While the U.S. Supreme Court, in its 2010 decision Morrison v. National Australian Bank, limited U.S. courts’ jurisdiction in securities class actions to only those claims arising from securities purchased on a U.S. market, courts in Ontario, Canada appear to be willing to assert jurisdiction even when the securities were not purchased on a Canadian exchange and the alleged fraud did not occur in Canada.
The Superior Court of Justice in Ontario recently issued an interesting opinion regarding securities class actions in which it determined that the court has jurisdiction over claims stemming from shares purchased on a foreign stock exchange. In Kaynes v. BP, plc, the Ontario determined that a claim for secondary market misrepresentation under the Ontario Securities Act is a “statutory tort” over which the court can assert jurisdiction even when the shares were purchased on a non-Canadian exchange and the company is not headquartered or doing business in Canada.
Mr. Kaynes proposed a class action against BP on behalf of Canadian residents who purchased BP shares between May 9, 2007 and May 29, 2010 and the proposed class included those who purchased both common shares and American Depository Shares (“ADS”), regardless of whether the purchase occurred on a Canadian or non-Canadian exchange. 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. Prior to the motion for class certification, BP brought a motion seeking an order to stay the proceeding on the basis that the court did not have jurisdiction over the dispute. BP conceded that the court would have jurisdiction over individuals who purchased BP shares on the Toronto Stock Exchange, but challenged the court’s jurisdiction over claims by individuals who purchased their shares on non-Canadian exchanges.
In Ontario, in order for the court to assert jurisdiction, it must determine there is a “real and substantial connection” between the province and the claim. Generally, the court will determine it has jurisdiction in the following instances: (1) when the defendant is domiciled or resident in the jurisdiction; (2) when the defendant carries on business in the jurisdiction; (3) when the tort was committed in Ontario; or (4) when a contract connected with the dispute was made in Ontario. In addition, the Ontario courts will also assert jurisdiction when there is a statutory tort that is not technically a tort committed in Ontario.
In support of its motion to stay the proceedings, BP argued that it was not a resident of Ontario, it did not carry on business in Ontario, and the claim did not relate to a contract that was created in Ontario. BP is a company incorporated under the laws of the U.K. with principal offices in London, England. BP does not own any real or personal property in Canada, nor does it have offices or employ anybody in Canada. BP’s common shares are listed on the London Stock Exchange and the Frankfurt Stock Exchange and the ADS are listed on the New York Stock Exchange. BP had, up until August 2008, listed the ADS on the Toronto Stock Exchange but it voluntarily de-listed them. The plaintiff, Mr. Kaynes, although a resident of Ontario, Canada, purchased all of his ADS on the New York Stock Exchange.
BP also argued that the “statutory tort” should be deemed to arise based on the exchange where the security is purchased. It argued that its position was in line with the U.S. Supreme Court’s decisions in Morrison v. National Australia Bank. BP noted that the U.S. Supreme Court held that the statutory cause of action under the Securities Exchange Act of 1934 applies only to the purchase or sale of a security in the U.S. and it argued that a careful application of the laws in Canada would lead to the same “exchange-based” result that is now applied in the U.S.
The Ontario Superior Court rejected BP’s arguments because it determined that there was no wording in the Ontario Securities Act that restricts the cause of action to investors who purchased their shares on the Ontario exchange and the court was unwilling to “impos[e] a limitation in the Act where none exists.” The court went on to note that the Ontario Securities Act contains a provision which relieves the investor from having to prove reliance and the investor is simply deemed to have relied upon a misrepresentation. The court further noted that in a common law claim of negligent misrepresentation in Canada, the place of the tort is the place where the misrepresentation is received and relied upon. The court therefore reasoned that because the Ontario Securities Act deems an Ontario investor to have relied upon the misrepresentation when he purchased the shares, then the statutory tort must be considered to have been committed in Ontario, regardless of where the actual share is purchased. Accordingly, the court rejected the “exchange-based” approach now utilized in the United States and decided that it had jurisdiction over the claims by investors who reside in Ontario even when they purchased securities on an exchange outside of Canada.
Although the Kaynes v. BP decision may have limited applicability (because it applies only to those who are residents of Ontario) this is not the first time Ontario courts have demonstrated a willingness to assert jurisdiction over claims stemming from shares purchased outside of Canada. For example, in 2009 in Silver v. IMAX, the Ontario Superior Court of Justice initially certified a global class of shareholders1, including those purchased on the Toronto Stock Exchange and those purchased on the NASDAQ. It will be interesting to watch what develops in securities fraud litigation in Canada and in particular with regard to the court’s assertion of jurisdiction over claims arising from securities purchased on non-Canadian exchanges.