CITATION: Ontario Securities Commission v. Traynor Ridge Capital Inc, 2026 ONSC 3179

COURT FILE NO.: CV-23-00709030-00CL

DATE: 2026-06-01

ONTARIO SUPERIOR COURT OF JUSTICE

RE: ONTARIO SECURITIES COMMISSION, Applicants

-and-

TRAYNOR RIDGE CAPITAL INC., TR1 FUND, TR1-I FUND, TR3 FUND, TR1 GP LTD., TR1 INTERNATIONAL FUND and TR1 MASTER FUND, Respondents

BEFORE: FL Myers J

COUNSEL: Harvey Chaiton, Maya Poliak, and Hugh McHenry, for Ernst & Young Inc., Receiver Ryan Flewelling, for the Trillion Energy International, Inc. Shane D’Souza and Audrey-Anne Delage, for National Bank Financial Inc. Bevan Brooksbank and Natalia Vandervoort, for Virtu Canada Corp. John Leslie and David Seifer, for Ventum Financial Corp. Chris Burr, for Jones Trading Canada Inc.

HEARD: May 25, 2026

ENDORSEMENT

The Motion

1. The Receiver seeks to finalize the claims process in this receivership.

2. The Receiver asks the court to confirm its disallowance of the claims against the Respondents brought by Trillion Energy International, Inc.

3. The Receiver also recommends that the court allow the indemnity claims of various stockbrokers against the Respondents. These claims are unopposed.

4. Finally, the Receiver asks the court to determine that the priority attaching to claims of holders of trust fund units in the Respondents’ funds, including those who delivered redemption notices to the Respondents prior to the receivership, do not rank above or equal to the claims of creditors.

5. When the court determines these last-remaining claims, the Receiver then seeks an order approving a pari passu distribution of the assets of the receivership to the creditors with recognized priority.

6. Finally, the Receiver seeks approval of its activities as set out in its Third Report of the Receiver and Manager dated February 27, 2026.

7. For the reasons set out below, I grant the order sought by the Receiver.

8. The Traynor Ridge Group operated open-ended investment funds established as trusts under the laws of the Province of Ontario. As a result of the decisions below, I do not need to distinguish finely between the various Respondents. Accordingly, although I understand that claims were brought against different Respondents, and, in the case of Trillion, against all Respondents, for convenience, I refer to the Traynor Ridge Group as the Respondents throughout.

Procedure

9. This motion has complicated procedural antecedents.

10. By Order dated March 28, 2024, Osborne J. approved the claims process for this proceeding. Under that order, by May 15, 2024, all those who wished to advance a claim to be owed money by any of the Respondents had to send completed Proof of Claim forms to the Receiver. The order also provided that any unitholders who wished to claim that their claims were not “Equity Claims” were required to deliver Proofs of Claim like other creditors.

11. Under the definition of “Proof of Claim” in para. 2 (t) of the court’s order, Proof of Claim forms were required to include “all supporting documentation in respect of” the claim.

12. The proof of claim process is a summary process. First, claimants deliver their proofs, with their evidence. The Receiver then assesses the claims and can seek further information, try to settle with the claimant, allow the claim, or disallow it in whole or in part.

13. Where the Receiver disallows or revises a claim, the claimant may dispute that outcome.

14. Where a creditor disputes the Receiver’s disallowance or revision of a claim, para. 22 of the order provides:

22. THIS COURT ORDERS that, in the event that a dispute raised in a Dispute Notice is not settled within a reasonable time period or in a manner satisfactory to the Receiver and the applicable Creditor, the Receiver may, in its sole discretion: (a) refer the dispute to a Claims Officer for determination, or (b) on notice to the disputing Creditor, bring the dispute before the Court for determination.

15. For the three claims before me, the Receiver chose to refrain from appointing a Claims Officer. Instead, it brought the issues to the court as it is entitled to do.

16. Para. 27 of the order provides:

27. THIS COURT ORDERS that a Claim shall not be a Proven Claim in whole or in part unless and until the Claim has been allowed or otherwise finally determined in whole or in part in accordance with the procedures set out in this Order or further Order of the Court.

17. While it is clear that the Receiver does not make the final determination of whether a disputed claim is a “Proven Claim,” case law provides that the review of its disallowance or revision is treated the same as an appeal of a trustee’s disallowance of a claim under the Bankruptcy and Insolvency Act, rsc 1985, c. b-3.

