CBA Proposal for a Framework to Facilitate Court to Court Communication and Coordination of Overlapping Class Actions Clears the First Hurdle

(The author was a member of the CBA National Class Actions Task Force 2016-2017)

At the CBA Annual Meeting on February 15, 2018, a resolution to approve, as best practices, a revised Canadian Judicial Protocol for the Management of Multi-Jurisdictional Class Actions was approved.  The resolution also urges Canadian courts that administer class actions to adopt the revised Canadian Judicial Protocol.

The Revised Protocol builds on the existing CBA Protocol providing for the creation of a Notification List of all counsel involved  in class actions involving the same or similar subject matter, and the approval and administration of settlements through Multi-jurisdictional Class Settlement Approval Orders.

The Revised Protocol establishes best practices by which multi-jurisdictional class actions may be coordinated among courts in circumstances that do not involve settlements. It includes the following:

  • A requirement that prior to a date for the first case management conference in any of the actions being set, Plaintiff’s counsel post the pleading in its action on the CBA Class Action Database and compile a Notification List listing the names of all known counsel and judges in any actions, with all known contact information;
  • A framework for communication between judges in different provinces dealing with potentially overlapping class actions, allowing them to speak to each other and to conduct a joint case management hearing if the judges in both jurisdictions agree; and
  • A requirement that a party bringing a motion to stay or dismiss proceedings based in whole or in part on the existence of other actions, or for certification if  certification would involve class members in other actions, to provide all judges and all counsel in the relevant actions with a copy of the Notification List and a copy of the notice of motion or application.

The  Revised Protocol is the product of a reconstituted CBA National Class Actions Task Force composed of lawyers with expertise in class actions drawn from both the plaintiff and defence bar, and members of the judiciary from 5 provinces.

This represents yet another step in the CBA’s efforts to facilitate the co-ordination of overlapping class actions in different jurisdictions, in the absence of a constitutional framework that would permit the creation of an equivalent to the U.S. Judicial Panel on Multidistrict Litigation.

More information can be found at:

Supreme Court of Canada Clarifies RJR-MacDonald Test for Mandatory Injunctions: R v CBC, 2018 SCC 5

The Supreme Court of Canada (SCC) has clarified the test for mandatory injunctions under the RJR-MacDonald framework and resolves conflicting case law concerning the strength of the case that the applicant must establish in order to succeed by requiring that the applicant  demonstrate a strong prima facie case that it will likely succeed at trial, as opposed to a serious issue to be tried. This higher threshold reflects the serious nature of the mandatory relief.


An accused was charged with first degree murder of an individual under the age of 18.  The Crown requested — and a judge subsequently ordered — a mandatory ban under s. 486.4(2.2) of the Criminal Code to prohibit the publication, broadcast, or transmission in any way of information that could identify the victim.  The Canadian Broadcasting Corporation (CBC) refused to remove from its website the victim’s identifying information published prior to the order granting the ban.

The Crown filed an Originating Notice seeking an order citing CBC for criminal contempt, and an interlocutory injunction directing removal of the information from CBC’s website.  The chambers judge of the Alberta Court of Queen’s Bench applied a modified version of the tripartite test for interlocutory injunctions as laid out in RJR-MacDonald.  This required the Crown to prove a strong prima facie case for finding CBC in criminal contempt, that the Crown would suffer irreparable harm if the application was refused, and that the balance of convenience favoured granting the injunction.  The chambers judge concluded that the Crown had not satisfied any of the requirements for a mandatory injunction and dismissed the application.

Court of Appeal

The majority of the Alberta Court of Appeal allowed the appeal and granted the injunction. The majority held that the Originating Notice had a “hybrid” aspect to it, in that it sought both a citation for criminal contempt and the removal of the victim’s identifying information from CBC’s website.  Here, the strong prima facie case that the Crown was bound to show was not for criminal contempt, but rather for an entitlement to a mandatory order directing removal of the identifying material from the website. Upon reframing the issue, the majority found that the Crown had satisfied the test.

In dissent, Greckol JA held that a literal reading of the Originating Notice did not support the majority’s conclusion.  Rather, the wording of the Originating Notice shows that the Crown brought an application for criminal contempt and sought an interim injunction in that proceeding.  There was only one claim and a corresponding remedy; not two separate claims.  Accordingly, Greckol JA would have dismissed the appeal as the chambers judge had accurately characterized the issue.  The chambers judge’s exercise of discretion to refuse an injunction was entitled to deference.

Supreme Court of Canada

The SCC agreed with Greckol JA and found that each prayer for relief in the Originating Notice did not launch an independent proceeding; rather, both related to the alleged criminal contempt.  Accordingly, the Court held that the chambers judge was correct in finding that the Crown had the burden to demonstrate a strong prima facie case of criminal contempt.

In so doing, the SCC clarified the applicable framework for granting mandatory injunctions.  It held that an applicant must meet the following test:

  1. The applicant must demonstrate a strong prima facie case that it will succeed at trial. This entails showing a strong likelihood on the law and the evidence presented that, at trial, the applicant will be ultimately successful in proving the allegations set out in the originating notice;
  2. The applicant must demonstrate that irreparable harm will result if the relief is not granted; and
  3. The applicant must show that the balance of convenience favours granting the injunction.[1]

In applying the test, the SCC found that there was no reason to disturb the chambers judge’s decision – the Crown had failed to discharge its burden that it could “likely succeed at trial” with respect to the finding of criminal contempt.  As this finding was dispositive, the Court did not see the need to consider the other two stages of the modified RJR-MacDonald test.

