Ontario Court Of Appeal Clarifies Jurisdictional Limits Of Secondary Market Claims In Yip V. HSBC Holdings Plc

The recent judgment of the Ontario Court of Appeal in Yip v. HSBC Holdings plc1 provides helpful guidance on the jurisdictional limits of secondary market proceedings commenced in respect of securities traded on a foreign exchange. In particular, the Court cautioned against the risks of "jurisdictional overreach," and confirmed that the common law "real and substantial connection" test for jurisdiction must be satisfied in respect of both statutory and common law misrepresentation claims against a foreign public issuer. While the Court acknowledged that a "responsible issuer" under Part XXIII.1 of the Securities Act 2 goes beyond a reporting issuer, such that an action for secondary market misrepresentation may be sustained even where the underlying securities are not listed or traded on a Canadian exchange, the mere fact that the securities can be purchased online by an Ontario resident is not - in and of itself - sufficient to satisfy the common law test for jurisdiction. What is more, the principles of comity dictate that the forum analysis in respect of secondary market claims will often favour the forum of the exchange(s) where the securities are traded.

Background

The underlying proceedings were commenced by a Canadian resident who purchased securities issued by HSBC Holdings plc. (HSBC Holdings), the parent holding company of an international banking conglomerate with its head office in London, U.K. Notably, the securities at issue were never traded or listed on any Canadian exchange.3 The plaintiff acquired his shares online from Ontario, using a Hong Kong bank account on the Hong Kong Stock Exchange, and accessed HSBC Holdings' disclosure documents from its website (not from the website of its domestic banking subsidiary, HSBC Canada).

The plaintiff alleged that HSBC Holdings' continuous disclosure documents and public statements contained material misrepresentations relating to its asserted compliance with anti-money laundering and anti-terrorist financing laws, as well as to its disclaimer of participation in an illegal scheme to manipulate certain international benchmark interest rates. Notably, for the purposes of his analysis, the motion judge proceeded on the assumption that these misrepresentations were in fact communicated.

On the basis of the foregoing facts, Justice Perell concluded that HSBC Holdings did not carry on business in Ontario (even though it was subject to Canadian banking regulations under the Bank Act4 and its subsidiary did itself carry on business in Ontario), and ruled that the Ontario courts did not have jurisdiction simpliciter.5 In the alternative, Justice Perell concluded that Ontario would not be the appropriate forum in any event, deferring instead to the forum where the trades took place. Accordingly, Justice Perell dismissed the plaintiff's proposed...