Lexpert US Guides

18 | LEXPERT • December 2015 | www.lexpert.ca CLASS ACTIONS marks a retreat from what started to look like an expansive view of the assertion of jurisdiction over these types of cases. "ere is alignment with Morrison in the sense the Ontario court is now saying, like an American court would, that we shouldn't adjudicate disputes that arise out of transactions that take place somewhere else." But Michael Spencer, counsel at Kim Orr Barristers P.C. in Toronto and also of counsel and a former senior partner at Milberg LLP in New York, calls the decision "troubling and also inexplicable. "It makes one wonder whether the Canadian justices have ever bought a security listed on multi- ple international exchanges," he says. "e purchaser oen doesn't know, and typically doesn't exercise control over which exchange is used to effect the transaction. Even the broker may not know." As securities markets become increasingly globalized, he says, the identity of the exchange on which a particular purchase was executed "begins to look like the least significant of the many factors that should govern investors' expectations." Spencer, one of the principal trial counsel in the massive In re Vivendi Universal, S.A. securities litigation, says he's surprised the Ontario appeal court showed so little apparent regard for Canadian shareholders in Kaynes. "e Ontario Securities Act was designed to protect Canadi- ans, so I expected the Court of Appeal decision to reflect that. e court's idea that US or English courts should adjudicate disputes under the Ontario Act — that's quite naïve. e instinct for protecting Canadian investors is almost completely absent from the Court of Appeal's analysis. "Mr. Kaynes was seeking to represent a class of Canadians. e court dismissed them as a 'dog's tail.'" SOMETIMES IT'S DIFFICULT to imagine Canada did not even have shareholder class actions until the very last day of 2005, when Ontario amended its Securities Act to create a statutory cause of action for misrepresentation and failure to make timely disclosure. e remaining provinces and territories followed suit over the next three years. While the wordings in the various statutes differ, they have one thing in common: All were draed with an eye to avoiding the US experience of strike suits. e tactic was to make the courts a gatekeeper, introducing a leave requirement that bars plaintiffs from starting an action without first obtaining approval. e leave test is twofold: Plaintiffs must demonstrate the action is being brought in good faith, and that it has "a reasonable possibility" of success at trial. e question of success at trial has le the courts grappling with whether they should be reviewing the evidence before granting leave to proceed. e class action was filed alleging BP made misstatements following its devastating 2010 oil spill in the Gulf of Mexico. It was brought on behalf of Ontario investors who held securities in the British energy giant. A similar suit was filed in federal court in Texas. An Ontario court took jurisdiction even though BP is a British company, the accident was in the US, and the vast majority of Ontario class members had bought their shares on the New York or London exchanges (the Toronto Stock Exchange had dropped the listing in 2008 due to low trading volumes). e Ontario Court of Appeal stayed claims by those investors who purchased on a foreign exchange on grounds of comity and forum non conveniens, whittling the class down to a tiny fraction. e court held that Canada should adhere to the prevailing international standard tying jurisdiction to the place where the securities were traded, to provide "order and fairness." "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," the court wrote, saying to do otherwise would be "both opportunistic and a classic example of the 'tail wagging the dog.'" e respect for comity that permeates the decision is something plaintiffs' counsel should take note of, Morrison says. "What it amounts to is that any particular person's claim should be adjudicated in the jurisdiction where that person bought the securities. It shrinks the potential plaintiffs' class, consistent with the Morrison case, and represents a narrowing of the jurisdiction that the justices feel Canadian courts should assume in these securities cases — recognizing that the US courts have similarly narrowed theirs as well." Kaynes is sharply at odds with Silver v. Imax Corporation and Abdula v. Canadian Solar Inc., earlier cases in which Ontario had assumed jurisdiction over claims arising from transactions on foreign exchanges. "It's an important decision," says Clarke Hunter, a senior partner at Norton Rose Fulbright Canada LLP in Calgary. "It "…TO THE EXTENT some Americans may have considered that Canada was a place where it was extremely easy to start secondary-market misrepresentation class actions, that has clearly been modified." Michael Eizenga Bennett Jones LLP

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