Market loss claim disallowed in Traynor Ridge receivership

Ontario Securities Commission v. Traynor Ridge Capital Inc., 2026 ONSC 3179
Can pure economic loss support a claim in receivership?

Summary: The Ontario Court has rejected claimant Trillion Energy’s attempt to recover alleged market loss damages from the Traynor Ridge Group receivership, upholding the receiver’s disallowance of a claim tied to a sudden broker-driven selloff of Trillion shares after the investment fund’s principal died and the funds were left without management. Trillion argued the selloff depressed its share price, derailed refinancing efforts and caused millions in dilution, but the Court found no duty of care owed by the Traynor Ridge Group to Trillion, stressing that shareholders generally have no legal obligation to buy or sell shares in a company’s best interests and that the alleged harm was, in any event, legally and evidentially uncertain.

The Respondents (collectively, “Traynor Ridge Group”) operated open-ended investment funds established as trusts under the laws of the Province of Ontario. The Respondents’ Master Fund held investments in the shares of numerous companies, including Trillion Energy International, Inc. (“Trillion”). The Respondents were also lenders to Trillion. The loan agreement included a right for the lender to require Trillion to repay the debt in shares of Trillion valued at the date of repayment.

In October, 2023, the Respondents ordered their stockbrokers to buy Trillion shares. Then, at a time when the Respondents had several open purchases of Trillion shares, the owner of the Respondents passed away suddenly. The Respondents, being a one-man operation, were left rudderless without senior management. With no management, the Respondents did not pay their stockbrokers for share purchases they had ordered before the owner died. Therefore, starting in late October and into November, the stockbrokers who had open trades for the Respondents sold their positions.

When the brokers sold, the volume of shares sold was so high over such a short period of time that the selloff depressed Trillion’s share price. At the same time, Trillion was engaged in a refinancing effort to the knowledge of the Respondents. With the share value loss on the sudden selloff of stock by the Respondents’ brokers, Trillion argued it lost the ability to raise funds, and suffered shareholder dilution of $6 million.

Following the commencement of receivership proceedings against the Respondents, the Court approved a claims process pursuant to which, by May 15, 2024, all those who wished to advance a claim to be owed money by any of the Respondents had to send completed Proofs of Claim to the Receiver. Claims were brought by, among others, Trillion, against all Respondents.

The Receiver disallowed Trillion’s claim largely on the legal basis that it found that none of the Respondents owed a duty of care to Trillion. Trillion disputed the Receiver’s disallowance and the Receiver referred the issue to the Court. The Receiver asked the Court to, among other things, confirm its disallowance of Trillion’s claims against the Respondents. The issue before the Court was whether the Receiver erred in finding that the Respondents did not owe a duty of care to Trillion.

Trillion’s claims were for recovery of economic loss in tort, flowing from the manner of the sudden share sale by the brokers for the Respondents that affected the share price of Trillion’s shares. There is no general right recognized by the common law to require a person to pay compensation for negligently causing another to suffer pure economic loss. Trillion sought to establish a new category of recovery for pure economic loss based on the confluence of factors asserted by Trillion.

To establish a claim in negligence against the Respondents, Trillion was required to show that the Respondents owed Trillion a duty of care. To establish a duty of care, Trillion needed to establish that it had a close and direct relationship with the Respondents—one of sufficient “proximity”—so that it would be just and fair to impose a duty of care in law. If Trillion established sufficient proximity between itself and the Respondents, it then needed to show that harm or economic injury to it was a reasonably foreseeable consequence of negligence by the Respondents.

The law generally does not recognize any duty on shareholders regarding when or how they buy or sell shares. Shareholders are free to deal with their shares contrary to the best interests of the company and even contrary to their own best interests. The issuer of shares has no legal right nor cognizable interest in how shareholders buy, sell, or vote shares. Creating an obligation on shareholders to consider the interests of the company in how they amass or sell shares would be inconsistent with prevailing corporate statutory fiduciary duties. Directors of corporations owe fiduciary duties to act in the interests of their companies under s. 134 of the Business Corporations Act. The Respondents’ fund managers had statutory fiduciary duties to manage their investment funds in the best interests of the funds under s. 116 of the Securities Act. If shareholders have to act in the best interests of the issuers whose shares are being bought or sold by their investment funds or their corporations, managements’ duties of care could conflict with their statutory schemes.

Trillion did not identify a legal right or cognizable interest protected or advanced by its proposed new category of liability. The Respondents did not implement a selloff of Trillion shares. Its brokers did so under the terms of their account agreements with the Respondents. The duties owing as between debtors and creditors were a function of the contracts between them. Absent special circumstances, the law does not recognize freestanding duties owing by creditors to their debtors. There was no evidence that there was any kind of special relationship between Trillion and the Respondents. There was nothing inherent in the lender/borrower relationship then that bore on whether the Respondents owed a duty of care to Trillion. There was also no evidence that the Respondents actually intended to take their debt in shares when the debt came due. Trillion had no cognizable legal rights in its share prices on secondary markets.

What Trillion effectively argued is that the Respondents should have known that if they sold off their shares of Trillion, it could hurt Trillion’s economic position. The Court queried whether unavailability of financing itself was a form of damages – as compared to the loss of profit that might accompany a hypothetical successful financing. Similarly, dilution is suffered by shareholders rather than the issuer. Accordingly, the proof of harm was dubious in this case.

The application of the principles relating to proximity in a claim for pure economic loss prevented the recognition of a novel proximate relationship in this case. The Court agreed with the Receiver that on a holistic review of evidence in light of the factors in the principled analysis, the Respondents owed no duty of care to Trillion.

Judge: FL Myers J

Professionals involved:

• Harvey Chaiton, Maya Poliak and Hugh McHenry of Chaitons for Ernst & Young as Receiver

• Ryan Flewelling of Prelia for Trillion Energy International, Inc.

• Shane D’Souza and Audrey-Anne Delage of McCarthy Tetrault for National Bank

• Bevan Brooksbank and Natalia Vandervoort of BLG for Virtu Canada

• John Leslie and David Seifer of Dickinson Wright for Ventum Financial Corp.

• Chris Burr of Blakes for Jones Trading Canada Inc.