ontario superior court of justice between · affidavit of david bagley of little chesterford, ......
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CITATION: Yip v. HSBC Holdings plc, 2017 ONSC 5332
COURT FILE NO.: CV-14-507953CP
DATE: 20170911
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN: )
)
WAI KAN YIP
Plaintiff
– and –
HSBC HOLDINGS plc and DAVID
BAGLEY
Defendants
)
)
)
)
)
)
)
)
)
)
Paul J. Bates and John Archibald for the
Plaintiff
R. Paul Steep, Brandon Kain, Bryn Gray,
and Charlotte-Anne Malischewski for the
Defendants
) HEARD: August 15,16, and 18, 2017.
PERELL, J.
REASONS FOR DECISION
A. Introduction and Overview
This action is brought pursuant to the Class Proceedings Act, 1992, S.O. 1992, c. 6. The [1]
Plaintiff Wai Kan Yip asserts a claim under Part XXIII.1 of the Ontario Securities Act, R.S.O.
1990, c. S.5, against HSBC Holdings plc. He also asserts a common law negligent
misrepresentation claim against HSBC Holdings.
HSBC Holdings is the parent holding company of an international banking conglomerate [2]
with a head office in London, U.K. In his action, Mr. Yip also sues the co-defendant David
Bagley, a former employee of HSBC Holdings, pursuant to Part XXIII.1 of the Ontario
Securities Act.
Mr. Yip sues HSBC Holdings, whose shares have never traded in Canada, as a [3]
“responsible issuer” under the Ontario Securities Act, and Mr. Yip alleges that he and other
purchasers on foreign exchanges who purchased HSBC Holdings’ shares or who purchased its
ADRs (American Depository Receipts) were misled by HSBC Holdings’ representations about:
(1) compliance with anti-money laundering and anti-terrorist financing laws (“the compliance
representation”); and, (2) its nonparticipation in an illegal scheme to manipulate the London
Interbank Offered Rate (“Libor”) and the Euro Interbank Offered Rate (“Euribor”), which are
benchmark interest rates used by banks across the world (“the Libor/Euribor representation”).
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Mr. Yip alleges that after the compliance representation and the Libor/Euribor [4]
representation were revealed as false, the investors in HSBC Holdings’ shares suffered a $7
billion (USD) loss because they overpaid for their shares or ADRs.
There are two motions before the court. First, there is a motion by HSBC Holdings and [5]
Mr. Bagley to dismiss or stay Mr. Yip’s action on the grounds that the Ontario court lacks
jurisdiction simpliciter or on the grounds that Ontario is forum non conveniens. Second, there is a
cross-motion by Mr. Yip for a declaration that HSBC Holdings is a “responsible issuer” under
s.138.8 of the Ontario Securities Act.
The predominant factual ingredient of the main motion is the circumstance that HSBC [6]
Holdings’ shares were traded only in foreign stock exchanges. With respect to the cross-motion,
it should be noted that if HSBC Holdings were a responsible issuer under s.138.8 of the Ontario
Securities Act, then it would follow that the court has jurisdiction simpliciter over it and over Mr.
Bagley, but the forum non conveniens issue of the main motion would remain to be determined.
The fundamental legal question underlying both the motion and the cross-motion is: what [7]
is the jurisdictional reach of an Ontario court to protect Canadian and non-Canadian investors
when the defendant is a foreign corporation whose securities do not trade on a Canadian stock
exchange? Underlying this fundamental legal question are the legal questions of: (a) what does it
mean to carry on business in Ontario? and (b) where is the location of a tort for the purposes of
determining whether the Ontario court has jurisdiction simpliciter over a foreign defendant.
For the reasons that follow, I conclude that: [8]
Contrary to HSBC Holdings’ contention, at this juncture of the action, the court has the
jurisdiction to make a declaration about HSBC Holdings’ status as a “responsible issuer”
under Part XXIII.1 of the Ontario Securities Act.
HSBC Holdings is not a responsible issuer under s.138.8 of the Ontario Securities Act
because it does not have a real and substantial connection to Ontario, and I so declare.
HSBC Holdings does not have a presumptive real and substantial connection to Ontario
by virtue of carrying on its business in Ontario notwithstanding that it has and must
comply with Canadian banking regulations under the Bank Act, S.C. 1991, c. 46, and
notwithstanding that it has a subsidiary, HSBC Bank Canada (HSBC Canada), that does
carry on business in Ontario.
If contrary to the above conclusions, HSBC Holdings does have a presumptive real and
substantial connection to Ontario because it carries on business in Ontario, then in the
circumstances of this case, this presumptive connecting factor has been rebutted.
HSBC Holdings does have a presumptive real and substantial connection to Ontario by
virtue of possibly committing a common law or statutory tort in Ontario, but this
presumptive connecting factor has been rebutted in the circumstances of this case where
HSBC Holdings’ misconduct fundamentally occurred outside of Canada.
Since (a) HSBC Holdings is not exposed to liability as a responsible issuer; and (b) there
is no presumptive connecting factor establishing a real and substantial connection
between its misconduct and Ontario, the Ontario court, therefore, does not have
jurisdiction simpliciter over HSBC Holdings and Mr. Bagley.
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If contrary to the above findings, the Ontario court has simpliciter jurisdiction, then in the
circumstances of this case, Ontario would be forum non conveniens. For Mr. Yip and the
putative Class Members, the U.K. is the natural forum and the forum conveniens.
Thus, either the Ontario court does not have jurisdiction simpliciter or the Ontario court
is forum non conveniens.
I, therefore, grant HSBC Holdings’ motion and I dismiss Mr. Yip’s cross-motion. And, [9]
for the reasons that follow: (a) I dismiss Mr. Yip’s action under Part XXIII.1 of the Ontario
Securities Act against HSBC Holdings and Mr. Bagley; and (b) I stay Mr. Yip’s common law
negligent misrepresentation claim against HSBC Holdings.
B. Evidentiary Background
The evidence for the motion and cross-motion comprised 18,000 pages. The record was [10]
comprised of: the Defendants’ motion records (731 pages); Mr. Yip’s motion records (14,485
pages); joint exhibit brief (759 pages); transcripts (825 pages); HSBC Holdings’ compendium
(634 pages) and Mr. Yip’s compendium (559 pages). There were 19 witnesses. (The factums
comprised 276 pages and the books of authorities comprised 4,596 pages.)
In bringing their jurisdictional motion, the Defendants relied on the following evidence: [11]
Affidavit of David Bagley of Little Chesterford, Essex, England sworn on December 21,
2016. Mr. Bagley was cross-examined. Mr. Bagley is a qualified lawyer in England and
Wales and Hong Kong. In 1992, he joined HSBC Holdings as an Assistant Legal
Advisor. From January 1996 to 1998, he worked in Hong Kong as a Senior Legal
Advisor to Hong Kong and Shanghai Banking Corporation Ltd. and from 1998 to January
2002, he worked in Dubai as the Regional Head of Legal and Compliance for HSBC
Bank Middle East Limited. In January 2002, he became the Head of Group Compliance
at HSBC Holdings based in London, England. In November 2012, he became the Head of
Group Private Banking Compliance. He left HSBC Holdings in April 2013, and he is
now the Director of Regulatory Risk, Fraud & AML at The Co-operative Bank in
Manchester, England.
Affidavit of Paul Belanger sworn on December 22, 2016. Mr. Belanger was cross-
examined. Mr. Belanger is a lawyer practicing at Blake, Cassels & Graydon LLP in
Toronto (call 1998). His practice encompasses regulation, business, and affairs of
financial institutions. He is Group Leader of his firm’s Financial Services Practice.
Affidavits of David Chivers, Q.C. sworn December 16, 2016 and July 13, 2017. Mr.
Chivers was cross-examined. Mr. Chivers of London, England, a British barrister, was
retained by the Defendants to provide an opinion about issues relating to English law. He
is a Queen's Counsel practising from Erskine Chambers, barristers' chambers specializing
in company law. He was called to the Bar by Lincoln's Inn in 1983.
Affidavit of John C. Coffee, Jr., sworn on December 9, 2016. Professor Coffee was
cross-examined. Professor Coffee is the Adolf A. Berle Professor of Law and Director of
the Center on Corporate Governance at Columbia University Law School in New York
City, where he specializes in securities regulation, corporate governance and class action
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practice. He has served on advisory committees to the New York Stock Exchange
(“NYSE”), the Nasdaq, and the U.S. Securities Exchange Commission and was the only
non-Canadian member of Canada’s Task Force on Modernizing Securities Regulation.
He acted as Special Advisor to the White House’s Office of General Counsel when the
Private Securities Litigation Reform Act was drafted and before Congress in 1995.
Affidavit of Jacques Fleurant sworn on December 15, 2016. Mr. Fleurant was cross-
examined. Mr. Fleurant, who joined HSBC Canada in 2000, resides in North Vancouver
District. He is HSBC Holdings’ CFO, a member of several risk management committees,
a member of its Executive Committee, and the Chair of its Asset and Liability
Committee. In July 2012, he was Senior Vice President and CFO for Global Banking
and Markets.
Affidavits of Robert Keshen sworn on December 21, 2016 and July 21, 2017. Mr.
Keshen, of the City of Toronto, is a researcher in the Research and Information Services
Group, at McCarthy Tetrault LLP, counsel to the Defendants.
Affidavit of Jonathan David Peplow sworn on December 22, 2016. Mr. Peplow was
cross-examined. Mr. Peplow, of the City of London, England, joined the HSBC Group in
1997 is the Global Head of Legal Risk Management and Assurance.
Affidavit of Paul Wing-Tai Shieh, S.C. sworn on December 16, 2016. Mr. Shieh was
cross-examined. Mr. Shieh of Hong Kong, People's Republic of China, is a Chinese
lawyer (call 1988). He was retained by the Defendants to provide an opinion about issues
relating to Hong Kong law. Mr. Shieh is a Senior Counsel who is Head of Chambers at
Temple Chambers in Hong Kong, barristers' chambers specializing in company law. He
is a former Chairman of the Hong Kong Bar Association and Member of the Hong Kong
Law Reform Commission.
Affidavit of John Symon Wasty sworn on December 16, 2016. Mr. Wasty was cross-
examined. Mr. Wasty is a lawyer from Hamilton, Bermuda and called in British
Columbia (1989), England and Wales (1992), Hong Kong (2002), Bermuda (2008), New
York (2010), and British Virgin Islands (2012). He is a Fellow of the Chartered Institute
of Arbitrators. He was retained by the Defendants to provide an opinion about issues
relating to Bermuda law. He is the Head of the Bermuda Dispute Resolution Department
at Appleby (Bermuda) Limited in Hamilton, Bermuda. He specializes in commercial
litigation.
In resisting the jurisdictional motion, Mr. Yip relied on the following evidence: [12]
Affidavits of Douglas J. Cumming, of the City of Toronto, sworn on April 21, 2016. He
has a Ph.D. (Economics, University of Toronto, 1999), J.D. (Law, University of Toronto
1998), and has a Chartered Financial Analyst (CFA) designation (2002).. Professor
Cumming is a professor of finance and entrepreneurship at the Schulich School of
Business, York University. He was retained to provide an opinion about market
efficiency, loss causation, materiality, and aggregate damages.
Affidavit of Richard Daingerfield of Chatham, New Jersey, sworn April 6, 2016. Mr.
Daingerfield was cross-examined. Richard Daingerfield is a retired U.S. attorney who
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worked as an in-house attorney at the subsidiaries of two international banks; i.e., the
NatWest Group, which is based in London, and the Royal Bank of Scotland Group. Mr.
Daingerfield was retained to provide an opinion about HSBC Holdings’ connection to
Ontario because of its role in and control over the business, operations, and practices of
the HSBC Group.
Affidavit of Dr. Irene Finel-Honigman of New York City, Ph.D. (Yale University),
sworn April 5, 2016. Dr. Finel-Honigman was cross-examined. She is an adjunct
professor of International Affairs at Columbia University's School of International and
Public Affairs. Before joining Columbia's faculty in 2001, she was, among other things,
a Senior Advisor on Finance Policy at the U.S. Department of Commerce in the Clinton
Administration, and Director of French Programs (Corporate Classroom) for Credit
Lyonnais, an international bank.
Affidavit of Norman Groot sworn June 14, 2016. Mr. Groot is a lawyer with
Investigation Counsel P.C., the lawyers of record for Mr. Yip.
Affidavit of Fionnuala Martin of the City of Toronto sworn on April 22, 2016. Ms.
Martin is an accredited Chief Compliance Officer with over 35 years’ experience in the
securities industry, including consulting in the financial sector since 1966. She was
retained to provide an opinion about the complexity of trading securities in a global
market.
Affidavit of Chris Mathers of the City of Toronto sworn April 20, 2016. Mr. Mathers is
a former RCMP officer with a 20-year career as an investigator of corporate financial
crime, including money-laundering. He has worked with the FBI, the U.S. Drug
Enforcement Administration and the U.S. Customs Service. He is now the President of
CHRISMATHERS INC., a consulting firm, which he founded in 2004 and which
specializes in investigating and preventing corporate illegal activity including fraud and
money laundering. He was retained by Mr. Yip to describe the nature and extent of
HSBC Holdings’ anti-money laundering and anti-terrorist financing compliance during
the class period.
Affidavit of Philip Derek Rubens of London, England sworn January 20, 2017. Mr.
Rubens was cross-examined. Mr. Rubens is a solicitor-advocate (called 1986) and
partner of Teacher Stern LLP, a London, England law firm. He was retained to provide
an opinion about the hurdles that a litigant might encounter in pursuing a claim based on
section 90A of the Financial Services and Markets Act of 2000, 2000, c. 8ff.
Affidavit of Everett Stern of East Norriton Township, Pennsylvania sworn July 31,
2014. Mr. Stern has a MBA. He is the President of Tactical Rabbit Inc. a private
investigation and intelligence service. He has experience working in the Money
Laundering Division of HSBC Bank USA, National Association, a member of the HSBC
Group.
Affidavit of the Plaintiff Wai Kan Yip sworn April 19, 2016. Mr. Kip was cross-
examined. Mr. Yip was born in Hong Kong in 1974. He immigrated to Canada and
acquired dual citizenship in 1997. He resides in Markham, Ontario.
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Affidavit of Thomas Youde, of Hanover, New Hampshire, Ph.D. (University of
Minnesota, 2014) sworn June 14, 2016. Professor Youde is an Assistant Professor of
Economics, Dartmouth College. He was retained to describe the schemes of certain
banks to manipulate the Libor and Euribor.
C. Factual Background
HSBC Holdings, HSBC Group, and HSBC Canada 1.
HSBC Holdings is a corporation with a linage that goes back to 1865 with the [13]
establishment of the Hong Kong and Shanghai Banking Corporation. It is incorporated under the
laws of England and Wales and is headquartered in London, U.K. It is now the parent holding
company for a group of international banking and financial services companies that operate
together as the HSBC Group and under the HSBC corporation banner.
Although as will be seen, it might be described as a type of management company of a [14]
bank, HSBC Holdings is itself not a bank, and its revenue is wholly derived from dividends from
its subsidiaries, which are domestically licensed banking operations around the world
collectively known as the HSBC Group.
How to characterize the business of HSBC Holdings having regard to its management [15]
and oversight of the HSBC Group is an issue of mixed fact and law that will be discussed further
below.
HSBC Holdings shares trade on the London Stock Exchange and the Hong Kong Stock [16]
Exchange with secondary listings on the Bermuda Stock Exchange and the Paris Euronext Stock
Exchange. HSBC Holdings’ ADRs trade on the NYSE. HSBC Holdings has about 220,000
shareholders in 129 countries. HSBC Holdings’ securities have never traded or been listed on
any Canadian stock exchange.
HSBC Holdings, however, has raised capital directly from Canadian investors through [17]
private placements in accordance with Ontario securities legislation. In Ontario, HSBC Holdings
offered its securities for sale by way of exempt private placements in 2009, 2014, and 2015.
As discussed further below, in making his argument that HSBC Holdings is [18]
presumptively connected to Ontario, Mr. Yip makes much of and relies on the fact that in the
private placements, HSBC Holdings disclaimed the application of Canadian securities law to the
private placements.
As already noted, HSBC Holdings does not itself operate as a bank and it has no banking [19]
licenses. It provides stewardship and central management services to its operating subsidiaries
through a delegation of authority to the Group Management Board of the HSBC Group.
The HSBC Group, which are the collective of the direct and indirect subsidiaries of [20]
HSBC Holdings, is one of the largest financial institutions in the world with approximately $2.7
trillion (USD) in assets, 89 million customers, 300,000 employees, and a global network of more
than 9,800 offices in 75 countries and territories. The HSBC Group has a market capitalization of
approximately $200 billion (USD) and had a pre-tax profit in 2013 of approximately $23 billion
(USD).
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HSBC Holdings sets the strategy and risk appetite for HSBC Group, and HSBC Holdings [21]
approves capital and operating plans for the members of the HSBC Group. HSBC Holdings sets
the policies, standards, and procedures for its operating subsidiaries. In his regard, HSBC
Holdings sets and supervises the policies, standards, and procedures with respect to regulatory
compliance, including anti-money laundering, and anti-terrorist financing policies and
procedures.
The management of the HSBC Group as an entity is the responsibility of the Group [22]
Management Board, which is headed by the Group CEO. The Group Management Board, which
meets monthly, manages the subsidiaries on a global basis, and the Group Management Board
implements the strategic policy objectives of HSBC Holdings. The Group Management Board
reviews and approves key senior management positions and directorships at the operating
subsidiaries around the world.
HSBC Holdings’ employees travel to the countries where its subsidiaries carry on [23]
business, including Canada, and there is regular communication and collaboration between
HSBC Canada and HSBC Holdings for risk management and business strategy purposes. HSBC
Holdings, however, does not manage the day-to-day operations of its subsidiaries that constitute
the HSBC Group.
The direct or indirect subsidiaries of HSBC Holdings that constitute the HSBC Group are [24]
separately capitalized and distinct legal entities incorporated under the laws of the jurisdictions
in which they operate, and each one has its own board of directors and its own management. The
subsidiaries are subject to local laws and regulations. All of the business decisions of the discrete
members of the HSBC Group must be implemented in accordance with applicable local laws.
Any policies and standards set by HSBC Holdings are adapted as necessary to comply with local
laws.
HSBC Holdings - through the HSBC Group - has a global presence, and markets itself as [25]
having a global presence. Taken together, the subsidiaries that constitute the HSBC Group are a
global business and a global network of collaborating bank operations that includes Canada and
over 70 other countries and territories.
The HSBC Group markets and presents the group of subsidiaries as having a sum greater [26]
than their myriad domestic or local parts; i.e., the subsidiaries that comprise the HSBC Group are
marketed as a greater unified whole. The unity was designed by HSBC Holdings and
implemented by the HSBC Group to better serve multinational clientele across borders.
The HSBC Group aims to be recognized as the leading international trade and business [27]
bank and to distinguish itself by emphasizing the collaboration of the members of the HSBC
Group and by what it described as “international connectivity”. The members of the HSBC
Group collect and share customer information, and they offer similar banking goods and
services, which are branded globally under the HSBC banner.
The HSBC Group has four global lines of business, three of which are available in [28]
Canada; namely: (1) retail banking and wealth management; (2) commercial banking; and (3)
global banking and markets. The fourth global business is private banking. The HSBC Group
manages 11 global functions including: (1) finance; (2) compliance and risk management; (3)
internal audit; (4) strategy and planning; (5) operations, services and technology, and (6) human
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resources.
