Proposed shareholder class action stayed due to lack of jurisdiction
A proposed shareholder class action against HSBC Holdings plc was recently stopped in its tracks by the Ontario Superior Court due to a lack of jurisdiction. The plaintiff, Wai Kan Yip, alleged that HSBC Holdings plc, the London-based parent holding company of HSBC banks and financial services firms around the world, had carried on business in violation of anti-money laundering and anti-terrorist financing laws. Yip and his counsel sought to bring a class action in Ontario for both common law misrepresentation and under Part XXIII.1 of the Ontario Securities Act, on behalf of worldwide holders of HSBC securities. The plaintiff sought to recover a $7 Billion (USD) loss suffered by investors who allegedly overpaid for their shares based on HSBC’s misrepresentations that it was in compliance with the above anti-money laundering and terrorist financing laws. HSBC Holdings securities have never traded in Ontario and in a decision released on September 11, 2017, Justice Perell agreed with HSBC Holdings’ counsel that the lack of any real connection to Ontario means that it is no place for the proposed class action against HSBC Holdings to be tried.
The portion of the action that sought to claim on behalf of investors in the secondary market under Part XXIII.1 of the Ontario Securities Act was dismissed outright. Under Part XXIII.1 , claims can only be made against a “responsible issuer.” “Responsible issuer” is defined under Part XXIII.1 as either a “reporting issuer” under the Securities Act (which, broadly speaking, means a company that either is incorporated in Ontario or offers or trades its securities in Ontario or on an Ontario exchange) or an issuer of securities that otherwise has a “real and substantial connection” to Ontario. Justice Perell cited three instances of when a foreign company might be a “responsible issuer” under Part XXIII.1: (1) Where the foreign corporation’s securities trade in Ontario’s secondary market; (2) Where the foreign corporation’s securities trade on secondary markets in both Ontario and a foreign jurisdiction; and (3) Where the foreign corporation’s securities do not trade in Ontario, but the corporation otherwise has a real and substantial connection to Ontario. Justice Perell found that HSBC Holdings met none of these requirements as it did not offer its securities in Ontario or carry on business in Ontario. Because the existence of a “responsible issuer” is a basic requirement for a claim under Part XXIII.1, Justice Perell dismissed that portion of the claim entirely.
The lack of a real and substantial connection to Ontario also precluded the common law misrepresentation claim from proceeding in Ontario and Justice Perell permanently stayed that portion of the claim due to a lack of jurisdiction simpliciter. Applying the test set by the Supreme Court of Canada in its 2012 decision in Club Resorts v. Van Breda, Justice Perell accepted that there was a good arguable case that HSBC Holdings had committed the tort of misrepresentation in Ontario (which occurs if the misrepresentation is received in Ontario), but went on to find that HSBC Holdings had successfully rebutted the presumption of jurisdiction from this connecting factor, saying: “That Mr. Yip downloaded HSBC Holdings’ materials in Ontario is an extremely weak connection and that HSBC Holdings’ materials were available on HSBC Canada’s webpage does not point to any real relationship between the subject-matter of the litigation and Ontario.”
To further bolster his decision to stay the action, Justice Perell fully considered the issue of forum non conveniens – which is the question of whether, even if Ontario courts have jurisdiction over a claim, jurisdiction should still be declined because there is another forum that would clearly be a better place to determine the dispute. In a forum non conveniens analysis, the location of the evidence and witnesses are considered as well as other factors, such as whether foreign law is likely to apply to the dispute. Justice Perell found that Ontario is not a convenient forum for this action, saying, “In my opinion, the U.K. rather than Ontario is the natural forum to resolve the dispute between the parties. The U.K. is the place where the majority of HSBC Holdings’ securities were traded during the class period. The Defendants reside in the U.K. The disclosure decisions were made in the U.K., and the material witnesses and evidence are located in the U.K. and very little if any evidence about the compliance representation and the Libor/Euribor representation concerns Ontario.”
Securities class actions are very high stakes litigation and any public company can expect to have investors from all over the world with full access to each and every press release, financial statement and communication it issues. There will always be a temptation to bring such actions in a forum perceived to be more favourable to plaintiffs. However, the decision in Yip v. HSBC Holdings plc makes it clear that Ontario investors in foreign companies traded on foreign exchanges must show much more than a few internet downloads of a foreign company’s materials in order to bring an action in Ontario.
