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Securities - Investigation. Binance Holdings Limited v. Ontario Securities Commission
In Binance Holdings Limited v. Ontario Securities Commission (Ont CA, 2025) the Ontario Court of Appeal allowed joined appeals, here brought against investigative administrative "summons demanding the production of documents and, depending on how the summons is interpreted, responses to interrogatories (“information”) from Binance about its operations ...".
The court decides a s.8 Charter issue, here in this Securities Act [s.13 'Power of investigator or examiner'] administrative-investigative context:[83] I will begin by returning to the principles that apply in assessing the reasonableness of searches and seizures in the regulatory context. As I have explained, the decision in Hunter v. Southam Inc. outlined the principles that operate in identifying the reasonableness of a search in criminal cases. Those principles were helpfully distilled by Wilson J., in McKinlay Transport, at pp. 642-43. In simple terms they require that: (1) a warrant be obtained from an impartial adjudicator; (2) based on reasonable and probable grounds to believe that an offence has been committed; and (3) reasonable and probable ground to believe that evidence of the offence will be obtained. Of most relevance to this appeal, they also require that (4) “only documents which are authorized to be seized are those which are strictly relevant to the offence under investigation” (or “principle four”).
[84] As I have acknowledged and explained, these criminal law principles cannot be applied in most circumstances to regulatory searches and seizures without undermining the ability of regulators to ensure compliance. Accordingly, reasonableness is determined in the regulatory context using a more flexible approach, sensitive to the needs and purposes of the regulatory model in question. In McKinlay Transport Ltd., Wilson J. therefore endorsed the “rough model of reasonableness employed in production of documents in civil cases”, where “what is reasonable ‘depends upon consideration of what is sought, from whom, for what purpose, by whom, and in what circumstances’”: McKinlay Transport Ltd., at p. 646, quoting Alberta (Human Rights Commission) v. Alberta Blue Cross Plan, 1983 ABCA 207, 1 D.L.R. (4th) 301, at p. 307.
[85] It is well established that when using this rough and ready metric that the first three Hunter v. Southam Inc. principles do not apply at all in most regulatory contexts: Thomson, at pp. 531-32, per La Forest J. Since they are not relevant to the issue before me, I will say no more about them.
[86] I also accept the Commission’s position that principle four from Hunter v. Southam Inc. cannot generally be applied directly in regulatory cases. This is also well settled by the case law: Thomson, at p. 532; Branch, at para. 50-52. A moment’s reflection explains why this is so.
[87] First, principle four requires in criminal cases that to constitute a reasonable seizure, the documents seized must be “strictly relevant to the offence under investigation” (emphasis added): McKinlay Transport, at p. 642-43. Yet, in the regulatory context, it will not ordinarily be possible to ensure effective regulation without permitting regulators to engage in general compliance inquiries, even where they do not have reasonable grounds or even reasonable suspicion that an offence has occurred: McKinlay Transport Ltd., at pp. 648-49. Given that there may be no specific offence under investigation for a legitimate inquiry to be undertaken, it would be illogical to limit the seizure of documents or information to material “relevant to the offence under investigation” as set out in Hunter v. Southam Inc.
[88] Second, principle four imposes a “strictly relevant” limitation. In circumstances where a physical search is underway to decide what, if anything, to seize, as is typically the case in the criminal context, it is possible for authorities to vet the documents before deciding what to take away. In the criminal context, using a “strictly relevant” restriction is generally workable. But where documents or information are ordered to be produced by a regulator, the regulator will not see those documents or receive that information until it arrives, and therefore will have no way of assuring relevance: McKinlay Transport Inc., at p. 650. Hence, a “strict” relevance requirement cannot sensibly be imposed. The most that can be expected is that the regulator will identify categories of documents that they have reason to believe may be relevant.
