Contracting Out of Accountability? When Crypto Meets Canadian Courtroom Control
In a decisive ruling, Lochan v Binance Holdings Ltd., the Ontario Superior Court reinforced its judicial authority over global arbitration forums, and granted an anti-suit injunction to stop Hong Kong arbitration proceedings that an affiliate of the defendants to an Ontario class action commenced against the representative plaintiffs. This decision underlines the Court’s distaste for the use of arbitration clauses to foreclose plaintiffs from pursuing their claims by trying to force them to bring costly and difficult arbitration proceedings in a foreign jurisdiction and foreclose access to justice through class proceedings. In the words of Justice Morgan:
“The pending arbitration commenced by Nest against the representative Plaintiffs is little more than a transparent attempt to render Ontario court rulings ineffective. In effect, Binance seeks to grant itself immunity from judgment in any legal process but the one already adjudged to be unconscionable and contrary to public policy – a Hong Kong arbitration.”
In granting an anti-suit injunction against the defendants’ affiliate, the Superior Court confirmed that anti-suit injunctions can bind non-parties, including corporate affiliates and sent a clear message that arbitration cannot be used as a strategic backdoor to undermine domestic courts.
The underlying dispute had already certified as a class action in Ontario on behalf of Canadian investors who purchased cryptocurrency derivative products through Binance between 2019 and 2022. The plaintiffs allege that Binance operated as an unregistered securities dealer and distributed securities without complying with prospectus requirements, in breach of Ontario and Canadian securities laws. Before certification, Binance, acting through Nest, had sought to stay the Ontario action in favour of arbitration in Hong Kong, relying on a mandatory arbitration clause in its standard form terms and conditions. Buried in an unnegotiable “click” contract, the arbitration clause imposed logistical hurdles that effectively placed arbitration out of reach for ordinary investors, amounting in practice to a grant of immunity for Binance. The Court rejected Binance’s attempt to distinguish the proceedings as contractual rather than regulatory, finding the arbitration clause to be a clear effort to undermine Ontario litigation. Nest was held to be Binance’s alter ego, and the arbitration was deemed “parasitic” on the Canadian action. It was found that “considerations of justice to the litigants – cost, distance, and choice of law – served to displace the principle which holds a[n arbitration] tribunal to generally be competent to assess and adjudicate its own competence.”
The Court also dismissed arguments that the motion was premature or barred by international comity. Unlike foreign courts, private arbitral tribunals do not engage state sovereignty, and compelling the plaintiffs to challenge jurisdiction in Hong Kong would be unconscionable. The arbitration was further characterized as an impermissible “collateral attack” and an abuse of process.
Applying Supreme Court of Canada guidance, the Court concluded that Ontario was the natural forum and that Binance would suffer no prejudice from being restrained, given the absence of a valid arbitration agreement. The injunction binds Binance and its affiliates, confirming that creative contract drafting and global corporate structures will not always allow companies to contract their way out of accountability.