18. One could argue that the statutory process gives decision-making authority to the trustee in bankruptcy whereas the claims process order does not empower the Receiver to make final decisions. Subsection 135 (4) of the BIA provides that the trustee’s disallowance decision is “final and conclusive” unless the claimant brings an “appeal” to the court. The claims process order does not contain equivalent terms. In this claims process, it is the Claims Officer or the court that makes the final order recognizing a claim as a “Proven Claim.”

19. However, in Ontario Securities Commission v. Paramount Equity Financial Corporation et al., 2018 ONSC 5327, Hainey J. held that a court review under a claims process order that was very similar to the one before me is in the nature of an appeal on the record. It is not a de novo hearing. At paras. 34 and 35 of that decision, he wrote:

[34]…The court-ordered claims process is intended to establish an expeditious, efficient, and summary procedure for the Receiver’s resolution of claims against the Mortgage Investment Funds. The Claimants’ suggestion that the resolution provisions in the Claims Procedure Order require extensive discovery and the formal trial of an issue undermines the integrity and summary nature of the court-approved claims process.

[35] I agree with the Receiver’s approach to this motion which is in accord with the decisions in Coast Capital [Coast Capital Savings Credit Union v. Symphony Development Corp. (2011), 2011 BCSC 333], DBDC Spadina [DBDC Spadina Ltd. V. Walton (2015), 2015 ONSC 5608], and Galaxy Sports [Galaxy Sports Inc., Re, BCCA 284]. I have concluded that the onus is on the Claimants to establish that the Receiver committed an error of law or a palpable and overriding error of fact in disallowing the Claimants’ claims. This is the approach that I will follow in considering whether the Disputed Claims should be disallowed.

20. It would be easier to accept this view if, like the BIA, the claims process order provided final decision-making authority to the Receiver or a Claims Officer subject to an appeal to the court. However, I am bound by the determination in Paramount Equity under the doctrine of horizontal stare decisis. R. v. Sullivan, 2022 SCC 19, at para. 65. Moreover, I also agree that it is important that the resolution of claims does not become bogged down in civil procedure in court and take years to resolve. Too many people have lost money and are waiting for distributions to allow one or a few claimants with contestable claims to prejudice the efficiency of the process. Worse still, people cannot be allowed to use the chronic delays in our civil justice system to extract settlement leverage against innocent victims of an insolvency.

Trillion’s Claim - Procedure

21. The Receiver disallowed Trillion’s claim largely on the legal basis that it found that none of the Respondents owed a duty of care to Trillion. I deal with the merits of this decision below. For now, I recite it to help explain the procedural issues.

22. After the Receiver initially disallowed the claims brought by Trillion, counsel for Trillion asked the Receiver to produce documents. It asked for copies of monthly statements for all client accounts and copies of the claims filed by all the Respondents’ stockbrokers. It asked for these records to show the aggregate shareholdings of the Respondents’ funds in Trillion shares.

23. The Receiver had already disallowed the claim. It did not produce the documents sought.

24. Trillion disputed the Receiver’s disallowance and the Receiver referred the issue to the court. The parties attended a case conference before a Commercial List judge on March 23, 2026.

25. Before the judge, counsel for Trillion repeated his assertion that Trillion required production of documents from the Receiver to prove its claim. The judge held:

[2] Counsel for Trillion, Mr. Flewelling, was in attendance and, albeit one of his client's assertions is that it needs certain records in order to establish the details of its proposed claim. Mr. Flewelling fairly acknowledged and agreed with EY's counsel, Ms. Poliak, that it makes sense to determine, at first instance, the threshold question as to whether or not Trillion has a valid cause of action.

[3] Accordingly, it was agreed that one full day should be booked to determine not only that threshold issue with respect to the Trillion claim, but also to determine the issues set out in subparagraphs (1)(b)(i) and (ii) and (1)(c ) above.[^1]

[4] May 25, 2026 has been booked as a full day hearing for those issues.

[5] In the meantime, Trillion, is to deliver responding materials by April 17, 2026 and the Receiver is to deliver Reply materials, if any, by April 24, 2026.

26. If this hearing is supposed to be an appeal from the disallowance of Trillion’s claim on its merits, I am unsure of how I deal with a determination of whether it has a cause of action. Were I to find that Trillion has a reasonable cause of action, what happens to the rest of the appeal in which the Receiver ruled against it?

27. Moreover, what was the intention of para. [5] of the order allowing Trillion to file evidence? Whether the matter proceeds as an appeal on the record or a motion to determine whether Trillion has a reasonable cause of action (akin to rule 21.01 (b)) Trillion has no prima facie right to deliver evidence. There is no indication that the judge was dealing with the issue of admitting fresh evidence on appeal under R. v. Palmer, 1979 8 (SCC) and Barendregt v. Grebliunas, 2022 SCC 22.

