Striking Oil?: Court allows secondary market securities class action for shares purchased on a foreign stock exchange

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In Kaynes v. BP, 2013 ONSC 5802, Justice Conway determined that a statutory claim for secondary market misrepresentation under the Ontario Securities Act (“OSA”) is a “statutory tort” over which the Ontario Superior Court of Justice can assume jurisdiction, even when investors have purchased the defendant’s shares on a foreign stock exchange.

Mr. Kaynes, an Ontario resident, proposed a class action against BP for alleged misrepresentations made in investor documents about an oil spill in the Gulf of Mexico. He brought a statutory action under section 138.3 of the OSA on behalf of all Canadians who purchased BP’s shares on the Toronto Stock Exchange (“TSX”) and other foreign stock exchanges. BP requested a stay of the action, arguing that the court did not have jurisdiction over the dispute or, alternatively, that there were other more appropriate forums for dealing with the dispute.

When a tort claim is brought in Ontario against a foreign defendant, the court can only assume jurisdiction where there is a “real and substantial connection” between the province and the claim. A plaintiff can prove this connection by establishing a “connecting factor.” One of these factors is whether “the tort was committed in Ontario.” The Court of Appeal in Ontario (Attorney General) v. Rothmans, 2013 ONCA 353, recently decided that a statutory claim based on a common law tort is nearly identical to a “tort committed in Ontario,” or similar enough to qualify as a “connecting factor.”

Applying Rothmans, Justice Conway determined that a claim under section 138.3 of the OSA was “founded on misrepresentation” and could be viewed as a “statutory tort” presumptively connected to Ontario. BP submitted that this “statutory tort” was not committed in Ontario in relation to the investors who purchased BP’s shares outside of the province. Justice Conway disagreed because:

  1. The language of section 138.3 of the OSA is broad and does not restrict the cause of action to investors who purchased their shares on an Ontario stock exchange.
  2. The OSA assumes that an Ontario investor relied on a misrepresentation when he or she purchased the shares. The location of the stock exchange where the purchase was made does not determine the issue.
  3. BP’s position was inconsistent with the Ontario Court of Appeal’s recent decision in Abdula v. Canadian Solar Inc, 2012 ONCA 211, which allowed an Ontario investor, who purchased shares on a foreign stock exchange, to bring a claim in Ontario against a non-reporting issuer.  

BP also argued that the U.S. and U.K. courts were more appropriate forums for dealing with these investors. Justice Conway rejected this argument as inefficient and costly because: (1) the investors who purchased BP’s shares on the TSX would still bring a claim in Ontario; (2) staying the Ontario action might stop the investors who purchased BP’s shares on the New York Stock Exchange from opting-out of an ongoing, but uncertified, U.S. class action; and (3) the investors who purchased BP’s shares on a European stock exchange would have to bring individual claims in the U.K. and then seek an order to have them tried together.

The Court’s liberal interpretation of jurisdiction in relation to statutory secondary market claims could result in more of these claims being brought in Ontario.