As Canadian courts have, since RJR-MacDonald, been divided on the appropriate framework for mandatory injunctions, this decision provides welcome guidance.

The author would like to thank Peter Choi, articling student, for his contributions to this article.

[1] 2018 SCC 5 at para 18.

Ontario provides protection to “whistleblowers” against reprisals

In December 2017, Ontario instituted a civil cause of action for employees who experience reprisals from their employers for providing information or assisting in certain other ways in regulatory or criminal investigations or proceedings involving contraventions of securities or commodity futures laws (whistleblowing).

The identical amendments to s. 121.5 of Ontario’s Securities Act and s. 54.1 of the Commodity Futures Act are wide in scope and protect “whistleblowers” as follows:

  • The new civil cause of action may entitle the employee to reinstatement or to payment of two times the amount of any remuneration they were denied as part of the reprisal;
  • Employees are protected against reprisals for providing cooperation, testimony, information or other assistance to regulators or law enforcement authorities or in investigations, or even for merely “[seeking] advice about providing information” or “[expressing] an intention to provide information” about a contravention;
  • The protections extend to assistance to regulators such as the Ontario Securities Commission (OSC), the Investment Industry Regulatory Organization of Canada (IIROC), the Mutual Fund Dealers Association (MFDA), or law enforcement agencies;
  • The employee need only “reasonably believe” the reported conduct is contrary to Ontario securities or commodity futures law or IIROC or MFDA regulations or by-laws: it is not necessary that misconduct be ultimately proven;
  • Prohibited reprisals under the new provisions including termination, demotion, suspension, other penalties, threatening any such consequences, or intimidation or coercion of the employee; and
  • The demands for compensation for reprisal may be pursued before an arbitrator under a collective agreement, in a civil proceeding before the Superior Court of Justice, or pursuant to other avenues such as private arbitration, if available.

The amendments add to existing provisions instituted in 2016 under Ontario’s Securities Act and the Commodity Futures Act which allow regulators to take action against employers who retaliate against whistleblowers, and which invalidate any term in an employment contract that prevents employees from whistleblowing.

As a result of these changes, employers are well advised to ensure that appropriate internal whistleblower policies and training are in place to minimize the risk of disgruntled employees alleging that they experienced reprisals.  In particular, employers should be cognizant of whistleblower protections when disciplining or dismissing any employee who has been involved in any regulatory investigation or proceeding.

The Ontario Court of Appeal Affirms the Test for Tippee Liability: Finkelstein v. Ontario Securities Commission

In the recently released decision in Finkelstein v. Ontario Securities Commission, the Ontario Court of Appeal (the Court) considered for the first time the definition of “person in a special relationship with an issuer” found in s. 76(5)(e) the Securities Act (the Act) as it applies to successive tippees who possess material, non-public information about an issuer.

The decision confirms that a person may be found to have contravened the insider trading or tipping provisions of the Act where he ought reasonably to have known that the source of the material non-public information about the issuer in his possession emanated from a “person in a special relationship” with the issuer. Subjective knowledge that his information source was in fact “in a special relationship with the issuer” is not required.

The Commission hearing panel (the Panel)’s identification and reliance upon certain factors or types of circumstantial evidence that could assist in drawing inferences as to whether it was more likely or not that insider trading or tipping had occurred, including the professional qualifications of the alleged tipper and tippee and their access to information about transactions, was upheld as reasonable.


The Ontario Securities Commission (the OSC) initiated proceedings under s. 127 of the Act against five individuals including Mitchell Finkelstein (Finkelstein), Howard Miller (Miller) and Francis Cheng (Cheng), alleging that they breached the Act’s insider trading and tipping provisions and acted contrary to the public interest by recommending to family and clients the purchase of shares in Masonite International Corporation (the Corporation).  The OSC alleged that the material, non-public information (MNPI) flowed through a chain of five people, originating with Finkelstein, a mergers and acquisitions lawyer who was working on a take-over bid involving the Corporation.  Finkelstein shared the MNPI with a friend who worked as an investment advisor, who in turn shared it with L.K., an accountant.  L.K. shared the information with Miller who then conveyed it to Cheng.

At the conclusion of a contested hearing, the Panel found that all of the Respondents were in a special relationship with the Corporation, and had informed or “tipped” others of MNPI concerning the Corporation before that information had been generally disclosed, contrary to s. 76(2) of the Act. As well, the Panel determined that Miller and Cheng had contravened the prohibition against insider trading in s. 76(1) by purchasing the Corporation’s securities with knowledge of undisclosed material facts.

All five respondents appealed the Panel’s decision to the Divisional Court. All but Cheng’s appeal was dismissed. The Divisional Court held that the Panel made a number of factual errors in its analysis of the evidence concerning Cheng that undermined the foundation upon which the Panel concluded Cheng ought to have known he was receiving inside information.

Miller obtained leave to appeal to the Court of Appeal. The OSC appealed the Divisional Court’s decision to allow Cheng’s appeal from the decision of the Panel.

The Decision

The primary issue on the appeal was the Panel’s interpretation and application of s. 76(5)(e) of the Act, in particular, whether it reasonably interpreted that section to find that Miller and Cheng ought reasonably to have known that their respective tippers stood in a special relationship with the Corporation. According to the Court, s. 76(5)(e) is intended to catch tippees “who, themselves, convey information they have received to others”, making a person who was ‘tipped” a person in a special relationship with the issuer.