28. It seems apparent that the parties did not treat this proceeding as an appeal in their scheduling appointment. They hoped to finesse a determination of whether Trillion ought to be entitled to production of documents in this proceeding by resolving first the legal issue of whether the Respondents owed Trillion a duty of care. But the consensual process answer that they agreed upon with the judge does not align perfectly with this hearing being an appeal on the record from the Receiver’s disallowance.

29. The issue before me is not whether Trillion’s claim states a reasonable cause of action. The question is whether the Receiver erred in finding that the Respondents did not owe a duty of care to Trillion. The disclosure issue is not whether Trillion needs production in this proceeding or to prove its claim in a future hearing. The question for appeal is whether the Receiver’s disallowance was made with an unfair process because it failed to produce documents to Trillion.

30. Because I find below that the Respondents did not owe a duty of case to Trillion, this procedural confusion ultimately does not matter. Mr. Flewelling agrees that assessing whether Trillion has a reasonable cause of action is the same as finding that the Respondents owed no duty of care to it. It is the same question of law being considered by me on its merits whether I consider the validity of the cause of action myself or consider the issue of law on appeal on a correctness standard. In both cases I am deciding whether the law affords a cause of action or a claim by Trillion in the circumstances.

31. There may be an issue of what use can be made of evidence, however. A reasonable cause of action just looks at a pleading. An appeal looks at all evidence that was properly before the decision-maker. I will deal below with evidence and note, in particular, where evidence is decidedly missing.

32. But I have to assess as well whether the failure of the Receiver to produce the evidence sought by Trillion, when requested, made the process unfair especially in light of places where evidence is lacking. To foreshadow the outcome, the evidence sought about the Respondents’ holdings of Trillion shares, even if not sought too late, is of no assistance to Trillion. The Receiver concedes that the court should assume that the Respondents held more than 10% of the public float and was therefore subject to insider reporting requirements. The precise number of shares and where they were held is of no consequence.

33. In addition, Trillion filed no evidence in this proceeding despite the scheduling order. Mr. Flewelling properly assessed that the determination of whether his client has stated a cause of action does not allow evidence to be filed. As I determine the same question in the appeal it would not have been appropriate for Trillion to deliver fresh evidence in any event.

34. However, I do consider the evidence delivered to the Receiver to assess whether Trillion proved it had a cause of action before it.

The Facts Alleged

35. The Respondents’ Master Fund held investments in the shares of numerous companies including Trillion. I assume, as the Receiver concedes I must, the Respondents amassed more than 10% of the shares of Trillion without making the public disclosures required by securities regulations discussed below.

36. The Respondents were also lenders to Trillion. The loan agreement included a right for the lender to require Trillion to repay the debt in shares of Trillion valued at the date of repayment.

37. This type of debt conversion right in a loan agreement is subject to a risk of abuse. If a lender has the right to be repaid in shares with the value only determined on the date of payment, the lender will become entitled to ever more shares to pay its debt as the price of the borrower’s shares decreases. This creates a risk of what is known in the case law as “death spiral” financing or trading. It has been alleged in some cases that a lender with this type of conversion right has deliberately, manipulatively, or oppressively taken steps to artificially suppress the share price of the borrower in order ultimately to take it over.

38. While the Receiver says it makes no sense for a lender to impair the ability of the borrower to repay the debt, that depends on the lender’s motivation. It is possible that the borrower’s share price could sink so low that the borrower cannot refinance the debt and the lender may not be paid in full or at all. But, mathematically, it is possible that the price of the shares falls so low that the lender will be paid so many shares, that once it stops suppressing the share price, its gain on the share price recovery will exceed its losses on its loan. The risk of market manipulation is even greater if the lender could end up with so many shares that it gains control of the borrower.

39. In October, 2023, the Respondents ordered their stockbrokers to buy Trillion shares. Then, at a time when the Respondents had several open purchases of Trillion shares, the owner of the Respondents passed away suddenly.

40. The Respondents seem to have been a one-man operation. When the owner died, they were left rudderless without senior management.

41. On October 30, 2023, the OSC ordered a standstill on redemptions of customer units in the Respondents. At the same time, with no management, the Respondents did not pay their stockbrokers for share purchases they had ordered before the owner died. Therefore, starting in late October and into November, the stockbrokers who had open trades for the Respondents sold their positions.

42. Trillion submitted to the Receiver, that the Respondents had ordered their brokers to buy so many shares of Trillion that the Respondents did not have the funds to pay in any event. When the brokers sold, the volume of shares sold was so high over such a short period of time that the selloff depressed Trillion’s share price.

