In its landmark decision Morrison v National Australia Bank, the U.S. Supreme Court said that the U.S. securities laws do not apply to share transactions that do not take place on U.S. securities exchanges. But do these principles operate the same way in other jurisdiction — would courts in other jurisdictions decline to apply the jurisdiction’s securities laws to share transactions that took place outside the jurisdiction? That was the question recently before an Ontario court in a secondary market securities misrepresentation lawsuit brought on behalf of purported class of BP shareholders who purchased their shares both inside and outside of Canada.
In an October 9, 2013 ruling, Ontario Superior Court Justice Barbara Conway rejected BP’s motion to stay the action with regard to the Canadian- based BP shareholders who had purchased their shares on non-Canadian exchanges. She also rejected BP’s bid to have the action stayed on the grounds of forum non conveniens as to the BP securities holders who purchased their securities on exchanges outside of Canada. Justice Conway’s ruling, which did not address whether the plaintiffs would be given leave to proceed on their claims or whether a class would be certified, can be found here.
Following the Deepwater Horizon oil spill, the plaintiff filed a class action in Ontario Superior Court against BP, alleging that the company had made various representations in its operations and safety program. The plaintiffs purport to represent a class of Canadian residents who purchased BP securities between May 9, 2007 and May 28, 2010. BP’s ADSs traded on the TSX until August 2008, until it voluntarily delisted them. The ADSs are now listed only on the NYSE. BPs common shares are listed on the London and Frankfurt stock exchanges. The plaintiff himself purchased his BP ADSs on the NYSE. The purported class excludes Canadian residents who purchased BP ADSs on the NYSE and who do not opt-out of the U.S. securities class action lawsuit.
In advance of the court’s consideration of whether or not the plaintiff would be given leave under the Ontario Securities Laws to proceed or whether or not a class would be certified, BP moved the court seeking an order to stay the proceedings as to the BP shareholders who purchased their shares outside of Canada on the grounds of lack of jurisdiction, or alternatively seeking to stay proceedings as to those shareholders on the grounds of forum non conveniens.
The October 9 Decision
In considering the BP’s jurisdictional argument, Justice Conway said that the question under applicable law is whether or not the there is a “real and substantial connection” between Ontario and the claim. BP conceded that the court had jurisdiction over the claims of BP shareholders who purchased their shares on the TSX. In reliance on the U.S. Supreme Court’s Morrison holding, BP urged the court to adopt an “exchange-based” approach to determine the question of whether or not a tort had been committed in the province sufficient to support jurisdiction as to the claims of the BP shareholders who purchased their shares outside Canada.
After reviewing the relevant Ontario Securities Laws, Justice Conway concluded that “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.” If she were to adopt BP’s reasoning, she would be “imposing a limitation in the Act where none exists.”
Justice Conway went on to note that the relevant statutory provisions allowed shareholders to bring secondary market misrepresentation claims without having to prove reliance. She reasoned that “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.” She went on the say that she “cannot agree” that the location of the statutory tort “is to be determined, in each case, by the location of the exchange on which the action share purchase occurred.”
Justice Conway also rejected BP’s attempt to have the case stayed as to the non-TSX purchasers on the grounds of forum non conveniens. BP had argued that the TSX trading volume was negligible and should not serve as a basis to bring the claims of Canadian BP shareholders who purchased their shares in the U.S. and the U.K. into the Ontario courts. BP argued that U.S. and U.K. were more appropriate forums in which to litigate those claims.
In rejecting these arguments, Justice Conway said that in her view, “BP is seeking to restrict and fragment the proposed class at this early stage of the proceedings,” and the outcome BP sought would “result in this potential claim …being litigated in three different jurisdictions. That is not convenient, cost-effective or efficient.” She noted that no class has yet been certified in the U.S. action, and that even if certified, a NYSE purchaser who opted-out would not be able to participate in the Ontario action if stayed. Meanwhile, U.K. purchasers would be required to bring individual actions and seek to have their actions consolidated. “I cannot,” she said, “see how that would be a clearly more appropriate forum for their claims.”
She concluded by stating that “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.”
The U.S. Supreme Court’s decision in Morrison itself is a reflection of the specific wording of the relevant U.S. securities laws. On that basis, it is hardly surprising that a court in another jurisdiction analyzing that jurisdiction’s securities laws might reach a different conclusion on the question of whether or not the jurisdiction’s securities laws apply to securities transactions on exchanges outside the jurisdiction. Nevertheless, it is interesting, at least to this American observer, that Justice Conway declined to adopt the principles described in the Morrison opinion.
It seems to have been critical that the purported class consists only Canadian purchasers of BP securities. Indeed, this was the key element to Justice Conway’s conclusion that the “statutory tort’ took place in Ontario. Following the logic of her analysis, it would seem to be much more difficult for a non-Canadian who purchased shares outside of Canada to prove that the “statutory tort” took place in Canada.
To put this analysis in terms that had been developed amongst U.S. practitioners, Justice Conway seems to be saying, at least implicitly, that Ontario’s securities laws apply to so-called “F-Squared” claimants – that is, claimants residing in the jurisdiction but who bought their shares in a foreign company on a foreign exchange.
By the same token, and based on Justice Conway’s analysis, Ontario’s laws would not seem to apply to a so-called “F-Cubed” claimant – that is, a foreign resident who purchased their shares of a foreign company on a foreign exchange. Her jurisdictional analysis, in which she concluded that the statutory injury must be considered to have been committed in Ontario if the issuer made the misrepresentation to an Ontario investor, would seem to preclude jurisdiction for a non-Ontario claimant. That is, the negative inference seems to be that the statutory injury would not take place in the province if the claimant were not an Ontario investor.
Justice Conway’s analysis of the forum non conveniens issue is interesting. She did not seem to put much weight on the question of where the misrepresentations were made; where the witness and documents were located; or to the fact that the same factual issues are likely to be worked through in the U.S courts. And by contrast to the U.S. courts that have denied forum non conveniens motions in corporate and securities cases relating to the Deepwater Horizon circumstances because the devastating oil spill took place only a short distance from the courthouse doors, Justice Conway appeared to attach no particular weight in her analysis to the location of the oil spill itself.
I find all of this fascinating, but I also recognize my limitations as a non-Canadian observer of Canadian litigation developments. I hope that our friends north of the border will weigh in with their views, particularly if they take exception to anything I have said here. It does seem that the corporate and securities litigation following on in the wake of the Deepwater Horizon oil spill seems destined to require courts to address a host of issues about cross-jurisdictional enforcement of laws and liabilities.
Special thanks to Andrew Morganti for sending me a copy of Justice Conway’s decision. Morganti is co-counsel for the plaintiff in the Ontario action discussed above.
An October 15, 2013 memo from the Blake’s law firm about the decision can be found here.