CANADA – The Ontario Superior Court has dismissed a proposed class action involving the securities of a foreign company purchased on foreign exchanges. In a recent decision, Justice Belobaba found that Ontario lacked jurisdiction simpliciter or, alternatively, was forum non conveniens. This decision reinforces “[t]he prevailing international norm that securities litigation should take place in the forum where the securities trading took place.”
In 2015, a German carmaker (the “Manufacturer“) admitted that it had fitted its “clean diesel” vehicles with “defeat devices” to fool emissions tests. These revelations caused a depreciation in the Manufacturer’s share value.
The Manufacturer’s shares were traded on several European exchanges. Its American Deposit Receipts (“ADRs“) were sold on the over-the-counter market in the United States. Neither were ever sold in Canada.
George Leon brought a proposed class action in Ontario on behalf of Ontario residents who had purchased ADRs or common shares between 2009 and 2015. Mr. Leon had purchased his securities through a broker in Toronto.
Several parallel American class actions had already been commenced and included Ontario residents who purchased ADRs but not shares. The American actions were also based on statutory causes of action in securities legislation, however Mr. Leon advanced common law fraudulent misrepresentation claims because most of the proposed class members would fall outside the limitations period in Ontario’s Securities Act.
Prior to the certification motion, the Manufacturer moved for dismissal for want of jurisdiction. The Court granted the motion, finding that Ontario lacked jurisdiction simpliciter or, alternatively, that Ontario was forum non conveniens.
The first stage of the jurisdiction analysis determines whether the Ontario courts hold jurisdiction simpliciter based on a “real and substantial” connection between the proposed claims and Ontario. Mr. Leon raised two possible connecting factors: (i) that the Manufacturer carries on business in Ontario; and (ii) that the misrepresentation had been committed in Ontario. Both connecting factors were rejected.
Regarding (i), the Court relied on the Supreme Court’s findings in Van Breda that “‘carrying on business’ as a connecting factor requires some form of physical presence.” Although the Manufacturer’s wholly-owned Canadian subsidiary sold cars in Ontario, the parent company named in this lawsuit had no physical presence in Ontario. Likewise, the Manufacturer’s advertising efforts in Ontario did not qualify as a physical presence in the jurisdiction.
Regarding (ii), the Court found insufficient evidence that Mr. Leon received and relied on the alleged misrepresentations in Ontario. While reliance is presumed for misrepresentation claims under the Securities Act (and under comparable American legislation), Mr. Leon advanced common law claims which required him to establish reliance on a balance of probabilities. He could not specifically recall what documents he had read and relied upon prior to purchasing the securities, nor whether those documents were authored by the defendant or by third-party analysts and newspapers. His evidence of reliance was “weak or non-existent”.
The Court concluded that there was “no real and substantial connection between the subject matter of this proposed class action and Ontario.”
Forum Non Conveniens
In obiter dictum, the Court held that even if Ontario had jurisdiction simpliciter, it would decline to exercise jurisdiction because Ontario would be an inconvenient forum.
Most of the common law factors governing forum non conveniens pointed to Germany or the US as more appropriate forums. These included the location of most parties, witnesses and evidence, choice of law provisions in relevant contracts and the existence of parallel proceedings in other jurisdictions. The statutory claims in the American class actions were favoured over “the cumbersome common law tort claim” in Ontario. Mr. Leon also failed to adduce specific evidence to demonstrate substantial inconvenience or expense if forced to advance claims outside Ontario.
Mr. Leon argued that the class members would be deprived of a “juridical advantage” if forced to litigate their claims abroad because Germany does not have class proceedings and because the United States has less favourable limitations periods. The Court found the absence of class proceedings in Germany to be of “no import” because courts have consistently deferred to other jurisdictions without class actions as a function of comity. Likewise, the Court was harshly critical of the plaintiff for “forum-shopping” in search of favourable limitations periods. The Court held that “[p]arsing another country’s procedural law to assess comparative advantage or disadvantage eviscerates the attitude of respect for and deference to the legitimate actions of other states and their courts that lies at the core of international comity.”
Overall, the Court reaffirmed that order and fairness are best promoted, and multiplicity of proceedings best avoided, “by tying jurisdiction to the place where the securities were traded.” Doing so accords with the principle of comity, which is, after all, the “underpinning for the modern system of private international law.”