Cheng and Miller did not challenge the Panel’s finding that the inquiry into successive tippees under section 76(5)(e) must ask “whether the tippee received material facts, which he reasonably knew or ought to have known came from someone who, in turn, knew or reasonably ought to have known came from a person in a special relationship”. Similarly, the parties did not dispute the Panel’s articulation of the objective knowledge test or the Panel’s determination that a tippee need not necessarily know the identity of the initial tipper.  There was also no dispute that neither Cheng nor Miller had actual, subjective knowledge that the person who tipped each of them was in a special relationship with the Corporation.

Rather, the focus of the appeal was on how the Panel applied the objective test set out in s. 76(5)(e) to the specific facts. In particular, Miller and Cheng took issue with the factors (the Factors) used by the Panel to guide the application of the “ought reasonably to have known” element of s. 76(5)(e) of the Act:

  1. What is the relationship between the tipper and tippee? Are they close friends? Do they also have a professional relationship? Does the tippee know of the trading patterns, including successes and failures, of the tipper?
  2. What is the professional qualification and standing of the tipper? Is he a lawyer, businessman, accountant, banker, investment adviser? Does the tipper have a position which puts him in a milieu where transactions are discussed?
  3. What is the professional qualification of the tippee? Is he an investment adviser, investment banker, lawyer, businessman, accountant, etc.? Does his profession or position put him in a position to know he cannot take advantage of confidential information and therefore a higher standard of alertness is expected of him than from a member of the general public?
  4. How detailed and specific is the MNPI? Is it general such as X Co. is “in play”? Or is it more detailed in that the MNPI includes information that a takeover is occurring and/or information about price, structure and timing?
  5. How long after he receives the MNPI does he trade? Does a very short period of time give rise to the inference that the MNPI is more likely to have originated from a knowledgeable person?
  6. What intermediate steps before trading does the tippee take, if any, to verify the information received? Does the absence of any independent verification suggest a belief on the part of the tippee that the MNPI originated with a knowledgeable person?
  7. Has the tippee ever owned the particular stock before?
  8. Was the trade a significant one given the size of his portfolio?

Miller submitted that the Factors diverged from the plain language of the provision, and therefore constituted an unreasonable interpretation. Cheng argued that two of the Factors, 5 and 6 above, were not relevant.

The Court rejected these arguments, finding that the Factors constituted an appropriate guideline to use when applying the objective test of “ought reasonably to have known.” Given that circumstantial evidence usually forms the bulk of the evidence in insider trading cases, it was reasonable for the Panel to identify certain groups of circumstantial evidence, such as the Factors, to assist in drawing logical and reasonable deductions about the tippee’s “state of knowledge of the relationship between the tipper and the issuer or another person in a special relationship” with the Corporation.  The probative value of such circumstantial evidence will be dependent upon the specific circumstances and the totality of the evidence.

The Court also rejected Miller’s argument that the Panel’s finding that he contravened the tipping and insider trading prohibitions was unreasonable because the Panel failed to determine that the person from whom Miller received the Corporation’s MNPI, L.K. (who was not named as a respondent in the OSC proceeding), was in a special relationship with the Corporation. The Court ruled that, in treating L.K. as a “knowledgeable person”, the Panel had implicitly found that he had a special relationship with the Corporation.

Finally, the Court granted the OSC’s appeal with respect to the Divisional Court’s decision to overturn the Panel’s finding that Cheng contravened the tipping and insider trading provisions, finding that the Divisional Court had impermissibly re-weighed the evidence, and substituted inferences it would have made had it been in the Panel’s position. The Court confirmed that the role of the reviewing court is to determine whether the tribunal’s decision “contains an analysis that moves from the evidence before the tribunal to the conclusion that it reached”, not whether the decision is the one that the reviewing court would have reached. The findings of fact and inferences drawn by the Panel were reasonably supported by the record.


The authors would like to thank Fahad Diwan, articling student, for his contribution to this article.

The Canadian Securities Administrators Prepares to Reconsider Disclosure Requirements for Issuers linked to US-Based Marijuana Activities

Securities law requirements for issuers linked to US-based marijuana-related activities may be about to change.

In October 2017, the Canadian Securities Administrators (CSA) published Staff Notice 51-352[1], outlining disclosure requirements for issuers that have (or are engaged in developing) marijuana-related activities within US states that have authorized such activity. At that time, the CSA indicated that it would re-examine those requirements if the US federal government’s forbearance-based enforcement approach were to change. We discussed this topic in a prior posting.[2]

On January 12, 2018, the CSA announced that it was reconsidering whether the disclosure requirements outlined in Staff Notice 51-352 remain suitable.[3] The CSA’s announcement comes on the heels of US Attorney General Jeff Sessions’ decision to rescind the Cole Memorandum, effective January 4, 2018.[4]

What is the Cole Memorandum?

In 2013, former US Attorney General James M. Cole drafted a memorandum which announced a shift in the US federal government’s marijuana policy.[5] The Cole Memorandum announced that the enforcement of marijuana prohibitions under the Controlled Substances Act[6] would take a lower priority and that, moving forward, the US federal government would take a hands-off approach to enforcing certain federal prohibitions under the Act.

