CITATION: Binance Holdings Limited v The Ontario Securities Commission, 2023 ONSC 3825
DIVISIONAL COURT FILE NOS.: 343/23 and 347/23
DATE: 20230626
ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT
BETWEEN:
BINANCE HOLDINGS LIMITED
Graeme Hamilton and Brianne Taylor, for the Applicant/Moving Party
Applicant/Moving Party
– and –
Aaron Dantowitz, Katrina Gustafson and Alvin Qian, for the Respondent/Responding Party
THE ONTARIO SECURITIES COMMISSION
Respondent/Responding Party
HEARD at Toronto: June 21, 2023
Leiper, J.
REASONS FOR DECISION
PART 1: INTRODUCTION
[1] The Appellant/Moving Party, Binance Holdings Limited (“Binance”) brought a motion for an order staying an Investigation Order and a Summons issued by the Ontario Securities Commission (the “Commission”), pending a determination of Binance’s appeal from a decision of the Capital Markets Tribunal dated June 7, 2023.
[2] The Capital Markets Tribunal ruled it did not have jurisdiction under the Securities Act, R.S.O. 1990, c. S.5 as amended (the “Act”), to grant the relief that Binance sought before it, that is, to revoke the Investigation Order and quash the Summons. The order has been issued, with the Tribunal’s reasons pending. Binance appealed that decision to the Divisional Court.
[3] Binance also filed an application for judicial review of the underlying decision to issue the Investigation Order and Summons, preserving its rights to challenge those regulatory steps if its appeal on the jurisdictional issue is unsuccessful.
[4] Prior to hearing argument, the parties agreed that as a matter of efficient case management, Binance should proceed directly to judicial review of the Investigation Order and Summons without being required to exhaust all appeal routes on the interim issue of the Tribunal’s jurisdiction. The parties were prepared and ready to argue the issue of a stay in the context of the issues on judicial review.
[5] The court can provide judicial review of the underlying issue of the validity of the Investigation Order and Summons with fewer court attendances and delay. This is in the interests of the parties and that of the public by getting to the heart of the dispute and efficiently using court and staff time.
[6] Section 2(1) of the Judicial Review Procedure Act R.S.O. 1990, c. J.1, provides the court with jurisdiction to grant relief “despite any right of appeal.”
[7] Accordingly, I made several case management orders, based on Binance agreeing to abandon its appeal in Divisional Court File 343/23 with the consent of the Commission. First, Binance is not required to exhaust all appeal remedies it may have under the Act prior to seeking relief via judicial review of the Investigation Order and Summons. Second, the parties are to follow the timetable for the hearing of the judicial review on the merits, which is provided below.
Background to the Application
[8] Binance is a corporation incorporated under the laws of the Cayman Islands. It operates an online crypto asset trading platform and made this platform available in Canada. Information provided by Binance to the Commission suggests that thousands of Ontario investors have traded security tokens and crypto contracts on the platform.
[9] Binance is not registered with the Commission, nor has it sought any exemption from registration. No prospectus has been filed with respect to any of its securities.
[10] In that context in March of 2022, Binance and its Canadian affiliate signed an “Acknowledgement and Undertaking” (the “Acknowledgement”) with the Commission in which it acknowledged making incorrect statements to Ontario investors, the Commission, and the public.
[11] Pursuant to the Acknowledgement, Binance agreed to cease opening new Ontario accounts, cease trading in existing Ontario accounts (with exceptions to protect investors), and wind down its Ontario business in certain products entirely. It also agreed to provide regular reports and retain an independent third party to review its implementation of its commitments, and report on those steps to the Commission.
[12] The Undertaking preserved the Commission’s right to institute enforcement proceedings against Binance for conduct contrary to the Act or the public interest, save and except for proceedings arising out of specifically stipulated “Facts” in the Undertaking, so long as Binance complied with the Undertaking and made no misrepresentations to Commission staff.
[13] The Commission and Binance implemented the third party review via an audit plan that would identify the Ontario accounts which were to be closed. One element of the audit plan required Binance to provide the reviewer with access to its live databases so that the reviewer could validate the lists of Ontario accounts.
[14] On December 12, 2022, Binance provided a draft report from the reviewer which diverged from the agreed-upon audit plan. Binance had not given the reviewer access to the live databases. Counsel for Binance responded to Commission queries that Binance had concerns about “unintentional corruption” and other risks, and that the reviewer had been content to observe Binance facilitate the necessary searches.
[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.
[16] The CFTC complaint, which has not yet been adjudicated, alleges that Binance, its founder and CEO, Changpeng Zhao, and other related parties, took steps to circumvent United States regulatory requirements and relevant compliance controls, including by:
(a) engaging in superficial efforts to limit trading by United States customers while internally recognizing that the compliance program was just “for show”;
(b) being aware of but ignoring United States regulatory requirements;
(c) guiding United States customers to evade the compliance controls through the use of virtual private networks (VPNs) and other creative means;
(d) directing its VIP customers to evade compliance controls, including through submissions of “new” know-your-client (KYC) documents;
(e) knowingly concealing the presence of United States customers in internal documents and data;
(f) relying on “brokers” to introduce customers to the Binance Trading Platform without effective access controls; and
(g) assisting United States-based market participants in evading the compliance controls.
[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 and after the date of the Undertaking. The Investigation Order also states that Binance and parties related to it, may have engaged in 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.
[21] On May 15, 2023, Binance advised the Commission that it would be bringing a motion before the Capital Markets Tribunal seeking an order revoking the Investigation Order and quashing the Summons pursuant to s. 144(1) of the Act.
[22] On Thursday, May 18, 2023, Binance filed an Application with the Tribunal seeking an order revoking the Investigation Order and quashing the Summons pursuant to s. 144(1) of the Act. On June 2, 2023, the Tribunal heard submissions on its jurisdiction to hear Binance’s Application.
[23] The underlying challenge to the Investigation Order and Summons rests on allegations by Binance that 1) the conduct being investigated was settled by the Undertaking, 2) the Investigation Order has no legitimate purpose under s. 11 of the Act, and 3) the Summons was not properly issued, and in any event, it is overbroad and suffers from technical defects which make it unenforceable. Binance also claims that the Summons constitutes an unreasonable search and seizure contrary to s. 8 of the Charter of Rights and Freedoms.
[24] On June 5, 2023, the United States’ Securities and Exchange Commission (“SEC”) filed a complaint against Binance and others, including Zhao, in the United States District Court for the District of Columbia (the “SEC Complaint”).
[25] The SEC Complaint alleges that Binance, Zhao and related parties designed and implemented a multi-step plan to surreptitiously evade United States laws, including by:
(a) creating entities in the United States and falsely claiming that they independently controlled the operation of the binance.us platform while Binance and Zhao continued to be intimately involved in directing the United States business operations and providing and maintaining the crypto asset services of the binance.us platform; and
(b) falsely claiming to the public that the Binance Trading Platform did not serve United States persons, while simultaneously concealing efforts by Binance and Zhao to ensure that the most valuable United States customers continued trading on the global platform.
[26] On June 7, 2023, the Tribunal determined that it did not have jurisdiction to hear the challenge brought by Binance to the Investigation Order and Summons issued by the Commission. The reasons for that decision are pending. As noted above, Binance appealed that decision and filed an application for judicial review of the decision to issue the Investigation Order and Summons.
THE ISSUE ON THE STAY MOTION
[27] The issue to be determined is whether Binance meets the test for an order staying the operation of the Summons issued by the Commission on May 11, 2023.
ANALYSIS: SHOULD A STAY OF BINANCE’S OBLIGATION TO COMPLY WITH THE SUMMONS BE GRANTED?
