Ontario Court Assumes Jurisdiction Over Foreign Issuer in Securities Class Action

In Kaynes v. BP, 2013 ONSC 5802 (CanLII), (“Kaynes“), Mr. Kaynes, the plaintiff, commenced a proposed class action against BP, the well-known multinational oil and gas company, headquartered in the United Kingdom and registered on the London, New York and Toronto Stock Exchanges.  Kaynes alleged that BP made various misrepresentations in its investor documents before and after the Deepwater Horizon oil spill in the Gulf of Mexico in April 2010 (the “Oil Spill”).  He sought leave to bring a statutory action for secondary market misrepresentation under Part XXIII.I of the Securities Act, R.S.O. 1990, c. S.5, and an alternative claim for common law negligent misrepresentation.

 A parallel class action was commenced in the United States (In BP plc Securities Litigation,  United States District Court for the Southern District of Texas, Case No. 4:10-md-02185) brought on behalf of a proposed class consisting of all purchasers of ADS over the NYSE between November 8, 2007 and May 28, 2010. Kaynes seeks to represent a class of Canadian residents who purchased BP shares between May 9, 2007 and May 28, 2010 and includes all Canadians who purchased common shares and ADS, whether on the TSX, NYSE or European exchanges;  excluding any Canadian residents who purchased BP shares over the NYSE and who do not opt-out of the U.S. Proceeding.

BP brought a jurisdiction motion in advance of the leave and certification motions, seeking an order staying this proceeding (in part) based on lack of subject-matter jurisdiction, or, alternatively, on the basis of forum non conveniens.

The Ontario Court’s Analysis

Conway J. notes that the list of four (4)  presumptive connecting factors underlying the “real and substantial connection” test  in Club Resorts Ltd. v. Van Breda2012 SCC 17 (CanLII), 2012 SCC 17, [2012] 1 S.C.R. 572 (“Van Breda”), is not closed. Following the decision in Ontario v. Rothmans, 2013 ONCA 353 (CanLII), 2013 ONCA 353, 115 O.R. (3d) 561, the Court of Appeal for Ontario held that:

“…a statutory claim founded on the common law tort of conspiracy, “while not technically a claim in respect of a tort committed in Ontario, was tantamount to such a claim or sufficiently analogous to one that it qualified as a new connecting factor: Rothmans, at para. 44.

[15]           In reaching that conclusion, the court considered where the alleged statutory tort had been committed.  It noted that the tort of conspiracy occurs in the jurisdiction where the harm is suffered and that the statutory claim (founded on the tort of conspiracy) was for alleged damage sustained in Ontario.  It therefore held that the statutory claim was a claim in respect of a tort committed in Ontario and was presumptively connected to the province: Rothmans, at paras. 31-39.

[16]           In this case, the alleged “statutory tort” or “new connecting factor” is the cause of action created by s. 138.3 of the Act for secondary market misrepresentation. “

Hence, the motion judge held that plaintiff’s statutory claim under s. 138.3 was “tantamount to ‘a tort committed in Ontario’ or sufficiently analogous to one that it qualifies as a ‘new connecting factor’. “ (at paras. 27-30)

Conway J. expressly rejected BP’s central argument that the statutory tort under s. 138.3 could only have been committed in Ontario for the TSX purchasers, which was not reflective of of the broad language of s. 138.3:

[32]           The Act provides that if a responsible issuer releases a document containing a misrepresentation then a “purchaser of that issuer’s shares between the time when the document was released and the time the misrepresentation was publicly corrected” has a right of action.

[33]           There is nothing in the wording of the Act that restricts the cause of action to investors who purchased their shares on an Ontario exchange.  BP’s proposed application of the real and substantial test in Van Breda would effectively restrict this statutory claim to those who purchased shares on an Ontario exchange.  In essence, BP would be imposing a limitation in the Act where none exists.

On similar footing, the motion judge found that Section 138.3 is a deeming provision that where a responsible issuer makes a misrepresentation in the secondary market, the investor is deemed to have relied on the misrepresentation : Silver v. Imax Corp., 2009 CanLII 72342 (ON SC), 2009 CanLII 72342 (ONSC), at para. 294, :McKenna v. Gammon Gold Inc., 2010 ONSC 1591 (CanLII), 2010 ONSC 1591, at para. 159. (at para. 34). For the common law claim of negligent misrepresentation, the place or situs of the tort is the place where the misrepresentation is received and relied upon:Central Sun Mining Inc. v. Vector Engineering Inc., 2013 ONCA 601 (CanLII), 2013 ONCA 601 (“Central Sun”), at paras. 30-34; 2249659 Ontario Ltd. v. Siegen, 2013 ONCA 354 (CanLII), 2013 ONCA 354, 115 O.R. (3d) 241, at para. 31; and Silver v. Imax Corp., [2009] O.J. No. 5585, at para. 151.  The alleged tort occurs where the recipient receives the misrepresentation and relies upon it:  Central Sun, at paras. 31 and 32. (at para. 35).  Conway J. notes:

[36]           By analogy, if a responsible issuer makes a misrepresentation and the Act deems the Ontario investor to have relied on the misrepresentation when he purchased shares of that issuer, the statutory tort must be considered to have been committed in Ontario.  I cannot agree that the situs of this statutory tort is to be determined, in each case, by the location of the exchange on which the actual share purchase occurred.

