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Securities - Securities Act - Prospectus. 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 generally considers the securities 'prospectus', here while assessing the "discloses a cause of action" element in a class action certification appeal:[34] The appellants acknowledge that no prospectus was filed or delivered to the Class members who purchased Cryptocurrency Derivatives on the Binance website. The appellants nevertheless maintain that it is “plain and obvious” that the Class members are not entitled to a remedy pursuant to s. 133 of the OSA, since such a remedy is only available in cases where a prospectus has been filed but not delivered to a purchaser. In other words, if a dealer sells a security by way of a distribution to a purchaser without filing a prospectus at all, although they have violated the requirement in s. 53(1) to file a prospectus, they have not run afoul of the obligation in s. 71(1) to deliver a prospectus, which only applies in cases where a prospectus has been filed. The further consequence is that the purchaser has no remedy in respect of such a transaction under s. 133(1) of the OSA, since such remedy is dependent upon a breach of s. 71(1).
[35] The appellants advance this argument based on the wording of s. 71(1), specifically the reference to the requirement to deliver “the latest prospectus and any amendment to the prospectus filed” (emphasis added). The appellants argue that the use of the word “filed” means that the filing of a prospectus is a necessary precondition for an offence under s. 71(1). Absent a filed prospectus, s. 71(1) (and by extension, s. 133(1)) has no relevance or application.
[36] This interpretation might appear at first blush to be counterintuitive, given the fact that the prospectus requirements in the OSA have been repeatedly described as a “cornerstone of Ontario’s securities regulatory regime”, that are “fundamental to protecting the investing public”: Polo Digital Assets, at para. 84; Mek Global, at para. 83. However, the appellants point out that that this understanding of the limited scope of ss. 71(1) and 133 is supported by Jones v. F. H. Deacon Hodgson Inc. (1986), 1986 CanLII 2559 (ON SC), 56 O.R. (2d) 540 (H.C.).
[37] In Jones, a plaintiff had purchased shares from an investment dealer who failed to file a prospectus as required by s. 52(1) (now s. 53(1)) of the OSA. Four years later, the purchaser brought an action for a declaration that the sale of shares was void and an order for return of the purchase price. The defendant moved to dismiss the action on the basis that the OSA contained a three-year limitation period for remedies created by Part XXII, including the remedies under s. 130 (now s. 133), and the action was therefore statute barred.
[38] The court in Jones found that, given the reference in s. 70(1) (now s. 71(1)) to “the latest prospectus and any amendment to the prospectus filed”, that provision only applied in cases where a prospectus had been filed with the OSC. Because the seller in Jones had not filed a prospectus, the purchaser had no right to a remedy under s. 130: at pp. 548-9. At the same time, Jones went on to find that the purchaser had a remedy at common law arising from the failure to file a prospectus contrary to s. 52(1), since the requirement to file a prospectus was “fundamental to the protection of the investing public”: at p. 546. In such a case, the contract for the sale of the security would be void at common law due to illegality. Moreover, this common law right was not subject to the three-limitation period for breach of s. 130, with the result that the defendant’s motion to dismiss the action as statute barred was denied.
[39] The appellants submit that the motion judge’s failure to consider Jones, which they describe as a binding decision of a court of coordinate jurisdiction that has never been overruled, constituted a reversible error of law.
[40] I accept that in light of the use of the word “filed” in s. 71 of the OSA, as well as the holding in Jones, the respondents’ claim for a remedy under s. 133 may well prove unsuccessful at trial. But the issue on a certification motion is not whether the claim will ultimately succeed but, rather, whether it is “certain to fail”. Jones is not binding on this court, and there are certainly good reasons to doubt the correctness of its determination that a remedy is not available under s. 133 if no prospectus was filed.
[41] It is well established that the words of a statute are to be read “in their entire context and in their grammatical and ordinary sense, harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament”: Rizzo & Rizzo Shoes Ltd. (Re), 1998 CanLII 837 (SCC), [1998] 1 S.C.R. 27, at para. 21, citing Elmer A. Driedger, Construction of Statutes, 2nd ed. (Toronto: Butterworths, 1983), at p. 87. The goal of the interpretive exercise “is to find harmony between the words of the statute and the intended object”: R. v. Breault, 2023 SCC 9, 481 D.L.R. (4th) 195, at para. 26, quoting MediaQMI inc. v. Kamel, 2021 SCC 23, [2021] 1 S.C.R. 899, at para. 39. It follows that the interpretation of s. 71(1) of the OSA, and particularly the use of the word “filed”, must be interpreted in a manner consistent with the purpose of the statutory scheme as a whole.
[42] The OSA has been described as remedial legislation that is to be given a broad interpretation: Kerr v. Danier Leather Inc., 2007 SCC 44, [2007] 2 S.C.R. 331, at para. 32. Its stated purposes include “protection to investors from unfair, improper or fraudulent practices”, and the primary means for achieving this purpose include “requirements for timely, accurate and efficient disclosure of information”: OSA, s. 1.1(a) and 2.1(2)(i). The OSA “supplants the “buyer beware” mindset of the common law with compelled disclosure of relevant information”: Danier Leather, at para. 32.
[43] It is precisely for this reason that the OSA’s prospectus requirements have been repeatedly described as fundamental to achieving the objects of the statute. Indeed, Jones [SS: Jones v. F. H. Deacon Hodgson Inc. (1986), 1986 CanLII 2559 (ON SC)] highlighted the importance of the requirement to file a prospectus in protecting the general public “against schemes or campaigns to sell shares or securities of doubtful value to unwary investors”: at p. 546 quoting Re Northwestern Trust Co., 1926 CanLII 57 (SCC), [1926] S.C.R. 412, at pp. 430-1. It was for this reason that Jones found that breach of s. 52(1) resulted in a contract that was void at common law. Jones also found that this common law right could only be abrogated through the use of express statutory language, and that no such express language was included in the OSA.
[44] The interpretation of ss. 71(1) and 133 proposed by the appellants appears inconsistent with this well-established understanding of the OSA’s statutory purposes. Although s. 133 would result in civil liability for failing to deliver a prospectus that had been duly filed, no such liability would attach to the arguably more serious and harmful circumstance where no prospectus has been filed at all. This appears to reward prior non-compliance and may well create an incentive for issuers not to file a prospectus, thereby reducing the disclosure available to investors.
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