Court File and Parties

COURT FILE NO.: CV-22-00683059-00CP DATE: 20240419 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: CHRISTOPHER LOCHAN and JEREMY LEEDER, Plaintiffs – and – BINANCE HOLDINGS LIMITED, BINANCE CANADA CAPITAL MARKETS INC., and BINANCE CANADA HOLDINGS LTD., Defendants

BEFORE: Justice E.M. Morgan

COUNSEL: James Orr, Alexandra Allison, Kyle Taylor, Pujan Modi, and Jonathan Careen, for the Plaintiffs Caitlin Sainsbury, Pierre Gemson, Graham Splawski, and Laura Thistle, for the Defendants

HEARD: March 25, 2024

CERTIFICATION MOTION

[1] In this proposed class action, the Plaintiffs, on behalf of retail purchasers of cryptocurrency derivative products from the Defendants, sue for damages and rescission of their contracts under section 133 of the Ontario Securities Act, RSO 1990, c. S.5 (“OSA”) and at common law. They claim that those sales were illegal and void for failure of the Defendants to register as required under the OSA or to file a prospectus.

[2] The Plaintiffs here seek certification of the action under section 5(1) of the Class Proceedings Act, 1992, SO 1992, c. 6 (“CPA”).

I. Binance’s sale of Crypto Derivatives

[3] The Defendant, Binance Holdings Limited (“Binance”), a Caymen Islands company, describes itself as the world’s largest crypto asset trading platform: Binance Holdings Limited v. Ontario Securities Commission, 2023 ONSC 4541, at para. 4 (Div Ct). From 2019 to 2023, either directly or through its Canadian subsidiaries (the other two Defendants), Binance, together with the other two Defendants, marketed and sold cryptocurrency derivative contracts over its website to Canadian retail investors.

[4] During the relevant time, Binance defined itself in its Terms of Use notice as an “ecosystem comprising Binance websites […], mobile applications, clients, applets and other applications that are developed to offer Binance Services, and includes independently-operated platforms, websites and clients within the ecosystem.” The Terms of Use also defined “Binance Operators” as referring to “all parties that run Binance, including but not limited to legal persons, unincorporated organizations and teams that provide Binance Services and are responsible for such services”. Binance therefore presented itself to purchasers of its products as a combined entity made up of “all parties that run Binance”, including all three Defendants.

[5] To trade in crypto derivative contracts or other Binance products, a customer/investor/website user had to access the Binance Futures portion of the www.binance.com website. The first step was to create a general Binance account which, in turn, required the user to agree to the Terms of Use. The user could then navigate to the Binance Futures interface through a drop-down menu on www.binance.com. The process of this ‘click contract’ was described in an earlier ruling in this action, Lochan v. Binance Holdings Limited, 2023 ONSC 6714, at para. 13 (“Binance Stay Decision”):

Binance’s motion record shows that the company prompted investors to open Binance Futures accounts in ‘under 30 seconds.’ The prompt was the same regardless of whether an investor already had a Binance account or not, and whether an investor was logged in or not. Instructions that appear above the prompt state: ‘If you already have a Binance account, click [Log In], or click [Register] to create an account.’ The investors are said to have thereby agreed to roughly 50 pages of Binance terms…

[6] A purchaser would pay for the cryptocurrency derivatives by loading funds or other assets into a digital wallet on the website. In this way, Binance carried on a retail sale business with respect to three types of cryptocurrency derivatives contracts in Canada: futures contracts, options contracts, and leveraged tokens. Each of these has their own peculiar features, but they are all based on cryptocurrency as the underlying asset. After opening a Binance Futures account, users could purchase any of these derivative contracts by clicking on the type of contract they wished to purchase.

[7] As will be discussed later in these reasons for decision, at no point during that process did users agree to enter a contract with any party other than the Defendants. All contracts in which crypto derivative products were bought and sold via the Binance website are between a customer/user and Binance and the other Defendants who, as indicated above, presented themselves as an integrated entity. As far as one can tell from the documentation of transactions in the record, purchasers bought their crypto derivative products from the Defendants and sellers sold them to the Defendants.

[8] The Capital Markets Tribunal (“CMT”) has characterized the cryptocurrency derivative contracts as “novel and complex products that are inherently risky”, and for which “[t]he emerging nature of the industry and the size of the market add to the risk of this product for retail investors”: Polo Digital Assets, Ltd. (Re), 2022 ONCMT 32, at para. 68. The sale of a cryptocurrency derivative has been held to be sale of an “investment contract” and, therefore, of a security with the meaning of section 1(1) of the OSA: Ibid., at para. 69.

