In a departure from the U.S. precedent, Canada assumes jurisdiction over foreign securities class actions

The Ontario Superior Court of Justice decided recently that it has the authority to assume jurisdiction over securities class actions for shares that were purchased over a foreign exchange. This broad view on extraterritorial jurisdiction, a sharp contrast to that of the United States as declared by the U.S. Supreme Court in Morrison v. National Australia Bank, will likely increase the filing of securities class actions filed within the province. This decision should make Ontario the leading jurisdiction for securities class actions with significant foreign elements.

Canada gavelThe Court held in Kaynes v. BP (Kaynes) that jurisdiction over a secondary market misrepresentation suite will be upheld even though the securities at issue were not purchased over a domestic exchange. The action alleges BP made misrepresentations regarding its operational and safety programs prior to the April 2010 oil spill in the Gulf of Mexico. The plaintiff asserts causes of action for common law negligent misrepresentation and statutory misrepresentation pursuant to Part XXIII.1 of the Ontario Securities Act. The proposed class consists of Canadian residents who purchased BP securities on the Toronto stock exchange (TSX) as well as the New York, London, and Frankfurt exchanges.

In denying BP’s motion to stay or dismiss the claim for lack of jurisdiction, the court recognized a presumption of jurisdiction over causes of action where there is a real and substantial connection between the province and the claim. In its reasoning, the Court declared that a real and substantial connection is established where a statutory tort, such as that created by Part XXIII.1, is committed within the province. According to the Court, the site of the statutory tort of secondary market misrepresentation is not determined by the location of the exchange where the shares were purchased, but rather on the location of those investors who relied on the misrepresentation. Further, the Court found that nothing in Part XXIII.1 restricts the cause of action to investors who purchased shares on a domestic exchange.

While the decision is subject to appeal, it represents an expansive assumption of jurisdiction by the Ontario Superior Court over foreign issuers whose securities do not trade over a domestic exchange. It appears Ontario is attempting to replace the U.S. as the primary jurisdiction to bring extraterritorial claims.

 

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