The Cole Memorandum enumerated a new set of priorities for federal prosecutors with respect to marijuana. These priorities included, for example, preventing the distribution of marijuana to minors as well as preventing state-authorized marijuana activity from being used to conceal trafficking or other illegal activity. The Cole Memorandum indicated that in states that have legalized marijuana and implemented a strong and effective regulatory system, prosecutors should focus only on the enumerated priorities.


Although various US states have legalized marijuana, the use and possession of marijuana has, for all purposes, continued to remain illegal under US federal law. The Cole Memorandum had cleared up some of the uncertainty about how the federal government would respond to state-level legalization. However, with the repeal of the Cole Memorandum, the marijuana-industry may be once again left to deal with a renewed degree of uncertainty.

The CSA is expected to communicate further details about its position in the near future. We will continue to monitor developments in this area and provide updates as they develop.


The author would like to thank Blanchart Arun, articling student, for his contribution to this article.


[1] Canadian Securities Administrator (CSA), “CSA Staff Notice 51-352: Issuers with U.S. Marijuana-Related Activities” <>.

[2] Michael Bookman, “CSA Clarifies Disclosure Requirements for Issuers with U.S.-Based Marijuana Activities” <>.

[3] Canadian Securities Administrators (CSA), “Canadian securities regulators issue statement following rescission of the Cole Memorandum” <>.

[4] Office of the US Attorney General, “Memorandum for all US Attorneys: Marijuana Enforcement ”, January 4, 2018, <>.

[5] Office of the US Attorney General, “Memorandum for all US Attorneys: Guidance Regarding Marijuana Enforcement ”, August 29, 2013, <>.

[6]Controlled Substances Act of 1970, 21 USC 13.

Class actions come to the cryptocurrency markets

In the U.S. there has been an notable uptick in class action lawsuits launched against companies in the cryptocurrency market in late 2017. As public attention turned to the roller-coaster ride of cryptocurrency markets over the past year, it is not surprising that ambitious class counsel have jumped on the ride by issuing their first putative class actions against companies funded through initial coin/token offerings (ICO) and companies that are otherwise active in the cryptocurrency space.  With over $3 billion dollars raised through ICOs in 2017, and few signs of the market dynamics changing any time soon, we expect that this trend will continue in 2018.

The Emergence of a Trend in the U.S.

The trend began in October of 2017 in the fallout of Tezos’s $232 million ICO when the company was named as a defendant to a putative class action lawsuit after the company faced issues getting off the ground with the release of its digital coins, called “Tezzies”. In November and December three more putative class actions were filed naming the company, along with its founders and certain other related entities, as defendants.  In each case, the claims center around allegations that Tezos sold unregistered securities and deceptively marketed the sale of the company’s Tezzies.

On December 13, 2017, the same day that a fourth class action lawsuit was issued against Tezos, Centra was hit with a putative class action alleging that its investors were victims of deceptive statements and sold an unregistered security. The company had offered investors an opportunity to trade their various cryptocurrencies for Centra’s own cryptocurrency which it publicly stated could be traded through existing credit card networks.  The company raised $30 million in its ICO, but faced delays developing and launching its digital currency.

A third company, Monkey Capital, was hit with a putative class action in late December after it had launched a pre-sale of cryptocurrency options that were to be later used to purchase “Monkey Coins” which never became available. Once again, the claim alleges that investors were victims of deceptive statements and that the pre-sale amounted to an unregistered securities offering.

Finally, The Crypto Company, which advertises itself as a cryptocurrency consultant and technology developer, had trading in its shares suspended by the U.S. Securities and Exchange Commission (SEC) on December 19, 2017 due to “concerns regarding the accuracy and adequacy of information in the marketplace” about promotion, compensation and share sells planned by the company as well as potentially manipulative trading.  On January 5, 2018, a putative class action was filed against the company and certain of its officers and directors alleging that investors were victims of deceptive statements, and that the company engaged in a scheme to promote and manipulate the company’s stock.

Potential Applicability in Canada

Canadian companies have not escaped the trend as class counsel based in the U.S. have announced that they are investigating the possibility of a class action against Vancouver-based First Bitcoin Capital Corp. First Bitcoin Capital is a public company with its securities trading over the counter on OTC markets.  While not required to file information with the SEC as an over the counter security, OTC Markets’ quotation system “OTC Link” is registered with U.S. regulators as a broker-dealer and is a member of the U.S. Financial Industry Regulatory Authority.  On August 24, 2017, trading in First Bitcoin Capital’s securities was suspended by the SEC after major volatility in the value of the company’s securities through August, including a 7000% increase.  Shortly after the suspension, three different class action law firms made public statements that they were investigating potential class actions against the company for possible allegations of misleading or deceptive statements.

As we have previously commented, the regulatory reach over of ICOs is complex and largely untested waters in Canada.  It remains unclear whether, and in what circumstances, coins or tokens offered in ICOs qualify as securities.  If they do, that opens the floodgates for regulatory proceedings and civil securities class actions.

i) the approach of the regulators

In a Staff Notice published in August 2017, the Canadian Securities Administrators (CSA) took the position that “in many cases, when the totality of the offering or arrangement is considered, the coins/tokens should properly be considered securities”.  The CSA has stated that if an individual purchases coins/tokens whose value is tied to the future profits or success of a business, these will likely be considered securities.  The definition of a “security” under Canadian securities laws is broad and, in Ontario, includes “any investment contract”.  According to the CSA, an investment contract may exist if an ICO includes: (a) an investment of money; (b) in a common enterprise; (c) with the expectation of profit; and, (d) to come significantly from the efforts of others.  A test similar to this was applied by the SEC when it determined in one case this past July that a cryptocurrency was a security.

