitration clause;
. The arbitration clause provides that the appellant can change any part of the arbitration agreement, and that by agreeing to the terms of use for the website, users agree to any subsequent amendment to the terms by the appellant;
. The record showed that during the proposed class period, the appellant changed the forum of the arbitration and the governing law four times, to various destinations far from Canada, including from April 2020 to January 2021 to an “unspecified location, under unspecified law, under unspecified administration and rules”;
. The last forum for arbitration set by the appellant, Hong Kong, under Hong Kong law, administered by the Hong Kong International Arbitration Centre, imposed prohibitive costs. For disputes under $1 million USD, the median cost of arbitration is $26,743 USD (approximately $36,000 CAD). This figure does not include costs of travel and accommodation, tribunal appointed expert advice, legal fees, transcript services, etc. [8] The motion judge found that the starting cost to access the arbitral tribunal of approximately $36,000 CAD plus legal fees and travel expenses rendered the forum inaccessible to the average crypto investor:Given that the OSC report discloses that the average crypto investor will have something like a $5,000 claim, the choice of Hong Kong as an arbitral forum – a forum with no connection to either the potential claimants or Binance itself as a Cayman Islands company – could effectively amount to a grant of immunity to Binance. [9] He further found:The Plaintiffs and other prospective class members signed an unnegotiable ‘click’ contract where not only were the details, including the changeable location, of the arbitration clause buried out of sight, and the logistical complexity and expense of arbitration were not revealed anywhere.
Binance, as the party that designed and whose professionals drafted the contract, engineered the arrangement to take advantage of the complexity that was hidden behind that superficially benign appearance of an arbitration clause. . Binance Holdings Limited v. Ontario Securities Commission
In Binance Holdings Limited v. Ontario Securities Commission (Div Court, 2023) the Divisional Court considered a JR against a Capital Markets Tribunal (CMT) decision that it lacked jurisdiction to order the revocation of an "(i)nvestigation Order under s. 144(1) of the Securities Act" (which was initiated "under s. 11(1)(a) of the Securities Act, R.S.O. 1990, c. S.5").
These quotes illustrate OSC regulation procedures in the new 'crypto' field:Brief Background
[4] Binance is a Cayman Islands corporation that operates an online crypto asset trading platform that it describes as the largest in the world. On that platform, users can transfer and store various digital assets. The platform has been accessible in Ontario.
[5] On March 29, 2021, the OSC issued a press release indicating that crypto asset trading platforms doing business in Ontario were required to bring their operations into compliance with Ontario securities law. Those trading platforms, including Binance, were required to contact the OSC to start compliance discussions. Binance did not do so.
[6] By letter dated April 20, 2021, OSC Staff notified Binance that they were contemplating enforcement proceedings against Binance. The letter outlined concerns that Binance was trading in and distributing securities without registering with the OSC and without filing a prospectus or obtaining an exemption, and that Binance was carrying on business as a marketplace without authorization, all contrary to the Securities Act.
[7] Binance began discussions with OSC Staff about regulatory compliance. In June 2021, Binance advised its Ontario users that it could no longer service them and that operations would cease in Ontario as of December 31, 2021. However, on December 29, 2021, Binance communicated to its users that, because of its cooperation with securities regulators, it was permitted to continue operating.
[8] Binance has since acknowledged that the December communication to Ontario users was incorrect. Binance also mistakenly communicated to users and OSC Staff that restrictions were in place for Ontario accounts, when Ontario users were still able to trade on the Binance platform.
[9] On January 7, 2022, OSC Staff notified Binance of their intention to bring an application for a cease trade order.
[10] After further discussions, Binance and its Canadian corporation Binance Canada Capital Markets Inc. entered into the Undertaking and Acknowledgement to the OSC, dated March 16, 2022 (the “Undertaking”). Among other things, Binance acknowledged that it had given Ontario users incorrect information and had permitted Ontario investors to continue to trade after restrictions were supposedly in place to prevent continued trading.
[11] In the Undertaking, Binance undertook to prevent Ontario users from opening accounts on the Binance platform. Binance undertook to identify existing Ontario accounts and prevent all trading in those accounts except for specific steps to, for example, close existing positions or withdraw funds. Binance undertook to wind down its Ontario business in certain products entirely. Binance further undertook to provide quarterly reports to the OSC and retain an independent third party to review Binance’s implementation of its commitments and report to the OSC.
[12] The Undertaking included a reservation of rights. Binance expressly acknowledged that the OSC and OSC Staff retained the right to bring enforcement proceedings or seek temporary orders against Binance, with some exceptions. The scope of this reservation of rights is at issue on this application and is discussed below.
[13] Binance provided quarterly reports to the OSC and retained a third party to fulfill that aspect of the Undertaking. An audit plan for the third party report, acceptable to the OSC, was agreed on. Binance continued to pursue the possibility of doing business in Canada.
[14] A draft third party report was delivered. However, it diverged from the plan, in part because Binance had refused to provide access to its live database. OSC Staff made inquiries. From the standpoint of OSC Staff, Binance was not very responsive and when responses were received they were incomplete. With respect to the live database, after several months Binance said for the first time that it had concerns about an external party having access to its database.
[15] The OSC also became aware that another regulator, the United States’ Commodity Futures Trading Commission, had filed a complaint against Binance and others in the U.S. District Court for the Northern District of Illinois (the “CFTC Complaint”).
[16] The OSC then commenced the investigation into Binance that is challenged in this application for judicial review.
