In Shirodkar v Coinbase Global, Inc. et al., 2024 ONSC 1399 (“Coinbase”), the Ontario Superior Court of Justice (the “Court”) stayed a proposed class action against one of the four proposed defendants – Coinbase Canada Inc. – on the basis that Ireland is a preferable forum while dismissing it with respect to the other proposed defendants – each of which was a foreign Coinbase entity – for want of jurisdiction.

Background

The defendants, Coinbase Global, Inc. ("Coinbase Global”), Coinbase Europe Limited, and Coinbase Inc. (collectively, the “Foreign Coinbase Defendants”), and Coinbase Canada Inc. (“Coinbase Canada”) (together with the Foreign Coinbase Defendants, the “Coinbase Defendants”), operate a digital platform that allows users to purchase and sell digital assets, including cryptocurrency.

Mr. Shirodkar, one of the Coinbase platform users (the “Plaintiff”), conducted purchase and sale transactions on the platform between October 2017 and January 2021, during which time he resided at various times in France and Ontario. At the time the Plaintiff conducted these transactions, he had signed user agreements with the Foreign Coinbase Defendants, but not with Coinbase Canada.

The Plaintiff commenced a class proceeding, alleging that the crypto assets being sold on the Coinbase platform are “securities” as defined by s. 1(1) of the Securities Act, R.S.O. 1990, c. S. 5 (the “Act”). The Plaintiff asserted that these asserts were issued without adherence to necessary disclosure requirements mandated by securities legislation across Canada, posing a significant risk to investors. After commencing the class proceeding, the Plaintiff accessed the Coinbase platform and executed a user agreement with Coinbase Canada, but did not perform any other transactions.

The Coinbase Defendants sought to dismiss the class action, on the basis that the Court did not have jurisdiction over any of the Coinbase Defendants, and also argued for a permanent stay based on the principle of forum non conveniens (i.e., where an alternative forum is more appropriate forum for the dispute to be adjudicated).

In response, the Plaintiff argued that the Court could assert jurisdiction on any or all of the following grounds:

1. Presence-Based Jurisdiction, which is established where a defendant was carrying on business in the forum at the time the action was commenced. This involves a factual inquiry into whether the company has some direct or indirect presence in the state asserting jurisdiction, accompanied by a degree of business activity, which is sustained for a period of time;
2. Consent-Based Jurisdiction, which is established where a defendant has consented, “whether by voluntary submission, attornment by appearance and defence, or prior agreement to submit disputes to the jurisdiction of the domestic court”; and/or
3. Assumed Jurisdiction, which provides that an Ontario court will assume jurisdiction over a foreign defendant where the plaintiff establishes a “good arguable case” for doing so. The court will apply the “real and substantial connection” test, which requires a review of several factors that connect (or fail to connect) the legal situation or the subject matter of the litigation with the proposed forum.

The Court’s Jurisdictional Analysis

The Ontario Court conducted a thorough jurisdictional analysis, which considered whether the plaintiff’s agreements with the various Coinbase Defendants established a sufficient legal basis for the Ontario Court to hear the case. Ultimately, the Court concluded that it had no jurisdiction to hear the action against the Foreign Coinbase Defendants as they could not satisfy the threshold of conducting business in Ontario for jurisdictional purposes. Moreover, while the Court held that Coinbase Canada had a discernible business presence in Ontario, it ordered a permanent stay against this Canadian entity on the basis of forum non conveniens.

Presence-Based Jurisdiction

The Court held that the Plaintiff failed to establish that the Foreign Coinbase Defendants were carrying on business in Ontario at the time the action was commenced. The Court comprehensively reviewed principles of presence-based jurisdiction, coming to negative conclusions in each case, as follows:

• Entities appoint agents for service in Ontario because they do not have a physical presence in the jurisdiction, and such an appointment does not amount to carrying on business in Ontario.
• Registration with FINTRAC (Financial Transactions and Reports Analysis Centre of Canada) does not definitively constitute presence in the jurisdiction.
• Having a website that is available to be accessed by people located in Ontario, is not enough to meet the threshold of “presence” in the province in the absence of the performance of "some substantial aspect of its own business undertaking" in Ontario.
• Registration as an extra-provincial corporation is an indicia of carrying on business in Ontario, but it is not determinative. Where the registration was intended to facilitate regulatory filings that never occurred, this factor does not carry significant weight.
• The fact that the entity operates outside of Ontario, and does not contract with retail users in Ontario, is an important consideration.