If a company’s coin/token is found to be a security, we can expect Canadian securities regulators to take the position that an ICO must be accompanied by a prospectus or otherwise qualify for one of the prospectus exemptions, such as the accredited investor or offering memorandum exemptions. While ICOs are often accompanied by a white paper, the existence of a white paper likely will not excuse a company from complying with any applicable obligation to file a prospectus or offering memorandum.  We are not aware of any business that has used a prospectus to conduct an ICO in Canada, but we are aware of at least two companies, Impak Finance Inc. and Token Funder Inc., that were approved for ICOs under the offering memorandum exemption.

ii) potential for civil actions

There is also a serious question about whether Canadian companies issuing coins/tokens may find themselves exposed to civil liability for potential misrepresentations in their public statements, whether in a prospectus, offering memorandum, white paper or other publicly available document. As we have seen in the U.S. cases above, class counsel are not shy from alleging civil liability for false or deceptive statements made before or during an ICO.  Such civil claims could include allegations of:

  • primary market liability under s. 130 or s. 130.1 of the Ontario Securities Act, and its equivalents, by purchasers in an ICO qualified by a prospectus or offering memorandum for alleged misrepresentations in those documents that would reasonably be expected to have a significant effect on the market price or value of the coin/token;
  • secondary market liability under Part XXIII.1 of the Ontario Securities Act, and its equivalents, by peer-to-peer purchasers of a company’s coins/tokens in the market after an ICO, where such purchasers allege that public statements made by the “issuer” of the coin/token contained misrepresentations that would reasonably be expected to have a significant effect on the market price or value of the coin/token; and
  • negligent misrepresentation under the common law where statements made by the company issuing the coin/token are: untrue or misleading, made in a circumstance where the company owed a duty of care to purchasers, negligently made, and detrimentally relied on by the purchasers.

Lastly, Canadian companies should be wary of the “long-arm” jurisdiction provided by Canadian securities laws extending secondary market liability to “responsible issuers” which have “a real and substantial connection” to a province, the securities of which are publicly traded outside the province (see our commentary on this issue here).  In other words, cryptocurrency companies may find themselves vulnerable to secondary market liability even where their securities do not trade over the facilities of any Canadian exchange.  The fact that a coin/token trades on a cryptocurrency exchange or even over the counter may not mean that it is immune from being found to be “publicly traded” under Canadian securities laws.

R. v. Marakah: A roadmap towards broader privacy protection in securities enforcement proceedings?

In R. v. Marakah[1], the Supreme Court of Canada (SCC) considered (1) whether Canadians can reasonably expect that text messages they send remain private, even after the messages have reached their destination, and (2) whether the state is free to access text messages from a recipient’s device without a warrant.


Marakah was convicted for multiple firearm offences. The convictions turned on the admissibility of text messages seized by police. The contents of private text messages between the Marakah and his accomplice, Winchester, were memorialized and intercepted on Winchester’s cell phone.

Reasons for the Decision

The SCC decided that, in some cases, text messages that have been sent and received can attract a reasonable expectation of privacy according to section 8 of the Charter of Rights and Freedoms and therefore be protected against unreasonable search or seizure.

To be accorded s. 8 protection against unreasonable search and seizure, a claimant must establish a reasonable expectation of privacy in the subject matter of the search. This expectation must be assessed in “the totality of the circumstances”.[2]

“The totality of the circumstances” analysis considers the following four questions:

  1. What was the subject matter of the alleged search?
  2. Did the claimant have a direct interest in the subject matter?
  3. Did the claimant have a subjective expectation of privacy in the subject matter?
  4. If so, was the claimant’s subjective expectation of privacy objectively reasonable?

The majority held that each of the above was satisfied:

  • The subject matter was the electronic conversation

The subject matter of the search was the electronic conversation between the sender and the recipient, including the existence of the conversation, the identities of the participants, the information shared, and any inferences about associates and activities that could be drawn from that information.

  • Marakah had a direct interest in the electronic conversation

Marakah was a participant and author in the electronic conversations and therefore had a direct interest.

  • Marakah had a subjective expectation of privacy over his text messages

It was undisputed that Marakah has a subjective expectation of privacy in the text messages he had sent.

  • Marakah subjective expectation of privacy was objectively reasonable

The Court summarized the three criteria in determining the objective reasonableness of a subjective expectation of privacy: (1) the place where the search occurred, (2) the private nature of the subject matter, and (3) control over the subject matter.

First, McLachlin C.J. deemphasized the physical location of the subject matter and instead focused on the expectation of privacy surrounding the contents of electronic conversations.

Second, McLachlin C.J. purported that electronic conversations may represent a zone of privacy in which personal information is safe from state intrusion, which represents the very purpose of s. 8 of the Charter. The Majority goes so far as to opine that such privacy extends beyond one’s own mobile device and may include electronic conversations with others.

Third, McLachlin C.J. recast the classic definition of control, which was historically based on ownership and possession, in relation to the subject matter of the search (i.e. electronic messages). If a text message recipient could have disclosed a conversation, if s/he chose to, it would not negate the reasonableness of the sender’s expectation of privacy against state intrusion:

The cases are clear: a person does not lose control of information for the purposes of s. 8 simply because another person possesses it or can access it.[3]

Moldaver J., in a powerful dissent, explained that a crucial contextual factor was Mr. Marakah’s lack of control over Mr. Winchester’s phone and should have been fatal in the application of s. 8.

