In Yip v. HSBC Holdings plc et al., 2017 ONSC 5332, Justice Perell was called upon to determine the jurisdictional reach of the Ontario courts to protect Canadian and foreign investors when the defendant is a foreign corporation whose shares do not trade on a Canadian stock exchange.
Yip, an Ontario resident who purchased shares of HSBC Holdings (Holdings) on the Hong Kong Stock Exchange, asserted both a statutory secondary market and a common law misrepresentation claim against Holdings and one of its former employees, alleging that he and other purchasers on foreign exchanges were misled by certain representations made by Holdings. Yip maintained that Holdings, a U.K. public issuer whose shares trade on exchanges including in the U.K., the U.S. and Hong Kong, but not in Canada, was a "responsible issuer".
Based upon a substantial evidentiary record, Holdings moved to dismiss Yip's action on the grounds that the Ontario court lacked jurisdiction simpliciter, or in the alternative, to stay it on the basis that Ontario was forum non conveniens. Yip brought a cross-motion for a declaration that Holdings was a "responsible issuer" under s. 138.8 of the Ontario Securities Act (the Act). Justice Perell determined both motions in favour of Holdings, finding as follows.
Jurisdiction to Decide Jurisdiction
As a preliminary matter, Justice Perell agreed with Yip that "the court has jurisdiction to determine whether it has jurisdiction". The power to make a declaration at the instance of any party with an interest in the subject-matter of the declaration exists whether or not there is a cause of action .
There is No Place of Trading Requirement in s. 138.3 of the Act
Justice Perell noted that unlike the U.S. statutory cause of action for misrepresentation in continuous disclosure, which applies only to the purchase or sale of a security on an American stock exchange or a securities transaction occurring within the U.S. (see Morrison v National Australia Bank, 130 S. Ct. 2869), and also unlike s. 130 of the Act which has a "place of trading" qualification, under s. 138.3 there is no requirement for a trade within the territorial jurisdiction of the court.
His Honour identified three circumstances in which an Ontario court will have jurisdiction simpliciter over a foreign corporate defendant:
- where the foreign corporation's securities trade in Ontario's secondary market;
- where the foreign corporation's securities trade both in Ontario's secondary market and also in foreign secondary markets; and
- in some cases, where the foreign corporation's securities do not trade in Ontario's secondary market, but the corporation has a "real and substantial connection" to Ontario, as determined by the application of the test in Club Resorts Ltd. v. Van Breda, 2012 SCC 17.
This case fell within the third category. However, Holdings was found not to have a real and substantial connection to Ontario for the following reasons:
- Holdings did not carry on business in Ontario. It had no physical presence in Ontario accompanied by any sustained degree of business activity within the province. Although Holdings' subsidiary, HSBC Canada, did carry on business in Ontario, those activities did not constitute Holdings carrying on business within the province and there was no basis for piercing the corporate veil.
- Holdings did not commit a common law or statutory tort in Ontario. Its disclosures were prepared in the U.K. for the purpose of complying with the disclosure laws of the jurisdictions where its shares traded. It had no reason to believe that it was subject to the securities laws of Ontario governing disclosure. In that regard, Justice Perell agreed that caution should be exercised against "creating what would amount to forms of universal jurisdiction in respect of tort claims arising out of categories of business or commercial activity". If Holdings was obliged to comply with Ontario's disclosure laws, it would also be obliged to comply with the laws of other countries that regulate their own domestic stock exchanges regardless of whether the shares traded on those exchanges.
Comity Plays a Key Role in the Forum Non Conveniens Analysis When the Matter Involves an International Matrix of Securities Law Regimes
Justice Perell also concluded that even if he was wrong in finding that there was no jurisdiction simpliciter, the U.K., rather than Ontario, was the natural forum for resolving the dispute. Ontario was forum non conveniens.
In reaching that conclusion, His Honour repeated the findings of the Ontario Court of Appeal in Kaynes v. BP, PLC, 2014 ONCA 580 that "the global regulation of the secondary market in securities is based on the principle that securities litigation should take place in the forum where the securities transaction took place". This is consistent with the approach taken by the United States Supreme Court in Morrison.
Accordingly, it was not unfair to "expect Mr. Yip and all of the putative Class Members who used foreign exchanges to look to the foreign courts to litigate their claims where the defendant is a foreign corporation whose shares do not trade on a Canadian exchange".
The author would like to thank Joseph Palmieri, Student-At-Law, for his contribution to this article.
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