Canada: Divisional Court Upholds OSC Finding That Trading Software License Contracts Are Securities Within Meaning Of Securities Act

The Ontario Superior Court of Justice in Furtak v Ontario (Securities Commission), 2018 ONSC 6616, has upheld the Ontario Securities Commission's (OSC) merits and sanctions decisions with respect to the Strictrade Offering, which we previously reported on here.


In 2015, OSC Staff brought enforcement proceedings against Edward Furtak, Axton 2010 Finance Corp., (Axton), Strict Trading Limited (STL), Strictrade Marketing Inc. (SMI), Trafalgar Associates Limited (TAL), Ronald Olsthoorn, and Lorne Allen (collectively the Strictrade Parties) arising out a scheme that involved the marketing and offering of a set of computerized trading software license contracts (the Strictrade Offering).  Under the Strictrade Offering, third party participants signed a promissory note in favour of Axton, a company operated by Furtak, for the purchase of a license to use the Strictrade computerized trading software. The participants simultaneously contracted with STL, another company operated by Furtak, to host the Strictrade software and trade in financial instruments.  Participants purchased licenses in $10,000 units and were required to pay upfront annual fees and interest to Axton and STL.  In exchange, participants received annual trading report payments.  The annual fees and interest paid by purchasers exceeded the trading report payments they received.  The Strictrade Offering was marketed to investors as a tax-planning vehicle meant to provide participants with an opportunity to take advantage of business tax deductions.

In a merits decision released on November 24, 2016 (2016 ONSEC 35), the OSC found that the set of contracts being marketed in the Strictrade Offering were "investment contracts" and were therefore "securities" within the meaning of the Securities Act, RSO 1990, c S. 5 (the Act).  As a result, the OSC found that:

  • Furtak, Axton, STL, SMI, and Allen engaged in, or held themselves out as engaging in, the business of trading in securities without registration, contrary to subsection 25(1) of the Securities Act, RSO 1990, c S. 5 (the Act);
  • all of the Strictrade Parties distributed securities without filing and obtaining a receipt for a preliminary prospectus, in violation of subsection 53(1) of the Act;
  • Furtak, Olsthoorn and Allen, as officers and directors of the corporate respondents authorized, permitted or acquiesced in the corporate respondents' non-compliance with Ontario securities law, in violation of section 129.2 of the Act; and
  • Oslthoorn failed to fulfill his Know Your Client obligations, failed to fulfill his obligations as Chief Compliance Officer and Ultimate Designated Person of TAL, and failed to take reasonable steps to determine whether the Strictrade Offering was suitable for investors, contrary to sections 3.4, 13.2 and 13.3 of National Instrument 31-103.

In a separate sanctions and costs decision released May 4, 2017 (2017 ONSEC 12), the OSC reprimanded the Strictrade Parties and imposed a number of hefty sanctions including cease trade orders, administrative monetary penalties, disgorgement of proceeds, and costs in the amount of $186,013.  In a minority opinion, Vice-Chair D. Grant Vingoe disagreed with the scope of the cease trade orders imposed by the majority, indicating that he would have allowed an exception to permit the remaining investors in the Strictrade Offering to continue their investments if they so wished.

Appeal to the Divisional Court

The Strictrade Parties appealed the OSC's merits and sanctions decisions to the Ontario Superior Court of Justice, Divisional Court. The Strictrade Parties argued that the OSC (i) erred in finding that the set of contracts met the legal test for an "investment contract", (ii) erred in making factual findings and drawing inferences unsupported by evidence, and (iii) imposed unreasonable sanctions.

Standard of Review

The Divisional Court determined that the reasonableness standard of review applied to all three grounds of appeal.  The Court rejected the Strictrade Parties' argument that the presumption in favour of a reasonableness standard that applies where a tribunal is interpreting its home statute was rebutted in this instance because the issue on appeal was not related to the OSC's threshold jurisdiction to sanction conduct and was not a matter of central importance to the legal system outside of the OSC's specialized expertise.  The Court also rejected the Strictrade Parties' submission that the standard of "palpable and overriding error" should apply to the Commission's findings of fact, holding that that standard is not applicable in a judicial review of an adjudicative tribunal's decision.  Rather, factual errors may only be a ground for overturning a tribunal's decision if they go to a "core finding" that is fundamental to the reasonableness of the ultimate decision.

Investment Contracts

In determining that the set of contracts marketed under the Strictrade Offering were "investment contracts", the OSC adopted the test from Pacific Coast Coin Exchange v Ontario Securities Commission, [1978] 2 SCR 112 and outlined the following four elements of an "investment contract":

1.  an investment of money,

2.  with an intention or an expectation of profit,

3.  in a common enterprise in which the fortunes of the investor are interwoven with and dependent upon the efforts and success of those seeking the investment or of third parties,

4.  whether the efforts made by those other than the investor are the undeniably significant ones – essential managerial efforts which affect the failure or success of the enterprise.

The Divisional Court found that, while the OSC broke down the test for an "investment contract" into four components in a manner not reflected in the Supreme Court of Canada's decision in Pacific Coast Coin, the OSC recognized that the elements of the test are not "airtight compartments" and many of the same considerations may apply to more than one aspect of the test.  The OSC's reformulation captured the "essence" of the test. The Divisional Court further held that the OSC's application of the test to the Strictrade Offering and the finding that the set of contracts constituted "investment contracts" and were therefore "securities" under the Act was reasonable.

Factual Findings

The Strictrade Parties argued that the OSC made a number of factual errors and drew improper inferences not supported by the evidence.  In dismissing this ground of appeal, the Divisional Court noted that the Strictrade Parties had failed to demonstrate that any of the factual errors alleged would have impacted the OSC's conclusion that the set of contracts were "investment contracts".  In essence, the Strictrade Parties were asking the Divisional Court to improperly re-weigh the evidence that was before the OSC.  In any event, the Divisional Court found that the OSC referred to evidence that amply supported its conclusion and its findings were therefore reasonable.


The Strictrade parties argued that the sanctions imposed by the OSC were unreasonable, disproportionate to the nature of the misconduct, and failed to serve any identifiable public interest goals.  The Divisional Court disagreed, holding that the OSC properly considered all of the relevant factors, including the different circumstances, roles, and histories of the various Strictrade Parties and imposed sanctions that fell within its broad discretion.

The Divisional Court also considered Vice-Chair Vingoe's minority opinion that would have allowed an exemption to the cease trade orders to permit the remaining participants to continue their investment in the Strictrade Offering.  The Divisional Court determined that both the majority and Vice-Chair Vingoe, in the minority, provided a reasonable basis for their respective positions on the cease trade orders and that each was defensible.  Faced with two reasonable interpretations, the Divisional Court concluded that it was obliged to defer to the findings of majority, and upheld the sanctions decision.

About Norton Rose Fulbright Canada LLP

Norton Rose Fulbright is a global law firm. We provide the world's preeminent corporations and financial institutions with a full business law service. We have 3800 lawyers and other legal staff based in more than 50 cities across Europe, the United States, Canada, Latin America, Asia, Australia, Africa, the Middle East and Central Asia.

Recognized for our industry focus, we are strong across all the key industry sectors: financial institutions; energy; infrastructure, mining and commodities; transport; technology and innovation; and life sciences and healthcare.

Wherever we are, we operate in accordance with our global business principles of quality, unity and integrity. We aim to provide the highest possible standard of legal service in each of our offices and to maintain that level of quality at every point of contact.

For more information about Norton Rose Fulbright, see

Law around the world

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions