Ontario Court of Appeal Limits Securities Class Actions

The Court of Appeal for Ontario has recently released its decision in Peter Kaynes v. BP PLC,¹ ruling that Ontario was not the appropriate jurisdiction for a secondary market securities class action for investors who had purchased their securities on a stock exchange outside Canada. The Court of Appeal applied the principle that securities litigation should take place in the jurisdiction where the investor's securities transaction occurred. The decision in BP aligns the approaches of Ontario and U.S. law to the jurisdictional scope of securities class actions and should lead Ontario courts in future cases to limit the scope of secondary market misrepresentation class actions to investors who acquired their securities on a Canadian stock exchange.

The Proposed Class Action and Jurisdictional Challenge

In the BP securities litigation, it is alleged that the company's continuous disclosure contained misrepresentations about the impact of the Deepwater Horizon accident. Proposed secondary market misrepresentation class actions were subsequently commenced in the U.S. and Ontario. In the Ontario action, the plaintiff intended to seek orders both certifying a class action and granting leave to assert the statutory cause of action for secondary market misrepresentations created by Ontario’s Securities Act. The plaintiff in the Ontario case acquired his BP securities on the New York Stock Exchange, but he is a Canadian resident. The proposed class in the Ontario litigation included all residents of Canada who acquired BP securities during the class period, wherever those securities were purchased.

BP challenged the jurisdiction of the Ontario court and also argued, alternatively, that the Ontario court ought to decline jurisdiction over the proposed class action. The Court of Appeal found that while Ontario had jurisdiction, it should decline jurisdiction on the basis of forum non conveniens. The action was therefore stayed, with leave to the plaintiff to reconfigure the case in a manner that restricted it to investors who acquired BP securities on the Toronto Stock Exchange.

In finding that Ontario was not the appropriate forum, the Court of Appeal held that asserting jurisdiction over the claim would be inconsistent with the international context of the securities law regimes in the U.S. and the U.K., where the majority of BP's securities traded. By statute, both the U.S. and U.K. regimes assert jurisdiction in secondary market misrepresentation cases on the basis of the location of the exchange where the securities are traded. Further, U.S. courts have exclusive jurisdiction over claims based on secondary market misrepresentations under U.S. securities laws and no jurisdiction over claims relating to transactions that occurred in foreign jurisdictions. Having regard to comity, the Court of Appeal held that order and fairness are achieved by adhering to the prevailing international standard tying jurisdiction to the place where the securities were traded. Declining jurisdiction on the basis that an investor's transaction did not take place on a Canadian exchange aligns the approach in Ontario to the approach taken in the U.S. It also helps to create an orderly and predictable regime for the resolution of claims in securities markets consistent with investors' expectations. As the Court of Appeal stated, "[i]t would surely come as no surprise to purchasers who used foreign exchanges that they should look to the foreign court to litigate their claims."

Implications of the Decision

The securities of Canadian companies are often listed on both a Canadian stock exchange and a U.S. stock exchange. In the context of shareholder class actions, this can result in a multiplicity of proceedings. For cases where, as in BP, the securities at issue do not trade on a Canadian exchange, it will not be appropriate for an Ontario court to assert jurisdiction. Consistent with this approach to jurisdiction, the BP decision should also limit the scope of classes an Ontario court will certify in secondary market misrepresentation cases. The principle animating the jurisdiction decision in BP is that investors should expect that misrepresentation claims will be adjudicated in the place where they acquired their securities and under the law of that jurisdiction. It would therefore be inappropriate for an Ontario court to certify a class that includes investors who acquire securities on a foreign stock exchange or outside of Canada. Secondary market misrepresentation class actions in Ontario should therefore be available only to investors who acquired their securities on a Canadian stock exchange.

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¹ 2014 ONCA 580.