Investigation Order and Summons
[17] By order dated May 10, 2023, the OSC initiated the investigation under s. 11(1)(a) of the Securities Act (the “Investigation Order”). The Investigation Order provided, among other things, that it appeared to the OSC that Binance may have engaged is conduct contrary to Ontario securities law and/or contrary to the public interest, including the following:(i) trading in securities without registration or an exemption from the registration requirements;
(ii) distribution of securities without either complying with or an exemption from the prospectus requirements;
(iii) making misleading statements to the OSC; and,
(iv) taking steps to circumvent Ontario securities law and compliance controls, including in relation to the Undertaking. [18] On May 11, 2023, a summons (the “Summons”) was issued, requiring the production of documents and provision of information about fees and revenue earned in Ontario, Ontario accounts that remained open, and the methodology used to provide that information. The scope of the Summons is at issue on this application.
[19] On May 12, 2023, Binance publicly announced that it would withdraw from operating in Canada. . Binance Holdings Limited v The Ontario Securities Commission
In Binance Holdings Limited v The Ontario Securities Commission (Div Court, 2023) the Divisional Court considered Capital Market Tribunal proceedings involving a cryptocurrency corporation out of the Cayman Islands. In paras 8-25 the court sets out a background history.
. CryptoStar Corp. v. 611890 Alberta Inc.
In CryptoStar Corp. v. 611890 Alberta Inc. (Div Court, 2023) the Divisional Court provides some insight into cryptocurrency 'mining', here with a contract for electricity and subsequent dealings:[4] CryptoStar is a cryptocurrency mining company that generates cryptocurrency using computer hardware that continuously runs complex algorithms. This continuous operation – “mining” – requires substantial amounts of electric power. Pursuant to the agreement between CryptoStar and the respondents (collectively, “Avila”), Avila was to build and commission infrastructure and equipment at sites in rural Alberta where Avila would generate power to supply to CryptoStar. CryptoStar was Avila’s first and only customer for electric power. All of Avila’s funds, lands, and assets are in Alberta.
The Agreement
[5] On April 17, 2020, following from a letter of intent dated April 3, 2020, CryptoStar and Avila entered into an original version of the Agreement. On April 12, 2021, the parties executed an Amended and Restated Power Supply Agreement.
[6] In s. 2.1 of the Agreement, Avila agreed to provide CryptoStar with power upon the payment by CryptoStar of USD $1,481,010 (plus tax) per 10 MW of power (an “Upfront Payment”). Each Upfront Payment included: (i) the costs of “prepaid power” for the “first 6 months of supply”, after which CryptoStar was required to pay for power, invoiced monthly in advance; and (ii) the cost of “commissioning the required infrastructure and equipment.” The Upfront Payments did not include the cost of building the containers required to host CryptoStar’s equipment (the “hosting containers”).
[7] As found by the motion judge, there is no express requirement in the Agreement that Avila segregate or hold the Upfront Payments pending the provision of prepaid power: “[i]n fact, the Agreement is explicitly structured so that Avila can access capital from the Upfront Payments to build infrastructure for power generation facilities.” As the motion judge explained, “[t]his reflects that, as both parties understood, prior to the Agreement Avila had no power generation business or infrastructure of any kind, such that power plants would have to be built in 10 MW increments.”
[8] Section 2.8 of the Agreement states that, in the event Avila fails to provide power within 120 days pursuant to s. 2.1(d), CryptoStar has the right to demand repayment of the Upfront Payments, “other than expenses actually incurred and paid by Avila for infrastructure and equipment.”
Dealings Between the Parties Under the Agreement
[9] Owing to CryptoStar’s financial circumstances, Avila agreed to allow CryptoStar an indulgence whereby Avila would supply power in three tranches of power totalling 4 MW, rather than the 10 MW contemplated in s. 2.1 of the Agreement. CryptoStar made the Upfront Payments for these smaller tranches between September 2020 and July 2021.
[10] CryptoStar then requested an additional 10 MW of power, but could not immediately afford the entire Upfront Payment. Avila agreed that CryptoStar could pay for the 10 MW in two instalments. CryptoStar paid for 5 MW of power, rather than the 10 MW for which it asked and was invoiced.
[11] In total, CryptoStar paid Avila USD $1,332,819 plus GST for 9 MW of power. For its part, Avila purchased generators, turbines, transformers, breakers and cabling, as well as housing containers. Aviva built a 3.5 MW power plant that was commissioned and operated at the “4-20 site” in Alberta until the site shut down in December 2021. CryptoStar received and consumed at least CAD $216,141 of power from the power plant at the 4-20 site.
Treatment of the Upfront Payments
[12] CryptoStar transferred all the Upfront Payments it made to Avila’s general bank accounts. Avila’s evidence – which the motion judge described as “essentially unchallenged (subject to the legal argument...)” – was that these funds were then co-mingled with Avila’s pre-existing funds, and that the co-mingled funds were used to pay for all of Avila’s operating expenses, including the expenditures in connection with the power generation business.
[13] The motion judge found that Avila did not and was not contractually obliged to set aside or hold the Upfront Payments in cash. Avila used the funds to defray the capital costs of building the power plants. The Upfront Payments were not held in a segregated fund. The motion judge accepted the evidence of Avila’s controller that the Upfront Payments were indistinguishable from the other funds with which they were co-mingled “from the moment they were deposited into Avila’s general accounts.” The motion judge found “inasmuch as the Agreement did not place any restrictions on the use of the Upfront Payments, Avila could and did use the funds as it saw fit, and did not track the trajectory and depletion of these payments from the general bank account.”
[14] The motion judge found that the funds that Avila spent to install and generate power had to be incurred regardless of the source of revenues received. These were booked to the “allowance for expenditures” for the project. CryptoStar was credited for its power consumption in the first six months of supply and was not to be charged per kWH over that period. Therefore, for revenue recognition purposes, Avila accrued the Upfront Payments as a liability in the form of “deferred revenue.”
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