[28] The parties agree that the applicable test on this motion is as articulated by the Supreme Court of Canada in RJR MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311, at para. 49. Here the application of the test to this case involves three questions:
i. Is there a serious issue to be tried?
ii. Will Binance suffer irreparable harm if the stay is not granted?
iii. Does the balance of convenience favour an order granting a stay?
[29] In summary, Binance argues that it meets all three branches of the test. Binance submits that there is a serious issue to be tried on judicial review, based on defects in the Summons and the constitutional issues related to s. 8 of the Charter of Rights.
[30] On the second branch of the test, Binance argues it will suffer irreparable harm because it will have lost its privacy interests, and those of third parties, relative to the Commission by having to turn over the communications sought under the Summons. Further, it will have to expend resources and time complying with the Summons. It will also suffer harm because the Commission will be able to act on information provided and potentially investigate Binance.
[31] Finally, Binance submits that the balance of convenience favours a stay because it will suffer proportionately more serious harm than the Commission or the public. Binance submits that the public interest will not be compromised by a “brief pause” in the investigation.
[32] The Commission does not agree that Binance meets any of the three branches of the test. Counsel submit that the merits of the application are weak, that Binance’s evidence of irreparable harm is speculative and that there are real risks in this case of evidence destruction and of delay associated with the judicial review, which seriously engage the public interest.
Analysis: Has Binance Satisfied the Three Branches of the RJR-MacDonald test?
i. Is there a serious issue to be tried?
[33] The “serious issue to be tried” test requires that the motion judge assess the merits of the case. This branch of the test is not demanding. The applicant must show that the litigation is not frivolous or vexatious: RJR MacDonald Inc. at paras. 54-55.
[34] This is a preliminary assessment. It is not intended to be a prolonged or detailed evaluation of the merits of the matter, with two exceptions. The first exception is where the result of the interlocutory motion will determine the action or the issue. Where “either the grant or the refusal” will cause the very harm sought to be protected this will require a more detailed analysis of the merits: RJR MacDonald Inc., at paras. 55-59; Toronto (City) v. Ontario (Attorney General), 2018 ONCA 761, 142 O.R. (3d) 481, at para. 10.
[35] The Commission submits that this exception does not apply, because even if Binance is required to produce the documents, a finding that they were improperly summonsed would permit Binance to make submissions on the exclusion of evidence.
[36] Binance agrees that this exception does not apply because the grant of a stay would not amount to a final determination of rights in favour of Binance. That outcome would pause the investigation for several weeks pending a determination of the issue of compliance with the Summons.
[37] This is not one of those rare cases that merits a higher standard of analysis on the merits, such as for example, an imminent leadership debate: Trieger v. Canadian Broadcasting Corp. (1988), 54 D.L.R. (4th) 143 (Ont. H.C.).
[38] The second exception is where there is a simple question of constitutionality which can be settled by the motion judge. This is a narrow exception which would not apply where there are s. 1 issues that would require an expansive record that would not normally be before the motion judge: RJR MacDonald Inc., at paras. 60-61.
[39] Here, the parties have appeared on a tight timeframe without having fully briefed the constitutional issues. I find that this exception does not apply here.
The Statutory Framework and the Issues on Judicial Review
[40] This application for judicial review concerns the Investigation Order and Summons. Both are provided for in the Act.
[41] The purpose of the Act, stated in s. 1.1 is,
(a) to provide protection to investors from unfair, improper or fraudulent practices;
(b) to foster fair, efficient and competitive capital markets and confidence in capital markets;
(b.1) to foster capital formation; and
(c) to contribute to the stability of the financial system and the reduction of systemic risk.
[42] These purposes are informed by a list of principles in s. 2.1 including the principle that “Effective and responsive securities regulation requires timely, open and efficient administration and enforcement of this Act by the Commission.”
[43] The Commission uses investigation orders as a key component of carrying out its duties under the Act. An investigation order may be issued pursuant to s. 11 of the Act, which provides:
11 (1) The Commission may, by order, appoint one or more persons to make such investigation with respect to a matter as it considers expedient,
(a) for the due administration of Ontario securities law or the regulation of the capital markets in Ontario; or
(b) to assist in the due administration of the securities or derivatives laws or the regulation of the capital markets in another jurisdiction. 1994, c. 11, s. 358; 2010,
c. 26, Sched. 18, s. 4 (1).
Contents of order
(2) An order under this section shall describe the matter to be investigated. 1994, c. 11, s. 358.
Scope of investigation
(3) For the purposes of an investigation under this section, a person appointed to make the investigation may investigate and inquire into,
(a) the affairs of the person or company in respect of which the investigation is being made, including any trades, communications, negotiations, transactions, investigations, loans, borrowings or payments to, by, on behalf of, or in relation to or connected with the person or company and any property, assets or things owned, acquired or alienated in whole or in part by the person or company or by any other person or company acting on behalf of or as agent for the person or company; and
(b) the assets at any time held, the liabilities, debts, undertakings and obligations at any time existing, the financial or other conditions at any time prevailing in or in relation to or in connection with the person or company, and any relationship that may at any time exist or have existed between the person or company and any other person or company by reason of investments, commissions promised, secured or paid, interests held or acquired, the loaning or borrowing of money, stock or other property, the transfer, negotiation or holding of stock, interlocking directorates, common control, undue influence or control or any other relationship. 1994, c. 11,
s. 358.
Right to examine
(4) For the purposes of an investigation under this section, a person appointed to make the investigation may examine any documents or other things, whether they are in the possession or control of the person or company in respect of which the investigation is ordered or of any other person or company. 1994, c. 11, s. 358.
Minister may order investigation
(5) Despite subsection (1), the Minister may, by order, appoint one or more persons to make such investigation as the Minister considers expedient,
(a) for the due administration of Ontario securities law or the regulation of the capital markets in Ontario; or
(b) to assist in the due administration of the securities or derivatives laws or the regulation of the capital markets in another jurisdiction. 1994, c. 11, s. 358; 2010,
c. 26, Sched. 18, s. 4 (2).
Same
(6) A person appointed under subsection (5) has, for the ose of the investigation, the same authority, powers, rights and privileges as a person appointed under subsection (1). 1994,
c. 11, s. 358.
[44] Once an investigation order is in place, the Commission may issue a summons pursuant to s. 13 of the Act, which reads:
Power of investigator or examiner
13 (1) A person making an investigation or examination under section 11 or 12 has the same power to summon and enforce the attendance of any person and to compel him or her to testify on oath or otherwise, and to summon and compel any person or company to produce documents and other things, as is vested in the Superior Court of Justice for the trial of civil actions, and the refusal of a person to attend or to answer questions or of a person or company to produce such documents or other things as are in his, her or its custody or possession makes the person or company liable to be committed for contempt by the Superior Court of Justice as if in breach of an order of that court. 1994, c. 11, s. 358; 2006, c. 19, Sched. C, s. 1 (1).
[45] Binance intends to make five arguments which it submits are not frivolous or vexatious. These arguments and my findings are set out below.
[46] The Investigation Order is an Abuse of Process: Binance will argue that the Investigation Order, which gives the Commission authority to issue the Summons, was unlawfully issued, because the Acknowledgement and Undertaking settled matters as between Binance and the Commission. Binance submits that there is no legitimate purpose to the Investigation Order because it has complied with the Acknowledgement and Undertaking, including by retaining a third-party reviewer which has been making reports to the Commission, as agreed.
[47] This submission does not have merit. The wording of the Acknowledgement and Undertaking permits the Commission to investigate unregistered trading, misstatements to the Commission, and other steps to circumvent securities regulation in Ontario. It is not a settlement, nor is it a release. The Investigation Order describes concerns relative to securities regulation as required by s. 13(2) of the Act. These concerns include unregistered trading in securities, distributing securities without complying with or being exempt from prospectus requirements, making misleading statements to the Commission, all contrary to the Act, and taking steps to circumvent Ontario securities laws. The Commission does not require consent or authorization from the subject of an investigation before carrying out its mandate.
