Lexpert US Guides

32 | LEXPERT • December 2014 | www.lexpert.ca INTERNATIONAL CLASS ACTIONS Morrison only goes so far as to decline jurisdiction when there is no connection to the forum. Furthermore, in Morrison, Justice Scalia confirmed that the focus of the US Exchange Act is on the regula- tion of the purchase and sale of securities on American exchang- es, including the protection of the parties to those transactions. Hence, the Act only applies to transactions in securities listed on US exchanges, or domestic transactions in other securities. Stop- ping there, it would follow that as a matter of comity, a Canadian court could reasonably decline jurisdiction over a claim that is at its root a complaint that the investor overpaid for a security pur- chased on a US exchange as a result of the misrepresentations of the defendant company that was under the regulatory supervision of that exchange. However, the US Exchange Act does not presume to take prece- dence over or to govern foreign securities exchanges. Morrison rec- ognized that "foreign countries regulate their domestic securities exchanges and securities transactions occurring within their ter- ritorial jurisdiction, and the regulation of securities transactions in other countries may differ from those of the US, including establish- ing what disclosures must be made, what damages are recoverable in what circumstances, and so on." Accordingly, Morrison can be read as supporting a foreign jurisdiction (such as Canada) taking jurisdic- tion over a claim that alleges a breach of that foreign jurisdiction's own securities laws, even if the acquisition of the securities was made through an American exchange, if the breach relates not to the US disclosure obligations, but those obligations imposed on the issuer by the foreign regulator. The BP decision leaves Canadians who purchase securities on a foreign exchange in a difficult situation. The result of the decision is that these investors are now foreclosed from pursuing a statu- tory misrepresentation claim in Canada against companies that are subject to that Canadian securities legislation. Instead, these investors are left to pursue these claims in a foreign jurisdiction, where the procedural advantage of a class-action may not be avail- able, and there is no certainty regarding the law that the foreign court would apply. This result seems to be inconsistent with, and undermines the very purpose of the responsible issuer duties imposed, and the statutory rights of action granted under the Securities Act. While comity is an important consideration in determining whether jurisdiction should be taken over a foreign defendant, when the claim asserted on behalf of the class is for a statutory remedy granted under local law with re- spect to misconduct of the foreign defendant under domestic law, I would argue that the court's refusal to take jurisdiction placed undue reliance on comity, when its focus should have been on the fact that the claim asserted on behalf of Canadian investors was to enforce a right of action granted to them under Canadian laws and hence, the legislation of foreign jurisdictions should not prevail. In fact, BP is arguably inconsistent with the earlier denial of certification in McNaughton Automotive Ltd. v. Co-Operators General Insurance Co., 66 O.R. (3d) 466 (S.C.J.), in which the Court of Appeal denied the plaintiff leave to appeal. McNaugh- ton is the mirror image of BP. There, the plaintiffs brought an action in Ontario and alleged breaches of other provinces' statu- tory conditions in their automobile insurance policies. In refus- ing certification of a national class, the court relied upon the fact that: (1) the contract was made outside of Ontario pursuant to the laws of another jurisdiction that are materially different; (2) the defendant is licensed under and subject to the laws of the other ju- risdiction; (3) the alleged breach occurred outside Ontario; (4) the claimants reside outside of Ontario; (5) the events which gave rise "IT IS understandable that in Prince the court wished to defer ruling on the claim, given the precarious position in which Air Canada could fi nd itself if an Ontario court concluded that the application of the US law was overreaching, while it remained bound by its obligations to comply with the US law." cised by the court on a discretionary basis. Hence it is difficult to pin down its parameters. Generally speaking, it includes respecting the right of a foreign state to make and apply laws within its territorial limits, with the expectation of reciprocation by the foreign state in respect of Canadian laws (Tolofson v. Jensen, [1994] 3 S.C.R. 1022, at p. 1047). In mid-August, 2014 in Kaynes v. BP plc, 2014 ONCA 580 the Court of Appeal ruled that Ontario will not take jurisdiction over the claims of investors who purchase securities on a foreign stock ex- change, even if the investor is resident in Ontario, the defendant com- pany is a responsible issuer governed by the Ontario Securities Act, and a statutory cause of action is being asserted against the defendant corporation under that Act. BP did not dispute the court's jurisdic- tion over it in respect of those claims asserted against it by the hand- ful of class members who purchased its securities on the TSX before BP delisted from that exchange. The vast majority of the intended class were not residents of Can- ada and did not purchase securities on the TSX. While the Court of Appeal concluded that Ontario did have jurisdiction simpliciter over the claims of the foreign exchange investors since the claim alleged the equivalent of a tort committed in Ontario by a "responsible is- suer" governed by the Securities Act, it nevertheless declined to take jurisdiction over the claims of the proposed foreign class members under the second, discretionary branch of the Van Breda test — fo- rum non conveniens, i.e. Ontario was not the appropriate forum for the adjudication of the claims. Relying on the concept of international comity, the Court of Appeal declined to take jurisdiction over the plaintiff 's claim or that of any class members who traded on a foreign exchange. It considered the securities laws in the US and the UK, where BP was listed and trading. Not surprisingly, both the US and UK do- mestic securities legislation assert jurisdiction over issuers listed on their own exchanges. In fact, the US legislation says that it has exclusive authority over securities traded on its exchanges. The plaintiff, Kaynes, bought on a US exchange. Consistent with the conclusion of Justice Strathy in Gammon, the Court of Appeal concluded that "It would surely come as no surprise to purchasers who used foreign exchanges that they should look to the foreign court to litigate their claims." Effectively, the Court of Appeal deferred to the authorities in the US and UK as the appropriate arbiters of whether BP's conduct adversely affected the value of the securities listed and sold on their own exchanges. The court found that the prevailing international norm was to tie jurisdiction to the place where the securities were traded. BP is in many ways consistent with the ratio in Morrison, al- though it goes much further, since the Court of Appeal foreclosed the claims of Canadians who bought on a foreign exchange, while

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