[9] The CMT has also pointed out with respect to crypto derivatives that “[a] person or company must be registered under Ontario securities law to engage in the business of trading in securities unless an exemption applies”: Mek Global Limited (Re), 2022 ONCMT 15, at para. 65. On April 20, 2021, the Ontario Securities Commission (“OSC”) notified Binance that it was contemplating enforcement proceedings in respect of the Defendants “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”: Binance (Div Ct), supra, at para. 6.

[10] After some discussion with OSC staff, Binance announced in June 2021 that its operations would cease in Ontario as of December 31, 2021. As a result of its failure to adhere to this announced cessation of sales, in early 2022 the OSC notified the Defendants of its intention to seek a cease trade order.

[11] Further discussion ensued, resulting in Binance signing an Undertaking and Acknowledgment. In that document, it undertook to the OSC to prevent Ontario users from opening new accounts, identify all existing Ontario accounts, prevent all trading in Ontario accounts, and permanently wind down trading of various crypto derivative products by Ontario investors: Binance (Div Ct), at paras 11-14.

[12] Following the Defendants’ failure to properly comply with the OSC Undertaking, the following sequence of events, as described in another Divisional Court ruling, took place: Binance Holdings Limited v. Ontario Securities Commission, 2023 ONSC 3825:

[15] In March of 2023, Commission staff became aware of a United States’ Commodity Futures Trading Commission (“CFTC”) complaint against Binance in the United States District Court for the Northern District of Illinois.

[17] On May 2, 2023, Binance advised the Alberta Securities Commission that it intended to withdraw from operating in Canada and provided a withdrawal plan and timeline.

[18] On May 10, 2023 the Commission issued an Investigation Order pursuant to s. 11 of the Act. The investigation order states that Binance may have taken steps to circumvent Ontario securities law and the compliance controls both prior to ad after he date of the Undertaking. The Investigation Order also states that Binance and parties related to it may have engaged I conduct contrary to Ontario securities law including:

i. Engaging in the business of trading in securities without registration or an applicable exemption from the registration requirement, contrary to s. 25(1) of the Act;

ii. Distribution of securities without complying with the prospectus requirements and without an applicable exemption from the prospectus requirements, contrary to s. 53(1) of the Act;

iii. Making misleading statements in materials, evidence or information submitted to the Commission and/or any person acting under the authority of the Commission, contrary to s. 122(1)(a) of the Act; and

iv. Taking steps to circumvent Ontario securities law and relevant compliance controls in relation to the operation of the Binance Trading Platform in Ontario, including in relation to the Undertaking, contrary to the public interest.

[19] Pursuant to that Order, the Commission served a summons on Binance on May 11, 2023, seeking communications in its possession or control regarding Ontario, or Canada generally, among its directors, officers, employees, agents, consultants and contractors and related entities, including its Canadian affiliate.

[20] On May 12, 2023, Binance publicly announced that it would withdraw from operating in Canada and asked users to close any open positions by September 30, 2023, as all Canadian users would be placed into liquidation-only mode from October 1, 2023.

[13] Binance has settled its issues with the regulatory authorities in the United States. In doing so, Binance paid over $4 billion in disgorgement and fines and admitted to having acted “in a deliberate and calculated effort to profit from the U.S. market without implementing controls required by U.S. law”: United States v. Binance Holdings Limited (No. 2:23-cr-00178) (US Dist. Ct. Western Dist. of Wash.), Plea Agreement, Statement of Facts, para. 1.

[14] The OSC’s investigation into the Defendants is ongoing.

II. Certification

[15] The multi-step test for certification set out in section 5(1) of the CPA is by now a well-worn path in Canadian litigation. The ensuing analysis will follow that familiar route step by step.

[16] It should be clear by this stage in the development of the legal principles animating section 5(1) that “the outcome of a certification application will not be predictive of the success of the action at the trial of the common issues”: Pro‑Sys Consultants Ltd. v. Microsoft Corporation, 2013 SCC 57, [2013] 3 SCR 477, at para. 105. The reason for this is that “the certification stage focuses on the form of the action”, and not on its substance: Hollick v. Toronto (City), 2001 SCC 68, [2001] 3 SCR 158, at para. 16.

