Ontario Court Of Appeal Summaries (July 9 – 13)

The following are our summaries of this week's civil decisions of the Ontario Court of Appeal.

In Yip v HSBC Holdings plc, the Court of Appeal upheld the stay of a US$7 billion class action claim for secondary securities market misrepresentation on jurisdictional grounds. The securities at issue were bought by Canadians on foreign exchanges, as they did not trade on a Canadian stock exchange. The Court determined that Ontario securities law did not extend as far as to permit a claim for secondary market misrepresentation under the Securities Act to proceed in Ontario in such circumstances, and therefore upheld the stay of proceedings imposed by the motion judge.

In Malkov v Stovichek-Malkov, the Court of Appeal confirmed that the test for a plaintiff to re-open their case in the context of family law proceedings is as set out in Catholic Children's Aid Society of Toronto v. M.R., 2014 ONCJ 762.

Other topics covered this week included crown wardship, constructive dismissal, partial summary judgment, unjust enrichment as a result of an overpayment by an insurer, a construction lien action, and a claim for negligent investigation and related torts against the police and Fire Marshall in a case of arson by negligence (the claims were dismissed).

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I hope everyone is enjoying the weekend.

John Polyzogopoulos

Blaney McMurtry LLP

jpolyzogopoulos@blaney.com

Tel: 416 593 2053

https://www.blaney.com/lawyers/john-polyzogopoulos

Civil Decisions

Yip v HSBC Holdings plc, 2018 ONCA 626

[Lauwers, Benotto and Nordheimer JJ.A]

Counsel:

Paul J. Bates, John Archibald, and Earl A. Cherniak, Q.C., for the appellant

Paul Steep, Brandon Kain, and Bryn Gray, for the respondents

Keywords: Torts, Negligent Misrepresentation, Securities, Secondary Market Misrepresentations, Securities Act, RSO 1990, c S 5, s. 138.1, Definition of "Responsible Issuer", Abdula v Canadian Solar Inc, 2012 ONCA 211, Statutory Interpretation, Bell ExpressVu Limited Partnership v Rex, 2002 SCC 42, Rizzo & Rizzo Shoes Ltd (Re), [1998] 1 SCR 27, Civil Procedure, Class Actions, Jurisdiction Simpliciter, Real and Substantial Connection, Forum Non Conveniens, Club Resorts Ltd v Van Breda, 2012 SCC 17, Moran v Pyle National (Canada) Ltd, [1975] 1 SCR 393, Kaynes v. BP, PLC, 2014 ONCA 580, Kaynes v BP PLC, 2016 ONCA 601, Costs, Public Interest Litigation, Enterpreneurial Litigation, Disbursements, Experts, Proportionality, Fantl v Transamerica Life Canada, 2009 ONCA 377, 3664902 Canada Inc. v. Hudson's Bay Co. (2003), 169 O.A.C. 283 (C.A.), Class Proceedings Act, 1992, SO 1992, c 6, s. 31(1), Rules of Civil Procedure, Rule 1.04(1.1)

Facts:

This appeal concerns a proposed securities class action for negligent misrepresentation against HSBC Holdings ("HSBC Holdings"). HSBC Holdings is the parent holding company of an international banking conglomerate with its head office in London, UK. The securities have never traded or been listed on any Canadian stock exchange. They are traded on the London and Hong Kong Stock Exchanges with secondary listings on the Bermuda Stock Exchange and the Paris Euronext Stock Exchange. HSBC's American Depository Receipts (ADRs) traded on the New York Stock Exchange. HSBC Holdings has about 220,000 shareholders in 129 countries, including Canada. The appellant asserts that he and other purchasers of HSBC Holdings' shares or ADRs were misled by HSBC Holdings' continuous disclosure documents and public statements in two primary respects: (i) that it had complied with anti-money laundering and anti-terrorist financing laws; and (ii) that it had not participated in an illegal scheme to manipulate certain international benchmark rates. The motion judge proceeded on the assumption that these misrepresentations occurred.

The appellant asserts that these misrepresentations caused investors in HSBC Holdings to suffer about US$7 billion in losses because they purchased shares and ADRs at artificially inflated prices. This is the basis of his statutory and common law tort claims for misrepresentation.

The motion judge heard two motions. HSBC Holdings moved to dismiss or stay the appellant's action because the Ontario court lacks jurisdiction simpliciter and because Ontario is forum non conveniens. The appellant brought a cross-motion for a declaration that HSBC Holdings is a responsible issuer under s.138.8 of the Ontario Securities Act. The motion judge dismissed the appellant's action and stayed the common law misrepresentation claim. He dismissed the appellant's cross-motion.

