The Ontario Court of Appeal’s recent decision in Lochan v. Binance Holdings Limited [1] provides insight into the approach Ontario courts are taking to securities class actions involving cryptocurrencies. The Court affirmed the certification of a class action for Canadians who purchased cryptocurrency derivative products through a trading platform operated by Binance. There is ongoing regulatory litigation between the Ontario Securities Commission (OSC) and Binance with respect to the matters raised in the class action.
Background
Binance did not register with the OSC to engage in the business of trading in securities, nor did it file or deliver a prospectus to purchasers. The plaintiffs allege that the sale of derivatives through Binance’s platform was a distribution of securities without a prospectus contrary to ss. 53(1) and 71(1) of the Ontario Securities Act [2](the Act). The plaintiffs seek rescission or damages.
As previously reported, Binance moved to stay the class action on the basis that its terms of use required arbitration.[3] Binance’s stay motion and subsequent appeal were denied.[4]
Justice Morgan then certified the class action.[5] He found that it was not plain and obvious that the plaintiffs’ claim failed to disclose a cause of action and that there was “some basis in fact” for the remaining certification criteria.
Court of Appeal’s reasons
The Court of Appeal’s reasons focus mainly on the cause of action criterion, and include the Court of Appeal’s analysis on arguments about the scope of the Act, including:
- Binance argued that there can be no offence under s. 71(1) of the Act (and by extension, no right of action under s. 133(1) of the Act) unless a prospectus was filed but not delivered to a purchaser. Binance based this on the text of s. 71(1): “a dealer … shall … deliver to the purchaser the latest prospectus and any amendment to the prospectus filed”. Because no prospectus was filed, Binance argued, ss. 71(1) and 133(1) are inapplicable.
Justice Monahan, writing for a unanimous Court of Appeal, noted that “in light of the use of the word ‘filed’ in s. 71 … the [plaintiffs’] claim for a remedy under s. 133 may well prove unsuccessful at trial” but concluded that, at this stage, the statutory claim was not “certain to fail” and therefore satisfied the s. 5(1)(a) cause of action criterion. Further, Justice Monahan stated that Binance’s interpretation appeared inconsistent with the statutory purposes of the Act.
- Binance also argued that the definition of “trade” in s. 1 of the Act captures both purchasers and sellers and, as a result, if the plaintiffs’ allegations were correct, the class members themselves would have been illegally trading in securities (i.e., by failing to file a prospectus). Binance argued that this would disentitle the purchasers from any common law cause of action rooted in an alleged violation of the prospectus provisions of the Act.
The Court of Appeal found that it is not plain and obvious that the legislature intended to abrogate the common law right to relief for failing to file a prospectus under s. 53(1) of the Act. Justice Monahan also questioned “how … thousands of unsophisticated investors [would] have undertaken the complex task of preparing a prospectus before selecting and clicking on their preferred Cryptocurrency Derivative on the Binance website?”
Takeaways
As the Court of Appeal clarified throughout, this decision was based on the standards applicable at the certification stage, including the “plain and obvious” standard for the cause of action criterion. However, the Court’s approach may also reflect — at least, in part — the fact that issues remain to be determined in regulatory proceedings, and it suggests an inclination to let claims involving unsettled regulatory issues proceed past the certification stage.
We will continue to monitor and report on this action and other cryptocurrency litigation.
[1] 2025 ONCA 221.
[2] R.S.O. 1990, c. S.5.
[3] 2023 ONSC 6714.
[4] 2024 ONCA 784.
[5] 2024 ONSC 2302.
