On March 16, 2020, the Ontario Court of Appeal released its highly anticipated decision in the saga concerning the Ontario Securities Commission’s (OSC) prosecution of Daniel Tiffin (Mr. Tiffin). The Court’s decision helps clarify the analysis used to determine whether a financial instrument falls within the meaning of “security” under the Ontario Securities Act (the Act), and confirms that certain promissory notes are considered “securities” under the Act.


Pursuant to a s. 127 order made under the Act in 2014, Mr. Tiffin and his company, Tiffin Financial Corporation (TFC), were prohibited from trading in securities or relying upon any exemptions in Ontario securities law for a period of five years (the 2014 Order). Despite the 2014 Order, Mr. Tiffin solicited funds from his clients for both personal and business use, and issued fourteen promissory notes.

The OSC charged Mr. Tiffin and TFC with three offences pursuant to s. 122(1)(c) of the Act: (1) trading in securities without being registered; (2) trading in securities without filing a prospectus; and (3) trading in securities while prohibited. Mr. Tiffin and TFC admitted that they were not registered to trade in securities, had not filed a prospectus, and were prohibited from trading in securities under the terms of the 2014 Order, but argued that Ontario securities law did not apply in respect of these transactions because the promissory notes were not “securities” as defined in the Act.

At trial, Kenkel J. of the Ontario Court of Justice looked towards the United States Supreme Court’s decision in Reves v. Ernst & Young 494 US 56 (Reves), from which he adopted the so-called “family resemblance test.” According to the family resemblance test, a note is presumed to be a security, but that presumption may be rebutted if the note bears a strong resemblance to a list of categories of financial instruments which are not considered securities. As further detailed in our post discussing the trial decision, Kenkel J. applied the test and found that the promissory notes were not “securities” under the Act, and dismissed the charges.

On appeal to the Ontario Superior Court of Justice (which we previously canvassed here), Charney J. rejected the use of the family resemblance test, and held that the promissory notes fell within the scope of “security” as defined in the Act. Charney J. allowed the appeal and substituted convictions for Mr. Tiffin and TFC. He sentenced Mr. Tiffin to a six-month custodial sentence and 24 months of probation. We discussed the aggravating and mitigating factors considered by Charney J. in his sentencing decision here.

Mr. Tiffin and TFC appealed their convictions (the Conviction Appeal) as well as the sentencing decision (the Sentence Appeal), and were granted leave in November 2018 (which we covered here).

Ontario Court of Appeal Dismisses the Conviction Appeal . . .

The central question raised by the Conviction Appeal was whether the promissory notes fell within the meaning of “security” as defined in the Act, and in particular, whether the notes were “a bond, debenture, note or other evidence of indebtedness” pursuant to s. 1(1)(e) of the Act. The Court of Appeal agreed with Charney J.’s conclusion that the promissory notes were securities, and upheld the convictions.

The Act’s “Catch and Exclude” Approach

Harvison Young J.A. noted that the Act’s legislative scheme defines key terms broadly, and then provides broad exemptions from the Act’s core requirements. That same approach is taken with the definition of “security” at s. 1(1) of the Act, meaning that a financial instrument may be a “security” under the Act, but may then be exempted from the Act’s core requirements.

The Court recognized that this statutory “catch and exclude” scheme created an issue for the appellants because of the terms of the 2014 Order, which prohibited the appellants from seeking shelter under the exemptions created by the Act. In particular, s. 2(c) of the 2014 Order provided that “any exemptions contained in Ontario securities law do not apply to each of […] Tiffin and Tiffin Financial for a period of 5 years.”

Harvison Young J.A. acknowledged that but for the 2014 Order, assuming that the promissory notes were “securities”, their distribution may well have been exempted from the requirements of the Act (e.g., through the “private issuer” exemption or the “accredited investor” exemption). However, because of the 2014 Order, the appellants had to avoid falling within the scope of the Act in the first place, and argued for a narrow construction of the definition of “security” which would not apply to the promissory notes at issue.

Harvison Young J.A. Rejects the Family Resemblance Test

The Court rejected the appellants’ submission that the U.S. family resemblance test established in Reves should be adopted to interpret the definition of “security” in the Act. It found that although the U.S. and Ontario legislative schemes have similar purposes and confront similar legislative challenges, they use different statutory mechanisms.

In comparing the relevant features of the two regimes, Harvison Young J.A. identified three key differences between the Act and the Act’s U.S. counterpart, The Securities Exchange Act of 1934 (the U.S. Act). Most significantly, the two statutes take different approaches to short-term debt instruments: under the U.S. Act, short-term debt instruments are explicitly carved out of the definition of “security”; in Ontario, these instruments fall within the scope of the Act, and are then exempted through rule-making.

For the Court, this distinction was critical because it evinces a key difference in the legislative structures of the two statutes. In order to safeguard the “catch and exclude” approach expressed in the Ontario Act, the Court rejected the family resemblance test, and confirmed that the promissory notes issued by the appellants were captured by the phrase “bond, debenture, note or other evidence of indebtedness” at s. 1(1)(e) of the Act.

Given the classification of the promissory notes as “securities” and the fact that the appellants’ could not avail themselves of any exemptions under the Act because of the 2014 Order, the appellants had breached s. 122(1)(c) of the Act. On these grounds, Harvison Young J.A. dismissed the Conviction Appeal.

. . . But Finds the Custodial Sentence to be Demonstrably Unfit

The Court then turned to consider the Sentence Appeal. Harvison Young J.A. rejected Mr. Tiffin’s arguments that only evasive and fraudulent offences under the Act warrant incarceration, but ultimately agreed that the six-month custodial sentence imposed by the Ontario Superior Court of Justice was demonstrably unfit.

The Court first reviewed the purposes and guiding principles in sentencing decisions for regulatory offenders, and reiterated that imprisonment may be necessary to protect the public interest where there is a serious harm flowing from a breach.

Harvison Young J.A. considered previous sentencing decisions under the Act, and noted that the OSC had been unable to provide precedent where a custodial sentence had been imposed for conduct that was not deceitful, as in Mr. Tiffin’s case. On this basis, she ordered the custodial term to be set aside, but upheld the 24-month probation order and the restitution order.


The decision serves as an important reminder for issuers and potential issuers that courts cast a broad net in defining securities under the Act. Instead of specifically excluding certain financial instruments from the definition of securities at the outset, the legislative scheme in Ontario includes a broad range of instruments and then creates exemptions to narrow the Act’s application. This case is unique in that Mr. Tiffin and TFC were unable to rely on those exemptions because of the 2014 Order.

In refusing to adopt the family resemblance test, the Court also highlighted the limits of the use of U.S. precedent in interpreting Canadian securities law. While the Court was careful to confirm that U.S. law can be a useful interpretive aid, it cautioned that U.S. precedent must be considered against the backdrop of fundamental differences between the Ontario and U.S. regimes.


The author would like to thank Kiri Buchanan, articling student, for her contribution to this article.