[17] With the exception of the cause of action requirement in section 5(1)(a), which can be determined on the basis of the pleadings alone, there must be “some basis in fact” for each stage of the certification analysis: Pro-Sys, at para. 100. But that standard is “much less stringent” than the ordinary balance of probabilities standard of proof prevailing in civil litigation or the “robust analysis” in which American courts engage at the certification stage: Pro-Sys, at para. 105; Wright v. Horizons ETFS Management (Canada) Inc., 2021 ONSC 3120, at para. 78.

[18] Accordingly, the best description of the evidentiary rule applicable to certification remains that of Justice Perell in Kuiper v. Cook (Canada) Inc., 2018 ONSC 6487, at para. 134, rev’d on other grounds 2020 ONSC 128 (Div Ct): “The some-basis-in-fact standard is low, but it is not subterranean.” It is to be a “meaningful screening device”: Pro-Sys, at para. 103. But the screening is aimed at whether the certification requirements themselves are supportable under the circumstances, and not at resolving conflicting facts and evidence: Ibid., at para. 100.

a) Cause of action – section 5(1)(a)

[19] The requirement under section 5(1)(a) of the CPA that there be a recognizable cause of action is not a difficult one for the Plaintiffs to meet. The test is identical to that on a motion to strike – i.e. whether it is “plain and obvious” that the pleadings fail to disclose a reasonable cause of action: Cloud v. Canada (Attorney General) (2004), 73 OR (3d) 401, at para. 41 (CA). As the Court of Appeal has explained it, “the allegations in the statement of claim are taken as being proven, unless they are patently ridiculous or incapable of proof”: McCreight v. Canada (Attorney General) (2013), 2013 ONCA 483, 116 OR (3d) 429, at para. 29.

[20] Accordingly, no evidence may be considered for this head of the certification test. The bar that the Plaintiffs must meet is therefore particularly low; a claim will fail this test “only in the clearest cases”: Temilini v. Ontario Provincial Police (Commissioner) (1990), 73 OR (2d) 664, at para. 13 (CA).

[21] As outlined above, cryptocurrency derivatives contracts have previously been held to be a “security” and “investment contracts” under the OSA. The Plaintiffs’ Amended Statement of Claim alleges that purchase and sale of the Defendants’ products contain all of the elements of an “investment contract”. Investors purchasing on the Binance website must deposit funds into their Binance accounts. They do so for the purpose of purchasing crypto derivatives contracts from the Defendants (or any one of them). Under the terms of their contract with the Defendants, the investors are able to speculate on cryptocurrency price movements with up to 125x leverage.

[22] Likewise, the marketing and sale of these contracts by a cryptocurrency exchange has previously been held to be a “distribution” under the OSA: Polo Digital Assets, supra, at para. 85. The Amended Statement of Claim further alleges that the purchase of cryptocurrency derivatives contracts from the Defendants is “a trade in a security that constitutes a distribution.” This allegation tracks the definition of a “trade” in section 1(1)(b.1) of the OSA as “entering into a derivative or making a material amendment to, terminating, assigning, selling or otherwise acquiring or disposing of a derivative,” or “(e) any act, advertisement, solicitation, conduct or negotiation” in furtherance of those steps.

[23] A securities “dealer” is defined in section 1(1.2) of the OSA as including any person or company that trades in securities in the capacity of principal or agent. Section 71(1) of the OSA requires any “dealer or agent” who receives an order or subscription for a security offered in a distribution to deliver a prospectus to the purchaser. The Amended Statement of Claim states that the Defendants sold cryptocurrency derivatives contracts to the Plaintiff and other putative class members as principal, on its own account. It goes on to allege that since the sale of these contracts amounted to a distribution of a security and Binance, or all of the Defendants, were acting in the capacity of principal, the Defendants or Binance were required to file and deliver a prospectus but failed to do so.

[24] The Amended Statement of Claim asserts that each of the Defendants is directly liable for the illegal sale of cryptocurrency derivatives contracts to Canadian investors, contrary to the applicable securities laws referenced above. It alternatively pleads that Binance directed its Canadian subsidiaries – i.e. the other two Defendants – to illegally sell securities to investors in Canada. It further alleges that Binance dominated and controlled the other two Defendants and used them as a shield for this illegal conduct.

