In brief - Australian laws more favourable to litigation "forum shoppers"
The question of where an action can be brought against a company is relevant in an era of global networking and communication, as more and more prospectuses, investor statements and product disclosure statements are distributed globally by electronic means and shares are traded on stock exchanges around the world.
Explosion gives rise to shareholder class actions around the world
On 20 April 2010, a gas leak on the Deepwater Horizon oil rig caused a catastrophic explosion and killed eleven people. Two days later, oil was discovered to be gushing from the well beneath Deepwater Horizon, causing the loss of an estimated 4.9 million barrels of oil. The disaster gave rise to shareholder actions around the world against the rig's prospector, BP.
BP had offered securities by way of American Depositary Shares (ADSs) on the New York Stock Exchange (NYSE), the Toronto Stock Exchange (TSX) and European exchanges.
Deepwater Horizon had been built by a South Korean manufacturing magnate. Ownership of the rig was held by a Swiss-based company, with contracting services provided by a United States oil consultancy. Oil derived from the rig came from within the Gulf of Mexico, and the unfortunate prospector of the oil at the time was BP Plc, based in the United Kingdom. It is not difficult to conceive how the incident which occurred on 20 April 2010 could have massive multinational effect.
BP argues that Canadian investors who did not buy shares on the TSX could not bring a claim in Canada
Kaynes v BP, 2013 ONSC 5802, a case in the Superior Court of Justice in Ontario, involved Canadian shareholders who purchased ADSs on the TSX, NYSE and European exchanges and suffered financial loss.
BP conceded that Canadians who purchased ADSs via the TSX could bring an action in Ontario. However, it said that Canadians who purchased from any other exchange (ie. NYSE, Frankfurt and London Stock Exchanges) could not bring a claim in Canada. BP argued that those investors would be beyond jurisdictional or "inappropriate forum" limitations.
Did a Canadian court have jurisdiction to hear the case?
The shareholders in Kaynes argued that BP had misrepresented safety and operations protocols in investor documents. The case posed two important international law questions. These were:
- whether a Canadian court had jurisdiction to hear the case; and
- whether the matter should be dismissed based on forum non conveniens (i.e. that a Canadian court was not an appropriate place to hear the dispute).
Difference between Canadian and Australian laws on jurisdiction
In Australia (and Canada), if a defendant is present in the country (say if BP had Australian offices), then the courts of that country would have prima facie jurisdiction to hear the dispute.
In Kaynes, BP argued that it did not trade in Ontario, so the shareholders had to prove that there was a "real and substantial connection" between the province and the claim. There is also a presumption that a court can hear the matter, unless the evidence shows otherwise.
In Canada, in order to prove that there is a "real and substantial connection", a plaintiff is required to prove one of the following four presumptions:
- that the defendant is domiciled or resident in the jurisdiction
- that the defendant carries on business in the jurisdiction
- that the tort was committed in Ontario
- that a contract connected with the dispute was made in Ontario
The plaintiffs in Kaynes brought an action of misrepresentation. Justice Conway held that the statutory action of misrepresentation was a "statutory tort" and therefore, the place of the tort (in this case, Canada) was the place in which the misrepresented information was received and relied upon.
Australia has a similar test. Where, for instance, negligent advice was received and acted upon in NSW, the tort is committed in NSW.
However, the crucial difference in Australia is "where the misrepresentation is received", not where it is acted upon. Simply put, if it was acted upon in NSW but received in Victoria, then Victoria would have jurisdiction.
Jurisdiction for claims where plaintiff and defendant are on opposite sides of the globe
With the development of global networking and communication, more and more investor statements, prospectuses and Product Disclosure Statements are distributed electronically and received globally.
Under Australian law, the place where an internet transmission is received is the place where the tort is given to occur. However, there is international debate about how best to develop an attitude towards torts committed and received by online means.
This issue continues to be important for any plaintiff in the modern, global world of litigation, particularly where a local plaintiff in NSW might suffer damage from a foreign company based on the other side of the globe.
Forum non conveniens - other appropriate forum vs. clearly inappropriate forum
Jurisdiction is only the first hurdle for a plaintiff in international litigation. The second is the "inappropriate place" or forum non conveniens argument. In Kaynes, BP submitted that in spite of prima facie jurisdiction, the court should not exercise its jurisdiction.
The rule in Canada is that BP was required to show not that Ontario was inappropriate, but that another court (for instance, in the USA) was more appropriate.
Justice Conway did not agree that another court was more appropriate, because, among other reasons:
- Canada was a convenient and cost-effective location for the 1,500 Canadian shareholders to commence proceedings
- the misrepresentation allegedly made by BP was a breach of Canadian law
- it was desirable for the Canadian shareholders to avoid multiple, fractious proceedings (leaving aside the fact that representative actions already existed in the UK and USA)
Importantly, the test is different in Australia. The rule here is not whether there is another more appropriate place to hear the case, but whether the Australian court is clearly inappropriate.
The Australian test is broader, potentially allowing for a wider range of international litigation to be heard here. Appreciably, the current Australian approach to the forum non conveniens test has been academically criticised and has not been adopted in other common law countries.
Australian court unlikely to reject proceedings for forum non conveniens
Kaynes provides a pointed comparison to Australia. Current Australian law allows Australians to commence proceedings in Australia for wrongs committed overseas.
Further, an Australian court is unlikely to reject the proceedings for forum non conveniens because its tests are arguably more favourable to the "forum shopper" who brings proceedings in Australia.
The Kaynes case is a lesson for companies and litigators alike. Before taking steps to issue shares, invest or purchase stocks, all should remember that a seemingly small event like a gas leak can have immense and long-lasting global ramifications.
An earlier version of this article originally appeared in Insurance & Risk Professional.