In Ontario Securities Commission v. Tiffin, the Ontario Court of Justice clarified the limits of the definition of "securities" under s.1(1) of the Securities Act, as it relates to promissory notes. The defendant in the case was charged with trading in securities without being registered and while prohibited, and without filing a prospectus. The issue in the case was whether the promissory notes were "securities for the purposes of the Act.
The Court concluded that the “family resemblance” test established by the U.S. Supreme Court in Reves v.Ernst & Young should be adopted. The test stands for the proposition that a note is presumed to be a security unless it bears a strong resemblance, determined by examining four specific factors, to one of a judicially crafted list of categories of instrument that are not securities. In this case, the financial advisor (the defendant) issued promissory notes for loans he needed for personal use, to keep his company running, while subject to a cease trade order. The lenders had remedies under contract and tort law, and the defendant had provided collateral. Moreover, the notes were similar to notes secured by a lien on a small business or its assets, which is one of the families of notes recognized in Reves as non-security notes. Therefore the defendant was acquitted of the charge of breaching s.122 of the Securities Act.