Significance to securities enforcement proceedings

The Ontario Securities Commission (OSC) can bring charges under sections 122 (quasi-criminal proceedings where penal sanctions may be imposed) and 127 (administrative proceedings where no penal sanctions may be imposed) of the Securities Act.

Section 8 protection under s. 122 proceedings is likely, but more nuanced under s. 127 proceedings. Application of the Charter is generally restricted to situations where the proceedings have penal consequences. Where the predominant purpose of an investigation moves from the regulatory sphere to ‘the determination of penal liability’, investigation powers become more circumscribed.[4] For instance, in R. v. Jarvis, the SCC held that where the predominant purpose of an inquiry was the determination of penal liability, then all Charter protections relevant in the criminal context should apply.[5]

Whereas insider trading cases in particular err on the side of penal liability, it remains unclear whether the same level of s. 8 protection – as in R. v. Marakah – is operative. The crux of many insider trading cases revolve around electronic messages to and from the impugned parties.[6] Affording sweeping s. 8 protection to personal messages may very well represent a significant challenge to insider trading enforcement proceedings.


The author would like to thank Saam Pousht-Mashhad, articling student, for this contribution to this article.


[1] 2017 SCC 59 [Marakah].

[2] Marakah at para 10.

[3] Marakah, at para 41; the Majority addresses policy considerations in para 46 onward, which are not addressed in this blog post.

[4] R. v. Jarvis, [2002] 3 SCR 757 [Jarvis].

[5] Jarvis, at para 98.

[6] See for example the discussion on circumstantial evidence in Azeff, Re, (Ont. Sec. Comm).

The Principle of Parity in OSC Settlements Does Not Preclude Disparity Where Warranted: Techocan International Co. Ltd. (Re), 2017 ONSEC 44

The Ontario Securities Commission’s decision in Techocan International Co. Ltd. (Re), 2017 ONSEC 44 affirms that absent exceptional and compelling circumstances, a respondent cannot resile from a settlement agreement on the basis of a co-respondent’s subsequent settlement on terms perceived to be more favourable.


On March 23, 2016, Staff of the Ontario Securities Commission commenced an enforcement proceeding against various entities and persons, including Techocan International Co. Ltd. and Haiyan (Helen) Gao Jordan (together, the Applicants). Staff alleged that the respondents in that proceeding, including the Applicants, had engaged in unregistered trading and illegal distributions of securities.

On March 24, 2017, the Commission approved a settlement entered into by the Applicants and Commission Staff (the Techocan Settlement) which included terms requiring the payment of an administrative penalty of $40,000, disgorgement of $110,000 and costs of $15,000, in addition to other terms affecting the Applicants’ ability, inter alia,  to trade securities and Jordan’s ability to act as an officer or director of certain issuers.   One month later, the Commission approved a settlement involving two other respondents (the Other Respondents). The terms of that settlement approval order did not include disgorgement of any amount nor any administrative penalty. Costs of $1,000 was ordered to be paid by each of the Other Respondents, among other non-monetary sanctions.

The Applicants sought an order under s. 144 of the Securities Act (the Act) to vary the Techocan Settlement to reduce the quantum of the amounts ordered to be paid by them, on the basis that there was a gross and unjustified disparity between the financial terms  of the Applicants’ settlement as compared to the financial terms of the settlement entered into by the Other Respondents and approved by the Commission.


The Commission dismissed the application, concluding that it would be prejudicial to the public interest to grant the relief requested.  The Commission affirmed that relief to vary a settlement agreement under s. 144 should be granted only in the “rarest of circumstances”, where there is a “compelling interest that does not undermine the public interest in the promotion of settlements and the certainty that results from approval of a settlement agreement.”

In this case, there was no disparity between the two settlements that was not justified by the circumstances, nor any other overriding interest that warranted the Commission’s intervention. The Commission underscored that differences between the terms of settlement agreements entered into by different respondents in the same proceeding are not necessarily contrary to the principle of proportionality or parity. In this case, the settlements were based upon different admitted facts and breaches of securities law.  Further, while Jordan had previously been registered, neither of the other two settling respondents had been. “Registrants are rightly held to a higher standard”.

The Commission also rejected the submission that Commission Staff had any obligation to disclose to the Applicants the status or particulars of settlement discussions with the Other Respondents due to the privilege that attaches to settlement discussions, which promotes settlements. Parties seeking to pierce that privilege must cite a compelling public interest that outweighs the public interest in encouraging settlement.  The Applicants had failed to do so.

The Applicants also failed to discharge the onus on them of establishing that the information about settlement negotiations with the Other Respondents on terms similar to those ultimately approved would have caused them to have risked proceeding to a contested hearing.

Finally, the Commission concluded that even if it had decided that it was appropriate to grant relief under s. 144, the remedy would be to revoke the decision to approve the settlement agreement with the Applicants,  not to impose different monetary sanctions over Staff’s objection.


The result in Technocan demonstrates that instances in which the Commission will be prepared to set aside a settlement under s. 144 of the Act or otherwise will be reserved for the rarest of cases. In general, the Commission will only make such an order where there is a compelling interest that does not undermine the public interest in the promotion of settlements and the certainty that results from approval of a settlement.