Although it is an indirect subsidiary of HSBC Holdings, HSBC Canada is a separate legal [29]
entity governed by its own board, management, and corporate structure and subject to the laws,
rules, and regulations of Canada, including the Bank Act, where its banking operations are
supervised by the Office of the Superintendent of Financial Institutions (“OSFI”), an
independent agency of the Government of Canada. Five of HSBC Canada’s nine directors are
independent of HSBC Group entities, including HSBC Holdings.
HSBC Canada is headquartered in Vancouver. It carries on business across Canada. In [30]
Ontario, HSBC Canada has 50 branches. It is the seventh largest bank in Canada by assets. Its
shares trade on the Toronto Stock Exchange (“TSX”). It is a reporting issuer in Ontario and other
Canadian provinces. HSBC Canada’s assets, liabilities, and financial results are consolidated
with those of HSBC Holdings in HSBC Holdings’ financial statements.
The Regulatory Connection to Canada 2.
HSBC Holdings has a regulatory connection to Canada because of its ownership of [31]
HSBC Canada, which is a foreign bank under the Bank Act.
Pursuant to s. 2 of the Bank Act, because HSBC Holdings owns a “foreign bank,” it also [32]
is a “foreign bank,” which is defined as follows:
foreign bank, subject to section 12 [exemption from foreign bank status], means an entity
incorporated or formed by or under the laws of a country other than Canada that
(a) is a bank according to the laws of any foreign country where it carries on business,
(b) carries on a business in any foreign country that, if carried on in Canada, would be,
wholly or to a significant extent, the business of banking,
(c) engages, directly or indirectly, in the business of providing financial services and
employs, to identify or describe its business, a name that includes the word “bank”,
“banque”, “banking” or “bancaire”, either alone or in combination with other words, or
any word or words in any language other than English or French corresponding generally
thereto,
(d) engages in the business of lending money and accepting deposit liabilities transferable
by cheque or other instrument,
(e) engages, directly or indirectly, in the business of providing financial services and is
affiliated with another foreign bank,
(f) controls another foreign bank, or
(g) is a foreign institution, other than a foreign bank within the meaning of any of
paragraphs (a) to (f), that controls a bank incorporated or formed under this Act,
but does not include a subsidiary of a bank named in Schedule I as that Schedule read immediately
before the day section 184 of the Financial Consumer Agency of Canada Act comes into force,
unless the Minister has specified that subsection 378(1) no longer applies to the bank;
Under s. 510 of the Bank Act, subject to two exceptions, a foreign bank may not carry on [33]
business in Canada. The two exceptions are: (1) a foreign bank can incorporate a subsidiary and
apply for it to be a Schedule II bank to carry on the business of banking in Canada; or (2) the
foreign bank can establish a branch in Canada and apply to be a Schedule III bank.
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Under the Bank Act, although a foreign bank, HSBC Holdings is not authorized to carry [34]
on the business of banking in Canada, and it has never done so. HSBC Holdings has no offices,
branches, or property in Canada and it is not a Schedule II or III bank under the Act. However, as
a shareholder; i.e., as an owner of HSBC Canada, HSBC Holdings has reporting obligations
under Part XII of the Bank Act. Under Part XII of the Act, HSBC Holdings is deemed to have “a
financial establishment in Canada” by virtue of its ownership of a Canadian bank, and this
imposes regulatory obligations on HSBC Holdings.
HSBC Canada is a Schedule II bank. HSBC Canada carries on business in a priority [35]
market for the HSBC Group. HSBC Canada accounts for 3% of HSBC Holdings’ value. Thus,
HSBC Canada makes an important, albeit, relatively speaking, modest economic contribution to
the wealth of the whole collective. HSBC Canada was described as a spoke in the larger North
American hub within the HSBC Groups’ global business operations.
HSBC Canada was established in 1981 as a “Schedule II” bank under the Bank Act. It has [36]
260 offices and 140 branches throughout Canada. It is also a reporting issuer in Ontario and
other Canadian provinces.
HSBC Bank Canada had an American subsidiary; namely, HSBC Bank USA, which was [37]
a “Schedule III” bank under the Bank Act. During the class period, HSBC Bank USA had a
branch office in Toronto, Ontario.
HSBC Bank USA surrendered its Canadian banking license following the events that are [38]
the subject of this action.
David Bagley 3.
David Bagley is a U.K. resident who has never resided or worked in Canada. [39]
From January 2002 until November 2012, Mr. Bagley was the Head of Group [40]
Compliance for the HSBC Group. Group Compliance was responsible for setting policies and
standards with regard to regulatory compliance, anti-money laundering, and anti-terrorist
financing. As noted above, the standards were designed by HSBC Holdings and monitored
globally by HSBC Group.
From May 2010 to January 2011, Mr. Bagley was also the temporary Regional Head of [41]
Compliance for HSBC North America, where his work was mainly, if not exclusively, directed
at U.S. compliance.
Misrepresentations in the Secondary Market for HSBC Holdings’ Shares 4.
Mr. Yip alleges that from July 30, 2006 to July 11, 2012 (the “Class Period”), HSBC [42]
Holdings and its subsidiaries acting under its direction and control, including HSBC Canada,
carried on business in violation of anti-money laundering and anti-terrorist financing laws and
regulations and participated in a scheme to manipulate Libor and Euribor.
In a vigorously disputed point, HSBC Holdings, however, submits that HSBC Canada [43]
had virtually no involvement in the conduct associated with the compliance representation and
that HSBC Canada could have had no involvement with respect to the manipulation of Libor and
Euribor. For his part, Mr. Yip requests rigorous scrutiny of the Defendants’ treatment of the
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evidentiary record, and he submits that it remains to be determined the extent to which HSBC
Canada’s own conduct was culpable and non-compliant with anti-money laundering regulations.
For my part, for the purposes of the jurisdictional motion and for the cross-motion, I shall [44]
simply assume (but make no finding) that HSBC Canada’s conduct was culpable, but I also note
that HSBC Canada is not being sued and there is no claim against HSBC Holdings for vicarious
liability. Mr. Yip sues only HSBC Holdings.
In any event, Mr. Yip alleges that during the Class Period, HSBC Holdings and HSBC [45]
Canada, with the actual, implied, or apparent authority of HSBC Holdings, released documents
and made public oral statements, that contained misrepresentations and that omitted material
facts about HSBC Holdings’ longstanding systemic compliance, control, and ethical failures.
The misrepresentations were revealed in July 2012. Between July 12 and July 23, 2012, [46]
the media reported the release of a report authored by the U.S. Senate Homeland Security
Permanent Subcommittee on Investigations. The report was entitled: “U.S. Vulnerabilities to
Money Laundering, Drugs, and Terrorist Financing: HSBC Case History.”
The U.S. Senate Report and voluminous disclosures made by the HSBC Group to the [47]
U.S. Senate revealed that members of the HSBC Group had failed to disclose longstanding and
systemic regulatory failures. A few failures in Canada were noted. The media reports also
revealed that regulators were widening a Libor and Euribor investigation to include the HSBC
Group.
Mr. Yip alleges that as a result of the disclosure of the falsity of the compliance [48]
representation and the Libor/Euribor representation, HSBC Holdings lost approximately 11% of
its market capitalization, approximately $20 billion.
Professor Cumming estimates that during the Class Period, the misrepresentations had [49]
artificially inflated the value of HSBC Holdings’ shares and American Depository Receipts
resulting in an overpayment by Class Members of approximately $7 billion (USD).
Mr. Yip alleges that during the Class Period, there were misrepresentations by [50]
commission or by omission in public oral statements. The alleged misrepresentations were made
in 56 documents. The misrepresentations are listed in the Amended Statement of Claim at
paragraph 47 (a) to (yy).
As noted above, the falsity of the representations concerns two discrete categories of [51]
misconduct; namely: (1) the HSBC Group’s failure to comply with anti-money laundering and
anti-terrorist financing laws (“the compliance representation”); and, (2) the HSBC Group’s
participation in an illegal scheme to manipulate the Libor and the Euribor (“the Libor/Euribor
representation”).
As a matter of source, the alleged misrepresentations fall into four categories: (1) [52]
documents prepared and released by HSBC Holdings outside of Canada, including documents
published on its U.K. website (www.hsbc.com); (2) documents that were prepared outside of
Canada by HSBC Holdings and re-released in Canada by HSBC Canada on its website
(www.hsbc.ca); (3) documents prepared by HSBC Canada and released by it on its website or on
SEDAR; and (4) public oral statements by individuals from HSBC Canada and its affiliate
HSBC Bank USA.
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All of the HSBC Holdings’ documents identified in the Statement of Claim were released [53]
outside Canada, pursuant to HSBC Holdings’ decisions taken in England in accordance with
foreign regulatory requirements. The documents were reviewed by the HSBC Holdings
Disclosure Committee, all of whose members resided in England during the Class Period.
As a matter of the source of the documents, in particular, it should be noted that: [54]
HSBC Holdings’ “Interim Results Highlights” and HSBC Holdings’ “Final Results
Highlights” for 2006, 2007, 2008, 2009, 2010, 2011 and HSBC’s Holdings’
“Sustainability Reports” for 2007, 2008, 2009, 2010 and 2011 were available on HSBC
Canada’s website.
HSBC Canada’s own filings under domestic securities law included financial information
about its parent company and the filings directed investors to HSBC Holdings’ website
for complete financial, operational, and investor information about HSBC Holdings and
the HSBC Group.
HSBC Canada’s Annual Reports and its Annual Information Forms for 2006, 2007, 2008,
2009, 2010 and 2011 include the compliance representation.
A document entitled “HSBC Bank Canada and its Subsidiaries’ Approach to Anti-Money
Laundering and Anti-Terrorist Financing” was on HSBC Canada’s website.
A document entitled “The Wolfsberg Group Anti-Money Laundering Questionnaire”,
dated September 1, 2011 was on HSBC Canada’s website.
It should be noted that: (a) the majority of the alleged misrepresentations are in the first [55]
category; (b) the impugned documents of the first category and of the second category were
prepared and reviewed in the U.K. to comply with the disclosure requirements of the stock
exchanges where HSBC Holdings shares were registered for trading (London, Hong Kong, Paris,
Bermuda, and New York); and (c) the documents prepared or posted by HSBC Canada on its
website were prepared or posted to comply with the requirements of Canadian securities
legislation for the trading of HSBCs Canada’s own shares.
Foreign Law Evidence 5.
The Defendants’ foreign law experts, i.e., Professor Coffee, and Messrs. Chivers, Shieh, [56]
and Wasty, opined that in the stock exchanges where the vast majority of HSBC Holdings’
securities are traded (London, Hong Kong, Paris, Bermuda, and New York):
1. In secondary market securities litigation, the court would take jurisdiction and
apply domestic law, only if: (a) the plaintiff acquired securities on a local
exchange; or (b) the issuer defendant was resident or otherwise present in that
forum for the purposes of service. The domestic court would not apply foreign
law.
2. The domestic court would not assume jurisdiction if the plaintiff purchased his or
her securities on a foreign exchange and the defendant is neither resident nor
present within the domestic forum.
3. While the laws of U.K., Hong Kong, Bermuda and the U.S. provide causes of
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action similar to Ontario’s Securities Act, the law of these jurisdictions contain
material differences and different policy decisions from Ontario law.
4. The assumption of jurisdiction by an Ontario court over HSBC Holdings based on
HSBC Canada’s operations could have negative comity implications, and if
reciprocated, the assumption of jurisdiction would expose Canadian banks to the
extraterritorial reach of jurisdictions where their foreign subsidiaries operate.
Professor Coffee deposed that a U.S. court would assert exclusive jurisdiction over a [57]
Class Member who acquired securities on the NYSE, but a U.S. court would not assume
jurisdiction over Mr. Yip’s claim because he acquired his shares on the Hong Kong exchange.
Professor Coffee opined that a U.S. court would not assume jurisdiction where the plaintiff
purchased his or her securities on a foreign exchange and the issuer defendant was neither
resident nor present within the U.S.
Professor Coffee said that where it assumed jurisdiction, a U.S. court would apply its [58]
own statutory law to the claim.
Mr. Chivers testified that an English court would have jurisdiction over Mr. Yip’s claim [59]
since both Defendants are resident in the U.K and the English court would likely not decline
jurisdiction based on forum non conveniens. Mr. Chivers opined that the English court would
likely apply its own common law and statutory law to Mr. Yip’s claim. Further, Mr. Chivers
opined that in a case in which an English resident acquired securities on a foreign-to-England
stock exchange, an English court would not assume jurisdiction over a foreign-to-England
defendant unless the defendant was a resident or was present for service in England.
Mr. Shieh opined that in a case where a plaintiff acquired securities on a non-Hong Kong [60]
exchange while being resident in Hong Kong and the defendant was not resident or otherwise
present for service in Hong Kong, the Hong Kong court would not assume jurisdiction over the
claim.
Mr. Shieh testified that a Hong Kong court would assume jurisdiction over Mr. Yip’s [61]
claim because HSBC Holdings has a business office in Hong Kong and is present there for the
purpose of service. Mr. Shieh opined that Mr. Bagley would likely be included as a necessary
and proper party to the claim against HSBC Holdings.
However, Mr. Shieh opined that the Hong Kong court could decline jurisdiction in favour [62]
of the courts of the U.K. based on forum non conveniens. It was his view that if the Hong Kong
court did not decline jurisdiction, it would apply its own domestic law to Mr. Yip’s claim since
he acquired his securities on a Hong Kong exchange, and the Hong Kong court would apply
Hong Kong law for the torts of negligent misrepresentation and deceit (after considering Ontario
law given the double actionability rule for choice of law that is operative in Hong Kong).
Mr. Wasty opined that if the Bermuda court were in the same position as the Ontario [63]
court – i.e., the plaintiff before the Bermudian court had acquired his or her securities on a non-
Bermuda exchange while being resident in Bermuda and the defendant was not resident or
otherwise present for service in Bermuda – the Bermuda court would not assume jurisdiction
over nor apply its own law to the dispute.
Mr. Wasty testified that although a Bermudian court could assume jurisdiction over Mr. [64]
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Yip’s claim because HSBC Holdings’ shares traded in Bermuda, it would likely refuse to do so,
because HSBC Holdings is not a Bermuda company and is not domiciled or resident in Bermuda.
Mr. Wasty said that if jurisdiction was assumed, the Bermudian court would likely decline it in
favour of the U.K. court based on forum non conveniens. Mr. Wasty said that if the Bermudian
court did not decline jurisdiction, it would not apply its own domestic law to Mr. Yip’s claim
because he did not acquire his securities on a Bermuda exchange.
Messrs. Chivers and Shieh testified that their conclusions would not be any different if an [65]
HSBC Holdings subsidiary carried on business in the jurisdiction while HSBC Holdings itself
did not.
The evidence of Professor Coffee and Messrs. Chivers, Shieh, and Wasty was that there [66]
are substantive differences between Ontario’s regulation of misrepresentations in the secondary
market for securities and the law in the U.K., Hong Kong, U.S. and Bermuda. For example, the
Ontario and U.S. statutory causes of action may be asserted without proof of reliance, but
reliance is required under the U.K. and certain Hong Kong statutory causes of action. The
Ontario statutory cause of action is subject to a damages cap and a judicial leave requirement that
have no analogue in the U.K., Hong Kong, the U.S. and Bermuda. The mental state of the
defendant required to impose liability varies by jurisdiction. In the U.K., knowledge or
recklessness of falsity is required. In the U.S., scienter or an intent to defraud is required. In
Hong Kong, negligence is required. The statutory defences also vary amongst the jurisdictions.
The limitation periods in the U.K., Hong Kong, and Bermuda statutes are more generous than in
Ontario.
Professor Coffee testified that under the United States’ scheme for the regulation of the [67]
secondary market, Mr. Yip’s claim would not succeed because: (1) the class period would not be
accepted by the court; (2) causation of loss could not be proven; and (3) the majority of Class
Members would have no damages under U.S. law, which has a special provision regarding
damages.
Professor Coffee said that it would offend principles of comity for an Ontario court to [68]
permit a litigant to circumvent the policy choices made by U.S. legislators. He said that Mr. Yip
was attempting to assert a theory that would yield a universal jurisdiction in Ontario to regulate
stock trading around the world that, if accepted, would undermine the ability of other countries
to regulate their markets in the way they choose.
With respect to foreign law, it is relevant to the forum conveniens analysis to note the [69]
following:
In the United States, investors rely on SEC Rule 10b-5, 17 C.F.R. s.240.10b-5, under
s.10(b) of the Securities Exchange Act of 1934, to bring actions for misrepresentation in
continuous disclosure. A plaintiff in a U.S. court must plead and prove scienter, namely
an intent to deceive, manipulate or defraud: Ernst & Ernst v. Hochfelder, 425 U.S. 185
(1976). However, there is no cap on the damages that may be awarded against the issuer
in the U.S.
In Morrison v. National Australia Bank, 130 S. Ct. 2869, 2881-83 (2010), the U.S.
Supreme Court held that the statutory cause of action under s.10(b) of the Securities
Exchange Act and Rule 10b-5 promulgated thereunder applies only to the purchase or
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sale of a security listed on an American stock exchange and the purchase or sale of any
other security in the U.S.
The Securities and Exchange Act of 1934 provides that the U.S. district courts have
"exclusive jurisdiction of violations of this title or the rules and regulations thereunder"
including claims for secondary market misrepresentation. U.S. law precludes U.S. courts
from entertaining private actions involving securities transactions outside the U.S.
U.K. law allows secondary market misrepresentation claims, but the plaintiff is required
to prove reliance. The statutory cause of action under U.K. law is only available to those
who purchase securities on certain designated markets in the European Union, including
the European Exchanges.
There is no class action procedure available in the U.K., although provision is made for
grouping claims, representative orders and consolidation of claims.
Canada and the U.K. are parties to the Convention for the Reciprocal Recognition and
Enforcement of Judgments in Civil and Commercial Matters and thus an Ontario
judgment would be enforceable in the U.K.
Under U.K., Hong Kong, and U.S law, the common law and statutory claims of putative
Class Members are likely statute-barred.
Mr. Yip’s Purchase of HSBC Shares and his Class Action 6.
In January 2011, Mr. Yip opened a bank account with Hang Seng Bank in Hong Kong. [70]
Using this account, on August 10, 2011, Mr. Yip purchased 400 shares of HSBC Holdings at a
total purchase price of 27,560 Hong Kong dollars (approximately $4,600). He placed his order
by accessing the account online using his home computer in Markham, Ontario.
Before making his purchase in Hong Kong dollars, Mr. Yip did not review any [71]
continuous disclosure documents of HSBC Canada or any documents that HSBC Holdings
released in Canada. Rather, he accessed HSBC Holdings’ documents at www.hsbc.com by
downloading them to his home computer in Markham.
On July 4, 2014, Mr. Yip commenced a proposed global class action under the Class [72]
Proceedings Act, 1992, S.O. 1992, c. 6. The Defendants were served in England and did not
attorn to the jurisdiction of the Ontario court.