Issues:

(1) Did the motion judge err in his interpretation of the definition of responsible issuer in s. 138.1 of the Securities Act?

(2) Did the motion judge err in his application of the common law real and substantial connection test?

(3) Did the motion judge err in his application of the doctrine of forum non conveniens?

(4) Should leave to appeal the costs award be granted and should the costs award be varied?

Holding: Appeal dismissed.

Reasoning:

(1) No, the motion judge did not err in his interpretation of the definition of responsible issuer in s. 138.1 of the Securities Act. The appellant's statutory tort claim is based on s. 138.3, which gives investors a statutory cause of action against a responsible issuer for a misrepresentation in a "document" released by it or contained in a public oral statement. Section 138.3 defines a responsible issuer to mean "(b) any other issuer with a real and substantial connection to Ontario, any securities of which are publicly traded" (emphasis added). The appellant relied on Abdula v Canadian Solar Inc, 2012 ONCA 211, and urged the court to find that: "An issuer that knows or ought to know that its investor information is being made available to Canadian investors has a securities regulatory nexus" with Ontario sufficient to establish a real and substantial connection. The appellant argued that this would be a purposive interpretation consistent with the goal of the Securities Act to protect investors from fraudulent practices.

In the alternative, the appellant submitted that the court should identify a new presumptive connecting factor for cases of secondary market misrepresentation. The appellant argued that HSBC Holdings "ought to know both that" the putative class members "may well be injured and it [was] reasonably foreseeable that the misrepresentation" would be acted upon: Moran v Pyle National (Canada) Ltd, [1975] 1 SCR 393. The appellant therefore argued that the motion judge erred in declaring that HSBC Holdings is not a responsible issuer.

The Court rejected this argument because the proposed formulation of the test might make Ontario a universal jurisdiction for secondary market misrepresentations made anywhere in the world. The Court reiterated that the words of an Act are to be read in their entire context and their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Legislature: Bell ExpressVu Limited Partnership v Rex, 2002 SCC 42, at para 26; and Rizzo & Rizzo Shoes Ltd (Re), [1998] 1 SCR 27, at para 21.

In analyzing the Legislature's intention, the Court found that by introducing civil liability for secondary market misrepresentations, the Legislature did not intend that Ontario would become the default jurisdiction for issuers around the world whose securities were purchased by residents of Ontario. The Court additionally found that the Legislature's adoption of the language in which the common law jurisdiction simpliciter test is framed was not accidental. Rather, it was well entrenched, and it specifically aimed at preventing jurisdictional overreach. The concern about jurisdictional overreach affects the assessment at three levels of the common law test for determining whether a Canadian court will assume jurisdiction: (i) requiring the presence of a presumptive connecting factor; (ii) determining whether the factor has been rebutted; and (iii) in applying the forum non conveniens doctrine.

Further, in assessing the judicial history of the real and substantial connection test, the Court cited the Supreme Court's decision in Club Resorts Ltd. v. Van Breda, 2012 SCC 17. Justice LeBel expressed similar concerns in his formulation of the factors a court is to consider in determining whether a real and substantial connection exists in a tort case. He repeatedly expressed one of the primary aims of the test: to reduce the "risk of jurisdictional overreach" (at para. 22); to "prevent improper assumptions of jurisdiction" (at para. 26); to prevent "courts from overreaching by entering into matters in which they had little or no interest" (at para. 38); and to reduce the risk of "sweeping into that jurisdiction [,] claims that have only a limited relationship with the forum" (at para. 89). In his view, a judicial approach that leads to "universal jurisdiction" should be avoided.

Accordingly, the Court rejected the appellant's argument that, on purposive grounds, the interpretation of the expression "real and substantial connection" in the Securities Act must be different than its common law meaning in the jurisdiction simpliciter cases. Rather, a purposive interpretation led the Court to reject the appellant's proposed test and alternative argument that the court should recognize a new presumptive connecting factor for this type of statutory claim. The Court rejected that an issuer that knows or ought to know that its investor information is being made available to Canadian investors creates a securities regulatory nexus sufficient to establish a real and substantial connection to Ontario. In determining whether an issuer is a responsible issuer, the courts are generally to apply the common law test for a real and substantial connection.

(2) No, the motion judge did not err in his application of the common law test for a real and...