The Ontario Court of Appeal recently set aside a summons issued by an investigator of the Ontario Securities Commission (OSC), finding that the summons was “staggering in its breadth” and therefore unconstitutionally overbroad.
Binance Holdings Limited v. Ontario Securities Commission marks a rare instance of a successful Charter of Rights and Freedoms (Charter) challenge in the securities regulatory context and could have significant implications for the conduct of regulatory investigations in light of recent trends towards broad demands for documents and information.
Background Facts
On May 10, 2023, the OSC issued an order pursuant to the Securities Act appointing investigators to inquire into Binance’s conduct. An OSC-appointed investigator issued a summons to Binance under section 13 of the Securities Act, requesting, among other things, “all communications regarding Ontario (or Canada generally) among directors, officers, employees, contractors, agents and consultants of Binance Holdings Limited and related entities…” and then provided non-exhaustive lists of examples of interest to the OSC.
Binance challenged the summons on multiple grounds before the Capital Markets Tribunal, the Superior Court (including the Divisional Court), and the OSC itself, all without success. Each body declined to address the constitutional validity of the summons on its merits. Ultimately, Binance was granted leave to appeal from the Divisional Court and the OSC to the Court of Appeal.
In its appeal, Binance took the position that the summons was overbroad and contrary to section 8 of the Charter, which provides for a right against unreasonable search or seizure.
Court of Appeal Decision
In its decision, the Court of Appeal reiterated that while an entity subject to compelled production of its business records has a very low expectation of privacy, that does not mean it has no expectation of privacy at all. Section 8 of the Charter was therefore engaged in the circumstances.
The Court determined that the power of an investigator to issue a production order under section 13 of the Securities Act was limited to documents that may be relevant to an inquiry properly undertaken pursuant to the Securities Act. In doing so, the Court rejected the OSC’s arguments that relevance was not required. The Court stated that relevance was constitutionally required for most regulatory seizures because they represent an exercise of state authority. It held that a seizure that purports to compel production of documents without a reasonable foundation to believe they may be relevant is overbroad and unreasonable, and contrary to section 8 of the Charter.
The OSC also argued that the documents it sought were relevant. The Court disagreed, finding that a request for “all communications between virtually anyone that may have managed, been employed by, or done work for either Binance or its related entities over a two-and-a-half year period relating not only to Ontario but to all of Canada, regardless of the subject matter of those communications” far exceeded the inquiry being undertaken by the OSC. In doing so, the Court specifically rejected that the OSC could “demand virtually everything generated by a company under investigation, even where there is no reasonable basis for believing it may be relevant.”
Key Takeaways
The implication of the decision extends past the OSC; the Court of Appeal’s reasoning suggests that all regulators must be reasonable in demanding documents during the course of a regulatory investigation. The decision suggests that although regulators can use document production as an exploratory tool to inquire whether an offence has occurred, they must do so from some reasonable premise and cannot demand carte blanche production.
The decision is particularly notable considering the trend in recent years by securities regulators to make demands for exhaustive production of all emails or other documents in the possession of the subject of an investigation, on the basis that the regulators would subsequently conduct their own filtering for relevance.
These demands have caused tension between regulators and the subjects of investigations regarding proportionality concerns, including public policy concerns of the regulatory burden imposed. They have also created concerns about data security and privacy, highlighted earlier this year by a data breach at the Canadian Investment Regulatory Organization (CIRO).
In the face of these tensions, the Binance decision is a precedent in favour of a more traditional approach requiring regulators to set out a premise for their demands, target their demands to categories of documents that are reasonably likely to be responsive to that premise, or to otherwise describe the scope of their inquiry in a way that would allow a person to identify relevant documents.
The decision will serve as an important authority for the subjects of future regulatory investigations and will support them in asking that a balance be struck between what is necessary for a regulator to develop their case and what can reasonably and practically be provided by the subject of the investigation.
For more information, please contact the authors or any other member of our Securities Litigation or Litigation & Dispute Resolution groups.