43. At the same time, Trillion submitted, it was engaged in a refinancing effort to the knowledge of the Respondents. Trillion had a “best efforts” commitment from an underwriter to find $30-$40 million by way of a share issuance. But, with the share value loss on the sudden selloff of stock by the Respondents’ brokers, Trillion says it was only able to raise about $10 million.

44. Trillion’s commitment with an underwriter was to be a syndication. It was not a bought deal. The agreement expired by its terms on October 31, 2023. Trillion entered into a new agreement with the underwriter to try to raise $10 million on November 7, 2023 just days after the selloff.

45. Trillion claimed it lost the ability to raise a further $19 million in due to the selloff of its shares. It also says it suffered shareholder dilution of $6 million. It therefore seeks $25 in damages and another $500,000 for loss of reputation.

The Receiver’s Disallowance

46. The Receiver delivered a Notice of Disallowance to Trillion dated September 26, 2024. In it, the Receiver treated Trillion’s claims separately. That is, the Receiver held that as a seller of shares, the Respondents owed no duty of care to the share issuer. It held that Trillion’s failure to make public disclosure when it purchased more than 10% of Trillion’s shares created no duty to Trillion either.

47. The Receiver noted that Trillion was attempting to use its claims to set off against its acknowledged debt to the Respondents of USD$2,662,500. The Receiver held that there was no basis for setoff as Trillion had no valid competing claims.

Trillion’s Grounds for Appeal

48. Trillion submits that the Receiver erred in principle by treating its claims as separate instead of considering them holistically. When all its assertions are taken as a whole, Trillion submits, it has established that the Respondents owed a duty of care in law.

49. In its factum, Trillion submitted that each of its key facts was enough individually to establish a duty of care owing to Trillion by the Respondents. In court, however, counsel limited his submission to the unique circumstances of the case where all the specific factors on which Trillion relies are present together. This claim will be the subject of my analysis below.

50. Trillion also raised in its factum, for the first time, the tort of unlawful interference with economic interests as a basis for its claims. This once again confuses the procedure. There is no argument that the Receiver erred in not finding liability for this tort. It was not asserted before the Receiver in Trillion’s Proof of Claim.

Raising a New Cause of Action on Appeal

51. One cannot generally raise a new cause of action on an appeal. The Court of Appeal reconfirmed this longstanding rule just days ago. See: Metro Ontario Real Estate Limited v. Hillmond Investments Ltd. (Central Parkway Mall), 2026 ONCA 370.

52. The claims bar date passed two years ago. It is not for me to determine if Trillion ought to be able to file a new Proof of Claim or amend its existing Proof of Claim. Under the claims process order discussed above, claims are to be brought to the Receiver.

53. One of the elements of the tort of unlawful interference with economic interest requires the plaintiff to prove that the defendant acted with the intention to hurt it or for an ulterior motive which, if carried out, necessarily would hurt the plaintiff.

54. As the tort was not pleaded initially, it was not the subject of evidence or fact-finding. Moreover, the two sets of documents sought by Trillion are to prove the quantum of its shares bought by the Respondents. They do not bear on whether the Respondents intended to hurt Trillion or if the Respondents intended to engage in Death Spiral trading with their brokers that necessarily was aimed at hurting Trillion.

55. There is therefore no basis on which I am able to fairly entertain this proposed claim.

Procedural Fairness

56. Finally, Trillion claims that it was denied a fair process by the Receiver when its requests for documents were not granted.

57. This issue too can be dealt with quickly. First, the requests were not made until after the Receiver released its Notice of Disallowance. The proceeding was already completed – subject to appeal. Had Trillion thought it needed documents to prove its claim(s) as set out in its Proof of Claim, the time to ask for them was before it filed its Proof of Claim or at least before the Receiver released its decision. The claims process order allows for discussions between the parties. The court would have been available if production, disclosure, and discovery of one sort or another had become an issue.

58. But even if the documents had been requested on a timely basis, Mr. Flewelling was clear that he wanted them to show that the Respondents bought more than 10% of the shares of Trillion so as to impose regulatory disclosure obligations on them. As noted throughout however, the Receiver is content that the court assume this fact is true. Proving the assumed fact does not alter the analysis.

59. Accordingly, there is no basis to find that the failure to respond positively to the late request for specified documents affected the fairness of the proceeding.

Duty of Care – Pure Economic Loss

60. Trillion’s claims are for recovery of economic loss in tort. There is no physical or mental injury to a person or physical damage to property.

61. The law on this topic is not in doubt. Counsel agreed on the applicable law. It is recently summarized succinctly by Zarnett J.A. in Subway Franchise Systems of Canada, Inc. v. Canadian Broadcasting Corporation, 2021 ONCA 25.

62. There is no general right recognized by the common law to require a person to pay compensation for negligently causing another to suffer pure economic loss. There are a few recognized categories of cases in which such a right is recognized such as a claim for negligent misrepresentation, for example. Subway, at para. 79.

63. The parties agree that Trillion is not seeking to establish that its claims fit into a category that has been recognized previously. Rather, it seeks to establish a new category of recovery for pure economic loss based on the confluence of factors asserted by Trillion.

64. To establish a claim in negligence against the Respondents, Trillion must show that the Respondents owed Trillion a duty of care. Subway, at para. 74.

65. To establish a duty of care, Trillion must first establish that it had a close and direct relationship with the Respondents. The relationship must be one of sufficient “proximity” so that it would be just and fair to impose a duty of care in law. See Subway at para. 75.

66. If Trillion establishes sufficient proximity between itself and the Respondents, it then needs to show that harm or economic injury to it was a reasonably foreseeable consequence of negligence by the Respondents.

67. The foreseeability of harm is separate from the proximity test. Foreseeability of harm is not alone a sufficient basis to find proximity. Subway, at para. 78.

68. Proximity does not just arise out of air. Proximity is analyzed, “against the backdrop of the fundamental principle that a plaintiff must have a right, or legally cognizable interest, which would be vindicated by recognizing a duty of care” owing by the defendant.

69. In each case the judge must identify the right or legally cognizable interest asserted by the plaintiff.

70. As a corollary to the last point, the court must assess all relevant factors arising from the parties’ relationship to furnish a principled basis to determine if one owes a duty of care to the other. Subway, at para. 80.

Does Trillion Advance a Cognizable Legal Right or Interest?

71. First, I consider the type of loss claimed.

72. Here, losses are said to flow from the manner of sudden share sale by the brokers for the Respondents that affected the share price of Trillion’s shares.

73. The law generally does not recognize any duty on shareholders regarding when or how they buy or sell shares. They do so in their own selfish best interest. Shareholders are free to deal with their shares contrary to the best interests of the company and even contrary to their own best interests. Cape Breton Cold Storage Co. Ltd. v. Rowlings, 1929 44 (SCC) and Pente Investment Management Ltd. v. Schneider Corp., 1998 14808 (ON SC), at para. 13, aff d, Maple Leaf Foods Ine. v. Schneider Corp., 1998 5121 (ON CA).

74. Apart perhaps from a theoretical oppression remedy, the issuer of shares has no legal right nor cognizable interest in how shareholders buy, sell, or vote shares. The issuer was paid for its shares when it issued them. While the share price on the secondary market may be of practical importance to an issuer, from the perspectives of measuring management performance or to measure market capital for lending and the like, the issuer has no legal rights at stake in how shareholders buy and sell their shares.

75. Moreover, creating an obligation on shareholders to consider the interests of the company in how they amass or sell shares would be inconsistent with prevailing corporate statutory fiduciary duties.

76. Directors of corporations owe fiduciary duties to act in the interests of their companies under s. 134 of the Business Corporations Act, RSO 1990, c B.16. The Respondents’ fund managers have statutory fiduciary duties to manage their investment funds in the best interests of the funds under s. 116 of the Securities Act, RSO 1990, c S.5.

77. If shareholders have to act in the best interests of the issuers whose shares are being bought or sold by their investment funds or their corporations, managements’ duties of care could conflict with their statutory schemes. See: Jayco Inc. v. Canada (Revenue Agency), 2022 ONCA 277 at para. 21.

78. In my view, Trillion has not identified a legal right or cognizable interest protected or advanced by its proposed new category of liability.

The Holistic Review of Factors on a Principled Basis

79. In assessing the other relevant factors for proximity on a principled basis, the court will consider the parties’ expectations, representations, reliance, and the property or other interests involved as well as the statutory schemes involved. Subway, at paras. 84 and 85.

80. Trillion asserts that the important factors that establish proximity in this case are:

i. The Respondents were lenders to Trillion with a conversion right that valued the shares used to pay the debt as at the date of payment;

ii. The Respondent bought more than 10% of the shares of Trillion in the aggregate and, in doing so, violated National Policies NI 55-104NI 62-1049 and Part 5 of NI 62-104;

iii. The Respondents bought shares of Trillion through their brokers recklessly without remitting payment, and without the ability or liquidity to complete the trades;

iv. Mr. Callahan, the owner and operating mind of the Respondents was a close advisor to the CEO of Trillion; and

v. Knowing that their unpaid share position was so large that a sudden sale would collapse Trillion’s share price, and that Trillion was then actively in a refinancing phase, the Respondents engaged in the wholesale selloff of the shares so as to cause losses to Trillion.