[25] The Plaintiffs plead that breach of sections 53(1) and 71(1) of the OSA (and equivalent provisions in other Canadian securities laws) renders the transactions in cryptocurrency derivatives contracts void and unenforceable. Pursuant to section 133 of the OSA (and its equivalent across Canada), as well as at common law, they are entitled to a remedy: Meyers v. Freeholders Oil Co., [1960] SCR 761, at 775.

[26] If I take the pleaded facts to be true, as I must, it is not plain and obvious that the Amended Statement of Claim discloses no recognizable cause of action. Indeed, the causes of action are squarely within the statutory terms, and there is at least some basis in fact in the record to substantiate them.

[27] Before leaving section 5(1)(a) of the CPA, I will observe that the Defendants’ position, as set out in their factum, is that, “neither the statutory nor the common law rescission claims satisfy the requirement in s. 5(1)(a) that the claims disclose a reasonable cause of action…” It is, however, trite law that “[r]escission is an equitable remedy” relating to a breach or undermining of contract rights, much like specific performance or rectification or restitution: Kupchak v. Dayson Holdings Ltd. (1965), 53 WWR 65, at 68 (BCCA).

[28] In discussing remedial tools, the Supreme Court of Canada has indicated that “[r]escission and rectification are two different remedies with different objectives.” They arise in different circumstances and provide relief for different types of breaches: Canada (Attorney General) v. Collins Family Trust, 2022 SCC 26, at para. 41. But neither one is a cause of action. They are remedies that can be considered only after a cause of action has been established.

[29] The Defendants themselves make the point, citing Canada Life Insurance Company of Canada v. Canada (Attorney General) (2018), 2018 ONCA 562, 141 OR (3d) 321, at para. 90 (CA), that “rescission is an ‘all or nothing’ remedy.” They go on to argue that “[r]escinding a contract necessarily implicates the rights of all parties to that contract, which in this case would necessarily implicate the rights of multiple Binance users, including class members and non-Canadian Binance users.” Whether that is an impediment to certifying one or more of the proposed common issues will be discussed under the common issues heading later in these reasons.

[30] What is certain is that the mechanics of the remedy and whether it can be implemented on a class-wide basis is not a section 5(1)(a) issue. With respect, it makes no legal sense to assert, as the Defendants do, that the “rescission claims” do not satisfy the requirement that the claims disclose a reasonable cause of action. One brings a “rescission claim” only in the sense that one might bring a “damages claim” – i.e. as a vernacular shorthand reference to the ultimate remedy sought in the claim. As a legal matter, however, neither damages nor rescission is the cause of action, and an analysis of those remedies does not belong in section 5(1)(a).

[31] The requirement under section 5(1)(a) of the CPA that the claim disclose a reasonable cause of action is therefore satisfied.

b) Identifiable class – section 5(1)(b)

[32] The class definition proposed by the Plaintiffs is:

All persons or entities in Canada who, from September 13, 2019 to the date of certification of this action as a class proceeding (the “Class Period”), purchased cryptocurrency derivative contracts from Binance. Excluded from the class are the Defendants and their parent companies, subsidiaries, and affiliates.

[33] The proposed definition is straightforward and objective. It does not rely on the outcome of the litigation in defining the class: Western Canadian Shopping Centres Inc. v. Dutton, 2001 SCC 46, at para. 38. The definition is limited to Canadian jurisdictions, and is easily circumscribed by reference to Binance’s website purchasers. It is neither overly broad, nor does it define the class narrowly such that it arbitrarily excludes persons with similar claims: Hollick v. Toronto (City), 2001 SCC 68, [2001] 3 SCR 158, at para. 19. The dates which define the class period span the time in which the financial products in question could have been bought or held by Canadian purchasers.

[34] Generally speaking, “the Plaintiffs are entitled to some leeway in defining the Class Period, at least for the purposes of certification. If at a common issues trial they are unable to establish that the common issues extend to the front or back edges of the Class Period, it can be narrowed by the common issues trial judge”: David v Loblaw, 2021 ONSC 7331 at para. 62. Plaintiffs’ counsel correctly points out that this stage of the action is pre-discovery; if, at a later stage, evidence points to a narrowing of the class period as defined above, it can be amended at that point.

c) Common issues – section 5(1)(c)

[35] The Plaintiffs seek to certify eight common issues. Four of those pertain to liability for the causes of action pleaded, while the other four pertain to remedies sought by the Plaintiffs. The Plaintiffs are of the view that all of these questions are “necessary to the resolution of each class member’s claim”: Western Canadian Shopping Centres Inc. v. Dutton, 2001 SCC 46, [2001] 2 SCR 534, at para. 39.

[36] The proposed common issues are:

1. Did the Defendants, or any of them, breach section 71(1) of the Ontario Securities Act and/or equivalent provisions in other Canadian securities laws?
2. Are the Defendants, or any of them, liable to the Class members, pursuant to section 133 of the Ontario Securities Act and/or equivalent provisions in other Canadian securities laws?
3. Did the Defendants, or any of them, breach section 53(1) of the Ontario Securities Act and/or equivalent provisions in other Canadian securities laws?
4. Are the Defendants, or any of them, liable to the Class members, pursuant to the common law?
5. If the Class members are entitled to rescission or damages against the Defendants, or any of them, then in what amount?
6. Can the Court assess damages in the aggregate, in whole or in part, for the Class members, and if so, then in what amount?
7. Are the Defendants, or any of them, liable to pay interest pursuant to the Courts of Justice Act?
8. Are the Defendants, or any of them, liable to pay costs pursuant to the Courts of Justice Act?

[37] As indicated, the Plaintiffs must establish that there is some basis in fact for each of the proposed common issues. That said, it is to be kept in mind that “[t]he ‘some basis in fact’ standard does not require that the court resolve conflicting facts and evidence at the certification stage. Rather, it reflects the fact that at the certification stage ‘the court is ill-equipped to resolve conflicts in the evidence or to engage in the finely calibrated assessments of evidentiary weight’ [citations omitted]: Pro-Sys Consultants Ltd. v. Microsoft Corporation, 2013 SCC 57, [2013] 3 SCR 477, at para. 102.

[38] There must, therefore, be some evidence to indicate that the common issues are not bereft of factual support. On the other hand, “the Canadian approach at the certification stage does not allow for an extensive assessment of the complexities and challenges that a plaintiff may face in establishing its case at trial”: Ibid., at para. 105.

[39] Turning first to the four proposed common issues centred around liability, there is little doubt that they are common to the class. Determining whether the Defendants breached section 71(1) or section 53(1) of the OSA, or whether they are liable to the class for damages under section 133 of the OSA or at common law, need only be done once on behalf of the entire class. These questions do not require any individual inquiry, and pursuing them on a common basis will avoid duplication in a multiplicity of proceedings: Dutton, at para. 39.

[40] Furthermore, the record is replete with evidence that the Defendants, or any of them, sold cryptocurrency derivatives contracts to Canadians over its website staring in 2019. In fact, Binance concedes that it served Canadian users of its website until its withdrawal from Canada in September 2023. There is also considerable evidence, including decisions of the CMT, that these contracts are “securities” that were sold or marketed by Binance. As indicated, Binance promoted these products to purchasers as an opportunity for profit. Purchasers signed contracts with the Defendants and paid for the derivative products by loading assets into Binance’s digital wallets.

[41] Moreover, Divisional Court has found that Binance never filed a prospectus with respect to any of these securities offerings in Ontario: Binance (Div Ct), supra, at para. 6. There is nothing in the record to suggest that the same is not true in any other Canadian jurisdiction. Binance has already been found by Ontario courts to have operated the Binance website platform and to have made it available to Canadian users: Ibid., at para. 4.

[42] Evidence adduced during cross-examination of the Defendants’ deponent establishes that the other two Defendants were specifically incorporated to serve Canadian residents in trading in crypto derivatives. As indicated above, the Defendants are described by Binance as constituting one, unified “ecosystem” for the sale of these products.

[43] The Plaintiffs have met the evidentiary burden on them of establishing some basis in fact that the issues raised in the four liability questions are common across the class: Fehr v. Sun Life Assurance Company of Canada, 2018 ONCA 718, at paras. 86-87. They have likewise met the evidentiary burden of showing that there is some basis in fact for posing the liability questions in the first place. I have little hesitation in concluding that the first four of the proposed common issues questions, “viewing [them] in the context of the entire claim,…will significantly advance the action”: Cloud v. Canada (Attorney General) (2004), 73 OR (3d) 401, at para. 76 (CA).

[44] The second group of proposed common issues relate to the remedies claimed on behalf of the plaintiffs and the class. In accordance with the Amended Statement of Claim, these include recission and damages, aggregate damages, interest, and costs. Plaintiffs’ counsel submit that, as with the liability questions, the resolution of the remedy questions does not turn on an individualized analysis for each class member. It is their view that these questions meet the commonality requirement and, like the first four questions, also fit the bill for certification.