[48] The abuse of process argument relative to the Investigation Order does not meet the test of serious issue to be tried. There is no evidence at this stage of the investigation that the Investigation Order does not have a legitimate purpose: the purpose, on its face, is to investigate enumerated areas of concern relative to the purposes of the Act and the regulation of public markets in Ontario.
[49] The Summons Issued Pursuant to the Investigation Order is also an Abuse of Process: Binance makes this argument as a logical extension of its submissions concerning the Investigation Order because, if it is flawed, so is the Summons issued under its authority.
[50] This submission relies on the merits of the arguments concerning the abuse of process and legitimacy of the Investigation Order. Given my findings above, this aspect of the argument does not have merit. It does not meet the test of serious issue to be tried.
[51] The Wording of the Summons is Overbroad: Binance will submit that the wording of the Summons is so broad that it will capture documents that have nothing to do with the Commission’s regulatory authority, given that the subject matter of the communications is described as “all communications regarding Ontario (or Canada generally)”. It also requires production of documents which are outside of Binance’s possession. This renders the Summons not authorized by law and/or an unreasonable search and seizure contrary to s. 8 of the Charter.
[52] I disagree. Binance focuses on one phrase in the Summons. However, reading it as a whole, it limits the authority to enforce compliance to failures to produce “such documents or other things as are in his, her or its custody or possession.” It is consistent with the authority granted within s. 13 of the Act.
[53] The Summons includes a note specifying that enforcement is linked to a failure “to produce such documents or other things as are in your custody and possession.” The Summons is issued to the corporate entity, Binance Holdings Limited. Thus, read as a whole, the requested communications will be materials relevant to Ontario, or Canada, in the possession of a corporate entity, Binance Holdings Limited. These items are logically connected to the conduct that is the subject of the Investigation Order signed pursuant to s. 11 of the Act.
[54] The Summons is Technically Deficient and Not Permitted by s. 13 of the Act: Binance submits that the wording of the Summons requires more than production of “documents and things” and improperly requests information.
[55] Some of the wording in the Summons could be interpreted as a request for information, but again, read as a whole, the Summons seeks “documents and things.” Any enforcement of its terms would similarly be limited to failure to produce “documents and things.” In the event enforcement proceedings sought “information” that is not in the form of a document or a thing, it would be open to Binance to argue this portion of the Summons is unenforceable. This component of an otherwise valid Summons on its face does not mean the entire Summons is liable to be quashed as being improperly issued under the legislation and the Investigation Order.
[56] I conclude that this aspect of Binance’s argument has little merit.
[57] The Summons Amounts to an Unreasonable Search and Seizure and Offends s. 8 of the Charter of Rights and Freedoms: Binance submits that the broad scope of documents described in the Summons, affecting its privacy interests and that of third parties, engages s. 8 of the Charter of Rights. To some extent, this argument relies on a finding that this search was not prescribed by law, where it falls outside of s. 13 of the Act by virtue of being made subject to an improper Investigation Order or by failing to meet the requirements of s.13. This Charter argument requires a foundation from the previous arguments. As discussed, these are lacking in merit, thus weakening the seriousness of the Charter issue.
[58] Further, the Supreme Court of Canada in British Columbia Securities Commission v. Branch, [1995] 2 S.C.R. 3, confirmed that documents demanded pursuant to securities regulation are subject to a reduced expectation of privacy. There, the majority rejected arguments challenging the power to demand documents in the context of a summons under comparable securities law in B.C. under ss. 7 and 8 of the Charter of Rights.
[59] In Branch, the regulator served summonses on two former officers of Terra Nova, seeking “all information and records […] relating directly or indirectly to Terra Nova and other named companies”.