81. Trillion understood that it was required to provide evidence to the Receiver to prove its claim. It submitted affidavits of two senior officers. But they contained very little actual evidence to prove the facts asserted.

82. There is no evidence, for example, that the Respondents could not pay for the shares of Trillion that they bought. There is no evidence that Mr. Callahan ordered shares to be bought intending that the Respondents would not or could not pay for them.

83. All that is known is that Mr. Callahan died days before payments were due and the Respondents had no management until the OSC moved in. The Respondents did not implement a selloff of Trillion shares. Its brokers did so under the terms of their account agreements with the Respondents.

84. As prices declined during the brokers’ selloff, it is the brokers that lost money. That is the basis of their claims for indemnity against the Respondents that are allowed in this endorsement.

85. More generally, the duties owing as between debtors and creditors are a function of the contracts between them. Absent contractual rights or obligations, they are adverse in interest. Each is free to act in its own interests. Absent special circumstances the law does not recognize freestanding duties owing by creditors to their debtors. Baldwin v. Daubney, 2005 46087 (ON SC), aff'd, 2006 32901 (ON CA)

86. I agree with the finding of Spence J. in Baldwin at para. 84:

[84] The fact that a loan transaction is made by way of an agreement between the parties strongly affects the two critical elements of duty of care that are identified in Anns: the nature of the relationship between the parties and the degree of proximity between them. Where the relationship between the parties is [page716] only contractual, the contract necessarily determines the reasonable expectations of the parties with regard to each other. Where the contract itself does not give the lender a duty to advise, there is no reason to consider that such a duty is part of the relationship unless there is a special relationship or circumstance which would reasonably give rise to such a duty. Similarly, where the relationship is only contractual, there is no reason to view the parties as having a proximity to the prospective harm that is different from the reasonable expectations created by the terms of their contract.

87. Trillion alleges that Mr. Callahan was an advisor to it. Yet again however, there is no evidence that this was so. Trillion delivered affidavits from its senior managers. They are conspicuously silent on this point. There is no evidence that there was any kind of special relationship between Trillion and the Respondents.

88. There is nothing inherent in the lender/borrower relationship then that bears on whether the Respondents owed a duty of care to Trillion.

89. But Trillion says that the possibility of manipulation of the market by the Respondents to depress Trillion’s share prices and maximize the Respondents’ own share recovery set this case apart and provides a basis to find a duty of care.

90. Once again however, Trillion provided no evidence to support this argument. There was no evidence before the Receiver that Mr. Callahan intended to cause a decline in the share price of Trillion so as to take over Trillion by requiring payment of its outstanding debt to the Respondents in devalued shares. Such a deliberate attack on a company would not be negligence in any event. Whether it could be subject to an oppression remedy or an intentional tort is not before me. In the US, specific remedies in securities statutes have been raised against Death Spiral traders. There is no Canadian case law of which I am aware finding a cause of action for such conduct even if proved.

91. Mr. Chaiton points out that the share prices of Trillion’s shares declined from about $10 per share to just over $3 in the months before the selloff occurred. The selloff led to a decrease of about another 50% off the $3 price. The share price recovered quickly in a few days. But the price of Trillion’s shares then declined again and even more.

92. Trillion presented no evidence of how or why the loss of the first 70% of its share value occurred or what effect that may have had on the position of the Respondents should they have decided to require repayment of the debt in shares. Therefore, while there is perhaps implicit logic in accepting that a selloff of a large number of shares would have at least a transitory effect on share price, there is no evidence that the decline was not a continuation of the decline that was already being experienced by Trillion for other reasons especially after the share price quickly rebounded after the selloff.

93. Neither is there any evidence that the share price decline for a few days, from $3 to $1 and change, would have had a significant effect on the post-debt holdings of the Respondents were they inclined to take their debt in shares. That is, if the first 70% decline already gave the Respondents the right to enough shares to profit or even to take control of Trillion, the further price decline during the selloff may not have been very impactful.

94. Regardless of the theory, there is also no evidence presented by Trillion that the Respondents actually intended to take their debt in shares when the debt came due. The parties had just agreed to extend the repayment date of Trillion’s debt until December 31, 2024. Depressing the price more than a year before payment is due is not sensible or probative of the risk alleged. Recall as well that the selloff was initiated by the brokers after Mr. Callahan passed away. It is hard to understand how that could have been a deliberate strategy implemented by the Respondents.

