HSBC Holdings defends class action over alleged misrepresentations in continuous disclosure documentation
March 28, 2019
On July 11, 2018, the Ontario Court of Appeal released its decision in Yip v. HSBC Holdings plc, 2018 ONCA 626, affirming Yip v. HSBC Holdings plc, 2017 ONSC 5332. McCarthy Tétrault LLP defeated a proposed secondary market securities class action against HSBC Holdings plc (“Holdings”) and its former Head of Group Compliance, David Bagley. This was a $7 billion (USD) claim alleging misrepresentations in Holdings’ public disclosure materials relating to HSBC Group’s non-compliance with anti-money laundering and anti-terrorist financing laws, along with manipulation of the Libor and Euribor benchmark interest rates. Because Holdings is a U.K. entity whose securities have only ever traded on non-Canadian exchanges, and it has no place of business in Canada (only an indirect subsidiary, HSBC Bank Canada, who was not named as a defendant), we brought a preliminary motion to challenge the action on jurisdictional and forum non conveniens grounds.
The Court of Appeal affirmed Justice Perell’s decision below to terminate the entire action, by ordering that the claims under Part XXIII.1 of the Ontario Securities Act be dismissed against Holdings and Mr. Bagley, and that the negligent misrepresentation claim against Holdings be stayed. It concluded that the Ontario court lacked jurisdiction simpliciter over both defendants, and that Ontario was forum non conveniens given that the U.K. and Hong Kong were more appropriate locations to hear the claim. The decision is attached.
With respect to jurisdiction, the Court of Appeal found that Holdings does not have a real and substantial connection to Ontario, and is therefore not a “responsible issuer” under Part XXIII1 of the Securities Act, nor a party over whom the court has jurisdiction simpliciter. In doing so, the Court of Appeal was clear that the Securities Act should not be used to create “universal jurisdiction” in Ontario for secondary market claims. It rejected the argument that Holdings was carrying on business in Ontario directly or indirectly through its indirect subsidiary, HSBC Canada. In addition, it found that even though the plaintiff had established the presumptive connecting factor of a tort committed in Ontario, this was rebutted, since Holdings’ disclosure was prepared abroad in order to comply with foreign laws. The simple fact that the plaintiff downloaded Holdings’ materials here, or that Holdings materials were available on HSBC Canada’s website, did not point to any real relationship between the subject matter of the litigation and the province.
With respect to forum non conveniens, the Court of Appeal held that comity is a “key consideration”, such that “the more appropriate forum for secondary market claims will often favour the forum of the exchange(s) where the securities trade”. It held the plaintiff’s juridical advantage of being able to assert a class action in Ontario was not an “inviolable right”, and agreed with Justice Perell that the U.K. or Hong Kong was a more appropriate forum.
While secondary market securities class actions have previously been stayed based on forum non conveniens, this is the first Canadian decision in which a court has dismissed a claim under Part XXIII.1 of the Securities Act due to lack of jurisdiction simpliciter over a foreign issuer. It will serve as an important precedent in future securities class actions, in addition to cross-border claims against financial services defendants and other cases where plaintiffs seek to ground jurisdiction over foreign entities based on their ownership of and involvement with Canadian subsidiaries. It is also a helpful case in terms of minimizing the relevance of juridical advantage and underscoring the importance of comity in the forum non conveniens analysis.
The plaintiff's application for leave to appeal to the SCC was dismissed on March 28th, 2019.
McCarthy Tétrault advised HSBC with a team led by Paul Steep, that included Brandon Kain, Bryn Gray, and Charlotte-Anne Malischewski.