Even in cases where two settlement agreements are reached based on substantially similar facts and admitted contraventions, “the nature of the settlement process, the particular risk assessment that would be made by each respondent, and the latitude inherent in the Commission’s assessment of a “reasonable range” can lead to different results that are in the public interest”.



The authors would like to thank Blanchart Arun, articling student, for his contribution to this article.







OSC orders trading platform systems upgrade

On November 13, 2017, Staff of the Ontario Securities Commission brought an application seeking a temporary order suspending the registration of Omega Securities Inc. (Omega) as well as trading in two alternative trading systems run by Omega called Omega ATS and Lynx ATS, pending the outcome of a hearing on the merits. Staff alleged that Omega ATS and Lynx ATS failed to comply with the marketplace rules set out in National Instrument 21-101 and associated regulations (NI 21-101), by disseminating inaccurate and misleading information about the time that certain trade activities occur and by disseminating trade data to certain subscribers prior to the TMX Information Processor (TMX IP).

On November 23, 2017, the Ontario Securities Commission (OSC) denied Staff’s request but imposed certain technical and reporting conditions on Omega.


Omega ATS began operations as a trading platform in 2007 and has a market share of approximately 5% of Canadian equities trading. Lynx ATS opened in 2014 and has a market share of approximately 0.50%. Omega provides its services to IIROC-registered dealers across Canada.

Staff’s allegations in this matter focus on technical problems with how Omega ATS and Lynx ATS record and report trading activity. In particular, Staff alleged that various aspects of the trade platforms are inconsistent with NI 21-101 marketplace rules:

  • The platforms do not record the time when unmatched orders (meaning trading orders that have not yet been paired with a corresponding buy or sell order) first enter the system. Marketplaces are required to record the date and time an order is “first originated or received” and provide accurate and timely information about orders.[1] Without accurate time stamps reflecting when the order enters the system, it is impossible for regulators to determine whether orders are being matched in the priority in which they are received, creating a possible fairness issue.
  • Two of the processes used to create time stamps were altering the time stamps on executed orders, meaning that time stamps reported were inaccurate, and in some cases, different for a single event (due to how quickly each process alters the time stamps). Marketplaces must record the date and time at which an order is executed, and provide accurate and timely information about trades.[2] Staff alleges that the protocols used by the platforms were overwriting time stamps created by the platforms’ matching engine (which automatically pairs unmatched buy and sell orders) with new time labels that obscure the time at which a transaction was actually matched. Further, IIROC Guidance on Time Synchronization requires participants to ensure that system clocks do not drift more than +/- 50 milliseconds from UTC, and to ensure that systems clocks are continuously synchronized and traceable to UTC during trading hours. Staff alleged that the processes used by the platforms were not always synchronized, allowing for different timestamps varying by more than 50 milliseconds.
  • The platforms made trade data available through a data feed to persons or companies before it was made available to the TMX through the TMX Information Processor. Marketplaces cannot make information regarding orders or trades available to any person or company before it is made available to their information processor.[3]

 In essence, these allegations boil down to a charge that technical problems with Omega ATS and Lynx ATS were leading to inaccurate recording of trading information and improper dissemination of that trading information.

OSC orders conditions

The OSC denied Staff’s application to temporarily suspend registration, instead electing to impose conditions on Omega’s continuing registration. Among other things, Omega was required to (a) disclose on its website that there may be discrepancies in timestamps recorded by its platforms’ protocols; (b) upgrade one of its protocols from version 3.0 to version 5.0 as expeditiously as possible; (c) apply a patch to one of its data feeds; and (d) retain at its own expense an independent systems reviewer, approved by Staff, to report on the effectiveness of the protocol upgrade and the feed patch on a quarterly basis, for a period of twelve months. The OSC’s temporary order has since been extended to January 29, 2018.

This case demonstrates the importance of complying with the technical requirements contained in the marketplace rules, particularly where those rules relate to the collection and dissemination of accurate information. It is clear that Staff views these rules as central to its role in protecting the public markets, and anyone operating an exchange should ensure that their systems are sufficiently modern and coordinated in order to comply.


The author would like to thank Blanchart Arun, articling student, for his contribution to this article.

[1] See “National Instrument 21-101 (Marketplace Operation)”, ss 7.1(1), 11.2(1)(c)(xi).

[2] See “National Instrument 21-101 (Marketplace Operation)”, ss 7.2(1), 11.2(1)(d)(iv).

[3] See “National Instrument 21-101 (Marketplace Operation)”, ss 7.1(3), 7.2(2).

Ontario Court confirms jurisdiction over claims of all Canadians who purchased shares on NASDAQ and TSX: Paniccia v. MDC Partners Inc. et al, 2017 ONSC 7298

Plaintiffs in class action claims for misrepresentation in the secondary market recently scored a victory when the Ontario Superior Court of Justice determined[1] that not only does it have jurisdiction over these claims brought by Canadians who purchased shares of a company registered in Canada on a foreign stock exchange, but that Canadian securities and tort law should apply to such claims.


In August 2015 Mr. Paniccia commenced a class action against MDC Partners Inc and its officers (together, “MDC”) in Ontario for both a statutory misrepresentation claim under Part XXIII.1 of Ontario’s Securities Act[2] and negligent misrepresentation.  While initially the claim was brought on behalf of all global purchasers on the TSX and NASDAQ, he later amended the proposed class to include only Canadian purchasers on the TSX and NASDAQ.