[60] The majority in Branch confirmed the following general principles concerning the relationship between s. 8 and the reasonableness of searches carried out in this specific regulatory context:
• The standard of reasonableness applicable in the criminal context is not the appropriate standard in the administrative/regulatory context (at para. 52, citing Thomson Newspapers Ltd. v. Canada (Director of Investigation and Research, Restrictive Trade Practices Commission), [1990] 1 S.C.R. 425);
• The primary goal of securities regulation is investor protection (at para. 54);
• Those who are involved in the business of trading securities do not have a high expectation of privacy with respect to regulatory requirements expressed in securities legislation. It is widely known and accepted that the industry is well regulated, and the reasons for that regulation are also well known (at para. 58);
• The demand for the production of documents by way of a summons is one of the least intrusive of the possible methods used to obtain documentary evidence (at para. 60);
• The important social purpose of securities legislation renders the summons power to obtain documents and things a justifiable intrusion into privacy rights (at para. 61); and
• Documents produced in a regulated, business context attract a diminished degree of privacy than do personal papers (at para. 62, citing La Forest, J. in Thomson Newspapers, at pp. 517-18).
[61] I find that there is no serious issue to be tried arising from the five arguments which Binance intends to make on judicial review. There is a weak foundation for any argument that the Summons in issue was not authorized by law, or that the Investigation Order under which it was issued is an abuse of process. Further, there is a reduced expectation of privacy in commercial documents relating to a regulated business.
[62] Accordingly, I find that Binance has not met the first branch of the test from RJR- MacDonald.
The Question of Irreparable Harm
[63] The concept of irreparable harm is that the outcome of failing to grant the stay is such that it cannot be undone or compensated in damages. The court should focus on the nature of the harm, rather than its magnitude in the analysis: RJR-MacDonald, at para. 64.
[64] Examples of irreparable harm provided in RJR MacDonald, at para. 64, include instances where a party will be put out of business by the court's decision (R.L. Crain Inc. v. Hendry (1988), 48 D.L.R. (4th) 228 (Sask. Q.B.) ); where one party will suffer permanent market loss or irrevocable damage to its business reputation (American Cyanamid v. Ethicon Ltd., [1975] A.C. 39); or where a permanent loss of natural resources will happen if the challenged activity is not enjoined (MacMillan Bloedel Ltd. v. Mullin, [1985] 3 W.W.R. 577 (B.C.C.A.).
[65] There must be more than mere speculation that irreparable harm “may” arise from the failure to grant the stay: Canada (Attorney General) v. Canada (Information Commissioner), 2001 FCA 26, at para. 12.
[66] Binance submits that the disclosure of the material described in the summons is the very essence of the matter, thus, a failure to grant a stay amounts to irreparable harm. The Commission will have the material and be able to “act on it.” Further, the breadth of the inquiry means that compliance will be costly and onerous.
[67] Binance submits that the privacy interests engaged in the material sought will be lost once this material is in the possession of the Commission. Binance submits that even limited disclosure to the Commission engages not only its privacy interest, but also those of its agents, contractors, consultants, and employees. Binance gives no specifics as to how these privacy interests will be affected by disclosure of records and communications in its possession.
[68] In light of the reduced privacy interest in business records and a failure to identify how personal information may specifically be involved in the return under this Summons, I find that this aspect of asserted irreparable harm is speculative.
[69] Binance also relies on the logic applied in R. v. Bisaillon, at para. 33, in which the Federal Court of Appeal noted that the appeal from a decision refusing a stay on the legality and constitutionality of disclosing private material to Revenue Canada, would become moot if a stay in those circumstances was not granted. However, on appeal the refusal to grant a stay was upheld based on the appellant’s failure to meet the first prong of the RJR-MacDonald test: see Bisaillon v. Canada, at para. 13. Further, if Binance prevails on judicial review, this may give rise to other remedies, including on the admissibility of any evidence sought to be tendered against it which has been obtained by use of the Summons power.
[70] In similar circumstances, this court rejected a motion for a stay of a decision compelling production of documents in the context of an investigation by the College of Physicians and Surgeons in College of Physicians and Surgeons of Ontario v. Peel Regional Police (2009), 252 O.A.C. 29 (Ont. Div. Ct.). The moving party, Dr. Beitel, sought a stay of a stated case application to this Court seeking to require the Chief of Police to comply with a summons served under the authority of s. 76 of the Health Professions Procedural Code, 1991, S.O. 1991, c. 18. Dr. Beitel sought a stay of a decision pending the outcome of his constitutional challenge to s. 76 of the Code.
[71] The Court concluded that Dr. Beitel had failed to establish irreparable harm, because “[i]f disciplinary proceedings are ultimately brought against Dr. Beitel and if s. 76(1) of the Code is declared unconstitutional, Dr. Beitel will have an opportunity at the disciplinary hearing to argue that the summonsed documents obtained pursuant to s. 76(1) should not be used against him in those proceedings”: CPSO v. Peel at para. 16. This logic applies to Binance’s irreparable harm claim and answers the submission that a failure to grant a stay would render its challenge nugatory.
[72] The relatively unintrusive nature of the Summons, and the mandate of the Commission to request and review documents with a view to carrying out the policies under the Act defeat the notion that production and review pursuant to the securities regulatory scheme in Ontario represents a serious incursion into privacy interests. The material produced is subject to a confidentiality scheme and disclosure is only permitted in accordance with ss. 16-17 of the Act. A process for claiming privilege is in place. There is not yet any public proceeding against Binance, and the mere possibility that material disclosed may ultimately be tendered at such a proceeding does not meet the test for irreparable harm.
[73] As the Federal Court of Appeal noted in Canada (Attorney General) v. Canada (Information Commissioner), at para. 21:
Obviously, information must be reviewed by someone to give effect to the scheme set up by Parliament in implementing the Act. It cannot be seriously argued for instance that irreparable harm results when an authorized officer reviews information with the view of ensuring that personal information and other exempt information is protected from disclosure.
[74] The assertion of a breach of a privacy interest here is not grounded in any specifics. At this stage it is a bare assertion. As the Federal Court noted in Professional Institute of the Public Service of Canada v. Canada (Attorney General), 2015 FC 1101, at para. 167, a mere allegation does not lead to an automatic assumption that irreparable harm is established: see also, Power Workers Union v Canada (Attorney General), 2022 FC 73, at para. 84; Groupe Archambault Inc v. Cmrra/Sodrac Inc., 2005 FCA 330, at para. 16; International Longshore and Warehouse Union, Canada v. Canada (Attorney General), 2008 FCA 3, at paras. 26 and 33.
[75] I find that Binance has not met the test to establish it will suffer irreparable harm if it is required to comply with the Summons prior to the hearing of the application for judicial review.
Do the Balance of Convenience and Public Interest Considerations Favour a Stay?
[76] As a result of my findings that Binance has failed to establish that there is a serious issue to be tried, or that it will suffer irreparable harm from the refusal of a stay, the balance of convenience does not favour granting a stay.
[77] This application for judicial review involves the authority of a law enforcement agency and legislation which has effectively been found to be constitutionally valid. The public interest is engaged at this stage of the analysis: Ainsley Financial Corp. v. Ontario Securities Commission, (1993), 14 O.R. (3d) 280, at pp. 303-4.
[78] The Securities Commission, as the primary regulatory authority, enforces the Act by virtue of investigation orders and summonses. In 2022, the Commission issued 48 investigation orders and 334 summonses. A bare claim that responding to a summons implicates constitutional rights to privacy and requires investigative activity to come to a halt pending further proceedings challenging the decision to investigate and collect documents via summons would frustrate the enforcement of securities laws in the public interest. It would also defeat the legislative principle directing the Commission to enforce and administer the Act in a timely, efficient manner.
