The Court of Appeal recently issued a decision in Binance Holdings Limited v. Ontario Securities Commission, circumscribing the power of the Securities Commission to issue summonses for the production of documents. The case involved Binance Holdings Limited (“Binance”), a Cayman Islands corporation. Binance operates an online cryptocurrency asset trading platform and has been involved in a class action and securities investigation we previously wrote about.

Summons Issued for Binance to Provide Documents to Securities Commission

In 2021, the Ontario Securities Commission announced that unregistered crypto-asset trading platforms operating in the province were required to initiate compliance discussions with the Commission. Despite having a “significant presence” in Ontario and operating a platform accessible to residents there, Binance initially did not do so. Binance and the Commission subsequently held discussions, and in 2023, an order was issued appointing investigators to investigate allegations of Binance’s violations of securities laws. Soon after, one of the investigators issued a summons to Binance, requiring the Exchange to provide various documents and other information to the Commission.

The summons in question was issued under section 13 of the Securities Act, which states that an investigator has the same power “to summon and compel any person or company to produce documents and other things” as does a judge of the Superior Court of Justice. Among other things, the summons issued to Binance required the company to “provide all communications regarding Ontario (or Canada generally) among directors, officers, employees, contractors, agents and consultants of Binance … and related entities” for the period January 1, 2021, to present. The summons also indicated that the communications could include “e-mails, letters, [and] chats/texts on messaging platforms”. It was to include (but not be limited to) communications among those listed individuals regarding a non-exclusive list of events and activities.

Binance sought various remedies in relation to the investigation order and summons, and its arguments eventually made their way to the Court of Appeal. Among the issues considered by the Court of Appeal was whether the summons was constitutional.

Section 8 of the Charter & Protection Against Unreasonable Search and Seizure

The Court of Appeal began its consideration of the constitutionality of the summons by outlining some of the basic legal principles applicable to section 8 of the Charter of Rights and Freedoms. It noted that the section applies if a “search” or “seizure” is undertaken by a state agent “in circumstances that compromise the reasonable expectation of privacy” of a party. An “enforceable demand for production of business records” will constitute a “seizure” under section 8 if made by a state agent. Further, the holder of such records has a reasonable expectation of privacy in them, but this expectation is “low.”

There are various reasons for this, including the fact that businesses involved in trading securities know their industry is closely regulated to safeguard investors, market efficiency, and public confidence; such records do not concern personal identity, which the right of privacy is generally intended to protect; and investigators need to be able to compel production to enforce regulatory compliance.

In light of this, the Court of Appeal had no difficulty in concluding that the summons in question implicated Binance’s rights under section 8 of the Charter.

Court of Appeal Outlines the Principles That Apply in Evaluating the Reasonableness of a Search and Seizure in the Regulatory Context

In considering the reasonableness of the search and seizure at issue, the Court of Appeal began by noting that regulatory searches and seizures engage different considerations than generally applicable in a criminal context. It referred to earlier case law and noted that reasonableness was largely to be determined in the same way it is in the context of the production of documents in civil cases. In other words, reasonableness depends on “consideration of what is sought, from whom, for what purpose, by whom, and in what circumstances” (see R. v. McKinlay Transport Ltd.).

In a regulatory context, the relevance of the material required to be produced is key. The material must be relevant “to the inquiry in progress,” taking into account “the nature and purpose of the power accorded” (see McKinlay).

A seizure will be unreasonable and therefore unconstitutional if it is not related to the purpose “for which the power of compulsion was created.” It will also be unreasonable if “there is no realistic foundation for believing the target documents will be relevant to that inquiry.”

Constitutionality of the Summons Turned on the Breadth of Its Wording

The Court of Appeal noted that the power of an investigator under section 13 of the Securities Act is the same as that of a judge of the Superior Court of Justice. In civil matters, a subpoena can be quashed if it requires the production of documents that are not relevant to the matters in question. As such, to be constitutional, a summons issued by a Securities Act investigator must only demand information that the Commission has a basis to believe may be relevant. To find otherwise would improperly allow the Commission to require production of “an overbroad array of documents to enable it to conduct a fishing expedition of [an] entire business in a speculative search for documents.”

Ultimately, the Court of Appeal concluded that the summons in question was “unduly broad” and therefore unconstitutional. In particular, the Court noted that the summons required production of “all communications,” without limitation, and stated that such a demand exceeded the inquiry being undertaken by the investigator. Furthermore, the demand was made not only of Binance but also of its “related entities,” a factor that again exceeded the scope of the inquiry being undertaken. The demand also applied to communications regarding Canada, rather than only Ontario, which was within the Commission’s jurisdiction.

Categories of Documents Can Be Targeted to Avoid Overreach

It is worth noting that the Commission argued it could not know whether a document was relevant without first looking at it; however, the Court of Appeal observed there was no reason why inquiries could not be targeted to “categories of documents that are reasonably likely to contain relevant documents” or why they could not “describe the scope of their inquiry in a way that would enable the regulated party and the courts to identify relevant documentation.”

The Court found that the summons constituted an unreasonable seizure and was set aside, although it stated the investigator was free to issue a summons that was “Charter-compliant.”

Milosevic & Associates Provides Dynamic Representation in Complex Commercial & Crypto Disputes in Toronto

If your business is facing a summons, regulatory inquiry, or enforcement action from the Ontario Securities Commission, tailored legal advice is essential. The skilled commercial litigators at Milosevic & Associates can help you understand your rights, assess the scope of any disclosure demands, and respond strategically to protect your organization’s interests. Contact us online or call (416) 916-1387 to book a consultation.