The recent Lochan v Binance Holdings Limited 2025 ONCA 221 decision from Ontario's Court of Appeal highlights potential theories of liability that crypto asset trading platforms ("CTPs") might face from users in class actions based on securities law prospectus requirements. While these theories remain untested on the merits, the Court held that they are not clearly doomed to fail and appear consistent with the investor protection purpose of securities law.
The Allegations
Binance never registered with the Ontario Securities Commission ("OSC") to engage in the business of trading in securities and did not file or deliver a prospectus to users who purchased cryptocurrency derivatives, which were contracts that derived their value based on the price movement of cryptocurrencies ("Cryptocurrency Derivatives"). Even though Binance discontinued operations in Ontario, it remains the target of an ongoing formal investigation by the OSC for, among other things, distributing securities without a prospectus contrary to s. 53(1) of Ontario's Securities Act (the "OSA").
In 2022, a putative class action was commenced in Ontario alleging that Binance distributed securities to class members without (a) filing a prospectus with the OSC, in breach of s. 53(1) of the OSA and equivalent provisions in other Canadian securities legislation (the "Prospectus Filing Requirement")1 or (b) delivering a prospectus to purchasers of securities, in breach of s. 71(1) of the OSA and equivalent provisions in other Canadian securities legislation (the "Prospectus Delivery Requirement").2 As remedies, the class sought damages or rescission under the common law for illegality of the Cryptocurrency Derivatives, and under s. 133 of the OSA for breach of the Prospectus Delivery Requirement.
The Decision
The Court of Appeal in Lochan upheld certification of the class action against Binance. Its reasons for rejecting three of Binance's arguments on appeal are noteworthy.
Argument #1: Filing a prospectus is a precondition to breaching s. 71(1)
Binance argued that there was no cause of action under s. 71(1) of the OSA because a breach of the Prospectus Delivery Requirement can only occur if the issuer of the relevant securities has complied with the Prospectus Filing Requirement.
The Court – while not deciding this point on the merits – rejected Binance's argument and reliance on an older lower court decision in Jones v F.H. Deacon Hodgson Inc. 1986 CanLII 2559. In Jones, the Court concluded that a dealer who failed to deliver a prospectus had not contravened the prospectus delivery requirement because the dealer had not filed a prospectus in the first place; however, the Court granted the plaintiff relief under the common law arising out of the dealer's failure to file a prospectus.
The Court in Binance held that "there are certainly good reasons to doubt the correctness of its determination [in Jones] that a remedy is not available under s. 133 if no prospectus was filed,"3 including that it "appears inconsistent" with the OSA's statutory purposes:
[44] The interpretation of ss. 71(1) and 133 proposed by the appellants appears inconsistent with this well-established understanding of the OSA's statutory purposes. Although s. 133 would result in civil liability for failing to deliver a prospectus that had been duly filed, no such liability would attach to the arguably more serious and harmful circumstance where no prospectus has been filed at all. This appears to reward prior non-compliance and may well create an incentive for issuers not to file a prospectus, thereby reducing the disclosure available to investors.4
Argument #2: Sellers also liable for breach of the Prospectus Filing Requirement
Binance argued that the class could not rely on illegality arising from a breach of the Prospectus Filing Requirement to seek any common law remedy because class members had themselves breached the provision. Specifically, Binance argued that because the definition of "trade" in the OSA "captures purchasers of derivatives as well as sellers,"5 all class members contravened the Prospectus Filing Requirement by not filing a prospectus for the Cryptocurrency Derivatives they traded on the Binance platform.
In rejecting this argument, the Court emphasized the "well-established presumption that the legislature does not intend to eliminate common law rights in the absence of clear statutory language to that effect,"6 and concluded that the language in the OSA is not sufficiently strong or express to limit an investor's rights at common law. The Court went on to rhetorically note that it was unclear how thousands of unsophisticated investors, the majority of whom have less than $5,000 worth of assets in the market, would have "undertaken the complex task of preparing a prospectus" before selecting crypto derivatives on Binance's platform.7
Argument #3: Sellers and Purchasers contracted with each other, not Binance
Binance argued that the class was not entitled to seek recission from Binance because they contracted amongst themselves. That is, Binance was not a party to the trades in Cryptocurrency Derivatives but, rather, it merely operated a CTP that enabled purchasers and sellers of such products to trade with each other. Therefore, recission would require remedies as between the class members, leading to conflicts.
The Court rejected this argument, holding that the motion judge appropriately concluded that the class led sufficient evidence that contracts for Cryptocurrency Derivatives were between class members and Binance, pursuant to the standard terms and conditions, rather than between individual users.8
Takeaways
- Ontario Courts appear hesitant to engage in any robust interpretive exercise concerning the interplay between crypto and securities law. It didn't help that Lochan arose in the certification context – i.e., nothing had to be, or was, decided on the merits. Key questions remain: for example, whether a CTP that offers only spot trading in crypto assets is also distributing or trading in securities remains untested and should, in our view, elicit a more robust interpretive exercise from the Courts in the future.
- The Courts also appear willing to accept that the relatively low bar of "some basis in fact" is met when CTP users seek securities law remedies for trading losses, at least in circumstances where the CTP offers derivatives, the underlying interests of which are crypto assets.
- Lochan, as a decision from Ontario's highest court, will likely embolden enterprising class action lawyers to investigate claims against other CTPs for damages arising from breaches of the Prospectus Filing Requirement and Prospectus Delivery Requirement in connection with securities traded on the CTP. The Canadian Securities Administrators have asserted jurisdiction over all custodial CTPs, including those that offer spot crypto trading only (without derivatives or other forms of leverage) on the basis that the contractual arrangements between such CTPs and their users are themselves securities, which the CSA calls "crypto contracts".
- Although the Court of Appeal in Lochan did not reference the regulators' "crypto contract" theory, it cited two 2022 decisions of the Ontario Capital Markets Tribunal9 to support the reasonableness of the conclusion that Cryptocurrency Derivatives are securities, when a plain reading of the definition of "security" in the OSA would have led the Tribunal to the same conclusion.10 These two orders – both uncontested orders made against foreign CTPs similar to Binance – also endorse OSC Staff's position that spot "crypto contracts" are securities or derivatives.
- Given the slow pace at which class actions move, a contested hearing on the merits before a securities regulator might provide the most certainty to participants in the crypto asset industry and, ultimately, guidance to courts.
Footnotes
1. 53 (1) No person or company shall trade in a security on his, her or its own account or on behalf of any other person or company if the trade would be a distribution of the security, unless a preliminary prospectus and a prospectus have been filed and receipts have been issued for them by the Director.
2. 71 (1) A dealer not acting as agent of the purchaser [...] shall, unless the dealer has previously done so, send by prepaid mail or deliver to the purchaser the latest prospectus and any amendment to the prospectus filed either before entering into an agreement of purchase and sale [...] or not later than midnight on the second [business] day [...] after entering into such agreement.
3. Lochan v Binance Holdings Limited, 2025 ONCA 221 at para 40.
4. Lochan v Binance Holdings Limited, 2025 ONCA 221 at para 44.
5. Lochan v Binance Holdings Limited, 2025 ONCA 221 at para 51.
6. Lochan v Binance Holdings Limited, 2025 ONCA 221 at para 54.
7. Lochan v Binance Holdings Limited, 2025 ONCA 221 at para 55.
8. You can see our discussion of the Court of Appeal's refusal to enforce an arbitration clause in Binance's standard-form contract here.
9. Polo Digital Assets, Ltd (Re), 2022 ONCMT 32 and Mek Global Limited (Re), 2022 ONCMT 15.
10. Paragraph (p) of the definition of "security" in Section 1(1) of the OSA is: "any commodity futures contract or any commodity futures option that is not traded on a [registered or recognized] commodity futures exchange..."
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