[79] Further, the Commission has raised a concern about the potential for the destruction of evidence. This is based on portions of the CFTC Complaint alleging that individuals acting on behalf of Binance, including Zhao, have used the Signal messaging application – with its auto- delete functionality enabled – to engage in business communications, including after the CFTC made document requests.
[80] The CFTC alleges that Zhao has instructed officers, employees and agents of Binance to use Signal to communicate with U.S. customers. The CFTC Complaint further states that Binance does not have a corporate communications policy and continues to use Signal for business communications. The CFTC Complaint has identified Signal text chains and group chats from Zhao’s telephone.
[81] The SEC has sought a temporary court order and injunctive relief in the Complaint for the preservation of documents and a prohibition on destruction of evidence.
[82] These are merely allegations at this stage and do not amount to evidence that there has been, or will be, attempts to conceal or destroy corporate communications concerning Binance’s business and/or attempts to avoid regulatory action. However, the evidence that the SEC and CFTC are alleging concerns for the destruction of evidence and taking steps to prevent that, makes this a live issue in considering the balance of convenience part of the test and the question of the public interest.
[83] Binance submits that the Commission’s public interest concerns are overstated, given that this request is merely for a “brief” pause in the enforcement proceedings, given that it has proceeded to vindicate its rights without delay. On balance, even acknowledging the public interest component, Binance submits that the harm it will suffer far outweighs that to the public, which it describes as “minimal.”
[84] Binance also argues that “reasonable access to a hearing so that one may vindicate their constitutional rights is an important public interest that outweighs the public interest in the Commission commencing their investigation this week instead of a couple of weeks from now.” Binance submits that the majority judges in Thomson Newspapers (Justice La Forest, Justice L'Heureux-Dubé and Justice Sopinka) and the dissenting judge (Justice Wilson) all accepted that a subpoena duces tecum under s. 17 of the Combines Investigation Act, R.S.C. 1970, c. C-23, could be subject to a review by a judge, either through an application for judicial review or under s. 17(3), before the documents had to be provided. This route to prior challenge before the liberty of the subject was engaged, rendered s. 17 constitutional.
[85] However, Binance is not challenging the constitutionality of s. 13 of the Act. Branch did not stipulate in the regulated securities environment that the constitutionality of an analogous authority to summons documents depended on prior judicial review before compliance in order for that provision to be constitutional. Courts regularly enforce summons without automatically suspending their operation pending full argument. See for example, the Bisaillon and Information Commissioner decisions.
[86] The balance of convenience does not favour Binance. It has not made out a meritorious basis for judicial review of the Summons and Investigative Order. It has not established irreparable harm. The public interest is engaged. The hearing for the judicial review will be expedited.
Conclusion
[87] The motion for a stay of the operation of the Summons addressed to Binance by the Commission is dismissed. Based on the agreement of the parties as to costs, I order costs in favour of the Commission in the amount of $10,000.
[88] The date for the application for judicial review is fixed for August 10, 2023 for a ½ day hearing. Counsel for Binance will perfect its materials within 7 days of release of these reasons for decision. The Commission will serve and file its responding materials within 10 days of receipt of the Applicant’s materials. Any variation sought on consent or otherwise, may be brought to my attention via court staff.
Leiper J.
Date of Release: June 26, 2023
CITATION: Binance Holdings Limited v The Ontario Securities Commission, 2023 ONSC 3825
DIVISIONAL COURT FILE NOS.: 343/23 and 347/23
DATE: 20230626
ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT
BETWEEN:
BIANANCE HOLDINGS LIMITED
Applicant/Moving Party
-and-
THE ONTARIO SECURITIES COMMISSION
Respondent/Responding Party
REASONS FOR DECISION
Leiper J.
Date of Release: June 26, 2023