On May 16, 2016, Mr. Yip delivered an Amended Statement of Claim. The claim asserts [73]
that HSBC Holdings made misrepresentations and omissions in its continuous disclosure
documents and public oral statements regarding: (a) violations of anti-money laundering and
anti-terrorist financing policies in the United States, Mexico, Europe, Japan, and the Middle East
(the compliance representation); and (b) participation in the United Kingdom and Europe in
illegal schemes to manipulate the Libor and Euribor benchmark interest rates (the Libor/Euribor
representation).
Mr. Yip alleges that the misrepresentations and omissions created a misleading picture of [74]
HSBC Holdings’ compliance with applicable laws and the efficacy of its internal controls and
risk management systems. He claims that this caused HSBC Holdings’ shares and ADRs to trade
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at artificially inflated prices during the Class Period.
Mr. Yip alleges that the truth was revealed when (a) information was publicly disclosed [75]
in hearings and in a report by the Permanent Subcommittee on Investigations of the U.S. Senate
Committee on Homeland Security and Governmental Affairs; and (b) when media reports
revealed investigations into alleged Libor/Euribor manipulation.
Mr. Yip asserts claims against HSBC Holdings for: (a) common law negligent [76]
misrepresentation; (b) contravention of ss. 138.3 of the Ontario Securities Act; and (c) in the
alternative, a civil cause of action under the United Kingdom’s Financial Services and Markets
Act, 2000. Mr. Yip’s claim against Mr. Bagley is limited to the cause of action under Part
XXIII.1 of the Ontario Securities Act and equivalent legislation across Canada.
More precisely, Mr. Yip claims, as set out in para. 1 of the Amended Statement of Claim, [77]
as follows:
1. The plaintiff Wai Kin Yip (the “Plaintiff”) claims:
(a) an order pursuant to the Class Proceedings Act 1992, S.O. 1992, c. 6 (the “CPA”)
certifying this action as a class proceeding and appointing him as the representative
plaintiff of the Class (as defined below);
(b) a declaration that the defendant HSBC Holdings plc (“HSBC” or the “Bank”) made
misrepresentations (as defined for the purposes of Part XXIII.1 of the Securities Act,
R.S.O. 1990, c. S.5 (the “OSA”) and, if necessary, the Other Securities Legislation (as
defined below)) in documents released by HSBC and in documents released by HSBC
Bank Canada (“HSBC Canada”) (which had actual, implied or apparent authority to act
on HSBC’s behalf) and in public oral statements made on HSBC’s behalf;
(c) a declaration that the defendant David Bagley (“Bagley”) authorized, permitted or
acquiesced in the release of documents by HSBC and HSBC Canada (which had actual,
implied or apparent authority to act on HSBC’s behalf) and the making of public oral
statements made on HSBC’s behalf that contained misrepresentations (as defined in the
OSA and, if necessary, the Other Securities Legislation);
(d) an order granting leave nunc pro tunc to the date this action was issued to advance the
causes of action set out in section 138.3 of the OSA and, if necessary, the equivalent
provisions of the Other Securities Legislation;
(d.1) a declaration that the multiple misrepresentations and omissions referred to herein
that have common subject matter or content may be treated as a single misrepresentation,
including for the purposes of section 138.3(6) of the OSA, the equivalent provisions of
the Other Securities Legislation and section 90A of the U.K. Financial Services and
Markets Act 2000, 2000, c.8ff (the “FSMA”);
(d.2) a declaration that, throughout the Class Period, HSBC made the Compliance
Representation (as defined below) and/or one or more other misrepresentations and
omissions, and that, when made, the Compliance Representation and the other
misrepresentations and omissions constituted misrepresentations, both at law and within
the meaning of the OSA and, if necessary, the Other Securities Legislation;
(d.3) a declaration that HSBC made the Compliance Representation negligently;
(e) a declaration that HSBC is vicariously liable for the acts and/or omissions of its
officers, directors, and employees including Bagley;
(f) damages for negligent misrepresentation (as against HSBC only) and the statutory
claims (as against the defendants) in section 138.3 of the OSA and, if necessary, the Other
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Securities Legislation, in the amount of $20 billion or such other sum as this Honourable
Court may find appropriate;
(f.1) damages for the statutory claims in section 90A of the FSMA (as against HSBC
only) on behalf of
(i) members of the Class resident or domiciled outside of Canada (the “Non-
Canadian Class”); and
(ii) members of the Class resident or domiciled in Canada (the “Canadian
Class”), only in the alternative to their claim for damages under Part XXIII.1 of
the OSA;
(g) punitive damages in such amount as this Honourable Court finds appropriate;
(h) an order directing a reference or giving such other directions as may be necessary to
determine issues not determined at the trial of the common issues;
(i) pre-judgment interest pursuant to the Courts of Justice Act, R.S.O. 1990, c. C.43 (the
“CJA”), as amended;
(j) costs of this action on a full or, alternatively, substantial indemnity basis and, pursuant
to section 26(9) of the CPA, the costs of notice and of administering the plan of
distribution of the recovery in this action plus applicable taxes; and
(k) such further and other relief as to this Honourable Court may seem just.
In his Amended Statement of Claim, Mr. Yip seeks certification of a global class defined [78]
as follows:
All persons and entities, wherever they may reside or be domiciled, who acquired common shares
or American depositary receipts (“ADRs”) of [Holdings] from and including July 31, 2006 to and
including July 11, 2012 (the “Class Period”), except for Excluded Persons.
For the purposes of the motion for certification, Mr. Yip seeks to represent a class [79]
consisting of all persons and entities within the Class who reside or are domiciled in Canada (the
“Canadian Class”). Mr. Yip does not currently know the size of the Canadian Class.
Mr. Yip purports to reserve his right to seek certification of a non-Canadian Class [80]
pending the outcome of the motion for certification of the Canadian Class.
On June 15, 2016, Mr. Yip delivered a motion record seeking certification and leave [81]
under Part XXIII.1 of the Ontario Securities Act.
D. Discussion and Analysis
Introduction 1.
In the main motion brought by HSBC Holdings and Mr. Bagley, the two major questions [82]
before the court are: (1) whether the Ontario court has jurisdiction simpliciter over HSBC
Holdings; and (2) if there is jurisdiction simpliciter, whether the Ontario court is forum non
conveniens.
Practically speaking, if successful, Mr. Yip’s cross-motion, which seeks a declaration that [83]
HSBC Holdings is a “responsible issuer” under Ontario’s Securities Act would affirmatively
answer the first major question that the Ontario court has jurisdiction simpliciter but leave the
forum conveniens question to be determined.
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With respect to the cross-motion, HSBC Holdings and Mr. Bagley’s position is that the [84]
court does not have the jurisdiction to make a declaratory order in the cross-motion.
As I shall explain in detail below, I disagree with the Defendants’ submission that the [85]
court does not have jurisdiction to decide the cross-motion. In my opinion, the court has the
jurisdiction. However, no doubt to HSBC Holdings’ ironic delight, I shall make the opposite
declaration to the one sought by Mr. Yip and dismiss his motion.
For the reasons that follow, I conclude that HSBC Holdings is not a responsible issuer [86]
under Ontario’s Securities Act. I further conclude that the court does not have jurisdiction
simpliciter and that, in any event, the Ontario court is forum non conveniens.
The Court’s Declaratory Jurisdiction 2.
HSBC Holdings submits that by asking the court to declare that HSBC Holdings is a [87]
“responsible issuer,” Mr. Yip is seeking to avoid having to show a presumptive connecting factor
that would give the court in personam jurisdiction over a foreign defendant. HSBC Holdings
submits for the court to make the requested declaration would be inconsistent with the law
established by Club Resorts Ltd. v. Van Breda, 2012 SCC 17, described below, and it submits
that Mr. Yip’s request for a declaration is nonsensical.
In this last regard, HSBC Holdings submits that it is nonsensical for a court to grant a [88]
declaration before it has determined whether it has jurisdiction to do so. Further HSBC Holdings
submits that because leave to assert a cause of action has not yet been granted under Part XXIII.1
of the Ontario Securities Act, Mr. Yip’s request for declaratory relief is premature and should be
refused.
It may be immediately noted, however, that for its own motion, HSBC Holdings does not [89]
contend that the court does not have jurisdiction to rule on whether or not there is jurisdiction
simpliciter nor does HSBC Holdings contend that it is premature for the court to rule on its
HSBC Holdings’ own motion until after the court rules on Mr. Yip’s motion for leave under Part
XXIII.1 of the Ontario Securities Act.
With respect, it is HSBC Holdings’ submission that is reductio ad absurdum, because its [90]
argument would also apply to its own motion. If HSBC Holdings’ argument were correct, it
produces the jurisdictional equivalent to a stalemate in chess; both motions would have to stop
without determining the winner. If HSBC Holdings’ argument were correct, then the Ontario
court would have no jurisdiction to rule not only on Mr. Yip’s cross-motion but also on HSBC
Holdings’ motion, both of which turn on whether or not HSBC Holdings has a real and
substantial connection with Ontario.
The correct position is that the court has jurisdiction to determine whether it has [91]
jurisdiction. The power to make a declaration applies whether or not there is a cause of action at
the instance of any party who is interested in the subject-matter of the declaration: Canadian
Imperial Bank of Commerce v. Green, 2015 SCC 60 at para. 195.
As it happens, HSBC Holdings should be happy to withdraw its argument and apologize [92]
for its rude submission of calling its opponent’s argument nonsense, because as already
foreshadowed, I shall declare that HSBC Holdings is not a responsible issuer, and I shall dismiss
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Mr. Yip’s sensible but unsuccessful cross-motion on its merits and I shall grant HSBC Holdings’
main motion.
General Legal Background to the Jurisdiction Simpliciter Issue 3.
An Ontario court has jurisdiction simpliciter; i.e. an in personam jurisdiction over a foreign [93]
defendant when: (a) the foreign defendant has a presence in Ontario and service is properly effected
on him or her (presence-based jurisdiction); (b) the foreign defendant attorns to the jurisdiction of
the Ontario court; or (c) there is a real and substantial connection between Ontario and the dispute
involving the foreign defendant: Club Resorts Ltd. v. Van Breda, supra; Chevron Corp. v.
Yaiguaje, 2015 SCC 42; Incorporated Broadcasters Ltd. v. Canwest Global Communications
Corp. (2003), 63 O.R. (3d) 431 (C.A.) at para. 36, leave to appeal refused [2003] S.C.C.A. No.
186. The Ontario court also can have jurisdiction simpliciter based on a jurisdiction of necessity,
but these sources of jurisdiction are not factors in the case at bar.
In Club Resorts Ltd. v. Van Breda, supra, to achieve order and fairness, which is a major [94]
goal of private international law, the Supreme Court of Canada developed a system of presumptive
connecting factors to determine whether there was a real and substantial connection, and these
presumptive connecting factors, informed by principles for applying them, replaced the former
approach to determining whether a court had jurisdiction over a foreign defendant. The former
approach depended on an ad hoc judicial discretion based on fairness to the parties to decide whether
the domestic court should assume jurisdiction over a foreign defendant. The new approach
substituted presumptive connecting factors to be established by the plaintiff that could be rebutted by
the foreign defendant.
The Club Resorts Ltd. v. Van Breda analytical framework begins by identifying [95]
circumstances where a court may presumptively assume jurisdiction. The underlying idea to all the
presumptive factors is that there are some circumstances where there would inherently be a
relationship between the subject matter of the litigation and the forum and where it would be
reasonable to expect that the defendant should answer the claim made against him or her in that
forum.
Presumptive factors connecting a foreign defendant to a domestic jurisdiction include: (a) the [96]
parties’ contract having been made in the domestic jurisdiction; (b) the situs of tort; i.e., the
location of the defendant’s misconduct being the domestic jurisdiction, and (c) the defendant
carrying on business in the domestic jurisdiction, with the qualification that the business must
have an actual and not a virtual presence.
Under the Club Resorts Ltd. v. Van Breda, supra regime, the list of presumptive [97]
connecting factors is not closed, but the court should not adopt an ad hoc approach to assuming
jurisdiction based upon the circumstances of a particular case. The court may, however, identify
new factors that will establish a new presumptive connection, which can be used in other cases
presumptively to assume jurisdiction. In identifying new presumptive factors, a court should look
to connections that give rise to a relationship with the forum that is similar in nature to the ones
which result from the established factors. Relevant considerations include: (a) similarity of the
connecting factor with the recognized presumptive connecting factors; (b) treatment of the
connecting factor in the case law; (c) treatment of the connecting factor in statute law; and (d)
treatment of the connecting factor in the private international law of other legal systems with a
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shared commitment to order, fairness, and comity.
In the immediate case, save perhaps for his argument that HSBC Holdings is a [98]
responsible issuer under Ontario’s Securities Act, Mr. Yip does not ask the court to identify a
new presumptive connecting factor that establishes a rebuttable real and substantial connection.
If a presumptive connection (already recognized or newly established) applies, the [99]
connection can be rebutted by the defendant proffering evidence that the connection to the
domestic jurisdiction is weak. The burden of rebutting the presumption of jurisdiction rests on
the defendant.
The domestic court will also have jurisdiction simpliciter over a foreign defendant who [100]
resides in its jurisdiction, but the presence of the plaintiff in the domestic jurisdiction does not
create a presumptive factor favouring jurisdiction over a foreign defendant who is not resident in
the jurisdiction: Club Resorts Ltd. v. Van Breda, supra at para. 86.
The place where damages were sustained by the plaintiff does not create a presumptive [101]
connecting factor to that place: Club Resorts Ltd. v. Van Breda, supra at para. 89.
The fact that a party is a necessary party does not constitute a presumptive connection to [102]
the domestic court: Misyura v. Walton, 2012 ONSC 5397 at paras. 30-31, 37-39, 43; Club
Resorts Ltd. v. Van Breda, supra at para. 55.
Whether HSBC Holdings carries on business in Canada and whether the situs of HSBC [103]
Holdings’ misconduct is in whole or in part in Ontario are the critical issues in the case at bar,
and I shall return to examine the law about these presumptive connecting factors in the
discussion and analysis part of these Reasons for Decision.
To succeed in showing jurisdiction simpliciter, the plaintiff need only show that there [104]
is a “good arguable case” for an assumption of jurisdiction: Ontario v. Rothmans Inc., 2013
ONCA 353 at paras. 53-54; Tucows.com Co. v. Lojas Renner S.A., 2011 ONCA 548 at para. 36,
leave to appeal refused [2011] S.C.C.A. No. 450; Ecolab Ltd. v. Greenspace Services Ltd.
(1998), 38 O.R. (3d) 145 (Div. Ct.) at pp. 149-154; Schreiber v. Mulroney (2007), 88 O.R. (3d)
605 (S.C.J.) at para. 18.
On a jurisdiction motion, if unchallenged, the facts pleaded in the statement of claim are [105]
taken as true, and if they are sufficient to establish a good arguable case, the pleadings alone can
satisfy the court that it has jurisdiction simpliciter over the claim: British Columbia v. Imperial
Tobacco Canada Ltd., 2005 BCSC 946 at paras. 132-134; Ontario v. Rothmans Inc., supra, at
para. 110; Ontario New Home Warranty Program v. General Electric Co. (1998), 36 O.R. (3d)
787 (Gen. Div.) at pp. 797-799.
The good arguable case standard can apply solely to the pleadings, but where a defendant [106]
adduces evidence to challenge the allegations in the statement of claim, the plaintiff may respond
with affidavit evidence and the good arguable case standard applies to the combination of the
pleadings and the evidence adduced by the parties: Ontario v. Rothmans Inc., supra at paras.
101-102, 110; Vitapharm Canada Ltd. v. F. Hoffman-La Roche Ltd., [2002] O.J. No. 298 (S.C.J.)
at para. 64.
Any allegation of fact that is not put into issue by the defendant is presumed to be true for [107]
the purposes of the jurisdiction motion, and the plaintiff is under no obligation to call evidence
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for any allegation that has not been challenged by the defendant; however, if a foreign defendant
files affidavit evidence challenging the allegations in the statement of claim that are essential to
jurisdiction, the low evidentiary threshold for the plaintiff to meet is that it has a good arguable
case on those allegations: Ontario v. Rothmans, supra.
In determining whether there is a real and substantial connection between the action and [108]
Ontario, the court will consider whether the facts of the statement of claim demonstrate the
jurisdictional connection, and where the statement of claim is unclear, the court may consider
affidavit evidence. In determining whether a presumptive connecting factor is present, the court,
however, should not accept allegations in the pleadings that are contradicted by the evidence
adduced by the defendant: Éditions Écosociété Inc. v. Banro Corp., 2012 SCC 18 at paras. 37-
38.
A good arguable case is not a high threshold and means no more than the plaintiff has [109]
shown a serious question to be tried or a genuine issue to be tried or that the case has some
chance of success: Inukshuk Wireless Partnership v. 4253311 Canada Inc, 2013 ONSC 5631 at
para. 19; Tucows.com Co. v. Lojas Renner S.A., supra at para. 36.
Where a court concludes that it lacks jurisdiction because none of the presumptive [110]
connecting factors exist, or because the presumption of a connection has been rebutted, the court
does not exercise any discretion, and subject to the forum of necessity doctrine (where the court
assumes jurisdiction as a matter of necessity), the court must dismiss or stay the action: Club
Resorts Ltd. v. Van Breda, supra at paras. 79-81; Forsythe v. Westfall, 2015 ONCA 810 at paras.
48-50, leave to appeal refused, [2015] S.C.C.A. No. 460; Lapointe Rosenstein Marchand
Melançon LLP v. Cassels Brock & Blackwell LLP, 2016 SCC 30 at paras. 25-27.
As I shall explain below, in the case at bar, it shall be my conclusions that: (a) there are [111]
no presumptive connecting factors; and (b) if there are any, they have been rebutted by HSBC
Holdings, with the result that the court does not have jurisdiction simpliciter.
Is HSBC Holdings a “Responsible Issuer” under Ontario’s Securities Act? 4.
As noted above, the fundamental question underlying both the motion and the cross-[112]
motion is what is the jurisdictional reach of an Ontario court to protect Canadian and non-
Canadians investors in a foreign stock exchange where the defendant is a foreign corporation
whose securities do not trade on a Canadian stock exchange. In the context of the case at bar, this
question becomes: Is HSBC Holdings a “responsible issuer” under Ontario’s Securities Act?
In answering this question, I agree with Mr. Yip’s arguments that under Part XXIII.1 of [113]
Ontario’s Securities Act, if a defendant is a responsible issuer, then it is liable for the documents
and public oral statements it makes or that it authorizes to be made by others, including
statements it authorizes or knows that are being made by its agents and subsidiaries. I also agree
that in the immediate case, the long list of documents in the Amended Statement of Claim could
qualify as documents under Ontario’s Securities Act for which there could be liability for
misrepresentations. I also agree with Mr. Yip that in the case at bar, it makes no difference to
HSBC Holdings’ potential liability that HSBC Canada is not a party to this action because Mr.
Yip’s claim concerns HSBC Holdings’ securities not HSBC Canada’s securities.
Most significantly, I agree with Mr. Yip’s argument that where the place of the trading in [114]
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securities is outside of Ontario, as was the case with Mr. Yip’s purchase of HSBC Holdings’
shares in Hong Kong, this does not preclude a finding that the corporation whose shares do not
trade in Ontario’s secondary market is a “responsible issuer” subject to regulation under
Ontario’s Securities Act. I agree with Mr. Yip that there is no place of trading requirement under
Part XXIII.1 of the Ontario Securities Act. I agree with Mr. Yip that the statutory cause of action
under s. 138.3 was not intended to arise only if the public issuer was subject to continuous
disclosure obligations in a province or territory of Canada or if some of the issuer's shares traded
publicly in Canada: Abdula v. Canadian Solar Inc., 2011 ONSC 5105 aff’d, 2012 ONCA 211,
leave to appeal refused, [2012] S.C.C.A. No. 246.
However, to foreshadow a point that I will return to below in the discussion of the forum [115]
non conveniens doctrine, I note that while the statutory cause of action under Part XXIII.1 of the
Ontario Securities Act for secondary market trading does not have a place of trading
qualification, the Act does have a place of trading qualification for the statutory cause of action
under Part XXIII for trading in the primary market: Abdula v. Canadian Solar Inc., supra at
paras. 82-89; Coulson v. Citigroup Global Markets Canada Inc., 2010 ONSC 1596, aff’d 2012
ONCA 108; Pearson v. Boliden Ltd., 2002 BCCA 624, leave to appeal to S.C.C. refused, [2003]
S.C.C.A. No. 29. Section 130(1) of the Ontario Securities Act has locative qualities, and s.130(1)
establishes liability for misrepresentation in a prospectus that is tied to the period of distribution
of a particular prospectus. The section provides as follows:
130(1). Where a prospectus, together with any amendment to the prospectus, contains a
misrepresentation, a purchaser who purchases a security offered by the prospectus during the
period of distribution or during distribution to the public has, without regard to whether the
purchaser relied on the misrepresentation, aright of action for damages against,
(a) the issuer ...
Returning to a discussion of secondary market misrepresentation claims, among other [116]
things, Part XXIII.1 of Ontario’s Securities Act creates a statutory cause of action for
misrepresentations in the secondary market for securities. The purpose of the cause of action is to
provide a civil remedy to ensure that adequate information is provided to investors in the
secondary market for securities: 1654776 Ontario Limited v. Stewart, 2013 ONCA 184 at paras.
103-116.
Part XXIII.1 is remedial legislation and should be construed broadly and liberally to [117]
achieve its purposes: Canadian Imperial Bank of Commerce v. Green, supra at para. 178.
Section 138.3 was introduced to remedy the problem at common law that the plaintiff had to
prove reliance to succeed on his or her negligent misrepresentation claim: McKenna v. Gammon
Gold Inc., 2010 ONSC 1591 at para. 159, varied on different grounds 2010 ONSC 4068 (Div.
Ct.).
The case law establishes that in cases about the secondary market and claims under Part [118]
XXIII.1 of the Ontario Securities Act, an Ontario court has jurisdiction simpliciter over a foreign
corporation defendant under the Act in three categories of cases; namely:
1. Where the foreign corporation’s securities trade in Ontario’s secondary market:
Kaynes v. BP, plc, 2013 ONSC 5802, 2014 ONCA 580, leave to appeal to S.C.C.
refused, [2014] S.C.C.A. No. 452, 2016 ONCA 601, leave to appeal to S.C.C.
dismissed 2017 CanLII 1347; Silver v. IMAX Corp., [2009] O.J. No. 5585
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(S.C.J.), leave to appeal refused 2011 ONSC 1035 (Div. Ct.); Drywall Acoustic
Lathing and Insulation Local 675 Pension Fund (Trustees of) v. SNC-Lavalin
Group Inc., 2012 ONSC 5288.
2. Where the foreign corporation’s securities trade in Ontario’s secondary market
and also in a foreign secondary market(s): Kaynes v. BP, plc, supra; Silver v.
IMAX Corp., supra.
3. Sometimes where the foreign corporation’s shares do not trade in Ontario’s
secondary market but the foreign corporation has a real and substantial connection
to Ontario: Abdula v. Canadian Solar Inc., supra.
As I shall explain, the case at bar falls into this third category, where whether the court [119]
has jurisdiction simpliciter to decide a claim based on Part XXIII.1 of Ontario’s Securities Act
will depend on the particular facts of the case.
Liability under Part XXIII.1 arises “where the responsible issuer or a person or company [120]
with actual, implied or apparent authority to act on behalf of a responsible issuer” releases a
document or makes a public oral statement that contains a misrepresentation. In the case at bar,
Mr. Yip argues that HSBC Holdings is liable because it is a responsible issuer.
Under s. 138.1 of Ontario’s Securities Act, a responsible issuer is defined as follows: [121]
“responsible issuer” means,
(a) a reporting issuer, or
(b) any other issuer with a real and substantial connection to Ontario, any securities of
which are publicly traded;
Because HSBC Holdings is not a reporting issuer, the key premise to Mr. Yip’s argument [122]
is that HSBC Holdings qualifies as a responsible issuer under s. 138.1(b) of the Ontario
Securities Act; i.e., that it is an other issuer with a real and substantial connection to Ontario:
Abdula v. Canadian Solar Inc., supra.
Whether the fundamental premise that underlies Mr. Yip’s claim is true is a question that [123]
can be narrowed. It is beyond dispute that HSBC Holdings is an “issuer,” which is defined in
s. 1(1) of the Ontario Securities Act as “a person or company who has outstanding, issues or
proposes to issue, a security.” And, it is beyond dispute that HSBC Holdings’ securities are
publicly traded - albeit not in Ontario. As described above, HSBC Holdings’ securities are
publicly traded in the U.K., Hong Kong, France, Bermuda, and the U.S. Further, because none of
the qualifying circumstances apply, it is also beyond dispute that HSBC Holdings is not a
“reporting issuer,” which is defined in s. 1(1) as follows:
“reporting issuer” means an issuer,
(a) that has issued voting securities on or after the 1st day of May, 1967 in respect of
which a prospectus was filed and a receipt therefor obtained under a predecessor of this
Act or in respect of which a securities exchange take-over bid circular was filed under a
predecessor of this Act,
(b) that has filed a prospectus and for which the Director has issued a receipt under this
Act,
(b.1) that has filed a securities exchange take-over bid circular under this Act before
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December 14, 1999,
(c) any of whose securities have been at any time since the 15th day of September, 1979
listed and posted for trading on any exchange in Ontario recognized by the Commission,
regardless of when such listing and posting for trading commenced,
(d) to which the Business Corporations Act applies and which, for the purposes of that
Act, is offering its securities to the public,
(e) that is the company whose existence continues following the exchange of securities of
a company by or for the account of such company with another company or the holders
of the securities of that other company in connection with,
(i) a statutory amalgamation or arrangement, or
(ii) a statutory procedure under which one company takes title to the assets of
the other company that in turn loses its existence by operation of law, or under
which the existing companies merge into a new company,
where one of the amalgamating or merged companies or the continuing company has
been a reporting issuer for at least twelve months, or
(f) that is designated as a reporting issuer in an order made under subsection 1 (11)
Thus, for HSBC Holdings to qualify as a “responsible issuer” under Ontario’s Securities [124]
Act, the facts must establish that HSBC Holdings, which is an issuer with publicly traded
securities, has in accordance with the definition found in Part XXIII.1 (s. 138.1) “a real and
substantial connection to Ontario.”
In other words, qualifying as a “responsible issuer” entails that the defendant is either a [125]
reporting issuer or that the defendant issuer has a real and substantial connection with Ontario.
Whether an issuer of publicly traded securities has a real and substantial connection to Ontario is
a fact-based determination that will sometimes be the case, and sometimes it will not be the case.
In the case at bar, HSBC Holdings is not a reporting issuer, and thus the fundamental premise
that underlies Mr. Yip’s proposed class action is narrowed to the question of whether HSBC
Holdings has, to quote the definition of a responsible issuer, “a real and substantial connection to
Ontario.”
Mr. Yip submits, however, that s. 138.1 of the Ontario Securities Act modifies and is [126]
broader than Club Resorts Ltd. v. Van Breda, supra and that it prescribes or mandates that an
Ontario court has jurisdiction simpliciter over a foreign defendant who is an issuer whose
securities are publicly traded anywhere in the world. Going further, Mr. Yip submits that for the
court to introduce the theory of Club Resorts Ltd. v. Van Breda and considerations of comity
between jurisdictions into the reckoning of who qualifies as a “responsible issuer” would
impermissibly derogate from legislative policy and be contrary to the objectives of access to
justice and investor protection directed by the Ontario Legislature pursuant to its Securities Act.
I disagree. In my opinion, s. 138.1 of the Ontario Securities Act rather adopts and [127]
incorporates Club Resorts Ltd. v. Van Breda as the measure of the court’s jurisdiction over a
foreign corporation who is an issuer on a public exchange but whose shares do not trade in
Ontario’s secondary marketplace for securities.
I appreciate that in Club Resorts Ltd. v. Van Breda, Justice LeBel stated that the common [128]
law principles of private international law can be modified by statute, but that is not what the
Ontario Legislature did in infusing s. 138.1 of the Act with the prerequisite of a real and
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substantial connection to Ontario. Rather, the Legislature was describing the circumstances
where there was a perch for the exercise by an Ontario court of a regulatory, remedial, and
compensatory jurisdiction over a foreign corporation issuing securities to the public outside of
Ontario. Quite clearly, the Legislature said that to be a responsible issuer under Ontario’s
Securities Act, the foreign defendant had to be a “reporting issuer” or an issuer with a real and
substantial connection to Ontario.
In the context of the case at bar, my point is that a foreign corporation whose shares do [129]
not trade in Ontario may sometimes be found to be a “responsible issuer” but this is a fact-based
determination that depends upon the plaintiff establishing that the defendant has a real and
substantial connection to Ontario.
It follows that I disagree with HSBC Holdings’ argument that a foreign holding [130]
corporation whose shares do not trade in Ontario can never be found to be a responsible issuer.
Rather, it all depends on the facts of the particular case as to whether an Ontario court has
jurisdiction simpliciter for a claim under Part XXIII.1 of the Ontario Securities Act. Thus, in the
immediate case, if there is an arguable case that the presumptive connecting factors from Club
Resorts Ltd. v. Van Breda are demonstrable and not rebutted, then there would also be an
arguable case that HSBC Holdings was a “responsible issuer” subject to regulation under
Ontario’s Securities Act notwithstanding that HSBC Holdings’ shares are not listed for sale in
Ontario’s secondary market. And if there was an arguable case against HSBC Holdings, then
there would also be jurisdiction simpliciter over Mr. Bagley.
Turning to the case law, this analysis of the Ontario court’s jurisdiction under Part [131]
XXIII.1 of the Ontario Securities Act is supported by a review of the case law. The discussion
may begin by simply noting that there are cases where the court recognized that it had
jurisdiction under Ontario’s Securities Act over a foreign corporation that was a public issuer of
shares in Ontario’s secondary market for securities. These are cases where the defendant is a
reporting issuer and hence under s. 138.1(a) of the Act, the foreign defendant is a responsible
issuer. These are the cases that are in the first category of cases where the foreign corporation’s
securities trade in Ontario’s secondary market, and they are listed above.
Mr. Yip’s claim against HSBC Holdings does not fall within the first category of cases. [132]
The second category of cases where the court has jurisdiction simpliciter under the [133]
Ontario Securities Act are cases where the foreign corporation’s securities trade in Ontario’s
secondary market and also in a foreign country’s secondary market(s). In these cases, the
connection to Ontario is established because the foreign defendant is a reporting issuer in Ontario
and these cases accept that this connection enables the Ontario court to lengthen the arm of its
jurisdiction to regulating the trading of shares in Ontario stock exchanges to also include
regulating the trading of those shares in stock exchanges outside Ontario. The leading case of
this second category of cases is Kaynes v. BP, plc, supra.
In Kaynes v. BP, plc, supra, Mr. Kaynes, who had purchased on the NYSE securities of [134]
British Petroleum (“BP”), a British company, brought a proposed class action on behalf of
Canadian investors in BP’s securities. BP had property and did business in Ontario, and its
securities traded on the TSX as well as on the London Stock Exchange, the Frankfurt Stock
Exchange, and the NYSE. The trading in BP’s securities on the TSX, however, stopped when the
securities were de-listed, but BP had undertaken to continue to disclose information in Ontario
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pursuant to its obligations as a reporting issuer under U.S. law.
Mr. Kaynes’ action was pursuant to Part XXIII.1 of Ontario’s Securities Act for [135]
secondary market misrepresentations. Meanwhile in the U.S., another investor was suing BP on
behalf of purchasers on the NYSE based on the Securities Exchange Act of 1934, and BP brought
a motion to stay Mr. Kaynes’ proposed class action with respect to the putative Canadian class
members who had purchased their securities on the NYSE. BP argued that the Ontario court did
not have jurisdiction or, alternatively, on the basis of the doctrine of forum non conveniens, it
argued that the Ontario court should not assume jurisdiction with respect to purchasers on
foreign stock exchanges.
In Kaynes v. BP, plc, supra, it is significant to note that BP did not challenge the Ontario [136]
court's jurisdiction with respect to the claims of proposed class members who purchased BP
securities on the TSX.
In Kaynes v. BP, plc, supra, in a decision, upheld by the Ontario Court of Appeal, Justice [137]
Conway held that the Ontario court had jurisdiction simpliciter with respect to not only the
putative Class Members who had purchased their securities on the TSX but also for purchasers
on the NYSE. The Court of Appeal, however, held that the U.S. court was forum conveniens and
the Ontario court forum non conveniens, and thus the Court of Appeal stayed the Ontario action
with respect to the NYSE-based claims. Subsequently, with changed circumstances, that I will
describe below in the context of the discussion of forum non conveniens, the Court of Appeal set
aside the stay and allowed the global class action to proceed in Ontario.
In Kaynes v. BP, plc, in reaching the conclusion that the court had jurisdiction simpliciter [138]
over BP for a claim under Part XXIII.1 of the Ontario Securities Act in Ontario, the Court of
Appeal relied on the circumstance that when BP released the impugned documents, which it did
outside of Ontario, it knew - by virtue of the disclosure undertaking it had given - that even if the
initial point of release was outside Ontario, the document was certain to find its way to Ontario
and to its Ontario shareholders.
In the Court of Appeal, Justice Sharpe said that this circumstance was analogous to the [139]
circumstance discussed by the Supreme Court of Canada in the product’s liability case Moran v.
Pyle National (Canada) Ltd., [1975] 1 S.C.R. 393, where the Court held that a Saskatchewan
court had jurisdiction simpliciter over an Ontario manufacturer who had no connection to
Saskatchewan other than awareness that its product would enter that jurisdiction through the
normal channels of trade. Justice Sharpe stated at para. 28 that by releasing a document outside
Ontario that BP was required to send to Ontario shareholders, BP committed an act with
sufficient connection to Ontario to qualify as the commission of a tort in Ontario. At para. 30 of
his judgment, he stated:
30. While the present case does not involve a claim for negligent misrepresentation, I see no
reason not to hold, by analogy, that when BP released documents that it was legally required to
provide its Ontario shareholders, it committed an act that had an immediate and direct connection
with Ontario, an act that is sufficient to establish a real and substantial connection between the
claim of this plaintiff and Ontario.
Mr. Yip’s Part XXIII.1 claim does not fall within the second category of cases because [140]
HSBC Holdings was not a reporting issuer and it never had an obligation by way of undertaking
or otherwise to provide information to Ontario investors. It was not legally required to provide its
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Ontario shareholders with any documents. It prepared its documents to comply with the law of
the jurisdictions in which its shares were listed for trading on the jurisdictions’ stock exchange.
HSBC Holdings’ Ontario investors were not relying and could not rely on Ontario’s Securities
Act to define HSBC Holdings’ continuing disclosure obligations.
The third category of cases are cases where the foreign corporation’s shares do not trade [141]
in Ontario’s secondary market but the foreign corporation has a real and substantial connection
to Ontario in the particular circumstances of the case.
The leading case of the third category is Abdula v. Canadian Solar Inc., supra. In this [142]
case, Canadian Solar’s securities were publicly traded on the NASDAQ exchange in the United
States but not on any Canadian exchange. Canadian Solar was a corporation that had originally
been incorporated in Ontario, but had transferred to become a corporation under the Canada
Business Corporations Act, R.S.C. 1985, c. C-44. Thus, Canadian Solar was technically a foreign
corporation in the sense that it was not a domestic Ontario corporation, but it had some pre-
existing connection to Ontario. Further, Canadian Solar’s executive offices and some of its
governance and business operations were in Ontario, but it operated primarily in China, and its
officers and directors did not live in Canada. It held its annual meeting in Toronto.
In Abdula v. Canadian Solar Inc. the plaintiff Mr. Abdula alleged that Canadian Solar’s [143]
annual report and a press release contained misrepresentations., The Court concluded that
Ontario’s Securities Act can provide a right of action against an issuer who is not a reporting
issuer in Ontario. The statutory cause of action under s. 138.3 could arise if the issuer was a
reporting issuer or if it qualified as a responsible issuer, which could happen even if the
defendant was not a reporting issuer.
In other words, in Abdula v. Canadian Solar Inc., the Court of Appeal held that if there [144]
was a real and substantial connection to Ontario, then a public issuer of shares in any stock
exchange around the world could be a responsible issuer in Ontario. The court, however, did not
decide that all issuers are subject to the Ontario Securities Act; rather, it decided that a foreign
issuer with a real and substantial connection to Ontario fell within the Act’s definition of
“responsible issuer.” In the Court of Appeal’s judgment, at para. 49, Justice Hoy, as she then
was, stated:
49. The subject matter of Part XXIII.1 is a remedy to investors for misrepresentation in certain
issuers' secondary market disclosure. In this case, at least some of that disclosure emanated from
Ontario. That, together with the relationship of Canadian Solar to Ontario, constitutes a sufficient
connection between Ontario and Canadian Solar to potentially subject Canadian Solar to a
statutory cause of action pursuant to Part XXIII.1 of the OSA. ….
In Kaynes v. BP, plc, supra at para. 32, Justice Sharpe explained the significance of the [145]
Abdula decision as follows:
32. …. Abdula recognizes, at para. 88, that "[e]xtra-territorial application is specifically envisaged
by the paragraph (b) of the definition of 'responsible issuer' with its reference to issuers with a
‘real and substantial connection to Ontario.’”
Returning to the case at bar, the question becomes whether HSBC Holdings is a [146]
responsible issuer within the third category of cases. As just explained above, notwithstanding
that HSBC Holdings securities do not trade in Ontario’s secondary market for securities, it might
qualify as a “responsible issuer” under Ontario’s Securities Act if it was an “issuer” with a “real
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and substantial connection to Ontario.”
In other words, any public issuer of securities whose securities do not trade in Ontario [147]
may nevertheless be subject to Ontario’s Securities Act if it has a real and substantial connection
to Ontario. If, for example, a public issuer on the NYSE carried on business in Ontario, it would
qualify as a responsible issuer in Ontario and be subject to the long arm of Ontario’s Securities
Act. Below, I will analyze whether HSBC Holdings has a real and substantial connection to
Ontario and were I to conclude that it does, then it would follow that the court would have
jurisdiction simpliciter to decide Mr. Yip’s Part XXIII.1 statutory cause of action.
Whether HSBC Holdings has a real and substantial connection to Ontario is the fact-[148]
based issue that I shall examine below where I reach the conclusions that there are no
presumptive factors connecting HSBC Holdings to Ontario or no presumptive factors that have
not been rebutted. It follows from the analysis below that HSBC Holdings is not a responsible
issuer under Ontario’s Securities Act and it further follows that the Ontario court does not have
jurisdiction simpliciter.