The motion judge further noted that BP’s position was inconsistent with the Ontario Court of Appeal’s decision in Abdula v. Canadian Solar Inc., 2012 ONCA 211 (CanLII), 2012 ONCA 211, 110 O.R. (3d) 256, leave to appeal to the Supreme Court of Canada ref’d [2012] S.C.C.A. No. 246 which held that an Ontario resident who purchases shares of a non-reporting issuer was entitled (subject to obtaining leave) to bring a secondary market claim against the company in an Ontario court, notwithstanding the fact that the shares were purchased on a foreign exchange.

Justice Conway concludes:

 [43]           The plaintiff’s statutory claim is presumptively connected to the province.  BP’s arguments to rebut this presumption for the non-TSX purchasers are the same as those I have already rejected.  I am satisfied that there is a real and substantial connection between the plaintiff’s claim under s. 138.3 of the Act and the province of Ontario.  This court can assume jurisdiction over the claim.

BP’s alternative forum non conveniens argument was also rejected:

 [48]           In my view, BP is seeking to restrict and fragment the proposed class at this early stage of the proceedings.  BP’s submission would result in this potential claim against an alleged Ontario responsible issuer being litigated in three different jurisdictions.  That is not convenient, cost-effective or efficient.

[49]           BP’s submission will not avoid a multiplicity of proceedings, as BP concedes that this court has jurisdiction over the claims of TSX purchasers.  There will be an Ontario action regardless of the outcome of this motion.

[50]           BP argues that the NYSE purchasers are already part of the U.S. Proceeding and that their claims should be litigated in that proceeding, rather than in the Ontario action.  In my view, it would be premature to stay the Ontario action on this basis.  The U.S. Proceeding is still at the pre-certification stage and may or may not be certified.[14]  Even if it is certified, a NYSE purchaser who wants to opt-out of that proceeding will no longer be able to participate in the Ontario action if it has been stayed.  BP effectively will have eliminated this claim.[15]

[51]           With respect to purchasers on the European exchanges, BP’s evidence is that those purchasers would be required to bring individual actions in the U.K. and seek an order to have them consolidated or tried together or adjudicated on a group or representative basis.  I cannot see how that would be a clearly more appropriate forum for their claims.

[52]           BP has failed to meet its burden of establishing that the U.S. and U.K. courts are clearly more appropriate forums in which to adjudicate the claims of the non-TSX purchasers.

Implications

BP strenuously argued that Canada should follow the bright-line “exchanged-based” test established in the leading U.S. Supreme Court decision in Morrison v. National Australia Bank, 130 S. Ct. 2869, 2881-83 (2010).  The Ontario court declined and chose to rely on the statutory regime of the Ontario Securities Act which provides investor protection from the explicit acts by reporting issuers that access Canadian capital markets and, thus, Canadian-based investors.

Other commentators suggest this will open the floodgates to exposing foreign issuers to Canadian securities class action claims. Possible, but unlikely.

It really doesn’t matter.

Raising capital in different stock exchanges carries with it a risk that local securities laws apply. If a foreign reporting issuer makes material misrepresentations in its prospectus or information circular, it should expect that secondary market purchasers will be deemed to have detrimentally relied on those misrepresentations.  The alternative argument that a secondary market purchaser should be required to sue in the foreign reporting issuer’s “home court” is antithetical to the remedial and salutary effects of securities legislation in protecting investors from losses caused by inflated, inaccurate and misleading financial information and forecasts.

Tags: , , , , , ,

One Response to “Ontario Court Assumes Jurisdiction Over Foreign Issuer in Securities Class Action”

  1. The Trial Warrior Blog, But Not Yours Truly, Gets Cited By An Ontario Court | THE TRIAL WARRIOR BLOG Says:

    […] Jurisdiction Over Foreign Issuer in Securities Class Action”, The Trial Warrior Blog: https://thetrialwarrior.com/2013/10/24/ontario-court-assumes-jurisdiction-over-foreign-issuer-in-secu… , November 13, 2013) […]

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: