In Yip v. HSBC Holdings plc, the Ontario Superior Court of Justice held that it lacked jurisdiction over HSBC – a foreign issuer that does not do business in Ontario (although one of its subsidiaries does) and whose shares do not trade in Ontario. In granting the defendants $1 million in costs, Justice Perell stated that the “entrepreneurial” plaintiff ought to have reasonably expected that the defendants would expend that amount in response to an $8 billion lawsuit.

In the proposed class action, the plaintiff asserted a misrepresentation claim under the Ontario Securities Act against HSBC Holdings (“HSBC”) and its former employee, and a common law negligent misrepresentation claim against HSBC. HSBC brought a successful motion to dismiss the action on the grounds that the Ontario court lacked jurisdiction simpliciter, or in the alternative, that Ontario is forum non conveniens.

The Court rejected the plaintiff’s argument that HSBC had committed more resources than necessary to challenge a jurisdiction motion on a largely uncontested factual record, making HSBC’s claim for costs excessive. Justice Perell stated that it is a “fantasy” to suggest that when the plaintiff sued a foreign defendant for $20 billion (later reduced to $8 billion) that they did not reasonably anticipate that HSBC would spend $0.0001 billion to defend itself. The jurisdiction and related certification motion involved expert evidence, a number of affidavits and cross-examinations in various cities. The decision may serve as a cautionary tale to entrepreneurial plaintiff-side lawyers about just how “entrepreneurial“ they want to be.

Justice Perell held that to determine whether HSBC was a “responsible issuer”, the essential question was whether it had a connection to Ontario. The Court confirmed that it will sometimes have jurisdiction simpliciter over a foreign corporation even where the foreign corporation’s shares do not trade in Ontario’s secondary market where there is a real and substantial connection to Ontario. However, in this case, HSBC did not have a substantial connection to Ontario because it was based in the UK and did not carry on a business in Ontario.

Notably, the Court held that a parent company does not carry on a business in Ontario only by owning shares of a subsidiary that does (HSBC managed a Canadian subsidiary). Moreover, the fact that the alleged misrepresentation would constitute a tort committed in Ontario does not constitute a real and substantial connection to the province. Otherwise, that would amount to universal jurisdiction for tort claims arising out of commercial activities.

Therefore, lacking the necessary connection to Ontario, HSBC was not a “responsible issuer”, and the Court held that it lacked jurisdiction simpliciter.

Even if the Court did have jurisdiction, Justice Perell noted that he would have declined to exercise it on the grounds that the UK was a more appropriate forum. Unlike in Ontario, most of the trading of HSBC’ securities was in the UK, the corporation resided in the UK, and most witnesses and evidence were in the UK. While the plaintiff argued that Ontario held a juridical advantage over the UK, as contingency fees are common and there is class actions legislation, that juridical advantage is a very weak factor in deciding the appropriate forum. Justice Perell contrasted this with the much stronger factor of comity, which suggested that courts should not intervene in another country’s securities regulation without a strong connection to Ontario.