Before moving on to explain those conclusions, it is convenient here to address Mr. Yip’s [149]
argument that it is significant that when HSBC Holdings made private placements in Ontario, it
expressly disclaimed the application of Ontario law; however, it did not do when it offered its
securities for trading in the U.K., Hong Kong, France, Bermuda, and the U.S. However, the truth
is that nothing turns on the absence of disclaimers in the issuance of securities in U.K., Hong
Kong, France, Bermuda, and the U.S.
The explanation for the irrelevancy is that a disclaimer in those jurisdictions would not [150]
negate whether, as a factual matter, there was a real and substantial connection between HSBC
Holdings and Ontario. In other words, were I to conclude that HSBC Holdings carried on
business in Ontario or that there was a good arguable case that it had committed a common law
or statutory tort in Ontario, then its disavowal of the application of Ontario law would have
availed it nothing. HSBC Holdings’ failure to disclaim the application of Ontario says nothing
about whether Ontario actually has any long-arm jurisdiction reaching out from Ontario to
govern HSBC Holdings’ activities in the U.K., Hong Kong, France, Bermuda, and the U.S.
The Claim against Mr. Bagley 5.
In the Amended Statement of Claim, Mr. Yip alleges that Mr. Bagley authorized, [151]
permitted or acquiesced in the Compliance Representation.
I agree with Mr. Yip’s submission that if HSBC Holdings is a responsible issuer, then [152]
there is a cause of action against Mr. Bagley as an officer of HSBC Holdings.
Sections 138.3(1) and (2) provide causes of action against “each officer of the responsible [153]
issuer who authorized, permitted or acquiesced in the release of the document” and “the making
of a public oral statement.”
However, as foreshadowed several times now, my conclusion below is that HSBC [154]
Holdings is not a responsible issuer, and the corollary to that conclusion is that the Ontario court
has no jurisdiction simpliciter with respect to Mr. Bagley.
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Does HSBC Holdings Carry on Business in Ontario? 6.
I turn now to the issue of whether HSBC Holdings carries on business in Ontario. This [155]
issue is significant because if HSBC Holdings does carry on business in Ontario, then it would
follow that the court has jurisdiction simpliciter over it for both of Mr. Yip’s claim under Part
XXIII.1 of the Ontario Securities Act and also for his common law negligent misrepresentation
claim.
Under the Club Resorts Ltd. v. Van Breda, supra scheme for determining whether the [156]
Ontario court has jurisdiction simpliciter, as noted above, the foreign defendant’s carrying on
business in Ontario may be a presumptive connecting factor. However, also as mentioned above,
how to characterize the business of HSBC Holdings having regard to its management of the
HSBC Group is an issue of mixed fact and law.
In Club Resorts Ltd. v. Van Breda, supra at para. 87, Justice LeBel stated: [157]
87. Carrying on business in the jurisdiction may also be considered an appropriate connecting
factor. But considering it to be one may raise more difficult issues. Resolving those issues may
require some caution in order to avoid creating what would amount to forms of universal
jurisdiction in respect of tort claims arising out of certain categories of business or commercial
activity. Active advertising in the jurisdiction or, for example, the fact that a Web site can be
accessed from the jurisdiction would not suffice to establish that the defendant is carrying on
business there. The notion of carrying on business requires some form of actual, not only virtual,
presence in the jurisdiction, such as maintaining an office there or regularly visiting the territory of
the particular jurisdiction. But the Court has not been asked in this appeal to decide whether and, if
so, when e-trade in the jurisdiction would amount to a presence in the jurisdiction. With these
reservations, "carrying on business" within the meaning of rule 17.02(p) may be an appropriate
connecting factor.
In Yaiguaje v. Chevron Corp., supra at para. 85, Justice Gascon stated: [158]
85. Whether a corporation is "carrying on business" in the province is a question of fact… [T]he
court must inquire into whether the company has "some direct or indirect presence in the state
asserting jurisdiction, accompanied by a degree of business activity which is sustained for a period
of time"… These factors are and always have been compelling indicia of corporate presence…
[T]he common law has consistently found the maintenance of physical business premises to be a
compelling jurisdictional factor: LeBel J. accepted this in Van Breda when he held that "carrying
on business requires some form of actual, not only virtual, presence in the jurisdiction, such as
maintaining an office there"…
Whether the defendant is carrying on business in the province is a question of fact, and [159]
the court will examine whether the defendant has a physical presence in the jurisdiction
accompanied by a degree of sustained business activity: Club Resorts Ltd. v. Van Breda, supra at
para. 87; Yaiguaje v. Chevron Corp., supra at para. 85; Incorporated Broadcasters Ltd. v.
Canwest Global Communications Corp., supra at para. 36; Abdula v. Canadian Solar Inc.,
supra; Wilson v. Hull (1995), 174 A.R. 81 (C.A.) at para. 13. Each case involving whether a
defendant is carrying on business in Ontario or has a connection to Ontario must be considered
on its unique facts: Stuart Budd & Sons Ltd. v. IFS Vehicle Distributors ULC, 2016 ONCA 977;
582556 Alberta Inc. v. Canadian Royalties Inc., 2008 ONCA 58.
As appears from the excerpt above from Justice LeBel’s judgment in Club Resorts Ltd. v. [160]
Van Breda, supra, the Supreme Court was concerned that the notion of carrying on business in a
jurisdiction be narrowly construed so as to avoid creating what would amount to forms of
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universal jurisdiction. What I take this to mean is that carrying on business “in” a jurisdiction
means that the foreign defendant’s activity in the jurisdiction approaches that or has the intensity
of the defendant being a resident in the jurisdiction amenable to being personally served with a
court process in that jurisdiction, which as the discussion below will reveal is the source of the
idea that carrying on business in the jurisdiction is presumptive of having a real and substantial
connection with the jurisdiction. In saying that creating a universal jurisdiction was to be
avoided, Justice LeBel was saying that there must be a concrete and not ephemeral connection
between the business of the defendant and the particular jurisdiction or jurisdictions where a
claim is being made against the defendant.
As a matter of the development of the law, the presumptive connecting factor of the [161]
defendant carrying on business in the jurisdiction in which the plaintiff brings his or her lawsuit
as entailing jurisdiction simpliciter over the foreign defendant in that jurisdiction came about in a
roundabout way.
In Ontario, under the former Rules of Practice, subject to the doctrine of forum non [162]
conveniens, an Ontario court would assume jurisdiction pursuant to Rule 25, which was amended
in 1975 to permit service outside of Ontario on foreign defendants in 17 defined circumstances.
Before the 1975 amendment, service ex juris in the 17 defined circumstances required a formal
court order. The 1975 amendment removed the requirement for a court order for service ex juris.
It is to be noted and emphasized that before and after the 1975 amendment, the defined
circumstances where a foreign defendant could be served ex juris did not include the
circumstance that the defendant carried on business in Ontario.
This approach to service ex juris continued after 1985 with the enactment of the Rules of [163]
Civil Procedure, where rule 17.02 defined 19 circumstances (some circumstances were
subsequently revoked) where service outside Ontario was authorized without leave of the court.
Once again, it is to be emphasized that the 19 circumstances did not include carrying on business
in Ontario as an operative factor.
It was from the various lists of circumstances where service could be made ex juris that [164]
the Supreme Court in Club Resorts v. Van Breda fashioned some of its list of factors that were
(or were not) to be taken as presumptive connecting factors to establish a real and substantial
connection between the defendant and the jurisdiction.
However, the Supreme Court did not derive carrying on business in Ontario as a [165]
presumptive connecting factor from Rule 25 of the Rules of Practice nor from rule 17.02 of the
Rules of Civil Procedure because as emphasized, this factor was not a part of these rules. Rather,
the Supreme Court of Canada derived the carrying on business in Ontario presumptive connective
factor from the rules for personal service that were formerly set out in Rule 23 of the Rules of
Practice and that are now found in rule 16.02 (1) of the Rules of Civil Procedure. (Rule 23 has been
a part of civil procedure in Ontario since at least 1895.)
Thus, as a presumptive connecting factor, carrying on business in Ontario actually [166]
derives from the traditional pre-Club Resorts v. Van Breda criteria that were based on personal
service, which criteria, as the Supreme Court made clear in Yaiguaje v. Chevron Corp., supra,
survived the scheme fashioned by the Supreme Court in Club Resorts v. Van Breda. In Yaiguaje
v. Chevron Corp., supra at paras. 84-85, Justice Gascon stated:
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84. Chevron Canada's appeal concerns the traditional ground of presence. Presence-based
jurisdiction has existed at common law for several decades; …. If service is properly effected on a
person who is in the forum at the time of the action, the court has jurisdiction regardless of the
nature of the cause of action: ….
85. While simplified, justified, and explained many critical aspects of Canadian private
international law, it did not purport to displace the traditional jurisdictional grounds. LeBel J.
explicitly stated that, in addition to the connecting factors he established for assumed jurisdiction,
"jurisdiction may also be based on traditional grounds, like the defendant's presence in the
jurisdiction or consent to submit to the court's jurisdiction, if they are established": para. 79. In
other words, "[t]he real and substantial connection test does not oust the traditional private
international law bases for court jurisdiction": ….
Rule 23 of the former Rules of Practice stated: [167]
Rule 23 (1) A municipal corporation may be served ….
(2) In the case of a railway, telegraph or express corporation, service may be effected ….
(3) Any other corporation may be served with a writ of summons by delivering a copy to the
president or … in charge of any branch or agency thereof in Ontario and any person who within
Ontario transacts or carries on any of the business of, or any business for, a corporation whose
chief place of business is out of Ontario shall, for the purpose of being served as aforesaid, be
deemed to be deemed to be the agent thereof.
Rule 16.02(1) of the Rules of Civil Procedure states: [168]
PERSONAL SERVICE
16.02(1) Where a document is to be served personally, the service shall be made, …
(c) Corporation – on any other corporation, by leaving a copy of the document with any officer,
director or agent who appears to be in control or management of the place of business;
…
(e) Person outside Ontario carrying on business in Ontario – on a person outside Ontario who
carries on business in Ontario, by leaving a copy of the document with anyone carrying on
business in Ontario for the person;
….
There is case law about carrying on business as a presumptive connecting factor, discussed [169]
below, but for present purposes, there is a significant body of case law about former Rule 23 (3) and
some case law about rule 16.02(1) of the Rules of Civil Procedure. I shall review this case law first
and then return to discuss the contemporary case law about carrying on business as a presumptive
connecting factor.
The case law about Rule 23 was summarized by W.B. Williston and R.J. Rolls in the Law of [170]
Civil Procedure (Toronto: Butterworths, 1970) at pages 313-314, as follows:
Service upon an agent pursuant to Rule 23 is valid only if the corporation is actually carrying on
business in Ontario. In Macklin v. Imperial Co. (1919), 16 O.W.N. 141 (S.C.), the manager of the
company came to Ontario for the purpose of taking certain steps in connection with an Ontario
debtor. While he was here, he was served with a writ against the company. It was held that the
manager could not be said to be transacting business for the company, and the service on the
company was set aside. Before a person within Ontario transacts or carries on business for a
corporation within the meaning of the rule, that person must be an agent of the corporation who
transacts or carries on, or controls or manages for them, some part of the business which the
corporation professes to do and for which it was incorporated: Murphy v. Phoenix Bridge
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Company (1899), 18 P.R. 495 (C.A.); Wee-Gee Uranium Mines Ltd. v. New York Times Co.,
[1969] 1 O.R. 741 (H.C.J.). Thus, the presence within Ontario of an officer of a foreign
corporation not shown to be doing any business here or an isolated or incidental act done here or a
correspondent resident here who was not shown to carry on business will not be sufficient: Wilson
v. Detroit and Milwaukee Railway Company (1860), 3 P.R. 37; Burnett v. General Accident
Assurance Corp. (1905), 6 O.W.R. 144; Macklin v. Imperial Warehouse Co. supra; Appel v.
Anchor Insurance and Investment Corp. Ltd. (1921), 21 O.W.N. 25 (H.C.D.). A company in
Ontario which sells tickets and completes arrangements in Ontario for the carriage of passengers
on vehicles operated outside of Ontario by a foreign company is the agent of the foreign company
for the purpose of service pursuant to the rule because the selling of transportation is an integral
part of the defendant’s business: Droeske v. Champlain Coach Lines Inc., [1939] O.R. 560 (C.A.).
A purchaser of goods even under a sole distributorship does not carry on within Ontario any of the
business for the vendor of those goods as to make the purchaser the agent within Ontario of the
vendor: Sarco Canada Ltd. v. Pryrotherm Ltd., [1969] 1 O.R. 426 (Master). The three requisites of
good service are that the business done is continued for a substantial period of time, that the
business is done at a fixed place and that the business alone is not merely the transaction by an
agent within Ontario to his principal outside, but the actual transacting within the jurisdiction of
some of the business of the company: Ingersol Packing Co. Ltd. v. New York Central (1918), 42
O.L.R. 330; Higgens v. Merland Oil Co. Ltd., [1933] O.W.N. 679 (H.C.J.); Droeske v. Champlain
Coach Lines Inc., supra. The test to be applied in these cases should not be less stringent than the
court would apply in granting an order for substitutional service: Sarco Canada Ltd. v. Pryrotherm
Ltd., supra and, to have a meaningful effect, service should be made on someone notice to whom
would be notice to the corporation, or whose duties could it upon him to bring it to their notice:
Murphy v. Phoenix Bridge Company, supra.
It is necessary to examine the case law about Rule 23 more closely, including cases reported [171]
after Williston and Rolls wrote their text; namely: Santa Marina Shipping Co. S.A. v. Lunham &
Moore Ltd. (1978), 18 O.R. (2d) 315 (H.C.J.) and the cardinal case of Canada Life Assurance Co.
v. Canadian Imperial Bank of Commerce (1974), 3 O.R. (2d) 70 (C.A.), which is a factually
comparable case to the case at bar.
The seminal case about Rule 23 is Murphy v. Phoenix Bridge Company (1899), 18 P.R. [172]
495 (C.A.), in which judgments were delivered by Osler, J.A. and Moss, J.A. In this case, Justice
Osler pointed out at pp. 499-500 that it is important to remember that it is residence within the
country that confers jurisdiction to affect personal service. At p. 501, Justice Osler stated:
I think that what is meant by "a person who transacts or carries on any of the business of, or any
business for, any corporation," is, at the least, some person who is an agent of the corporation,
who transacts or carries on here, or controls or manages for them here, some part of the business
which the corporation profess to do and for which they were incorporated.
Justice Moss stated at p. 502-3:
In order -- as I understand the authorities -- that the before mentioned provisions may apply to the
foreign corporation, it must be made to appear that it is carrying on business in Ontario in such
manner as to render it subject to be deemed resident within Ontario for the purposes of service of
process upon it.
In Ingersol Packing Co. Ltd. v. New York Central (1918), 42 O.L.R. 330 (C.A.), Justice [173]
Masten (Justice Riddell concurring) set out at pp. 334 and 336 a three-part test for Rule 23; he
stated:
First, the acts relied on as showing that the corporation is carrying on business in this country must
have continued for a sufficiently substantial period of time. … Next, it is essential that these acts
should have been done at some fixed place of business. If the acts relied on in this case amount to
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a carrying on of a business, there is no doubt that those acts were done at a fixed place of business.
The third essential, and one which it is always more difficult to satisfy, is that the corporation must
be 'here' by a person who carried on business for the corporation in this country. It is not enough to
show that the corporation has an agent here; he must be an agent who does the corporation's
business for the corporation in this country. This involves the still more difficult question, what is
meant exactly by the expression 'doing business?'
….
Under the English Rule the question is, whether the company is exercising judgment and making
determinations regarding this business at some place within the jurisdiction, and the cases to
which I have referred make it plain that the mere receipt and transmission of the negotiations pro
and con, without any power to the agent or representative to act except on specific instructions, is
not transacting business within the jurisdiction so as to bring the foreign corporation "here." In
other words, the English principle is bottomed on this: that the foreign corporation must be "here,"
that it can only be "here" if it has a branch or representative here who can do things -- not a mere
conduit- pipe to receive proposals and report answers.
The three-part test from the Ingersol case was applied in Higgins v. Merland Oil Co. Ltd., [174]
[1933] O.W.N. 679 (H.C.J.); Droeske v. Champlain Coach Lines Inc., [1939] O.R. 560 (C.A.);
Canada Life Assurance Co. v. Canadian Imperial Bank of Commerce, supra.
In Appel v. Anchor Insurance and Investment Corp. Ltd. (1921), 21 O.W.N. 25 (H.C.D.), [175]
Justice Middleton stated at pp. 26-7:
The Rule now in force, so far as this application was concerned, was precisely the same as that in
force when Murphy v. Phoenix Bridge Co. (1889), 18 P.R. 406 and 495, was determined. There
was, in that case, difference of judicial opinion as to the effect to be given to the words, but in the
end the apparently wide provision of the Rule was much restricted, and it was held by the Court of
Appeal that service could be predicated only upon an actual transaction of business within the
jurisdiction, and not upon some isolated act. There must be a "business" which could be fairly said
to be "carried on" within this Province.
Coming to the discussion of Canada Life Assurance Co. v. Canadian Imperial Bank of [176]
Commerce, supra, the facts were that Canada Life sued the C.I.B.C., which in turn brought third-
party proceedings against Citibank, a New York City bank. Citibank had branches and affiliates
in over 85 countries including the Mercantile Bank, which was an affiliated Canadian bank with
a head office at Montreal and eight branches, one of which was located in Toronto. Citibank was
the majority shareholder in Mercantile Bank, but it was gradually reducing its share ownership.
Citibank provided Mercantile Bank with advice and expertise with respect to a wide range of
banking and management techniques, and provided personnel to Mercantile Bank sometimes at
no charge. One of the directors of Mercantile Bank was a senior vice-president of Citibank, and
the chairman of Citibank was also chairman of Mercantile Bank. The banks were described in
the Toronto Telephone Directory Yellow Pages and in other places as affiliated, and these
advertisements indicated that Mercantile Bank had access to the world-wide banking operations
of Citibank. Citibank and Mercantile Bank used each other for money transfers for customers but
Citibank also used other Canadian banks. Mercantile Bank provided correspondent services in
Ontario for Citibank.
After an extensive review of the case law described above and before examining whether it [177]
could be said that Mercantile Bank, which had a separate corporate identity from Citibank, could be
considered the alter-ego of Citibank and thus manifesting that Citibank was carrying on business in
Ontario, Chief Justice Gale (Justices Evans and Dubin concurring) concluded that Citibank was not
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carrying on business in Ontario. At para. 35, Chief Justice Gale stated:
35. Do the services performed by Mercantile for Citibank constitute the carrying on of any of
Citibank's business in Ontario? In my view, they do not. The function of a correspondent, as Mr.
Farrar described it, involves "the utilization of the general banking facilities usually associated
with acting in another country". Such services are available to all foreign banks, at fixed rates
(which, however, may vary according to the number of transactions involved). It seems to me that
one could fairly say that in acting as it does Mercantile, in conducting its business, is a vehicle
serving to expedite the conduct of the business of other banks which is in fact transacted
elsewhere. Where Citibank is concerned, Mercantile's functions are of an incidental nature, and
these functions constitute an integral part of Mercantile's business as a bank. Further, fixing on the
nature of their business association, as opposed to their family association, which, unless the
corporate veil is to be lifted, is really irrelevant, their relationship does not appear to be such as to
require Mercantile to bring to Citibank's notice a service of process such as this. Accordingly, I am
satisfied that Galligan, J., erred in holding that Mercantile carried on sufficient of the business of
Citibank in Ontario to be its agent for the purposes of service of a process of this Court.
