On March 28, 2019, the Supreme Court of Canada denied leave to appeal in Yip v. HSBC Holdings plc, 2019 CanLII 23866, leaving standing the Ontario Court of Appeal’s decision in Yip v. HSBC Holdings plc, 2018 ONCA 626, affirming Yip v. HSBC Holdings plc, 2017 ONSC 5332.

The case serves as an important precedent for 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.

Background

This was a proposed secondary market securities class action against HSBC Holdings plc (“Holdings”) and its former Head of Group Compliance alleging misrepresentations in public disclosure. Holdings has no offices, assets, or employees in Canada. Its shares have never traded on any Canadian exchange, and it has never been a reporting issuer in any Canadian jurisdiction. The representative plaintiff, Mr. Yip, resides in Markham and used his home computer to purchase HSBC Holdings common shares using Hong Kong dollars and through an online Hong Kong brokerage account.

Holdings successfully brought a preliminary motion to challenge the action on jurisdictional and forum non conveniens grounds.

The Court of Appeal affirmed the lower court decision 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.

Canada is Not a Universal Jurisdiction - Secondary Market Claims

The Plaintiff’s theory was that Ontario Securities Act creates a statutory cause of action for secondary market misrepresentations by a “responsible issuer”, because this term refers not just to reporting issuers (which Holdings is not), but also to any other issuer with a real and substantial connection to Ontario, any securities of which are publicly traded. This, by his own admission, would have made Ontario a universal jurisdiction for secondary market misrepresentations made anywhere in the world.

The Court of Appeal dismissed the Plaintiff’s theory that the Ontario Securities Act creates a statutory cause of action for secondary market misrepresentations by any issuer with a real and substantial connection to Ontario with securities which are publicly traded and made it clear that the Act should not be used to create “universal jurisdiction” in Ontario. The Ontario Court of Appeal rejected the argument that Holdings was carrying on business in Ontario directly or indirectly through its indirect subsidiary. 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.

Comity is a Key Consideration in the Forum Non Conveniens Analysis

The Court of Appeal also 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” and declined to give decisive weight to the various legal and practical differences between litigating his case in Canada and in other jurisdictions, including the availability of class remedies and the financing of such litigation, emphasized by the Plaintiff.

While the Court of Appeal did not elevate the comity analysis to a mandatory rule, it did recognize its importance in confirming 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. In so doing, the Court of Appeal aligned Canada with the prevailing international norm that securities litigation should be pursued in the jurisdiction where the securities at issue were traded or where the issuer defendant is resident.

Implications for Future Class Actions

While a cause of action under the Ontario Securities Act remains available where the issuer’s connection to Ontario can be shown to be real and substantial,[1] this case should assist in preventing claims where there is only a peripheral connection to the jurisdiction and in underscoring the importance of comity in the forum non conveniens analysis.

In a time of technological change in the investment space which makes it possible for investors in Canada to easily invest in markets around the world, this case makes clear that, even in these changing times, the well-established rules of jurisdiction and forum non conveniens still apply.

Disclaimer: Brandon Kain and Charlotte-Anne Malischewski of McCarthy Tétrault LLP acted for the Defendants in this case.

 

 

[1] This is different from the Supreme Court of the United States ruling that the securities legislation can only have an extraterritorial application where that is explicitly provided for in the language of the statute