95. The price of Trillion’s shares fell from $8 3/8 to $7.50 from the date it signed a draft best efforts underwriting agreement on August 10, 2023 to the effective date of the agreement on August 23, 2023. The closing share price was $3.05 on October 26, 2023 the day before the selloff began. The closing price was $1.80 on October 30, 2023 when the first best efforts underwriting agreement expired. The price had rebounded to $2.25 on November 7, 2023 when Trillion signed its $10 million revised best efforts underwriting agreement.

96. Trillion asked the Receiver to accept that the details of the proposed underwriting changed because its share price fell from $3.05 to $1.80 in the final four days of the initial term and not because its share price fell from $8 3/8 to $3.05 over the full term of that agreement.

97. Recognizing that Trillion submits that the duty of care arose from the entire confluence of factors, it then layers-on its regulatory issues.

98. Trillion says that the failure of the Respondents to give notice to the marketplace that they had bought more than 10% of Trillion’s shares should provide evidence of a duty of care owed to Trillion.

99. The Securities Act and the National Instruments imposed under its regulatory scheme are clear that they protect and support the public interest in efficient markets, however.

100. Article 1.3 of Companion Policy 55-104CP - Insider Reporting Requirements and Exemptions provides expressly:

Policy Rationale for Insider Reporting in Canada

1.3 (1) The insider reporting requirements serve a number of functions. These include deterring improper insider trading based on material undisclosed information and increasing market efficiency by providing investors with information concerning the trading activities of insiders of an issuer, and, by inference, the insiders' views of their issuer's prospects.

(2) Insider reporting also helps prevent illegal or otherwise improper activities involving stock options and similar equity-based instruments, including stock option backdating, option repricing, and the opportunistic timing of option grants (spring-loading or bullet-dodging). This is because the requirement for timely disclosure of option grants and public scrutiny of such disclosure will generally limit opportunities for issuers and insiders to engage in improper dating practices.

101. While the Respondents may have been in violation of the regulatory requirement to disclose their positions and the trading moratorium that is in effect until they do so, that does not translate into private rights for the issuer. The securities regulation regime is the quintessential example of a public interest statute. The public purposes of the Securities Act are set out in s.1.1 of the statute. The OSC expressly regulates and acts in the public interest.

102. When the securities laws provide a private right of action, they say so. The remedy for not making disclosure, however, is simply the regulator making an order requiring disclosure.

103. The breach of the National Policies committed by the Respondents in buying the shares of Trillion is not probative of proximity between the companies. It does not speak to the nature or directness or closeness of the relationship between them. It does not make the facts that the Respondents were lenders to Trillion and that they bought shares that were ultimately liquidated any more indicative of a close and direct relationship between the companies.

104. Beyond asserting that Mr. Callahan knew about their refinancing plans, Trillion provides no evidence of who told him or other evidence to establish the claimed fact.

105. The holistic review of the points raised by Trillion does not help them given the lack of evidence in their affidavits to support the bulk of the allegations made.

106. In any event, taking all the points proven as a whole, I see no basis for a finding of the existence of relevant expectations between the parties. There were no representations or reliance alleged or proven. Trillion has no cognizable legal rights in its share prices on secondary markets. And nothing in the Securities Act or the regulatory scheme supports a finding of a legislative intention to create a private right of action by an issuer against a shareholder who purchases shares in breach of the disclosure requirements of the relevant National Instruments and is subject to a margin call and selloff by its brokers.

107. I agree with Mr. D’Souza for the stockbrokers who cautions against recognizing private rights on top of or that could conflict with the detailed and comprehensive public interest securities regulatory scheme.

108. What Trillion effectively argues is that the Respondents should have known that if they sold off their shares of Trillion, it could hurt Trillion’s economic position. I am not sure that unavailability of financing itself is a form of damages – as compared to the loss of profit that might accompany a hypothetical successful financing. Similarly, dilution, in my view, is suffered by shareholders rather than the issuer. So even the proof of harm is dubious here.

109. I accept Mr. Chaiton’s submission that proof of foreseeability of harm is insufficient to create a duty of care in any event. The ultimate findings made by Zarnett J.A. in Subway apply here equally well:

[128] The constellation of factors to which Subway points are primarily about foreseeability of harm, not proximity. They do not show a close and direct relationship. They do not show any expectations, representations, reliance, or statutory obligations as between Trent and Subway. They do not show anything that fulfils the purpose served by the requirement for an undertaking and reliance in a negligent misrepresentation or performance of services case, that is, something that shows a legally cognizable right of the plaintiff is affected. Nor do they show interests affected akin to rights in person or property. Subway’s negligence claim is only about the pure economic harm it suffered.

