The facts
Briefly, Kaynes, a resident of the Province of
Ontario, is requesting the court’s permission to bring a class action for
secondary market misrepresentation under s. 138.3(1) of the Ontario’s
Securities Act (the “Act”) on the basis that BP made various misrepresentations
in its investor documents before and after the notorious Deepwater Horizon oil
spill in the Gulf of Mexico in April 2010.
Kaynes seeks to represent all Canadian purchasers of shares of BP in a
class action, regardless of where they purchased their shares. In parallel, a
proposed class action is also pending certification in the United States, based
on the same allegations.Kaynes purchased American Depository Shares (ADS) in the U.S., which traded on the Toronto Stock Exchange (the “TSX”) until August 2008, at which time BP voluntarily de-listed them. In conjunction with its delisting, BP undertook with the Ontario Securities Commission (the “OSC”) to continue sending to its Canadian securityholders all disclosure material that it was required to send to its U.S. investors (its ADSs were still listed on the NYSE).
Although BP has several indirect Canadian subsidiaries that conduct exploration and development of energy properties in Canada, BP itself is a company incorporated in the U.K. headquartered in London. It has no property, no offices and no employees in Canada.
BP concedes that Ontario has jurisdiction to
entertain the claims of those members of the proposed class who purchased their
shares on the TSX, but contends that there is no “real and substantial
connection” - the applicable test under Ontario’s rules of private
international law as well as under the Act - between Ontario and the claims of
Canadian residents who, like the plaintiff, purchased their shares on foreign
exchanges
BP’s appealOn appeal, BP argued that the motion judge erred when she determined that she had jurisdiction based on a statutory tort having been committed in Ontario. Section 138.3(1) of the Act provides for a cause of action where an issuer “releases a document that contains a misrepresentation”. BP argued that since it never has had a presence in Ontario, the document allegedly containing a misrepresentation could only have been issued outside of Ontario, thus locating the commission of the tort outside the jurisdiction.
The Court of Appeal upheld the motion judge’s finding of jurisdiction sempliciter, ruling that when BP
released the documents containing the alleged misrepresentations, it knew by
virtue of the undertaking it had given to the OSC that even if the initial
point of release was outside Ontario, the document was certain to find its way
to Ontario and to its Ontario shareholders. The Court rejected the “place of
acting” test, which it described as being “rigid and unduly mechanical”, for
determining the place of commission of a tort for purposes of determining
jurisdiction. In so doing, it referred
to Moran v. Pyle National (Canada) Ltd.[2],
a product liability tort case that involved a defective light bulb manufactured
in Ontario causing injury in Saskatchewan, a jurisdiction where the defendant
did not sell or manufacture its products or otherwise carry on business. In
holding that the tort was committed in Saskatchewan, Dickson J. wrote:
“[W]here a foreign defendant carelessly
manufactures a product in a foreign jurisdiction which enters into the normal
channels of trade and he knows or ought to know both that as a result of his
carelessness a consumer may well be injured and it is reasonably foreseeable
that the product would be used or consumed where the plaintiff used or consumed
it, then the forum in which the plaintiff suffered damage is entitled to
exercise judicial jurisdiction over that foreign defendant….By tendering his
products in the market place directly or through normal distributive channels,
a manufacturer ought to assume the burden of defending those products wherever
they cause harm as long as the forum into which the manufacturer is taken is
one that he reasonably ought to have had in his contemplation when he so
tendered his goods.”
Given BP’s undertaking to the OSC, it could not
possibly argue that the place of effect of its misrepresentation, i.e. Ontario, was beyond its
contemplation.
The Court of Appeal also made a provision-specific
determination, indicating that for purposes of s. 138(1), a document’s point of
release is to be understood as the place where the document was either released
or presented.BP’s forum non conveniens argument
It is
well-established under Ontario law that if a plaintiff succeeds in
demonstrating that an Ontario court has jurisdiction, the court retains the
discretion to decline to exercise it under the doctrine of forum non conveniens. Quoting the Supreme Court of Canada’s
decision in Van Breda[3], to
succeed in a plea of forum non-conveniens,
“[t]he defendant must identify another forum that has an appropriate connection
under the conflicts rules and that should be allowed to dispose of the action”
and “must demonstrate why the proposed alternative forum should be preferred
and considered to be more appropriate.”
According to the Court of Appeal, the motion judge
erred in law by failing to take into account the principle of comity[4]
in assessing the effect of Ontario’s jurisdiction over claims arising from
foreign traded securities. In particular, in the US: a) there is a well-established regime governing class
actions for secondary market misrepresentation, b) there is a pending class
action […] based upon very similar allegations, covering substantially the same
period, and embracing the claims of all BP shareholders, including the
plaintiff, who purchased their shares on a US exchange; c) the law relating to
jurisdiction over such claims is based on the principle that securities
litigation should take place in the forum where the securities transaction took
place (this is also the case with the U.K.); d) by statute, actions for
secondary market misrepresentation under US securities law may only be brought
by those who purchased their shares on a US exchange; e) the Securities and Exchange Act of 1934
stipulates that “the
US district courts have “exclusive jurisdiction of violations of this title or
the rules and regulations thereunder” including claims for secondary market
misrepresentation”; f) US law precludes US courts from entertaining private
actions involving securities transactions outside the US; and g) perhaps most
importantly, the plaintiff’s claim rests to a significant degree on foreign
law, as the impugned document in fact consisted in the material required to be
sent or provided to US resident security holders “under applicable US
federal securities laws or exchange requirements”.
To further convince the Court that Ontario was not
the most appropriate forum, BP submitted that 83,945 ADSs were traded on the
TSX, compared with 9 billion on the NYSE and 8.7 billion on the LSE. The Court agreed “that permitting the
plaintiff to use BP’s negligible relative trading on the TSX […] as a toehold
for bringing foreign exchange purchasers under the jurisdiction of an Ontario
court would be both opportunistic and a classic example of the “tail wagging
the dog””.[5]
In our previous blog, we pondered as to “what logic
would allow a court to cast aside the substantive application of the very law
that gave it jurisdiction in the first place”. We now have an answer: forum
non conveniens. As a result of the Ontario
Court of Appeal’s decision, class action plaintiffs will now likely think twice
before using Ontario courts as a forum for secondary market misrepresentation
claims against foreign issuers for trades of securities acquired on foreign
exchanges.For more information on the above, please call/email Martin Aquilina at maquilina@hazlolaw.com or at 1.613.747.2459 x 308
[3] Club Resorts Ltd. v. Van Breda, 2012 SCC 17.
[4] Comity can be defined as: “the recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens or of other persons who are under the protection of its laws.” (the Court of Appeal, quoting Morguard Investments Ltd. v. De Savoye, [1990] 3 S.C.R. 1077 at p. 1096 S.C.R., in which La Forest J. adopted the definition of comity set out in the 1895 American case of Hilton v. Guyot, 159 U.S. 113).
[4] Comity can be defined as: “the recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens or of other persons who are under the protection of its laws.” (the Court of Appeal, quoting Morguard Investments Ltd. v. De Savoye, [1990] 3 S.C.R. 1077 at p. 1096 S.C.R., in which La Forest J. adopted the definition of comity set out in the 1895 American case of Hilton v. Guyot, 159 U.S. 113).
[5] For our foreign
readers who may not be familiar with this idiomatic impression, it refers to a
minor or secondary part of something controlling the whole.