The Court concluded that the only entity over which it could assert presence-based jurisdiction was Coinbase Canada. This decision was based mostly on the fact that Coinbase Canada itself believed it was carrying on business in Ontario, as evidenced by it having filed a document with the Ontario Ministry of Government Services indicating that it commenced business activity in Ontario in December 2020.

Consent-based Jurisdiction

According to the Plaintiff, the Foreign Coinbase Defendants consented to Ontario’s jurisdiction on two grounds, both of which were rejected by the Court:

1. User Agreement: The Plaintiff pointed to the Coinbase Canada user agreement, which contained a provision that provided all complaints, even those arising prior to the agreement, were to be heard in Ontario. The Court determined that the user agreement did not purport to bind any other Coinbase entity, including the Foreign Coinbase Defendants, and therefore, could not be a basis on which consent-based jurisdiction is established over the Foreign Coinbase Defendants; and
2. Securities Regulator Dealings: The Court determined that, although over the course of dealing with securities regulators, the Foreign Coinbase Defendants ultimately submitted to the jurisdiction of Ontario, their acceptance was neither retroactive nor retrospective and did not cover the relevant time period.

Assumed Jurisdiction

The Court also rejected the Plaintiff’s claim that it should assume jurisdiction, on the basis that Ontario is not substantially affected (a term the Court did not provide guidance on) by the conduct of the Foreign Coinbase Defendants, and no more than a number of other jurisdictions where clients executed transactions.

Forum non Conveniens

Critical to the Court’s decision to permanently stay the proceeding against Coinbase Canada was the fact that the Plaintiff only traded in digital assets when his contractual relationship was with a Foreign Coinbase Defendant. Coinbase Canada only became a counterparty to a user agreement with the Plaintiff after the Plaintiff’s claims arose. The Court noted that a different plaintiff, who had performed a transaction when Coinbase Canada was a party to the user agreement, may have been successful in resisting the stay.

The Coinbase Defendants argued that Ireland would be the more appropriate forum. They relied on expert evidence that Ireland has a comprehensive scheme for the regulation of financial instruments and securities, which substantially mirrors the substantive provisions of the Act relied upon by the Plaintiff. Moreover, the evidence indicated that Irish courts would assume jurisdiction arising out of an alleged improper distribution of securities through Coinbase Europe.^[1]

The Court agreed that “Ireland is a clearly more appropriate forum” and held that the fact that Ireland does not have class proceedings process is “of no import”. In this regard, the Court noted that Ontario courts have frequently deferred to jurisdictions with no class proceedings, “a deference that reflects the importance of comity in the forum analysis”.

Key Takeaways

• Coinbase is a good example of a holistic jurisdictional analysis undertaken by an Ontario Court. While the Court does enunciate some helpful general principles, it is also a testament to jurisdiction being a fairly fact-specific analysis.
• The decision reinforces that the mere accessibility of a website in a province, without more, may not necessarily be enough to establish jurisdiction in that province despite compelling public interest concerns, such as the protection of individual traders and the regulation of securities, especially in the new and complex sphere of cryptocurrency.
• The Court’s forum non conveniens analysis, and decision to stay the action against the Canadian entity, emphasizes that the existence and performance of a contract with a party in Ontario may lend itself to both establishing jurisdiction, and defending against a stay.

[1] In this case, the plaintiff’s purchase of alleged securities occurred in Ireland through Coinbase Europe and the contractual relationship between Plaintiff and Coinbase Europe was formed in Ireland.

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