Following prevailing international standards tying jurisdiction to where securities are traded, Ontario’s highest appellate court in Kaynes v. BP, PLC1 has exercised its discretion to decline jurisdiction over proposed claims of Canadian residents who bought their shares of a foreign issuer on a foreign exchange and based on foreign law.
The decision strikes a blow to class action plaintiffs who seek to use trades on the TSX as a toehold for bringing securities class actions in Ontario encompassing much larger volumes of trades on a foreign exchange of a foreign issuer. Describing such actions as “opportunistic” and a classic example of the “tail wagging the dog,” Ontario’s Court of Appeal stayed claims against BP based on trades on foreign exchanges.
In so doing, the Court of Appeal has established that:
- Presumptive jurisdiction in Ontario can be based on where the alleged misrepresentation was received for Part XXIII.1 secondary market misrepresentation claims. The term “release” under s. 138.3(1) of the Ontario Securities Act (OSA) includes not only documents circulated from Ontario but also documents received in Ontario.
- In determining whether to nonetheless decline jurisdiction based on forum non conveniens, Ontario courts should consider the implications of departing from the norms and practices of other countries concerning jurisdiction over secondary market misrepresentation claims, particularly given cross-border transactions are routine and maintaining an orderly and predictable regime for resolving claims is imperative.
Proposed class action
The plaintiff commenced a proposed securities class action in Ontario asserting an action for secondary market misrepresentation under Part XXIII.1 of the OSA. The suit arose from the Deep Water Horizon oil spill in the Gulf of Mexico. It alleged that BP Plc made various misrepresentations in documents sent to its shareholders. The action sought to represent all Canadian residents who acquired BP securities between May 9, 2007, and May 28, 2010, (Class Period) wherever those securities were purchased. Parallel proposed class proceedings in the US, based on the same allegations, were also pending certification.
Listing of BP shares
BP is a UK corporation. It is headquartered in London and does not own any property or carry on business in Canada. Its common shares are listed on two European exchanges. They have never been listed on the Toronto Stock Exchange. BP also issued American Depository Shares (ADS), which trade on the New York Stock Exchange and London Stock Exchange. The plaintiff purchased BP ADS on the NYSE.
BP’s ADS formerly traded on the TSX but were delisted on August 15, 2008, because of low trading volume. Only 83,945 ADS traded on the TSX during the Class Period, compared to about 9 billion ADS traded on the NYSE and about 8.7 billion traded on the LSE. Of the 83,945 ADS traded on the TSX, only between 14 and 7,477 ADS were held through the end of the Class Period.
BP ceased to be a reporting issuer in Ontario and other Canadian provinces after its ADS were delisted. As a condition to ceasing to be a reporting issuer, it continued to send security holders in Canada all disclosure materials that are required under US securities laws to be sent to US residents.
BP conceded that Ontario has jurisdiction over claims of those proposed class members who purchased their securities on the TSX. However, BP challenged the Ontario court’s jurisdiction over the claims of Canadian residents who purchased their shares on foreign exchanges, arguing there is no real and substantial connection between Ontario and their claims. In the alternative, BP argued that if there is jurisdiction, the Ontario court should decline to exercise its jurisdiction on the grounds of forum non conveniens. The motion judge dismissed BP’s motion, and the issues of jurisdiction and forum non conveniens came before the Ontario Court of Appeal.
Jurisdiction based on statutory tort having been committed in Ontario
On appeal, BP argued that the motion judge erred in finding jurisdiction based on the statutory tort having been committed in Ontario. Section 138.3(1) of the OSA provides for a cause of action where a responsible issuer “releases a document that contains a misrepresentation.” BP argued that for the statutory tort to be committed in Ontario, the document containing the alleged misrepresentation must have been released in Ontario. In this case, as BP does not have a presence in Ontario, the documents’ point of initial release was outside Ontario.