[89] Having said this, the fact that principle four does not generally apply to regulatory seizures does not mean that s. 8 is unconcerned about the relevance of the material demanded in the regulatory context. This is key. In Thomson, after finding that Hunter v. Southam Inc.’s principle four does not apply to production orders issued to regulate anti-competition restrictions, La Forest J. made clear in his discussion at p. 530, that a less demanding relevance requirement operates. Namely, “The material sought must be relevant to the inquiry in progress.” He explained that “[t]he question of relevancy … must be related to the nature and purpose of the power accorded”. Then, at p. 532, speaking in the context of a subpoena duces tecum demanding the production of documents, he cited two components of the American “relevance to a lawful inquiry” test to explain how relevance is to be determined. The first component is that “the subpoena must be sufficiently clear and specific to inform the subpoenaed party of precisely what documents are being demanded”, and the second is that “the subpoena must only be as broad as necessary for the purposes of the inquiry in progress.” He added that in the United States any “unduly broad subpoena will be struck down on grounds of burdensomeness”: Thomson, at p. 532. He described these requirements as “self-evidently sensible”, “common sense standards by which to measure [relevance]”: Thomson, at p. 532. It follows that La Forest J. determined that even in the regulatory context, “the material sought must be relevant to the inquiry in progress”, although not strictly relevant, and that it will not be relevant if the demands made in the subpoena are broader than needed for the purposes of that inquiry.
[90] Things would have been simpler had all the justices in Thomson either signed onto La Forest J.’s judgment or weighed in directly on whether they agreed with this approach, but they did not do so. What is clear, however, is that they all considered a relevance evaluation to be an essential component of the power to seize. Wilson J., with whom Lamer J. expressed agreement, would have applied the full fourth Hunter requirement that the documents be strictly relevant to an offence under investigation: Thomson, at p. 442, 446, 501. Although Sopinka J. found that s. 8 was not engaged, he affirmed that, altogether apart from the Charter, and despite the breadth of the language of the statutory authority to compel production in that case, that authority was limited by the requirement “that the documents be germane to the issues and not subject to privilege”: Thomson, at p. 613, quoting with approval Marceau J. in Canada (Director Of Investigation and Research) v. Can. (Restrictive Trade Practices Comm), (1985), 1985 CanLII 3143 (FCA), 18 D.L.R. (4th) 750 (Fed. C.A.), at p. 63. He continued on p. 613 of Thomson to explain: “In order to comply with this duty, the Director must disclose the purpose of the inquiry in sufficient detail to enable the persons affected and the court to determine whether the documents are relevant to the issue. Anything less would enable the Director to embark on pure a fishing expedition.” L'Heureux-Dubé J., who, unlike Sopinka J., found that s. 8 of the Charter was engaged, expressed agreement with Sopinka J. that “a judge sitting in review has significant powers which at least prevent the orders to be used in a ‘fishing expedition’”: Thomson, at p. 595. A review could not prevent a “fishing expedition” without a critical assessment of the breadth of the production order to ensure that the documents to be seized are relevant to the matter being investigated. L'Heureux-Dubé J. can be taken as agreeing with La Forest J. that s. 8 imposes a relevance requirement even in regulatory cases. In my view, the relevance requirement that La Forest J. articulated is the lowest common denominator in the Thomson decision, and therefore represents the law. Even in the regulatory context, “The material sought must be relevant to the inquiry in progress.” See Thomson, at p. 530. It will not be if the demands made in the subpoena are broader than needed for the purposes of that inquiry.
[91] In support of its position that s. 13 is not subject to a relevance limitation, the Commission relied upon the broad language of s. 13, which does not reference relevance. It also submitted that in McKinlay Transport Ltd., the Supreme Court upheld a similar provision in s. 231(3) of the Income Tax Act, R.S.C. 1952, c. 148, which like s. 13 of the Securities Act, contained no relevance limitation. In my view, the Commission misreads McKinlay Transport Ltd. That decision, in fact strongly supports the approach that La Forest J. took in Thomson. As Wilson J. noted in McKinlay Transport Ltd., prior case law, including at the Supreme Court, had used ordinary principles of statutory interpretation to read down s. 231(3) (which was every bit as broadly worded as s. 13 of the Securities Act). As a result, the authority to order production of documents and information under that provision could be used only in circumstances where, examined objectively, production was for a purpose authorized under the Income Tax Act, and the information demanded was relevant to the tax liability of the person or persons whose liability was under investigation: McKinlay Transport Ltd., at pp. 639-40. Three things are noteworthy about this. First, these are the same essential relevance considerations that La Forest J. endorsed as constitutionally required in Thomson. Second, these requirements are so self-evident as reasonable limitations on any power to demand production that they were imposed on s. 231(3), even without Charter analysis, notwithstanding the breadth of the language of s. 231(3). And third, and most importantly, s. 231(3) was upheld as constitutionally valid only after Wilson J. emphasized that it satisfied this relevance requirement. When she posed the issue before the court, Wilson J. asked whether s. 231(3), which was already “narrowed in scope as a result of the common law rules relating to statutory interpretation”, could withstand Charter scrutiny: McKinlay Transport Ltd., at p. 640.
[92] Apropos of this last point, when Wilson J. explained why she was upholding s. 231(3) as against the Charter challenge she said, at p. 648, that the Minister “must be given broad powers in supervising this regulatory scheme to audit taxpayers’ returns and inspect all records which may be relevant to the preparation of these [tax] returns” (emphasis added). In explaining why s. 231(3) was “the least intrusive means by which effective monitoring of compliance with the Income Tax Act can be effected”, she added, “[i]t simply calls for the production of records which may be relevant to the filing of an income tax return” (emphasis added): McKinlay Transport Ltd., at pp. 649-50. It is evident that when she spoke of documents that “may be relevant”, Wilson J. was not endorsing a fishing expedition to examine all documents the taxpayer controls in the hope of uncovering something that could happen to prove relevant. She was no doubt proceeding on the understanding that the legislation required the production only of those documents for which there is a basis to believe may be relevant to the preparation of the tax returns under investigation.
[93] I am therefore persuaded that the s. 8 challenge to s. 231(3) of the Income Tax Act in McKinlay Transport Ltd. failed only because, as interpreted, that provision already limited production to documents that may have been relevant to the compliance investigation based on the same considerations that La Forest J. expressed as constitutional requirements in Thomson.
[94] I have reviewed the authority the Commission relies upon to the contrary. It does not support its position that the power to demand production under s. 13 is not limited by a relevance requirement. British Columbia (Securities Commission) v. Stallwood, (1995), 1995 CanLII 1515 (BC SC), 7 B.C.L.R. (3d) 339 (B.C. Sup. Ct.), did not involve a production order but instead involved challenges to subpoenas compelling witnesses to testify in an investigation ordered by the securities regulator. The Court did not reject a relevance inquiry when it rejected the petitioners’ submissions that the regulator in that case had an obligation to minimize or restrict the investigation it was undertaking. It noted instead that the effect of the “Investigating Order setting out the scope of the investigation” was to define “what is relevant”: Smallwood, at para. 32. In effect, in the context of a subpoena or order to testify, it is sufficient that the regulator identify what is being investigated, and to give direction on the scope of the compelled testimony. But as La Forest J. made clear in Thomson, at p. 532, when it comes to the production of documents, there are two components to a necessary relevance inquiry. The first component is that “the subpoena must be sufficiently clear and specific to inform the subpoenaed party of precisely what documents are being demanded” and the second component is that “the subpoena must only be as broad as is necessary for the purposes of the inquiry in progress.” This case, of course, involves a challenge to the breadth of a production order made by way of a Summons that makes wholesale demands for documents, whether there is any reason to believe they may be necessary for the purpose of the inquiry in progress or not. The Smallwood case is not instructive.
[95] The decision in North America Frac Stand. Inc. (Re), 2020 ABASC 40, does not reject a relevance inquiry, either. There the Alberta Securities Commission upheld what commission staff admitted was a broad demand for production only after the regulated party did not comply with an earlier demand to provide relevant business emails, making the demand for broader production appropriate: at para. 63. I need not express my views on this decision. The instant point is that it does not support the proposition advanced by the Commission.
[96] In my view, the relevance requirement described by La Forest J. in Thomson is constitutionally required for most regulatory seizures, as a matter of principle. This is because the authority to demand production of documents, even in a regulatory setting, represents an imposing exercise of state authority, regardless of how low the reasonable expectation of privacy may be. Moreover, the power to demand production is conferred for a purpose. Speaking of the equivalent power to summons documents in British Columbia securities legislation in Branch, Sopinka and Iacobacci JJ. commented that, “the predominant purpose of the inquiry is to obtain the relevant evidence for the purpose of the instant proceedings”: para. 35. It only stands to reason that to be reasonable, a seizure must be related to the purpose for which the power of compulsion was created, and that if there is no realistic foundation for believing the target documents will be relevant to that inquiry, the seizure is not needed to facilitate a proper inquiry and is improper.
[97] I also note that the power of the investigator to issue a summons under s. 13 of the Securities Act is the same power that is vested in the Superior Court of Justice by r. 53.04 of the Rules of Civil Procedure “for the trial of civil actions”. Rule 53.04(1) empowers witnesses who are compelled to the trial of civil actions to produce “documents or other things in [their] possession, control, or power relating to the matters in question”. A document that is not relevant to the proceeding does not relate to the matters in question. A subpoena can be quashed if it demands the production of documents that the party issuing the subpoena cannot show to be relevant: Ramos v. Ontario (Independent Police Review, Director), 2012 ONSC 7347 (Div. Ct.), at para. 18. This not only underscores the fundamental nature of the relevance requirement but also illustrates that a summons demanding information that the Commission has no basis to believe may be relevant is not authorized by law and would contravene s. 8.
[98] I hearken back to Wilson’ J.s conclusion that what is reasonable “depends upon consideration of what is sought, from whom, for what purpose, by whom, and in what circumstances”: McKinlay Transport Ltd., at p. 646. I cannot conceive that it would be reasonable for the Commission to demand an overbroad array of documents to enable it to conduct a fishing expedition of the entire business in a speculative search for documents where there is no reasoned basis for believing that they may be relevant to the inquiry that is being undertaken.
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(3) Was the discretion to issue the Summons exercised reasonably?
[114] Binance argues that Doré governs since the investigator’s statutory discretion to issue the Summons implicated its s. 8 Charter rights. It submits that pursuant to Doré the investigator was therefore required to consider proportionality and to balance the relevant Charter values before issuing the Summons. It argues that since the Commission failed to show that the investigator undertook to complete the required balancing of Binance’s privacy interests as against the Commission’s investigatory objectives the issuance of the Summons must be found to be unreasonable. The Commission argues, to the contrary, that Doré does not apply because Binance has not established that the seizure required by the Summons constituted an unreasonable seizure, and even it if did, the decision to issue the Summons was proportionate.
[115] I agree with the Commission that the Doré test does not apply in the first place, but not for the reasons given by the Commission. The Commission misconceives the Doré test. Doré does not require a finding that a Charter right is infringed before it applies. As Côté J. explained in Commission scolaire francophone des Territoires du Nord-Ouest v. Northwest Territories (Education, Culture and Employment), 2023 SCC 31, 487 D.L.R. (4th) 631, at para. 65, “it has consistently been held that the Doré framework applies not only where an administrative decision directly infringes Charter rights but also in cases where it simply engages a value underlying one or more Charter rights, without limiting these rights” (emphasis in original). Since Binance had a reasonable expectation of privacy, the issuance of the Summons to seize those documents clearly implicated Binance’s Charter rights.
[116] I nonetheless agree with the Commission’s bottom line argument that the Doré test does not apply. In my view, the issues before us are not governed by the Doré test but by the legal standards established under s. 8 of the Charter, which provide a dedicated methodology for assessing the constitutional validity of searches and seizures. This s. 8 jurisprudence already balances competing interests and addresses the proportionality issue through its assessment of the intensity of the reasonable expectation of privacy and its relevance inquiry. I do not understand Doré to have overtaken this body of law by substituting a looser deferential examination of the proportionality of the balance that has been achieved between the Charter implications of the discretionary decision to exercise the power of search and seizure and the competing administrative interests. In my view, any state agent who authorizes or exercises a search or seizure is bound to comply correctly with the requirements of s. 8 of the Charter, even when exercising a statutory discretion. It would not be fitting to hold that even though the s. 8 requirements have not been met, it was reasonable for the party authorizing the seizure to strike the balance they did. The Doré standards add nothing to the instant case and can only confuse the law if applied in this context.
[117] My views in this regard are assisted by the majority decision in York Region. This case involved the judicial review of a grievance arbitration decision that raised s. 8 issues. The majority did not resort to the Doré test in reviewing that decision. It applied a correctness standard based on the requirements of s. 8 of the Charter. Since the arbitrator erred in law in concluding that Charter rights did not apply to a search of a teacher’s computer conducted by a public-school principal, and the decision of a school superintendent to seize a document, the decision was set aside.
[118] I would therefore dismiss this ground of appeal. . Furtado v. Underwriter
In Furtado v. Underwriter (Ont CA, 2024) the Ontario Court of Appeal dismisses an insurer's appeal, here "denying him coverage, or relief from forfeiture under his Directors and Officers insurance policy".
Here the court illustrates a December 2019 change in securities investigation law [Securities Act, s.16(1)], and related OSC procedures in this case:[3] Mr. Furtado appeals from a decision of the application judge, denying him coverage, or relief from forfeiture under his Directors and Officers insurance policy (the “Policy”). The policy period was from October 6, 2018, to October 25, 2019.
[4] In March 2019, during the term of the Policy, the Ontario Securities Commission (“OSC”) made an inquiry regarding certain of the business activities of Go-To Developments Holdings Inc. (“Go-To”) and sought production of information and documents.
[5] In May 2019, Mr. Furtado was summonsed to an examination at the OSC offices and told to produce documents pursuant to s. 11 of the Securities Act, R.S.O. 1990, c. S. 5 (the “Act”). In the May 2019 letter, he was told that s. 16(1) of the Act prohibited him from disclosing the nature or content of the order to anyone except his counsel.
[6] The Policy provided that Mr. Furtado was not required to notify the insurer of an investigation while he was legally prevented from doing so (the “Suspension Clause”). As such, Mr. Furtado did not advise the Insurer of the OSC investigation at that time.
[7] The law changed in December 2019[1] to permit him to advise the Insurer of the investigation, but again, he did not advise of the investigation at that time.
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II. The OSC Investigation
[23] On March 29, 2019, Mr. Furtado received an inquiry from the OSC about certain of Go-To’s business activities. In May 2019, he was summonsed to an examination at the OSC’s offices and told to produce documents pursuant to s. 11 of the Act, as the OSC had opened an investigation. The parties agree that this was a circumstance that might reasonably be expected by Mr. Furtado to give rise to a claim.
[24] The May 2019 correspondence also brought to Mr. Furtado’s counsel’s attention s. 16(1) of the Act, which prohibited a person subject to an order under s.11 from disclosing the nature or content of the order to anyone except his or her counsel, except in accordance with s. 17, which is discussed below.
[25] On the advice of counsel not to disclose the summons to any third party, Mr. Furtado did not disclose the summons to the Insurer.
III. Changes to the Act to Enable Notification to the Insurer
[26] On December 10, 2019, s. 16(1.1) of the Act was enacted to permit disclosure to insurance companies and insurance brokers if advance notice of the intended disclosure was given to the OSC along with prescribed information regarding the insurer/broker and a written acknowledgment was obtained from the insurer/broker that it was advised that it was bound by the Act’s confidentiality requirements.
[27] The full text of ss. 16(1) and (1.1) reads as follows:Non-disclosure
16 (1) Except in accordance with subsection (1.1) or section 17, no person or company shall disclose at any time,
(a) the nature or content of an order under section 11 or 12; or
(b) the name of any person examined or sought to be examined under section 13, any testimony given under section 13, any information obtained under section 13, the nature or content of any questions asked under section 13, the nature or content of any demands for the production of any document or other thing under section 13, or the fact that any document or other thing was produced under section 13.
Exceptions
(1.1) A disclosure by a person or company is permitted if,
(a) the disclosure is to the person’s or company’s counsel; or
(b) the disclosure is to the person’s or company’s insurer or insurance broker, and the person or company, or his, her or its counsel,
(i) gives written notice of the intended disclosure to a person appointed by the order under section 11 at least 10 days before the date of the intended disclosure,
(ii) includes in that written notice the name and head office address of the insurer or insurance broker and the name of the individual acting on behalf of the insurer or insurance broker to whom the disclosure is intended to be made, as applicable, and
(iii) on making the disclosure, advises the insurer or insurance broker that the insurer or insurance broker is bound by the confidentiality requirements in subsection (2) and obtains a written acknowledgement from the insurer or insurance broker of this advice. [Emphasis added.] [28] Section 17 of the Act, which was in force when the investigation started in 2019, provides a mechanism that allowed a person to seek an order from the Capital Markets Tribunal authorizing the disclosure to any person or company of, among other things, the nature or content of an order under ss. 11 or 12.
IV. Notice of the Change in Legislation Enabling Disclosure to the Insurer
[29] On December 16, 2020, a summons was delivered to Mr. Furtado, care of counsel, which cited s. 16(1.1) without explanation. Three more summonses were delivered on February 16, March 31, and June 7, 2021, all of which, as stated by the application judge, “on their face, drew [Mr. Furtado’s] attention to the change in legislation” including his ability to disclose the investigation to the Insurer. These three summonses stated that: “We wish to bring to your attention subsections 16(1) and 16(1.1) of the Act.” They further stated that “[t]he person or company identified in subsection 16(1) of the Act may disclose the information associated with this matter to the [person’s] legal counsel, insurer or insurance broker, as applicable, and only in accordance with subsection 16(1.1) of the Act.”
V. Proceedings Commenced Against Mr. Furtado
[30] On December 6, 2021, the OSC froze all funds in Mr. Furtado’s primary investment account, and commenced a receivership application against Go-To, Mr. Furtado, and other affiliated Go-To entities, claiming they had breached the Act (the “Receivership Proceeding”). The receivership application was granted.
[31] On March 30, 2022, the OSC commenced an enforcement proceeding against Mr. Furtado and various Go-To entities for alleged breaches of securities laws (the “Enforcement Proceeding”).
[32] The parties agree that the Receivership Proceeding and the Enforcement Proceeding were “Claims” within the meaning of the Policy.
VI. Timing of Notification to the Insurer
[33] On January 5, 2022, Go-To’s insurance broker emailed Go-To’s head of accounting and operations about the proceedings. Go-To’s counsel began the process under s. 16(1.1) of the Act by which a person subject to a s. 11 order can notify their insurer. Steps were completed in February 2022 by which time the Insurer’s agent was notified of a claim. On or around March 31, 2022, counsel reported the Enforcement Proceeding.
[34] On September 22, 2022, the Insurer denied coverage. The Insurer summarized its position as follows:Underwriters acknowledge that [Go-To Development Holdings Inc. (“GTDH”)] and Go-To Spadina Adelaide Square Inc. (“GT Adelaide Inc.”) are “Insured Entities”, and that Mr. Furtado is an “Insured Individual” with respect to his conduct as a director or officer of those entities. However, Furtado Holdings Inc. (“FHI”) and Go-To Spadina Adelaide Square LLP (“GT Adelaide LP”) are not “Insured Entities”, and Mr. Furtado is not an “Insured Individual” with respect to his conduct as a director or officer of those entities.
The requests and Summonses issued by the Ontario Securities Commission between March 2019 and June 2021 do not constitute “Claims” under the Policies because they do not allege and are not related to any alleged “Wrongful Act”.
The OSC’s application to appoint a receiver-manager over various Insureds in December 2021 constitutes a “Claim”, as does the OSC’s issuance in March 2022 of a Statement of Allegations. However, neither of those “Claims” were first made during any of the Policies’ periods, and are thus not covered under the Policies.
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Finally, if any of the OSC’s actions were held to constitute a “Claim”, it is Underwriters’ position that the Insureds failed to satisfy a condition to Underwriters’ liability, i.e., to notify Underwriters as soon as practicable about such “Claims”. Accordingly, no such “Claims” would be covered under the Policies. [Emphasis in original.] [35] Mr. Furtado commenced an application in the Superior Court seeking relief from forfeiture with respect to his “imperfect compliance” with the Policy, and indemnification for his defence costs and loss in connection with the Enforcement Proceedings and the Receivership Proceedings.
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