Injunctions are powerful legal remedies that can be requested by a party and granted in a vast range of disputes. The purpose of an injunction is to either force a party to do something or prevent them from doing something to preserve assets or evidence. Injunctive relief is often sought in commercial disputes, such as civil fraud and contract disputes, to address an issue quickly.

In a recent case before the Ontario Superior Court of Justice, an online crypto trading platform sought an interim court order staying a regulator’s investigation until it could challenge the investigation on judicial review.  

Online crypto platform applies for injunctive relief

In the case of Binance Holdings Limited v. The Ontario Securities Commission, the moving party, Binance Holdings Limited (“Binance”), sought injunctive relief relating to an Investigation Order and Summons which were issued by the Ontario Securities Commission (the “Commission”) while awaiting a determination of an appeal brought by Binance on June 7, 2023, concerning a decision of the Capital Markets Tribunal. 

The Capital Markets Tribunal found that, under the Securities Act, it did not have jurisdiction to grant relief to Binance by revoking an Investigation Order and quashing the Summons. When Binance appealed the decision to the Divisional Court, the order had been issued with reasons pending. 

Additionally, Binance brought an application for judicial review of the decision to issue the Investigation Order and Summons. Binance sought to protect its rights to challenge the regulatory steps if the appeal of the jurisdictional issue was unsuccessful. 

Unregistered trading platform made incorrect statements to the Ontario Securities Commission 

Binance is an online crypto asset trading platform that is incorporated under the laws of the Cayman Islands and is available in Canada. Binance provided the Commission with information suggesting thousands of Ontario investors had traded assets and security tokens on the platform. However, Binance was not registered with the Commission. 

In March 2022, Binance and its Canadian affiliate signed an Acknowledgement and Undertaking (the “Acknowledgment”) with the Commission, acknowledging that Binance made incorrect statements to the public, the Commission, and the Ontario investors. Under the Acknowledgement, Binance agreed to:

• stop opening new Ontario investor accounts;
• stop trading in existing Ontario accounts (with limited exceptions for the benefit of investor protection); and 
• wind down its business concerning certain Ontario products completely.

Third-party reviewers not given access to Binance’s databases

The Acknowledgement protected the Commission’s right to commence enforcement proceedings against Binance in the event of Binance’s conduct which was a contract to the Securities Act or the public interest, aside from “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.”

The parties implemented an audit plan under which a third-party review would occur in order to identify which Ontario accounts to close. The audit plan also required Binance to provide the third-party reviewer with access to live databases to validate such accounts. 

Binance provided a draft report from the reviewer on December 12, 2022, which diverged from the original agreed-upon plan, as Binance needed to provide the reviewer with database access. However, counsel for Binance claimed that the reviewer agreed to observe the corporation conduct necessary searches. 

Binance withdrawals from Canada

In March 2023, the Commission learned that the United States Commodity Futures Trading Commission filed a complaint against Binance in the United States District Court, alleging that Binance, its founder, and other parties evaded United States regulatory requirements and compliance controls. 

Binance told the Alberta Securities Commission on May 2, 2023, that it intended to cease its operations in Canada and provided a withdrawal plan and timeline. Days later, on May 10, 2023, the Commission issued an Investigation Order under section 11 of the Securities Act, indicating that Binance may have also evaded Ontario securities law and compliance controls before and after it executed the Acknowledgement. Following the issuance of the Investigation Order, the Commission served Binance with a Summons on May 11, 2023, seeking access to the company’s communications regarding its operations in Canada, particularly in Ontario. 

Corporation seeks interim relief from Court

On May 12, 2023, Binance advised the public that it would withdraw its Canadian operations. In the meantime, Binance brought a motion before Ontario’s Superior Court of Justice for an interim order staying an Investigation Order and Summons issued by the Ontario Securities Commission while awaiting a determination of an appeal brought by Binance with respect to a decision of the Capital Markets Tribunal. 

Binance’s application with the Capital Markets Tribunal challenged the Investigation Order and Summons on the basis that:

• the conduct under investigation had already been settled by the Acknowledgement; 
• the Investigation Order did not serve a legitimate purpose under section 11 of the Securities Act; and
• the Summons was overbroad and was not properly issued.

The Court’s analysis for determining whether Binance’s obligation to comply with the Summons should be stayed began with applying the test from the Supreme Court of Canada in the case of RJR MacDonald Inc. v. Canada (Attorney General). Upon review of the evidence, the Court found that Binance’s arguments were weak and lacked merit. The Court found that despite Binance’s five core arguments, the first stage of the test in RJR MacDonald was not met as there was no serious issue to be tried. 

Court dismisses motion for injunctive relief

The Court disagreed with Binance’s argument that producing the required documents could constitute irreparable harm and found that this would not be the case, even if Binance successfully quashed the Summons. The Summons was generally unintrusive with respect to privacy rights and was not overly broad when read as a whole. The Court held that the balance of convenience did not favour Binance, stating that:

“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.”

The Court declined to grant relief staying the Investigation Order and Summons. The Court held that the acknowledgment did not “settle” matters between Binance and the Commission. The Court found that there was no abuse of process on behalf of the Commission in pursuing the non-compliance with the Acknowledgement or investigating new concerns. Noting that Binance’s proposed arguments to challenge the investigation and Summons lacked merit, the Court held that Binance failed to establish an unreasonable search and seizure argument under section 8 of the Canadian Charter of Rights and Freedoms. 

Ultimately, the Court dismissed Binance’s motion for an interim order and ordered costs in favour of the Commission. The Commission was allowed to proceed with the investigation and seek Binance’s compliance with the Summons. Binance’s application for judicial review is scheduled to be heard on August 10, 2023. 

Contact the Corporate Lawyers at Milosevic & Associates for Trusted Advice on Injunctive Relief and Complex Commercial Disputes 

At Milosevic & Associates in Toronto, our experienced commercial litigation lawyers regularly defend business owners in complex commercial disputes in all levels of courts throughout the province. Whether you are involved in a contract dispute, a commercial fraud allegation, or a breach of an officer’s fiduciary duty, an injunction can provide a swift resolution. To learn more about injunctions and representation in commercial disputes, call us at 416-916-1387 or complete our online form to schedule a confidential consultation.