The Court of Appeal upheld the motion judge’s finding of jurisdiction. It noted that Canadian courts have rejected the “place of acting” test for determining where a tort has been committed in determining jurisdiction.2 Instead, it cited prior Supreme Court of Canada jurisprudence finding jurisdiction where a plaintiff suffered damages in circumstances where a manufacturer reasonably ought to have contemplated that the impugned product would enter that jurisdiction.3
The Court of Appeal observed, by analogy, that when BP released the documents in issue it knew, by virtue of the undertaking it had given as a condition to ceasing to be a reporting issuer, that even if the initial point of release was outside Ontario, the documents were certain to find their way to Ontario and its Ontario shareholders. Hence, by releasing a document outside Ontario it knew it was required to send to Ontario shareholders, BP committed an alleged statutory tort in Ontario.
The Court of Appeal also rejected the argument that for purposes of s. 138.3(1) of the OSA, the documents’ point of release must be Ontario. It commented that its prior decision in Abdula v. Canadian Solar Inc.4 equates documents “released” with documents either released or presented in Ontario.5
Stay based on forum non conveniens
On the issue of whether the motion judge erred in not declining jurisdiction under the forum non conveniens doctrine, the Ontario Court of Appeal agreed with BP and found the court ought to have declined jurisdiction. A stay of the action was ordered with leave to amend the claim to allow the claims of proposed class members who purchased BP shares on the TSX to proceed.
Citing prior decisions, the Court of Appeal noted that the principle of comity and an attitude of respect for the courts and legal systems of other countries underlies the forum non conveniens analysis.6 Hence, the plaintiff’s claim had to be considered in the context of the securities law regimes of Ontario, the US and the UK along with the trading of BP securities in those jurisdictions. In that regard, the Court of Appeal noted that both the US and UK statutes assert jurisdiction based on the exchange where the securities are traded, and US law provides for the exclusive jurisdiction of federal US district courts over claims for secondary market misrepresentation under US securities law and precludes suits relating to transactions on foreign exchanges.
Taking a contextual approach, the Court of Appeal found the principles of comity strongly favoured declining jurisdiction, reasoning that:
- Asserting Ontario jurisdiction over the plaintiff’s claim would be inconsistent with the approach taken under both US and UK law concerning jurisdiction over claims for secondary market misrepresentation.7 While Ontario courts are not obliged to slavishly follow the jurisdiction standards of other courts, the Court of Appeal stated that, “The principle of comity requires the court to consider the implications of departing from the prevailing international norm or practice, particularly in an area such as the securities market where cross-border transactions are routine and the maintenance of an orderly and predictable regime for the resolution of claims is imperative.”8
- As the plaintiff’s claim rests to a significant degree upon the disclosure obligations imposed by US securities law, the case for asserting jurisdiction is considerably weakened and would contradict US law’s claim for exclusive jurisdiction over claims for secondary market misrepresentation under US securities law.9
- Having regard to the relative number of BP Canadian shareholders who acquired their shares on the TSX compared to a foreign exchange, permitting the plaintiff to use the negligible relative trading on the TSX as a toehold for bringing foreign exchange purchasers under the jurisdiction of an Ontario court would be “opportunistic” and “a classic example of the ‘tail wagging the dog’.”10
In terms of fairness, the Court of Appeal commented that it would not come as a surprise to purchasers who used foreign exchanges that they should look to the foreign court to litigate their claims.11
- Avoidance of a Multiplicity of Proceedings
The Court of Appeal further observed that order and fairness will be achieved by adhering to the prevailing international standard tying jurisdiction to the place where the securities were traded and avoiding a multiplicity of proceedings involving the same claims or class of claims. Although litigation in this case in more than one jurisdiction is inevitable, the court found the motion judge erred in not considering further the avoidance of litigation in more than one jurisdiction over the same claims of the same parties.
The Ontario Court of Appeal’s decision should cause class action plaintiffs to rethink seeking to use Ontario courts as a forum for secondary market misrepresentation claims against foreign issuers for trades on foreign exchanges using negligible trades on the TSX as a toehold. The court has sent a strong message to lower courts that Ontario courts should align with prevailing norms and practices for such claims to achieve predictability in multi-jurisdictional securities litigation.