MDC is a Canadian company with its registered office in Toronto, Ontario, but with its head office and investor relations group in New York. It is engaged worldwide in marking, communications and providing public relations services.  At the material time, it was listed on both the TSX and NASDAQ.  The vast majority of trading of the shares occurred on NASDAQ.  An unknown number of shareholders (likely over 100) holding between 0.8% to 2.6% of MDC’s shares reside in Canada.  Mr. Paniccia himself purchased 245 shares of MDC on NASDAQ in April 2015.

In July 2015, a substantial MDC shareholder commenced a proposed class against MDC in the United States District Court for Southern District of New York on behalf of MDC share purchasers on NASDAQ. This action was dismissed with prejudice, before certification, in September 2016.

At the same time, the US Securities and Exchange Commission brought enforcement action against MDC, and in 2017 MDC paid $7 million in civil penalties.

Jurisdiction Challenge

MDC challenged the class definition, seeking to restrict the Ontario class to only the Canadians who purchased on the TSX, and excluding those who, like Mr. Paniccia, purchased shares on NASDAQ. While MDC conceded that the Ontario court had jurisdiction simpliciter over the claims of all Canadian purchasers, it argued that the Ontario court is forum non conveniens for Canadians who purchased on NASDAQ.

Following a detailed discussion of the forum non conveniens analysis and highlighting principles of comity, the Court found that Ontario was the appropriate forum for Canadians who purchased shares on NASDAQ, finding that there was no other jurisdiction connected with the matter in which justice could be done at substantially less inconvenience and expense.

In particular, the Court found that in not challenging whether Ontario was the appropriate venue for adjudicating the claims of Canadians who purchased shares on the TSX, MDC had conceded that issues of fact related to all of these claimants could appropriately be tried in Ontario.

Similarly, since the claims were being advanced pursuant to Ontario securities legislation and the common law, the Ontario Court is the more appropriate court to decide the issues of law.

Although comity would normally dictate that a U.S. court is more appropriate to determine claims where the overwhelming majority of trading in shares occurred on NASDAQ, there are two reasons which weakened this argument. The first is that Canadian securities law already asserts extra-territorial application to secondary market trading, which acknowledges that comity may be intruded upon in these circumstances.  Second, as the proposed class is only Canadian purchasers, there are no comity concerns regarding the risk of non-Canadian purchasers seeking to avoid U.S. legislation by coming to Canada to take advantage of the long reach of the Securities Act.  Therefore, although comity would typically favour U.S. courts, this did not weigh heavily in the forum non conveniens analysis in this case.

Finally, factors relating to access to and the administration of justice are neutral as to which court is the more appropriate court to decide the issues of fact and law and to provide a remedy.

The onus was on MDC to establish that compared to Ontario, there was another jurisdiction in which justice could be done between the putative class members and the defendants at substantially less inconvenience and expense. It failed to do so.

Choice of Law Argument

Although choice of law was not explicitly before the Court, MDC argued as part of its forum non conveniens argument that an Ontario court should not adjudicate the claims of Canadian NASDAQ purchasers because these claims must be governed exclusively by American law.

The question for the Court in addressing this argument was what the appropriate choice of law rule was for Canadian purchasers on a foreign stock exchange where the Ontario court has jurisdiction simpliciter to adjudicate a Part XXIII.1 claim and a common law tort claim.

The Court confirmed that Part XXIII.1 has extra-territorial application, and that the Securities Act gives the Ontario Court “long-arm jurisdiction” under Part XXIII.1 as long as Ontario has a real and substantial connection to the defendant.  This requirement is satisfied when a company trades securities in Ontario’s secondary market, regardless of whether it also trades elsewhere, such that the Securities Act applies to trades in Ontario as well as to trades elsewhere, at least for Canadian purchasers.  Therefore, the Ontario Court is required to apply Ontario law to an appropriate extra-territorial claim.

Furthermore, relevant case law supports that for the statutory tort of misrepresentation under the Securities Act, as well as for the common law tort of fraudulent or negligent misrepresentation, the misrepresentation occurs in the place where the negligent misrepresentation was received and relied upon.  Under choice of law principles, these circumstances dictate that Canadian law applies to Canadian purchasers of shares bringing claims for both statutory and common law misrepresentation.

The Court therefore concluded that the choice of law in this case is Ontario law.


There are significant differences between American and Canadian securities law, and according to expert evidence led by MDC, in a number of aspects American law is more favourable to defendants than Canadian law. While this evidence did not have any impact on the Court’s reasoning or the outcome due to the fact that the proposed class was only Canadian purchasers, and case law dictates that Canadian law would apply to these purchasers anyway, the evidence highlights the implication of this decision for companies who trade shares in the Canadian market.

For example, U.S. law imposes a higher obligation on the plaintiff to prove an intent to defraud with respect to secondary market trading, has stricter pleadings burdens, requires the plaintiff to prove loss causation with a very high rate of statistical confidence, and restricts the private cause of action against persons to only the maker of the statement, excluding aiders and abetters, even if they are directors or officers. The U.S. system also does not have the same obligation of ongoing disclosure of material facts, rather, the company may wait until a duty to disclose arises.

[1] Paniccia v. MDC Partners Inc. et al, 2017 ONSC 7298

[2] R.S.O. 1990, c. S.5