Ontario Court Of Appeal Clarifies That The Test To Continue A Freeze Order Under The Ontario Securities Act Has A Lower Standard Than The Test For Reasonable And Probable Cause.

• Published date: 02 June 2021
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Corporate and Company Law, Trials & Appeals & Compensation, Securities
• Law Firm: Norton Rose Fulbright Canada LLP
• Author: Mr Ted Brook and Aaron Chahal

In Qin v. Ontario Securities Commission, 2021 ONCA 165 ("Qin"), the Ontario Court of Appeal considered whether a prior judicial finding that a freeze order under s. 126(5.1) of the Ontario Securities Act was "reasonable and expedient" in the circumstances precluded a party from arguing in a malicious prosecution claim that the Ontario Securities Commission did not have "reasonable and probable cause" to commence proceedings under s. 127 of the Act.

The Court of Appeal emphasized that the two questions are qualitatively different, and that the applicable standard for the first question - i.e. whether allegations underlying a freeze order issued by the Commission raise a "serious issue to be tried" - is an easier standard to satisfy. This distinction has important implications for Commission proceedings and freeze orders issued under the Securities Act. Notably, as was the case in Qin, the Court of Appeal's distinction means that the adjudication of a motion to continue a freeze order issued by the Commission will not, on its own, estop parties targeted by that freeze order from later asserting a claim of malicious prosecution against the Commission.

Facts

Mr. Qin and various companies he controlled were involved in the development and management of solar energy projects in Ontario and elsewhere. Mr. Qin attempted to raise capital for his projects, especially in China, using an immigration program sponsored by the Ontario government, which allowed persons who made substantial investments in Ontario businesses to apply for permanent residence status in Canada. Mr. Qin raised several million dollars. No prospectus was filed in connection with the capital raise and neither Mr. Qin nor any of the companies were registered to sell securities.

Procedural History

In February 2015, the Commission issued a temporary order freezing the assets of Mr. Qin and the companies under s. 126 of the Securities Act. In March 2015, the Commission commenced proceedings under s. 127 of the Securities Act based on allegations that Mr. Qin and the companies had contravened the Securities Act by trading securities without proper registration and distributing securities without filing a prospectus. In May 2015, Patillo J. of the Ontario Superior Court allowed a motion by the Commission continue the freeze order against Mr. Qin and the companies indefinitely.¹

In May 2016, a panel of the Commission dismissed the allegations against Mr. Qin and the companies, finding that they were not...