In Santa Marina Shipping Co. S.A. v. Lunham & Moore Ltd., supra, Justice Grange held [178]
that merely having assets in Ontario does not constitute carrying on business in Ontario where all
dealings with the asset were conducted from Montreal.
Turning next to the case law about rule 16.02(1) of the Rules of Civil Procedure, in Klein [179]
v. Handra Travel Services Ltd. (c.o.b. Handra Travel Group), 2014 ONSC 2221, Justice Hainey
applied the three-part test from Canada Life Assurance Co. v. Canadian Imperial Bank of
Commerce, supra to hold that the foreign defendant was properly served in Ontario.
In Essex Garments Canada Inc. v. Cohen, [2005] O.J. No. 5716 (S.C.J.), the plaintiffs [180]
were unpaid trade creditors who sought an oppression remedy because the corporate defendant,
which resided in Manitoba, had sold its subsidiary retail chain and the trade creditors were left
unpaid. In this case, Justice Spies set aside the service of the corporate defendant because it did not
carry on business in Ontario. At paras. 18-19 of her judgment, Justice Spies stated:
18. The defendant Gendis Inc. is a federally incorporated corporation, with its registered head
office in Winnipeg, Manitoba. It is registered to carry on business in Ontario, but there is no
evidence that Gendis has at any material time directly carried on business in Ontario. By the time
the claim was issued Gendis no longer owned SAAN. Based on Gendis' annual report for the year
ended January 29, 2005, Gendis at that time was active in investment management and in real
estate leasing and management through a subsidiary, Gendis Realty Inc. Gendis Realty Inc. leased
real estate it holds in Manitoba, Saskatchewan and Ontario. In addition, the plaintiffs rely on the
fact that Gendis has issued shares in Ontario and is a reporting issuer in Ontario and publicly
regulated by the Ontario Securities Commission. Its shares have been listed on the Toronto Stock
Exchange for many years.
19. Although Gendis Inc. through a wholly owned subsidiary owns real property in Ontario, that
does not give Gendis Inc. a physical presence in Ontario. Nor do the other factors relied upon by
the plaintiffs. Gendis Inc. does not have any offices in Ontario and does not itself carry on
business anywhere in Ontario. The fact that it is registered and therefore able to do so is not
enough. In my view, a physical presence in Ontario would mean that Gendis Inc. has a place of
business in Ontario that would permit service in Ontario pursuant to Rule 16.02 (1) (c). It does not
and service on Gendis Inc. would not be possible in Ontario. Accordingly, I find that it does not
have a presence in Ontario for the purpose of presence-based jurisdiction.
With this background about the roundabout way that carrying on business in a [181]
jurisdiction became a part of the jurisdiction simpliciter analysis and about how the carrying on
business factor was applied under the manner of service rules, I come to contemporary case law
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about carrying on business in Ontario as a presumptive connecting factor.
I shall begin the discussion with Central Sun Mining Inc. v. Vector Engineering Inc., [182]
2012 ONSC 7331, rev’d on other grounds, 2013 ONCA 601, leave to appeal refused, [2013]
S.C.C.A. No. 475, which is an example of a case where a foreign defendant was held not to be
carrying on business in Ontario notwithstanding doing business with the plaintiff who was
carrying on business in Ontario.
In this case, Central Sun Mining, whose head office was in Toronto, hired SRK(U.S.) to [183]
engineer, design and construct a mine that Central Sun Mining owned in Costa Rica. Central Sun
Mining sued SRK(U.S.) for negligence, negligent misrepresentation, and breach of contract after
the mine collapsed and could not be reopened. SRK(U.S.) were professional engineers resident
in the U.S. who were part of the "SRK Group," which was a business style used by an
international collective of engineering firms that described themselves as an international
consulting practice with offices on six continents. Some personnel were shared among the SRK
Group, but the members of the group were discrete corporations and each carried on business
with one another on an arm’s-length basis. SRK(U.S.) had no office in Ontario, but it benefited
by the presence of SRK-Canada which did have a Canadian office. SRK(U.S.) advertised in
Canada, met clients and prospective clients in Canada, and participated in some projects with
SRK-Canada in Canada, but SRK(U.S.)’s actual consulting work was always carried out in the
U.S. With respect to the mine in Costa Rica, no one at SRK-Canada was involved. Justice
Stinson concluded that SRK(U.S.) was not carrying on business in Canada. At paras. 64-67, 70-
71, he stated:
64. Dealing first with the suggestion that the structure of the SRK Group supports the conclusion
that the non-Canadian entities are carrying on business in Ontario, in my view the main purpose of
this structure is promotional, in the sense that it permits the various SRK entities to market and
advertise themselves internationally. As the Supreme Court noted in the passage I have just
quoted, active advertising in a jurisdiction does not equate to carrying on business there.
65. Additionally, the plaintiff's submission ignores the well-established legal distinction between
incorporated entities and their shareholders and affiliates. The mere fact that a corporation which
has an Ontario presence may have a relationship with an out-of-Ontario affiliate does not equate in
all cases to the non-Ontario entity carrying on business here. Even where (as here) the Ontario
company subcontracts work to a U.S. affiliate, but the actual work is performed outside Ontario, I
do not perceive that as amounting to the foreign affiliate carrying on business in Ontario. Nor do
intermittent and infrequent visits to this jurisdiction equate to the establishment of a corporate
presence in Ontario.
66. In the case of the plaintiff, it has a well-established practice of incorporating separate (and
often foreign) subsidiaries to carry out its various overseas projects. Having relied (for tax and
other business reasons) on the concept of separate corporate personae for its own purposes, it is
somewhat contradictory for the plaintiff to ask the Court to ignore this reality when seeking to
invoke the Court's jurisdiction as against non-resident defendants.
67. The plaintiff argues that the fact that SRK (U.S.) performed services for Ontario-based clients
amounts to carrying on business here. Once again, however, the evidence indicates that the while
some of the projects may have been located here, along with other projects located elsewhere, the
actual consulting work was not carried out in Ontario. If the test is "did you do work for Ontario-
based clients?" in my view that would be tantamount to creating universal jurisdiction in this
Court for all Ontario-based businesses in relation to all their foreign suppliers, a notion that the
Supreme Court cautioned against in Van Breda.
….
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70. In my view, the evidence falls well short of establishing that SRK (U.S.) has or had what can
be described as an actual presence in Ontario to the point that it can be found to have carried on
business here. I therefore find that it did not.
71. Even if the SRK Defendants are considered to have at some point carried on business in
Ontario, that is only a presumptive (but rebuttable) basis for this Court to assume jurisdiction over
the current dispute. The same factors discussed above (in paras. 47 and 54) are, in my view,
sufficient to rebut that presumption. The connection with Ontario remains tenuous, at best.
In United States v. Yemec, 2012 ONSC 4207, Yemec operated an Ontario corporation [184]
that purchased lottery tickets from Lottery-P.E.I., a ticket retailer in Prince Edward Island.
Lottery-P.E.I. was an authorized dealer of the New Brunswick-based Atlantic Lottery
Corporation, which ran national lotteries and oversaw authorized lottery ticket retailers in the
Maritime provinces. Yemec’s company would resell the tickets in the U.S. After his company
was sued in the U.S., Yemec sued the Atlantic Lottery Commission. Justice Belobaba stayed the
action.
Justice Belobaba noted that the Lottery Commission had no physical presence in Ontario [185]
and that its only connection was that it visited Yemec’s business operation to audit that the sale
of lottery tickets occurred in P.E.I., that the tickets remained there as required, and to verify that
the plaintiff's company was complying with applicable rules and regulations. Justice Belobaba
concluded that the Commission did business with (logical preposition) an Ontario corporation
but the Commission was not carrying on business in (locative preposition) Ontario. Justice
Belobaba drew the distinction of doing business with a jurisdiction and carrying on business in a
jurisdiction.
See also the following cases that employ an analytical methodology similar to that [186]
employed by Justice Belobaba: Colavecchia v. Berkeley Hotel Ltd., 2012 ONSC 4747; Haufler
(Litigation guardian of) v. Hotel Riu Palace Cabo San Lucas, 2013 ONSC 6044; Szecsodi v.
MGM Resorts International, 2014 ONSC 1323; Shah v. LG Chem, Ltd., 2015 ONSC 2628;
Parque Industrial Avante Monterrey, S.A. de C.V. v. 1147048 Ontario Ltd. and Advantage
Engineering Inc., 2016 ONSC 6004; King v. Giardina, 2017 ONSC 1588; Sgromo v. Scott, 2017
ONSC 2524; Sgromo v. Polygroup International, 2017 ONSC 2525; CIC Capital Fund Ltd. v.
Rawlinson, 2016 BCSC 516. Generally speaking, the cases demonstrate that the court regards a
defendant carrying on business in a jurisdiction as connoting that the defendant is performing some
substantial aspect of its own business undertaking at the jurisdiction beyond providing goods and its
services within that jurisdiction.
In Lockwood Financial Ltd. v. China Blue Chemical Ltd., 2015 BCSC 839, a British [187]
Columbia case, Justice V. Gray held that owning shares of a company incorporated in a foreign
jurisdiction is not conducting business in that jurisdiction.
Based on the case law and based on the immense evidentiary record before the court, [188]
which included comprehensive cross-examinations about the nature of HSBC Holdings’
organization and the nature of its business, it is plain and obvious to me that HSBC Holdings is
not carrying on its own business in Ontario. HSBC Holdings does not have a physical presence in
the jurisdiction accompanied by a sustained degree of its own business activity in Ontario.
For certain, HSBC Holdings does not carry on the business of banking in Ontario; it is [189]
not licensed in Canada to carry on the business of banking. Its subsidiaries, which are discrete
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corporate entities, carry on business in Canada and other countries around the world, but the
subsidiaries’ businesses are not the business of HSBC Holdings. Rather, HSBC Holdings’
business, as distinct from the businesses of the corporations that it owns directly or directly, is
that of managing a global enterprise of a group of commonly bannered banks to the extent of
setting global standards for a global enterprise. I appreciate that HSBC Holdings has a regulatory
connection to the Bank Act in Canada, but that connection is an incident of HSBC Canada
carrying on its business in Canada, and it is not an incident of HSBC Holdings’ own business,
which is carried on in London, England.
A management business is not necessarily the same as the business it manages. The [190]
business of HSBC Holdings, which is that of managing a global enterprise, is not transacted in
Ontario; HSBC Holdings’ business is transacted in London, U.K. The reality is that HSBC
Holdings could carry on its business without any of its employees or agents ever coming to
Canada or any of the 75 countries or territories or without HSBC Holdings ever having other
than a metaphysical presence in the countries where HSBC Holdings’ subsidiaries carry on their
quite different business, which is that of a bank servicing its customers with banking services.
There is no doubt that HSBC Holdings’ business had a substantial involvement, effect, [191]
and influence on how its subsidiaries, including HSBC Canada, carried on their business, and
Mr. Yip makes much of that involvement and effect as establishing that HSBC Holdings carried
on business in Canada, but that a foreign-located business has an effect on a different business in
a different place does not necessarily mean that the foreign business is carrying on its own
business in that place. This last point is demonstrated by Canada Life Assurance Co. v.
Canadian Imperial Bank of Commerce, supra, discussed above and discussed again below.
Applying the three-part test from Ingersol Packing Co. Ltd. v. New York Central, supra: [192]
(1) very few, if any, of the activities of HSBC Holdings in managing and administering and
setting standards for the HSBC Group occurred in Ontario; (2) HSBC Holdings had no fixed
place of business in Canada; and (3) there are no HSBC Holdings’ person doing HSBC
Holdings’ own business here in Canada. Thus, the test from Ingersol Packing Co. Ltd. v. New
York Central is not satisfied.
HSBC Holdings’ case for having the status of not carrying on business in Ontario is [193]
stronger than Citibank’s case in Canada Life Assurance Co. v. Canadian Imperial Bank of
Commerce, supra, where Citibank and its subsidiary Mercantile Bank, which like HSBC Canada
was not a party defendant, both carried on the same business, the business of banking. In Canada
Life Assurance Co. v. Canadian Imperial Bank of Commerce, Citibank was not found to be
carrying on business in Ontario notwithstanding that it had a connection with Mercantile, with
which Citibank had a guiding and oversight influence. Insofar as the business activities of
Citibank were concerned, Mercantile’s business activities were integral to Mercantile but
incidental to Citibank’s business, which was carrying on a banking business in New York with
branches and affiliates around the world.
In comparison to Citibank and Mercantile, HSBC Holdings does not carry on the same [194]
business as HSBC Canada, and while HSBC Holdings has subsidiaries around the world, HSBC
Holdings’ own business is that of being a shareholder owning a group of operating corporations,
and in carrying on its own business of setting the standards for a group of subsidiaries, HSBC
Holdings does not have branches or affiliates anywhere. If like Citibank, HSBC Holdings’
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business were regarded as the same as the business of its subsidiary, HSBC Canada, whose
business was the business of banking under the Bank Act, then HSBC Holdings’ business could
not lawfully be carried out in Canada.
In my opinion, despite protestations to the contrary, Mr. Yip’s argument is in its essence an [195]
argument that HSBC Canada is the alter ego of HSBC Holdings. The thrust of Mr. Yip’s argument
is to pierce the corporate veil between HSBC Holdings and HSBC Canada, a non-defendant, and
thus Mr. Yip argues that HSBC Holdings is directly or indirectly carrying on business in Canada
through its ownership, control, and involvement in the operations of HSBC Canada. It is
precisely this type of argument that was rejected in Canada Life Assurance Co. v. Canadian
Imperial Bank of Commerce, supra.
The separate legal personality of a corporation is not lightly disregarded and a [196]
shareholder, which may include the parent corporation can be sued for the wrongs of the
corporation only in very limited circumstances. To successfully sue the shareholder for the
faults of his or her corporation, the plaintiff must “pierce the corporate veil.” The separate
existence of a corporation may be ignored when the corporation is under the complete control of
the shareholder and its existence is being used as a means to insulate the shareholder from
responsibility from fraudulent or illegal conduct. The corporate veil may be pierced when the
corporation is incorporated for an illegal, fraudulent or improper purpose, or where respecting
the separate legal personality of the corporation would be flagrantly unjust. To pierce the
corporate veil, two factors must be established: (1) the alter ego must exercise complete control
over the corporation or corporations whose separate legal identity is to be ignored; and (2) the
corporation or corporations whose separate legal identity is to be ignored must be instruments of
fraud or a mechanism to shield the alter ego from its liability for illegal activity.
See: Kosmopoulos v. Constitution Insurance Co. of Canada, [1987] 1 S.C.R. 2; 642947; [197]
Shoppers Drug Mart Inc. v. 6470360 Canada Inc. (c.o.b. Energyshop Consulting
Inc./Powerhouse Energy Management Inc.), 2014 ONCA 85; Parkland Plumbing & Heating
Ltd. v. Minaki Lodge Resort 2002 Inc., 2009 ONCA 256; Haskett v. Equifax Canada Inc., [2003]
O.J. No. 771 (C.A.); Ontario Ltd. v. Fleischer (2001), 56 O.R. (3d) 417 (C.A.); Transamerica
Life Insurance Co. of Canada v. Canada Life Assurance Co. (1996), 28 O.R. (3d) 423 (Gen. Div.),
aff’d [1997] O.J. 3754 (Ont. C.A.); Gregorio v. Intrans-Corp. (1994), 18 O.R. (3d) 527 (C.A.);
Canada Life Assurance Co. v. Canadian Imperial Bank of Commerce supra.
A foreign parent corporation does not carry on business in Ontario through a domestic [198]
subsidiary due only to its share ownership: Lockwood Financial v. China Blue Chemical, 2013
BCSC 839. For the activities of the subsidiary to be considered the acts of the parent corporation:
(a) the subsidiary must be acting as the parent’s agent for the purposes of the parent’s business;
(b) the parent corporation must completely control the subsidiary so that it has no autonomy; or
(c) the parent incorporated the subsidiary for an improper purpose.
The case at bar is not an appropriate case to pierce the corporate veil and insofar that Mr. [199]
Yip is relying on the activities of HSBC Canada, which are a part of its carrying on its business
in Canada, as constituting HSBC Holdings carrying on its business in Canada, this reliance fails.
HSBC Canada did not carry on any integral part of HSBC Holdings’ own business rather it
carried on its own business and both HSBC Holdings and HSBC Canada complied with the
regulatory requirements under the Bank Act. HSBC Holdings’ own business activities, which did
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not involve the business of banking, were not overseen by Canadian regulatory authorities
because HSBC Holdings was not carrying on the business of banking in Canada.
Thus, in my opinion, HSBC Holdings is not carrying on its own business in Canada. [200]
If I am wrong in this conclusion, then it is necessary to consider HSBC Holdings’ [201]
argument that this presumptive connection is rebutted. I agree with HSBC Holdings’ argument.
HSBC Holdings has established facts that demonstrate that the presumptive connecting [202]
factor does not point to any real relationship between the subject matter of the litigation and the
Ontario forum or points only to a weak relationship between HSBC Holdings and Ontario. Upon
analysis, very little, if any, of HSBC Holdings’ own business is conducted in Canada and the
circumstance that HSBC Holdings’ business affects or influences the business of HSBC Canada
is not sufficient to establish a real and substantial connection between HSBC Holdings and
Ontario. I conclude that HSBC Holdings has rebutted the connecting factor of carrying on
business in Ontario.
Did HSBC Holdings Commit a Tort in Ontario? 7.
The next issue to address is whether HSBC Holdings committed a tort in Ontario. If it [203]
did, then it would fall on it to rebut this presumptive connecting factor.
Mr. Yip alleges that HSBC Holdings and Mr. Bagley breached the statutory cause of [204]
action found in Part XXIII.1 of the Ontario Securities Act. In Ontario v. Rothmans Inc., supra the
Ontario Court of Appeal held that a cause of action under an Ontario statute is a claim in respect
of a tort committed within Ontario and hence a presumptive connecting factor for a real and
substantial connection with Ontario.
I begin the discussion of this point by noting the discussion above that reveals that for [205]
HSBC Holdings and Mr. Bagley to be liable for contravening s .138.1 of the Ontario Securities
Act, the statutory tort, HSBC Holdings must be a responsible issuer, but for it to be a responsible
issuer, it must first be found to have a real and substantial connection with Ontario. This circular,
begging the question circumstance creates an analytical paradox because it becomes tautological
and something that cannot be empirically proven or disproven to say that a statutory tort that by
definition has a real and substantial connection is a tort committed in Ontario.
To avoid this paradox, instead of asking whether HSBC Holdings committed the [206]
statutory tort in Ontario, I shall ask whether in the pleaded circumstances of this case, HSBC
Holdings committed the closely related, and also pleaded, common law tort of misrepresentation
in Ontario. This makes sense because the case law holds that the statutory tort under the Ontario
Securities Act for misrepresentations in the secondary market for securities occurs in the place
where the negligent misrepresentation was received and relied upon: Kaynes v. BP, plc, supra.
A tort occurs in the jurisdiction substantially affected by the defendant’s activities or its [207]
consequences or where the important elements of the tort occurred: Central Sun Mining Inc. v.
Vector Engineering Inc., 2013 ONCA 601; Gulevich v. Miller, 2015 ABCA 411; Das v. George
Weston Limited, 2017 ONSC 4129.
For the context of determining whether a presumptive factor applies, the torts of [208]
fraudulent or negligent misrepresentation occur where the misinformation is received or acted
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upon: Cannon v. Funds for Canada Foundation, 2010 ONSC 4517 at para. 52; 2249659 Ontario
Ltd. v. Siegen, 2013 ONCA 354 at para. 31; Central Sun Mining Inc. v. Vector Engineering Inc.,
supra; Industrial Avante Monterrey, S.A. de C.V. v. 1147048 Ontario Ltd., 2016 ONSC 6004.
Applying the case law to the circumstances of the immediate case, in my opinion, Mr. [209]
Yip has a good arguable case that HSBC Holdings committed a misrepresentation-based tort in
Ontario and, therefore, subject to rebuttal, Mr. Yip has established a presumptive connecting
factor and the Ontario court has jurisdiction simpliciter over HSBC Holdings and Mr. Bagley.
However, based on the circumstances of the immediate case, I conclude that HSBC [210]
Holdings has rebutted this presumptive connecting factor.
That Mr. Yip downloaded HSBC Holdings’ materials in Ontario is an extremely weak [211]
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.
HSBC Holdings anticipated that it would be subject to the regulation of the London Stock [212]
Exchange, the Hong Kong Stock Exchange, the Bermuda Stock Exchange, Paris Euronext Stock
Exchange and NYSE for its ADRs. HSBC Holdings prepared its documents in London U.K. in
an attempt to comply with the disclosure laws of the U.K., Hong Kong, Bermuda, France and the
U.S. HSBC Holdings could reasonably expect that purchasers of its shares would and could
come from around the world and that these purchasers could and would read the regulatory
filings made for the U.K., Hong Kong, Bermuda, Paris and New York stock exchanges. But in
my opinion, HSBC Holdings had no reason to believe that it was obliged to comply with the
disclosure requirements or to be subject to the regulation of the law of Ontario. If HSBC
Holdings breached the disclosure requirements as alleged in the case at bar that breach is not
closely connected to Ontario or Ontario’s Securities Act.
If HSBC Holdings was obliged to comply with Ontario’s disclosure law, then it would [213]
also be obliged to comply with the law of any other countries in the world that regulates its own
stock exchanges regardless of whether or not its shares traded on that country’s exchange.
Although spoken in the context of the connecting factor of carrying on business in the
jurisdiction and in the context of the contemporary highly interconnected world, Justice LeBel
cautioned against creating what would amount to forms of universal jurisdiction in respect of tort
claims arising out of categories of business or commercial activity. Exercising that caution in the
immediate case, I conclude that HSBC Holdings has rebutted the presumptive connecting factor
that the wrongdoing had a real and substantial connection to Ontario.
Does the Ontario Court Have Jurisdiction Simpliciter? 8.
With the background of the above discussion of the facts and the law about “responsible [214]
issuer,” carrying on business in Ontario, and committing a tort in Ontario, I can now address the
question of whether the Ontario court has jurisdiction simpliciter for Mr. Yip’s claims against
HSBC Holdings and Mr. Bagley.
HSBC Holdings is a U.K. public issuer whose securities trade did not trade in Ontario. [215]
HSBC Holdings is not a reporting issuer in Canada. It does not carry on its business in Canada.
The impugned misrepresentations for which it is sued were prepared in the U.K. in purported
compliance with the laws of U.K., Hong Kong, Bermuda, France, and the U.S. where its
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securities are traded. The alleged misrepresentations concern alleged compliance failures by
HSBC Holdings’ 70 or so subsidiaries from around the world in which its Canadian subsidiary
played a minor role, if it was involved at all in the failures.
In my opinion, there are no presumptive connecting factors or the presumptive [216]
connecting factors have been rebutted. There is no real and substantial connection upon which to
ground a claim against HSBC Holdings as a responsible issuer under Ontario’s Securities Act.
Since (a) HSBC Holdings is not exposed to liability as a responsible issuer and (b) there [217]
is no presumptive connecting factor establishing a real and substantial connection between
Ontario, the Ontario court, therefore, does not have jurisdiction simpliciter over HSBC Holdings
and Mr. Bagley.
General Legal Background to the Forum Conveniens Issue 9.
Introduction (a)
If I am correct in the above conclusions that the Ontario court does not have jurisdiction [218]
simpliciter, then I need not consider whether the Ontario court is forum non conveniens. Once a
motion judge concludes that Ontario had no jurisdiction under the real and substantial connection
test, it is unnecessary for them to decide the issue of forum non conveniens: 582556 Alberta Inc.
v. Canadian Royalties Inc., supra at para. 15.
However, in case I am wrong and given the likelihood of an appeal, I need to address [219]
HSBC Holdings’ submissions that: (a) I should exercise my discretion and not assume
jurisdiction; and (b) rather, I should declare that the Ontario court is forum non conveniens and
dismiss or stay the Ontario action.
For the reasons that follow, I agree with HSBC Holdings’ argument that the Ontario court [220]
is forum non conveniens.
To explain my reasons, I shall in the next part of my Reasons for Decision set out the [221]
general legal background to the forum conveniens issue. Then, in the next section, I shall answer
the question of whether Ontario is forum non conveniens in the circumstances of the immediate
case.
Forum Non Conveniens: General Principles (b)
If a domestic Canadian court has jurisdiction simpliciter, the action against the foreign [222]
defendant may proceed, but subject to the court’s discretion to stay the proceedings on the basis
of the doctrine of forum non conveniens. If and only if the court has jurisdiction simpliciter may
it go on to consider the matter of forum conveniens; i.e., whether there is another forum that also
has jurisdiction over the matter that would be the better forum to determine the dispute.
The objectives in determining the appropriate forum are to ensure fairness to the parties [223]
and to provide an efficient process for resolving their dispute: Club Resorts Ltd. v. Van Breda,
supra at para. 109; Bouzari v. Bahremani, 2015 ONCA 275 at para. 47.
Before staying its own proceedings on the grounds of forum non conveniens, the Ontario [224]
court must be satisfied that there is another jurisdiction connected with the matter in which
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justice can be done between the parties at substantially less inconvenience and expense:
Bonaventure Systems Inc. v. Royal Bank (1986), 57 O.R. (2d) 270 (Div. Ct.); Frymer v.
Brettschneider (1994), 19 O.R. (3d) 60 (C.A.), aff’g (1992), 10 O.R. (3d) 157 (Gen. Div.); Breeden
v. Black, 2012 SCC 19 at para. 23; Goldhar v. Haaretz.com, 2016 ONCA 515 at para. 49, leave to
appeal granted [2016] S.C.C.A. No. 388.
In Kaynes v. BP, plc, supra, the facts of which are described above, and to which I will [225]
add additional facts and commentary below, Justice Sharpe explained at para. 35 the nature of
the forum conveniens analysis as follows
35. It is well-established that if the plaintiff succeeds in demonstrating that Ontario has
jurisdiction, the court has the discretion to decline to exercise that jurisdiction under the forum non
conveniens doctrine as was explained in Van Breda, at paras. 103-5. The defendant bears the
burden "to show why the court should decline to exercise its jurisdiction and displace the forum
chosen by the plaintiff". To succeed in discharging that burden, "[t]he defendant must identify
another forum that has an appropriate connection under the conflicts rules and that should be
allowed to dispose of the action" and "must demonstrate why the proposed alternative forum
should be preferred and considered to be more appropriate." The doctrine "tempers the
consequences of a strict application of the rules governing the assumption of jurisdiction" and
"requires a court to go beyond a strict application of the test governing the recognition and
assumption of jurisdiction." The forum non conveniens doctrine is a "flexible concept" which
"cannot be understood as a set of well-defined rules, but rather as an attitude of respect and
deference to other states": Van Breda, at para. 74. Forum non conveniens recognizes that there is
"a residual power to decline to exercise its jurisdiction in appropriate, but limited, circumstances
in order to assure fairness to the parties and the efficient resolution of the dispute": Van Breda, at
para. 104.
As Justice Sharpe noted, the flexible forum non conveniens doctrine espouses an attitude of [226]
respect and deference to other states. The principle of comity underlies the forum non conveniens
analysis and compels a domestic court to engage in a contextual analysis and to give respect to the
courts and legal systems of other jurisdictions that have assumed or could assume jurisdiction over a
matter without leaning too instinctively in favour of the domestic court: Kaynes v. BP, plc, supra at
paras. 35-54; Prince v. ACE Aviation Holdings Inc., 2014 ONCA 285 at para. 63, leave to appeal
refused [2014] S.C.C.A. No. 273.
Comity thus plays a very important role in the forum conveniens analysis. In Morguard [227]
Investments Ltd. v. De Savoye, [1990] 3 S.C.R. 1077 at p. 1096, Justice La Forest adopted the
definition of comity expressed in Hilton v. Guyot, 159 U.S. 113 at pp. 163-64 (1895): “[T]he
recognition which one nation allows within its territory to the legislative, executive or judicial
acts of another nation, having due regard both to international duty and convenience, and to the
rights of its own citizens or of other persons who are under the protection of its laws.”
In Tolofson v. Jensen, [1994] 3 S.C.R. 1022 at para. 36, another important private [228]
international law case, Justice La Forest stated:
36. On the international plane, the relevant underlying reality is the territorial limits of law under
the international legal order. The underlying postulate of public international law is that generally
each state has jurisdiction to make and apply law within its territorial limit. Absent a breach of
some overriding norm, other states as a matter of "comity" will ordinarily respect such actions and
are hesitant to interfere with what another state chooses to do within those limits. Moreover, to
accommodate the movement of people, wealth and skills across state lines, a by-product of
modern civilization, they will in great measure recognize the determination of legal issues in other
states. And to promote the same values, they will open their national forums for the resolution of
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specific legal disputes arising in other jurisdictions consistent with the interests and internal values
of the forum state. These are the realities that must be reflected and accommodated in private
international law.
In Kaynes v. BP, plc, supra, the Court of Appeal concluded that the Ontario court was not [229]
the forum conveniens largely because of comity concerns. Justice Sharpe stated at para. 48:
48. Asserting Ontario jurisdiction over the plaintiff's claim would be inconsistent with the
approach taken under both US and UK law with respect to jurisdiction over claims for secondary
market misrepresentation. As the plaintiff's claim rests to a significant degree upon the disclosure
obligations imposed by US securities law, the assertion of Ontario jurisdiction would also fly in
the face of the US claim to exclusive jurisdiction. In these circumstances, the principle of comity
strongly favours declining jurisdiction. Ontario is not, of course, obliged to follow slavishly the
jurisdictional standards of other countries. However, the principle of comity requires the court to
consider to implications of departing from the prevailing international norm or practice,
particularly in an area such as the securities market where cross-border transactions are routine
and the maintenance of an orderly and predictable regime for the resolution of claims is
imperative. Moreover, where, as here, the plaintiff's claim rests to a significant degree on foreign
law, the case for assuming jurisdiction is considerably weakened.
The doctrine of comity is of particular importance viewed from the perspective of the [230]
contemporary global transaction of business. In Chevron Corp. v. Yaiguaje, supra at para. 75,
Justice Gascon stated:
75. …. [T]the doctrine of comity (to which the principles of order and fairness attach) "must be
permitted to evolve concomitantly with international business relations, cross-border transactions,
as well as mobility": [Beals v. Saldanha, 2003 SCC 72 para. 27]. Cross-border transactions and
interactions continue to multiply. As they do, comity requires an increasing willingness on the part
of courts to recognize the acts of other states. This is essential to allow individuals and companies
to conduct international business without worrying that their participation in such relationships
will jeopardize or negate their legal rights.
As I shall explain further in the next section of these Reasons for Decision, in the context [231]
of a forum conveniens analysis, the doctrine of comity is of particular importance when
considering a case involving an international matrix of securities law regimes.
In addition to the overarching concern about comity, courts have developed a list of [232]
factors that may be considered in determining the most appropriate forum for an action;
including: (a) the location of the majority of the parties; (b) the location of the key witnesses and
evidence; (c) contractual provisions that specify applicable law or accord jurisdiction; (d) the
avoidance of multiplicity of proceedings; (e) the applicable law and its weight in comparison to
the factual questions to be decided; (f) geographical factors suggesting the natural forum; (g)
juridical advantage; i.e., whether declining jurisdiction would deprive the plaintiff of a legitimate
juridical advantage in the domestic court; and (h) the existence of a default judgment in the
competing forum. See: Muscutt v. Courcelles (2002), 60 O.R. (3d) 20 (C.A.) at paras. 41-42;
Incorporated Broadcasters Ltd. v. Canwest Global Communications Corp., supra; Young v. Tyco
International of Canada Ltd. (2008), 92 O.R. (3d) 161 (Ont. C.A.); Precious Metal Capital Corp. v.
Smith, [2008] O.J. No. 1236 (S.C.J.), affd (2008), 92 O.R. (3d) 701 (C.A.); Amtim Capital Inc. v.
Appliance Recycling Centers of America, 2012 ONCA 664.
The discretionary factors are not exhaustive, and the weight to be given any factor is a matter [233]
of the exercise of the court’s discretion, which is guided by three principles; namely: (1) the
threshold for displacing the plaintiff’s choice is high and the existence of a more appropriate
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forum must be clearly demonstrated; (2) the court should consider and balance the efficiency and
convenience of a particular forum with the fairness and justice of that choice to the parties; and
(3) because a forum non conveniens motion is brought early in the proceeding, the court
should adopt a cautious approach to fact-finding particularly with respect to matters that are at
the heart of the lawsuit; the assessment of the factors should be based on the plaintiff’s claim if it
has a reasonable basis in the record. See: Antares Shipping Corp. v. Capricorn (The), [1977] 2
S.C.R. 422; Amchem Products Inc. v. British Columbia (Workers’ Compensation Board), [1993]
1 S.C.R. 897; Hunt v. T&N plc, [1993] 4 S.C.R. 289; Young v. Tyco International of Canada Ltd.
(2008), 92 O.R. (3d) 161 (C.A.); Silvestri v. Hardy, 2009 ONCA 40 at para. 7; Orthoarm Inc. v.
American Orthodontics Corp., 2015 ONSC 1880; Industrial Avante Monterrey, S.A. de C.V. v.
1147048 Ontario Ltd., 2016 ONSC 6004.
In the forum conveniens analysis, juridical advantage is a problematic factor because: (a) [234]
assessing the merits of rival jurisdictions is inconsistent with the principles of comity; (b)
juridical advantage is a difficult factor to measure; and (c) because, as Justice Sopinka observed
in Amchem Products Inv. v. British Columbia (Workers’ Compensation Board, supra at pp. 919-
920, if a party seeks out a jurisdiction simply to gain a juridical advantage rather than by reason
of a real and substantial connection of the case to the jurisdiction, that is ordinarily condemned
as forum shopping. Thus, juridical advantage typically does not weigh too heavily in the
contemporary forum non conveniens analysis. See: Breedan v. Black, supra at paras. 26-27;
Amchem Products Inc. v. British Columbia (Workers' Compensation Board), supra at p. 933.
While the loss of a juridical advantage to a party remains a relevant consideration in the [235]
forum conveniens analysis, it is a concept that should be applied with some caution, having
regard to the principle of comity and an attitude of respect for the courts and legal systems of
other countries, many of which have the same basic values as Canadian courts: Bouzari v.
Bahremani, 2015 ONCA 275 at para. 46; Prince v. ACE Aviation Holdings Inc., supra at para.
64.
As a factor, juridical advantage is inconsistent with comity because it encourages a [236]
debate about which jurisdictions approach to the law is advantageous or disadvantageous and the
domestic court may view disadvantage as a sign of inferiority in the rival jurisdiction and to
favour its own jurisdiction as superior.
As a practical matter, juridical advantage is difficult to measure because any loss of [237]
advantage to the plaintiff in the forum of his or her choice must be weighed as against the loss of
advantage, if any, to the defendant in the rival jurisdiction.
There is also another refined and sometimes undetected problem with the juridical [238]
advantage factor that skewers the forum non conveniens analysis and that substantially weakens
the utility of the judicial advantage factor. The problem that the juridical advantage factor
assumes that the rival courts will each apply their own different domestic law to the dispute; in
other words, the juridical advantage factor in the forum conveniens analysis ignores or postpones
choice of law, which is a discrete aspect of private international law.
Choice of law is a discrete legal issue and different from jurisdiction simpliciter, which is [239]
essentially about whether the domestic court can make a binding determination over the foreign
defendant or, in the class action context, over both foreign defendants and foreign plaintiffs. In
contrast, choice of law is essentially about what law a court with jurisdiction simpliciter will
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apply when there is a foreign element in the litigation.
For example, in the case at bar, as an alternative to relying on Ontario law, Mr. Yip relies [240]
on the securities law of Ontario’s sister provinces and on the securities law of England. In the
case at bar, it remains open to HSBC Holdings to argue that if the dispute is tried in Ontario, it
should be tried in accordance with the securities law of the U.K., Hong Kong, France, Bermuda,
and the U.S. and not necessarily under Ontario Securities Act. However, for the purposes of the
forum non conveniens debate, the parties assume that the Ontario court will apply its domestic
law which is different than the law that would be applied if the case was tried in the rival
jurisdiction.
Often the juridical advantage factor disappears, because the law of both jurisdictions is [241]
the same. However, a genuine juridical advantage treats the laws of the rival jurisdictions as
different and hence subject to comparative analysis. If the choice of law issue does not disappear,
it may skewer the forum non conveniens analysis. This is what may have occurred in Kaynes v.
BP plc, supra discussed above and discussed further immediately below and again in the next
section of my Reasons for Decision.
With respect to skewering the forum non conveniens analysis, in Kaynes v. BP plc, it is [242]
arguable that the Court of Appeal’s first decision was based on the assumption that the U.S. court
in Texas would apply U.S. law to Mr. Kaynes’ claim and that the Court of Appeal’s second
decision was based on the knowledge that Judge Ellison, presiding in the court in Texas, would
not allow Mr. Kaynes’ claim to be tried based on Ontario law, which is how Mr. Kaynes
fashioned his U.S. action. In other words, in the circumstances leading up to the Court of
Appeal’s second decision to lift the stay, Mr. Kaynes wished to have the Texas court not apply
Texas law but rather to apply Part XXIII.1 of Ontario’s Securities Act, and Judge Ellison refused
to permit such a claim to go forward in Texas. And for good measure, Judge Ellison said that if
Ontario law applied, Mr. Kaynes’ claim was statute-barred. For a further discussion of these
aspects of Kaynes v. BP plc, see my recent decision: Kaynes v. BP plc, 2017 ONSC 5172.
With this background to the general principles and simply highlighting the importance of [243]
comity and the problems associated with the juridical advantage factor, I move on to answer the
question of whether in the immediate case the Ontario court is forum non conveniens.
Is Ontario Forum Non Conveniens? 10.
HSBC Holdings submits that Ontario is forum non conveniens. The onus is on it to prove [244]
this point.
I shall begin the discussion of forum non conveniens by rejecting Mr. Yip’s argument that [245]
because the common law real and substantial connection rules are subject to statutory variation,
therefore, once a real and substantial connection is established in the case at bar based on the
Ontario Securities Act, there should be no further consideration of forum conveniens. In other
words, Mr. Yip argues that if the court determines that it has jurisdiction simpliciter for a claim
under Part XXIII.1 of the Ontario Securities Act, then a consideration of forum non conveniens is
precluded.