[129] The application of the principles relating to proximity in a claim for pure economic loss prevent the recognition of a novel proximate relationship in this case. As the Supreme Court in Maple Leaf explained (concerning a claim within the category of supply of shoddy goods), at para. 95, “while a novel duty of care, being novel, starts with a blank slate, that slate is filled by applying the same Anns/Cooper framework that, as we have just explained, operates to preclude recovery here”.

110. Accordingly, I agree with the Receiver that on a holistic review of evidence in light of the factors in the principled analysis, the Respondents owed no duty of care to Trillion.

111. Had I found otherwise, there would still be an issue of whether there is a basis in policy to negate a duty of care. Mr. Flewelling submits that the facts of this case are so unusual that the chance of a similar confluence arising again are low. Therefore, he submits there is little risk of “indeterminate liability.”

112. But I agree with Mr. D’Souza, who counters that, if a duty of care were to be recognized in this case, then going forward, shareholders would not know when or if their conduct could be found to be actionable. If one has to wait for a retrospective review of a confluence of factors occurring at the same time as a potential vulnerability of the issuer to share price volatility, all shareholders across the country would be subject "to a liability in an indeterminate amount for an indeterminate time to an indeterminate class" as discussed by Cardozo J. in Ultramares v Touche, 174 N.E. 441 (1932).

113. This too is a basis to leave securities regulation to the securities regulator.

114. There was no evidence before the Receiver that the Respondents engaged in market manipulation. Their purchase of shares without paying on the day of purchase is not remarkable or even unusual. Neither is it unusual for a hedge fund like the Respondents to sell shares, long or short, that may affect the share price of the issuer. But here the brokers sold share they had purchased on unsettled trades. They did not sell only Trillion shares. They sold all shares they were holding for the Respondents for which the Respondents did not pay due to Mr. Callahan’s death and lack of succession planning.

115. The breach of National Instruments on purchasing the shares and the fact that Trillion was looking for financing at the time add nothing to the understanding of what happened. Nothing in the facts create a relationship of proximity for which it would be fair and just to hold the Respondents liable to Trillion for its alleged and unproven loss of chance to obtain a refinancing.

116. Trillion’s appeal is therefore dismissed.

Stockbrokers’ Claims

117. The stockbrokers’ claims for the losses they suffered on liquidating unsettled trades are allowed. Among other claims, they have clear contractual indemnity rights against the Respondents.

Unitholders’ Claims

118. The unitholders’ claims are in the nature of equity. Through other Respondent entities, they effectively own trust units in the Master Fund that itself holds the marketable securities.

119. Some of the unitholders who sought to redeem their units before the receivership submit that they were entitled to be paid as of right at the end of September, 2023. The Receiver says however that the Respondents were not able to pay the redemption amounts that might have come due. Under the Respondents’ constating documents, the obligation to pay would then be deferred to the next month-end payment date. But by the time the October 31, 2026 month-end was reached, redemptions had been stopped by order of the OSC.

120. It follows then that the redemptions were not fully completed before the receivership and for that reason they did not become recognized with the priority of creditor claims. Ontario Securities Commission v Bridging Finance Inc., 2023 ONSC 715, at para. 145, aff’d on this point, 2023 ONCA 769.

121. Finally, the Receiver’s First Report is comprehensive and sets out reasonable steps. I approve its activities as set out in the report accordingly subject to the normal wording limitations set out in the Receiver’s draft order.

Distribution

122. The Receiver is authorized to distribute the funds in its hands to creditors with ranking claims as proposed. This will include the stockbrokers and exclude the unitholders and Trillion.

123. Trillion asks for a holdback for it to advance its claim. However, that ship has sailed. As I find that there was no cause of action available to Trillion supporting its Proof of Claim, there is nothing to move forward as contemplated by the scheduling order made at the case conference.

Costs

124. The Receiver and the stockbrokers may deliver costs submissions by June 8, 2026. Trillion may deliver costs submissions by June 15, 2026.

125. Costs submissions shall be no longer than 750 words. They shall be accompanied by each party’s Costs Outline. In addition, the parties may provide me with a copy of any offers to settle on which they rely for costs purposes.

FL Myers J

Date: June 1, 2026

[^1]: The additional matters referred to as being scheduled with the “threshold” matter in the Trillion claim, are the stockbrokers’ claims and the unitholders’ priority issue referred to in paras. 3 and 4 above.