Canada: Keeping Us In The Dark - The Supreme Court Of Canada Refuses To Hear Appeal On Jurisdictional Issues In Potential Class Action Against Canadian Solar Inc.

Last Updated: December 11 2012
Article by Justin R. Seitz

Canadian Solar Inc. ("CSI") is a Canadian company incorporated under the Canada Business Corporation Act, and trades on the NASDAQ exchange. Mr. Tajdin Abdula, purchased shares in CSI between January and May 2010. Shortly thereafter Mr. Abdula commenced an action against CSI and two of its officers and directors alleging misrepresentation of facts contained in press releases issued between May 2009 and March 2010, as well as the 2008 Fiscal Year Annual Report and a 2009 Prospectus Supplement. Essentially, Mr. Abdula is claiming that CSI materially misstated its financial results.

Mr. Abdula is a representative plaintiff in a putative class proceeding against CSI under the Class Proceedings Act. In his action Mr. Abdula was seeking damages for negligent misrepresentation, leave to assert a statutory cause of action pursuant to section 138.3 of the Ontario Securities Act (the "Act"), and an oppression remedy pursuant to the Canada Business Corporations Act. On August 10, 2010, Siskinds LLP announced that it filed a proposed securities class action against CSI, as well as two of CSI's officers and directors. That action was filed in the Ontario Superior Court of Justice.

CSI brought a motion seeking a dismissal of the negligent misrepresentation claim and the statutory cause of action pursuant to the Act based on the alleged lack of jurisdiction of the Ontario Superior Court to hear those claims. CSI conceded that the company is closely connected to Ontario, but argued that the claim for negligent misrepresentation should be dismissed because there is no connection between the Province and Mr. Abdula's claim. Furthermore, CSI argued that even if it was found that the Ontario Superior Court of Justice had jurisdiction over the negligent misrepresentation claim, there should be a finding that the court does not have jurisdiction with respect to the claim against the two directors and officers for reason of non-residency in Ontario. With respect to the statutory cause of action claim, CSI argued that it is not a "responsible issuer" for the purposes of s 138.3 and as defined in s 138.1 of the Act; CSI submitted that the obligations contained in the Act does not apply to companies whose shares are traded on the NASDAQ Exchange, and that because CSI has never been subject to the continuous disclosure regime of the Act, the Ontario Superior Court has no jurisdiction to hear the claim.

The Ontario Superior Court found in favour of Mr. Abdula with respect to both issues. With respect to the jurisdictional issues regarding the negligent misrepresentation claim, the court considered several decisions that touched on the issue of jurisdiction of Ontario courts. The Honourable Justice Gerald E. Taylor concluded that the decision in Incorporated Broadcasters Limited v Canwest Global Communications Corp., [2003] OJ No 560 (Ont. C.A.) remains binding authority that the "real and substantial connection test has no application to defendants who have a presence in the jurisdiction" (at para. 19-20). Accordingly, the court found it unnecessary to analyse issues regarding where the alleged misrepresentation occurred since CSI has a significant presence in the Province. With respect to the statutory cause of action issue, the Court endorsed the approach to statutory interpretation as enunciated in Bell ExpressVu Limited Partnership v Rex, 2002 SCC 42 (CanLII), [2002] 2 SCR 559: "Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament" (at para. 28). After reviewing the legislative history of the Act with respect to the definition of "responsible issuer" the Honourable Justice Taylor concluded that there lacked any specific intent on the part of the legislators to restrict the definition to companies whose shares are traded only on Canadian exchanges, and includes "any other type of issuer" (para. 38). It is on this basis that the Court dismissed the CSI's motion to dismiss Mr. Abdula's claims.

In March of 2012, CSI appealed the Ontario Superior Court decision. The Court of Appeal agreed with the motion judge and dismissed the appeal. Leave to appeal the Ontario Court of Appeal decision to the Supreme Court of Canada was declined, thus denying companies and residents a definitive ruling on this matter and similar matters involving jurisdictional issues for Canadian companies. For the time being it seems that Canadian companies with a significant presence in a Province, whose shares are traded on a foreign exchange, may be subject to class action proceedings commenced by shareholders in that Province for misrepresenting facts. This may open the door for plaintiffs to file securities class actions in Canada against multinational corporations that have at least some sort of presence in Canada.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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