[45] Most of the argument at the hearing of this motion was devoted to the Defendants’ response to the first part of the fifth proposed common issue – i.e. whether the class members are entitled to rescission. As discussed above with respect to section 5(1)(a), it is the Defendants’ view that rescission is mechanically impossible under the circumstances of the crypto derivative contracts in issue. They submit, therefore, that question 5 is not a valid common issue, and that, since rescission is the primary remedy sought by the Plaintiffs, liability questions 2 and 4 are likewise not certifiable.

[46] Citing Urban Mechanical Contracting Ltd. v. Zurich, 2022 ONCA 589, at para 35, Defendants’ counsel submit in their factum that rescission requires placing the parties to a contract in the position they were in prior to contracting. They go on to argue that since cryptocurrency derivative trading takes place on the Binance website between buyers and sellers other than Binance itself, such a remedy is impossible. They state, therefore, that, “Where restitutio in integrum is impossible as between the parties because a third party has acquired the rights or property in issue, the court must generally refuse rescission, though the court retains discretion to effect a remedy as between the parties.”

[47] This argument appears aimed at the wrong target. The question posed in the first four proposed common issues is not whether the Plaintiffs and class members deserve restitution; rather, the question is whether this question can be answered in common among the class members. At this juncture, it would be premature to opine on whether the Plaintiffs’ desired remedy of restitution will be awarded to them; but it is clear from the record that the answer for any one of the class members will be the same as the answer for all.

[48] The objection raised by the Defendants – i.e. that a third party will have acquired the rights to the crypto derivative contracts in issue thereby making rescission, or resitutio in integrum, impossible – is for the common issues court to decide. For preset purposes, it is apparent that the question should go to a common issues trial and not be prematurely eliminated at this stage.

[49] To be clear, the Defendants state that Binance is a trading platform but not a party to the trades. It is their position that the Defendants sign a contract with each user of its platform so that it can collect its trading fees, but that it has no substantive interest in the trades themselves (unless it happens by chance to be trading on its own account).

[50] The Defendants go on to argue in their factum that rescission will impact on the counterparty to each and every trade, and that “[e]ffecting rescission would…require the party that profited from the transaction to return its profits to the party that suffered a loss in the transaction.” For this reason, they contend that the remedy is not only mechanically unworkable, but that it has a built-in conflict of interest between class members. In the Defendants’ portrayal of the transactions, each class member, in seeking rescission, is making a claim against either another Canadian class member or a Binance user outside of Canada.

[51] In making this point, Defendants’ counsel construct an interesting theory. As far as I can tell, however, there is one weakness to the theory – there is no evidence in the record to support it. One would think that if it is the Defendants’ view that Binance website users contract with each other and that Binance is only a medium for these contracts, then they could produce at least one such contract. But the only contracts found in the record are between class members and Binance itself.

[52] There is no documentation of the notion put forward by the Defendants that class members have actually been buying and selling crypto derivative contracts, or any other Binance products, from and to each other. In light of this record, Plaintiffs’ counsel submit that the Defendants’ insistence that there is a counterparty other than Binance to any purchase or sale on the Binance platform is a fiction.

[53] Rather than provide documentary evidence of class member-to-class member contracts, the Defendants have produced the expert opinion of Professor Seoyoung Kim of Santa Clara University to support their theory. Professor Kim has excellent credentials and I recognize her expertise in financial markets and innovative financial instruments. Her opinion filed by Defendants’ counsel focuses on describing the operation of crypto derivatives, the feasibility of aggregate damages, and, importantly for present purposes, the economic effect of rescission of crypto derivatives contracts.

[54] Professor Kim’s opinion is informative as far as it goes. But there is one crucial aspect of it that undermines its usefulness in characterizing the contracts in issue. Under the heading “Background and Assignment”, she states:

6. In furtherance of forming my opinions, I have been asked by Counsel to assume the following: a. From a legal perspective, both parties that enter into a future or an option are deemed to be ‘purchasers’ of that derivatives contract, that an assignee of an interest in a futures or options contract is deemed to be the ‘purchaser’ of that interest, and that a leveraged token holder is deemed to have ‘purchased’ that token. b. Recission implies the complete unwinding of a transaction, such that each of the parties return to each other what they received pursuant to the contract and put each other back in the position they were in prior to the transaction.

[55] In other words, Defendants’ expert was asked to assume precisely the point that Defendants’ counsel then invoke her evidence to support. Once assuming the contractual relationships in issue, Professor Kim then goes on in to discuss the difficulties that would be encountered in unwinding transactions that are assumed or deemed to have taken an undocumented user-to-user shape.

[56] In the Defendants’ view, this “deeming” of member-to-member contracts is, in turn, based on the factual background related in the affidavit evidence of Binance’s Core Operations Manager, Chiew Ching Lu. In her affidavit, Ms. Lu describes the Binance website and how users access it. She describes and illustrates through exhibits the Binance account opening instructions, various iterations of the Binance Terms of Use, and various iterations of the Binance Futures Services Agreement. In addition to this package of contracts and terms between each user and Binance, she baldly states, without any exhibits or further description of terms, that:

8. Neither Binance Holdings nor any other Binance entity is a counterparty to contracts traded on Binance Futures. Users of Binance Futures enter into these agreements with each other by placing trades on the platform.

[57] In cross-examination, however, Ms. Lu conceded that Binance users do not, in fact, contract directly with each other. The relationship between Binance users and Binance is more like that of a customer to a store, with no contractual relationship between the retail buyer and the store’s supplier. Although in the largest sense the products trade hands, the legal relationships and actual dealings are between the users/investors and Binance alone.

Q 243: Users don’t deal directly with each other, right? It’s not like Facebook market place where the buyers and sellers contract each other directly? A: Yes, they do not know the counterparty of their trades. Q 244: Binance conducts all the transactions? A: Would you mind to clarify when you saying that conduct the transactions? Q 245: Binance moves the funds around to the places that the funds need to be pursuant to the user’s directions? A: Yes. Q 246: And users depend on Binance to honour their requests or their orders? A: Yes.

[58] This description matches that contained in Binance’s documentation. Plaintiffs’ expert, Professor John Griffin of the University of Texas at Austin, explains in report that it is Binance who controls the storage and exchange of investors’ assets, regardless of who is buying and who is selling. As he points out, Binance’s document, “A Quick Guide to Coined Margined Contracts”, expressly advises Binance users that, “buyers and sellers do not exchange the underlying asset directly. Instead, the Futures Exchange delivers all open positions.”

[59] All of this amounts to the fact that there is a basis in fact for common issue 5 with respect to rescission as a potential remedy. Contrarily, there is no factual basis for the Defendants’ position that rescission would mean an unwieldly unwinding of user-to-user contracts and a conflict of interest among class members that makes the question unanswerable on a class wide basis. There is simply nothing reliable in the record that supports the concern about conflict, or that success for one class member might mean failure for another: Vivendi Canada Inc. v. Dell’Aniello, 2014 SCC 1, [2014] 1 SCR 3, at paras. 43-47.

[60] The objection raised by the Defendants to this important common issue is based on a theory about evidence that may or may not surface at a later stage – that remains to be seen at discoveries or at the common issues trial – but that is not contained in the record on this motion. I will reiterate that the proposed common issue does not ask whether class members are entitled to rescission; the actual availability or propriety of the remedy may well be up for debate since remedies for breach of statute are by their nature flexible: Wang v Jiang, 2021 BCCA 132, at para 50. But that is a question for the common issues court. For certification, the question is whether the remedial approach – whatever it turns out to be, for any one class member will be the remedial approach for all class members. It suffices that the record supports the conclusion that the class members’ contracts are all the same and that the remedial approach can be answered on that basis.

[61] The Defendants also object to proposed common issue 6 with respect to the feasibility of assessing aggregate damages. In short, they challenge the Plaintiffs’ expert methodology for aggregate damages by asserting that it cannot account for any gains made by class members on their crypto derivative investments.

[62] The Defendants submit that not every financial product purchased on the Binance website lost money, and argue that the gains must be accounted for as well as any losses incurred by class members. They go on to indicate that this will raise particular difficulties where the counterparty that they say exists for any given transaction is outside of Canada and thus its gains or losses will not be part of the class.

[63] While it is logical to factor into any damages calculation the gains as well as the losses incurred by Binance investors, I do not understand why the same methodology that accounts for losses cannot account for gains. Binance has acknowledged that it maintains detailed account information for all users and transactions, and that this would allow aggregate losses to be calculated for all Canadian users. Just as the data stored by Binance will contain unprofitable trades, it will also contain profitable ones.

[64] In fact, Exhibit I of Professor Kim’s report is Binance’s running list of every buy and sell in which the Plaintiff, Christopher Lohan, an active trader, engaged. This list contains transactions in which Mr. Lohan lost money and those in which he made money. It is, as explained above, the Plaintiffs’ view that all of these transactions were directly between Mr. Lohan and Binance, and the gains and losses are readily calculable with this data in hand.

[65] Furthermore, Professor Griffin observes that even if the Defendants are correct, and some of the counterparties to these transactions are global parties outside of Canada, whether or not their transaction data can be found is irrelevant. Binance has shown through Mr. Lohan’s data that it can provide data that will make it possible to calculate all gains and losses sustained by Canadian investors on the Binance platform. Whatever happened for investors or Binance users outside of Canada is of no concern in this action where the class is limited to Canadian investors only.

[66] In terms of common issue 7 relating to interest, it stands to reason that if aggregate damages can be calculated on a class basis, then interest on those damages can be as well. Likewise, there should be no difficulty in evaluating costs on a common basis; the very point of class action litigation is that the legal costs are incurred collectively for the class rather than individually for each class member.

d) Preferable procedure

[67] Citing Justice Perell’s reasons for judgment in Banman v. Ontario, 2023 ONSC 6187, at para 321, Defendants’ counsel state in their factum that proceeding as a class action “will not be preferable if, at the end of the day, claimants remain faced with the same economic and practical hurdles that they faced at the outset of the proposed class action”. They then go on to submit: “In this case, individual issues greatly outweigh any commonality that may exist, by virtue of the individual nature of rescission. As described above, each trade by each class member would need to be considered individually, in order to assess the legal rights and circumstances of the counterparties on both sides of every trade.”

[68] Just as the supposed complexities of rescission were described above for Defendants’ counsel, the response to that submission is described above in these reasons. There is no evidence to support the contention that rescission cannot be decided on a common basis. The Defendants have put forward a theory in this regard that does not conform with the facts in the record. Liability and remedy will be proper subjects of consideration in the common issues trial, which is certainly preferable to considering the same transactions with the same Defendants for each class member.

[69] In addition to all of that, it has already been determined that individual arbitration as called for in the Binance contracts is not the appropriate procedure, especially for smaller users of the Binance website: Binance Stay Decision, at paras. 48-52. Moreover, the possibility that class members could bring individual actions does not itself make individual litigation preferable over a class action. If that were the case, a class action would never qualify as the preferable procedure. The very point of a class action is to collectively adjudicate the claims of numerous persons who could conceivably, but likely not practically, sue on an individual basis.

[70] It is noteworthy here that cryptocurrency derivatives traders include a great many retail investors; the OSC has reported that more than half of Canadian crypto asset owners have less than $5,000 in the market: Binance Stay Decision, at para. 15. The Court of Appeal has observed that the preferability analysis is strictly procedural, and that, in light of the principal of access to justice, a large number of small, individual claims is not preferable to a class proceeding: Fischer v. IG Investment Management Ltd. (2012), 2012 ONCA 47, 109 OR (3d) 498, at paras. 79-82 (CA).

e) Representative Plaintiff and litigation plan

[71] The representative plaintiffs have no apparent conflict with any other class members. As Plaintiffs’ counsel put it, they are two of the tens of thousands of Canadian users of the Binance website who invested in cryptocurrency products and who claim that those products were sold by the Defendants illegally.

[72] Both representative Plaintiffs can be expected to fairly and adequately represent the interests of the class. They have produced a litigation plan that sets out a workable method of advancing the proceeding and of notifying the class members when necessary to do so. While the plan may need to be amended at some point down the road, it is well established that litigation must be taken not as a fixed and final product but as a work in progress: Keatley Surveying Ltd. v. Teranet Inc. (2015), 2015 ONCA 248, 125 OR (3d) 447, at para. 75 (CA).

III. Disposition

[73] The action is hereby certified as a class action.

[74] The class is defined as in paragraph 32 above. The common issues are as set out in paragraph 36 above.

[75] The Plaintiffs are appointed as representative Plaintiffs on behalf of the class. Plaintiffs’ counsel shall be class counsel.

[76] The parties may make written submissions on costs. I would ask Plaintiff’s counsel to email my assistant short submissions within two weeks of today. I would ask Defendants’ counsel to email my assistant equally short submissions within two weeks thereafter.

Date: April 19, 2024 Morgan J.