I reject this argument for four reasons. First, there is no authority that supports this [246]
argument and the authority of Kaynes v. BP, plc, supra stands against this argument because the
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courts in that case were not constrained from a forum non conveniens analysis in a case in which
jurisdiction simpliciter was established. Second, the argument that the court is precluded from a
forum conveniens analysis is contrary to the regime established by Club Resorts Ltd. v. Van
Breda, supra. Third, this argument is contrary to the general principles of private international law.
Fourth, the argument that the court is precluded from a forum non conveniens analysis would
encourage forum shopping and a multiplicity of proceedings, once again, inconsistent with the
principles of private international law.
In particular, I note that Babington-Browne v. Canada (Attorney General), 2016 ONCA [247]
549 does not support Mr. Yip’s argument. In that case, the Court of Appeal held that the real and
substantial connection scheme of Club Resorts Ltd. v. Van Breda, supra did not apply to the
determination of whether the Ontario court had jurisdiction over the Federal Government under the
Crown Liability and Proceedings Act, R.S.C. 1985, c. C-50. Apart from the fact that the issue of
subject matter jurisdiction over an entity with sovereign immunity pursuant to a statute is not
remotely comparable to the issue of a court’s in personam jurisdiction over a foreign party, the
reason for rejecting the real and substantial connection test in Babington-Browne v. Canada
(Attorney General) was that the test would always be satisfied, which would make the test
meaningless and inconsistent with the Crown Liability and Proceedings Act, which was meant to
set boundaries and not provide an infinite boundless jurisdiction to sue the Federal Government
in Ontario courts.
I, therefore, shall proceed to a conventional analysis of the traditional forum non [248]
conveniens factors, but before doing so, I shall complete the discussion of the significance of
Kaynes v. BP, plc, supra, to the analysis in the case at bar. In this regard, there was a great deal
of argument about the significance of the Court of Appeal’s two decisions.
HSBC Holdings’ position was that I should follow the Court of Appeal’s 2014 decision [249]
in Kaynes v. BP plc, supra, where it held that Ontario was forum non conveniens for the Part
XXIII.1 claim involving securities sold on foreign stock exchanges. Further, HSBC Holdings
submitted that I did not need to follow the Court of Appeal’s 2016 decision, where because of
changed circumstances, the Court of Appeal lifted the stay and allowed the global Part XXIII.1
class action to proceed in Ontario. HSBC Holdings submitted that the Court of Appeal’s 2016
decision was distinguishable. Conversely, Mr. Yip argued that I should follow the Court of
Appeal’s 2016 decision in Kaynes v. BP, plc and I should conclude that the Ontario court was
forum conveniens.
For my part, I shall follow both Court of Appeal decisions in Kaynes v. BP, plc insofar [250]
as those decisions set out the rules and principles for a conventional forum non conveniens
analysis.
I do not need to agree or disagree or opine about how the Court of Appeal in Kaynes v. [251]
BP, plc applied the discretionary factors, and in this sense the outcome of both decisions is not
binding on me.
Further, I repeat that the choice of law issue may have skewered the analysis in Kaynes v. [252]
BP plc, and I note that although at first blush, the factual circumstances for a forum non
conveniens analysis and for the application of the rules and principles in the case at bar appear to
be similar or identical to the factual circumstances in Kaynes v. BP, plc, there is a fundamental
factual difference between the cases, and thus the case at bar calls for its own discrete forum non
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conveniens analysis.
Unlike the situation in Kaynes v. BP, plc, supra, in the case at bar, there are no purchasers [253]
using an Ontario stock exchange. In contrast, in Kaynes v. BP, plc, there were Ontario and non-
Ontario class members who purchased shares on the TSX, and there was no dispute that Ontario
was forum conveniens for those class members. Thus, the forum non conveniens analysis in
Kaynes v. BP, plc was really about whether the class members who had purchased their shares in
foreign stock exchanges could board the litigation train that was about to embark for a leave
motion under Part XXIII.1 of the Ontario Securities Act. The case at bar is different, and what it
is really about is whether Ontario ought to offer up a litigation train at all for purchasers, none of
whom purchased securities in Ontario.
Turning then to perform a conventional forum non conveniens analysis, the existence of a [254]
default judgment in the competing forum is a non-factor in the case at bar.
Performing a conventional forum non conveniens analysis, all of the following factors [255]
tend to favour London or Hong Kong as the preferred and more appropriate forum; namely: (a)
the location of the majority of the parties; (b) the location of the key witnesses and evidence; (c)
contractual provisions that specify applicable law or accord jurisdiction; (d) the avoidance of
multiplicity of proceedings; (e) the applicable law and its weight in comparison to the factual
questions to be decided; and (f) geographical factors suggesting the natural forum. To this list, I
would add the factor of statutory provisions that specify applicable law or accord jurisdiction to
courts outside Ontario.
In my opinion, the U.K. rather than Ontario is the natural forum to resolve the dispute [256]
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.
Upon analysis, Mr. Yip’s main argument favouring Ontario is the considerable weight he [257]
places on the juridical advantage factor of the criteria for the exercise of the court’s discretion. In
this regard, he submits that the availability of class actions and contingency fees favour Ontario.
He submits that Ontario affords the plaintiff and putative Class Members the benefits of its class
proceedings legislation, contingency fees, and the ability to defer the costs of pursuing their
claims. He submits that in contrast, the U.K. and Hong Kong do not have any class actions
regime, nor does Hong Kong permit contingency arrangements and, although the U.K. permits
“no win, no fee” damages-based agreements, Mr. Yip submits that they are extremely rare in
large-scale commercial cases. Further, with respect to juridical advantage, Mr. Yip argues that
Canadians who purchased American Deposit Receipts in the U.S. would have no recoverable
claim in the United States, and, therefore, the juridical advantage favours them having a claim
under Ontario law. Further still, Mr. Yip argues that Ontario’s statutory claim under Part XXIII.1
does not require proving reliance which is a far easier standard than the scienter (knowledge)
standard for U.S. claims, and he submits that it would be unfair for the Class Members to forgo
this juridical advantage. Similarly, Mr. Yip argues that Ontario’s statutory claim has a formula
for calculating damages that places the onus on defendants to establish that a decline in the share
price is unrelated to the issuer’s misrepresentation and this is a significant juridical advantage
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that the Class Members should not forgo. Finally, Mr. Yip argues that the circumstance that the
claims that might be advanced in the U.K., Hong Kong and the U.S. are or will likely be statute-
barred is a loss of juridical advantage to the plaintiff that outweighs all of the other
considerations: Gotch v. Ramirez, [2000] O.J. No. 1553 (S.C.J.) at para. 16.
In my opinion, as explained above, in a conventional forum non conveniens analysis [258]
juridical advantage is a weak and problematic factor and it is a very weak factor in the
circumstances of the case at bar.
In particular, Mr. Yip’s reliance on Gotch v. Ramirez, supra is unjustified because it is a [259]
peculiar and distinguishable case, and, in any event, is overmatched and overrun by the Ontario
Court of Appeal’s decision in Hurst v. Société Nationale de L'Amiante, 2008 ONCA 573, aff’g
[2006] O.J. No. 3998 (S.C.J.).
The facts of Gotch v. Ramirez, supra were that the plaintiff Gotch’s vehicle and the [260]
defendant Ramirez’s vehicle were involved in a motor vehicle accident in Pennsylvania. Gotch,
who was from Pennsylvania, rather than suing in Pennsylvania for the damage caused to his
vehicle sued in Ontario, where the defendant Ramirez resided. Ramirez, however, moved for a
stay of the Ontario action on the grounds that Pennsylvania was the forum conveniens. This was
a cynical tactical move by Ramirez because the claim had become statute-barred in
Pennsylvania. It was in this peculiar context, that Justice Nordheimer, knowing that the Ontario
court would be applying Pennsylvania law (because of the lex loci choice of law rule), refused to
grant a stay. And it was in this peculiar context that Justice Nordheimer said that the
Pennsylvania plaintiff should not be denied the juridical advantage of a Pennsylvania claim that
was not statute-barred in Ontario. The facts of the immediate case about rival securities law
jurisdictions bears no resemblance to the facts of the Gotch v. Ramirez motor vehicle accident
property damage litigation.
In Hurst v. Société Nationale de L'Amiante, supra, the Québec government incorporated [261]
a crown corporation that purchased a controlling interest in Asbestos Corp., a leading asbestos
producer in the province. The Province paid $42 per share, but it did not purchase the shares
owned by the minority shareholders. After the minority shareholders’ shares declined to less than
$6 in value per share, the minority shareholders brought a variety of proceedings including an
action in Ontario. In a judgment upheld by the Court of Appeal, Justice Spies concluded that
Ontario was forum non conveniens. The Court of Appeal disagreed with the minority
shareholders’ argument that Justice Spies had not given sufficient weight to the fact that it was
now too late for them to bring proceedings in Québec. The Court stated at paras. 50-52:
50. The motion judge gave serious and detailed consideration to the issue of loss of juridical
advantage and the fact that the action would now be statute-barred in Quebec. She referred to the
decision of the Supreme Court of Canada in Amchem Products Inc. v. British Columbia (Workers'
Compensation Board), [1993] 1 S.C.R. 897, in which the court held that loss of juridical
advantage is a factor to be weighed when identifying the appropriate forum, and that a party has a
legitimate claim to a juridical advantage in a forum that has a real and substantial connection, but
that forum shopping for a juridical advantage is to be discouraged if the forum is otherwise
inappropriate.
51. Addressing the issue of the claimed juridical disadvantage, which was the tolling of the
limitation period in Quebec, the motion judge found that there was no reason for the appellants not
to have commenced this action in Quebec at the time it was brought in Ontario. They had Québec
counsel representing them in the CVMQ proceeding and they also commenced the Mazarin action
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in Quebec. She concluded that given these facts, it was not open to the appellants to rely on the
tolling of the limitation period in Quebec as a legitimate juridical disadvantage. On the contrary,
she noted that it could be said that the respondents would suffer a juridical disadvantage by being
deprived of a limitation defence if the action was allowed to proceed in Ontario when it was
otherwise not the appropriate forum.
52. Of equal importance, in my view, is the fact that a number of the respondents clearly advised
the appellants back in 1988 that they intended to challenge the choice of forum. Consistent with
their overall delay in proceeding with this action, the appellants allowed the jurisdiction issue to
lay dormant until 2005, knowing that they were losing their opportunity to litigate the oppression
case in Quebec. It is only because of the appellants' choice not to begin an oppression action in
Québec within the limitation period that loss of juridical advantage became a factor in the forum
conveniens analysis. As a result, it is not a factor that should carry much weight.
Returning to the case at bar, the implication to taken from Hurst v. Société Nationale de [262]
L'Amiante is that Mr. Yip has only himself to blame if his claim is now statute-barred in the
natural and most convenient forum for the misrepresentation claim.
As for the juridical advantages of Ontario’s Securities Act, it is still a debatable issue [263]
about whether as a choice of law matter, the Ontario Securities Act is even available to Mr. Yip.
Moreover, given that the class period is from July 2006 to July 2012 but his notice of motion for
leave under Part XXIII.1 of the Ontario Securities Act was not delivered until November 4, 2014,
Mr. Yip may (I do not decide the point) have limitation period problems of his own for his
statutory cause of action in Ontario. (See the recent Kaynes v. BP, plc, 2017 ONSC 5172.)
Finally, assuming that the Ontario Securities Act is the choice of law for the case, the [264]
debatable juridical advantage factor is the only factor that arguably favours Mr. Yip and it is the
least weighty of the non-exhaustive list of factors of a conventional forum non conveniens
analysis.
In contrast to the weakness of the juridical advantage factor, HSBC Holdings has a strong [265]
argument that the comity concerns that underlie the forum non conveniens doctrine commend an
Ontario court exercising its discretion not to assume jurisdiction over the case at bar, which I
noted at the outset involves the fundamental legal question of what is the jurisdictional reach of
an Ontario court to protect Canadian and non-Canadians investors when the defendant is a
foreign corporation whose securities do not trade on a Canadian stock exchange.
In regard to comity concerns, HSBC Holdings relies on the administrative law case of [266]
Committee for the Equal Treatment of Asbestos Minority Shareholders v. Ontario (Securities
Commission), 2001 SCC 37, in support of the proposition that an Ontario regulatory of capital
markets should not overreach its long-arm jurisdiction to intervene in the regulation of capital
and securities markets.
This case has the same factual underpinning as Hurst v. Société Nationale de L'Amiante, [267]
supra, described above. As it happens, the shares of Asbestos Corp. traded on the TSE and the
Montreal Stock Exchange, and approximately 30 percent of the common shares were held by
minority shareholders resident in Ontario. The minority shareholders were aggrieved by the
transaction by which the Québec Government became the majority owner of Asbestos Corp.,
which they claimed was abusive and unfair to them, and they sought a remedy from the Ontario
Securities Commission. However, the Commission declined to exercise its jurisdiction under the
Ontario Securities Act, and in Committee for the Equal Treatment of Asbestos Minority
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Shareholders v. Ontario (Securities Commission), the Supreme Court of Canada affirmed the
decision of the Ontario Court of Appeal that the Commission’s decision was reasonable and not
subject to judicial review. At para. 62 of his judgment for the Court, Justice Iacobucci, a very
distinguished commercial law scholar, discussed the importance of the careful integration and
co-ordination of the international securities marketplaces:
62. It is true that the OSC placed significant emphasis on the transactional connection factor.
However, it was entitled to do so in order to avoid using the open-ended nature of s. 127 powers as
a means to police too broadly out-of-province transactions. Capital markets and securities
transactions are becoming increasingly international: see Global Securities Corp. v. British
Columbia (Securities Commission), [2000] 1 S.C.R. 494, 2000 SCC 21, at paras. 27-28. There are
a myriad of overlapping regulatory jurisdictions governing securities transactions. Under s. 2.1,
para. 5 of the Act, one of the fundamental principles that the OSC has to consider is that "[t]he
integration of capital markets is supported and promoted by the sound and responsible
harmonization and co-ordination of securities regulation regimes". A transaction that is contrary to
the policy of the Ontario Securities Act may be acceptable under another regulatory regime. Thus,
the OSC's insistence on a more clear and direct connection with Ontario in this case reflects a
sound and responsible approach to long-arm regulation and the potential for conflict amongst the
different regulatory regimes that govern the capital markets in the global economy.
The point being made by Justice Iacobucci is that an Ontario tribunal with jurisdiction to [268]
regulate securities and capital markets should be cautious and deferential before intruding into a
market regulated by another jurisdiction and there must be a clear and direct connection to its
own marketplace before it intervenes. As explained by Justice Sharpe in the 2014 judgment of
the Court of Appeal in Kaynes v. BP plc, supra, the global regulation of the secondary market in
securities is based on the principle that securities litigation should take place in the forum where
the securities transaction took place. Justice Sharpe noted at paras. 48 and 52 that this principle
was the prevailing international standard. At para. 42, Justice Sharpe stated:
42. The US approach to jurisdiction over securities litigation is based on the principle of comity.
The SEC's Study of the Cross-Border Scope of the Private Right of Action under Section 10(b) of
the Securities Exchange Act of 1934 (April 2012) recognizes that in cross-border securities
transactions, each state "may have an interest in applying its legal regime" but cautions that
"[i]nternational comity requires each jurisdiction to recognize the laws and interests of other
jurisdictions with respect to persons and activities outside its territory" to ameliorate "potential
conflicts among the jurisdictions".
It is trite to say that each sovereign state will want to regulate its own capital markets and [269]
make its own policy and regulatory decisions without interference from the long-arm of a foreign
state. The stock exchanges of sovereign states and their regulators may wish to co-operate about
some matters, but they may be rivals and take different positions about other matters. As
demonstrated by the case at bar, the U.S. and Ontario apparently agree about having comparable
regimes for the disclosure of information to traders in the secondary marketplace, but these
sovereign states differ in very substantial ways about the remedies for secondary market
misrepresentations.
Justice Sharpe observed in his 2014 decision in Kaynes v. BP plc, supra, that comity [270]
concerns may guide an Ontario court to not intrude into another state’s securities regulation,
unless there was something substantially more than a toehold connection to Ontario. Justice
Sharpe stated at paras. 48-50:
48. Asserting Ontario jurisdiction over the plaintiff's claim would be inconsistent with the
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approach taken under both US and UK law with respect to jurisdiction over claims for secondary
market misrepresentation. As the plaintiff's claim rests to a significant degree upon the disclosure
obligations imposed by US securities law, the assertion of Ontario jurisdiction would also fly in
the face of the US claim to exclusive jurisdiction. In these circumstances, the principle of comity
strongly favours declining jurisdiction. Ontario is not, of course, obliged to follow slavishly the
jurisdictional standards of other countries. However, the principle of comity requires the court to
consider the implications of departing from the prevailing international norm or practice,
particularly in an area such as the securities market where cross-border transactions are routine
and the maintenance of an orderly and predictable regime for the resolution of claims is
imperative. Moreover, where, as here, the plaintiff's claim rests to a significant degree on foreign
law, the case for assuming jurisdiction is considerably weakened.
49. The other important contextual factor is that the number of BP shareholders who acquired their
shares on a Canadian exchange is dwarfed by those who used a foreign exchange. I agree with
BP's submission that permitting the plaintiff to use BP's negligible relative trading on the TSX (all
of which ended two years prior to the end of the proposed class period and the Deep Water
Horizon incident) as a toehold for bringing foreign exchange purchasers under the jurisdiction of
an Ontario court would be both opportunistic and a classic example of the "tail wagging the dog".
50. It would surely come as no surprise to purchasers who used foreign exchanges that they should
look to the foreign court to litigate their claims. Van Breda recognizes fairness to the parties as a
relevant factor bearing upon the forum non conveniens analysis. ….
To return to the point foreshadowed much earlier in these Reasons for Decision, while [271]
the statutory cause of action under Part XXIII.1 of the Ontario Securities Act for secondary
market trading does not have a place of trading qualification, and thus admits of a long-arm
jurisdiction when Ontario has a real and substantial connection to the foreign defendant, the Act
does have a place of trading qualification for the statutory cause of action under Part XXIII for
trading in the primary market. The place of trading qualification for actions for
misrepresentations in a prospectus reflects the prevailing international standard that securities
litigation should take place in the forum where the securities transaction took place.
In Pearson v. Boliden Ltd., supra at para. 63, in the context of the regulation of the [272]
primary market, Justice Newbury of the British Columbia Court of Appeal stated that each
province protects the investing public from misconduct in its own territory, but at the same time,
honours the principle of comity by respecting the legislative authority of other provinces to do
likewise.
In the case at bar, the forum non conveniens factors and the comity factors [273]
overwhelmingly favour Mr. Yip bringing his misrepresentation claim in England or Hong Kong,
which is the jurisdiction in which he purchased his shares. In the case at bar, even if there was
jurisdiction simpliciter to open the door to an Ontario court to reach across the world to protect
Canadian and non-Canadians investors, there is nothing unfair to expect Mr. Yip and all of the
putative Class Members who used foreign exchanges to look to the foreign courts to litigate their
claims where the defendant is a foreign corporation whose securities do not trade on a Canadian
stock exchange.
E. Conclusion
For the above reasons, I conclude that (a) Mr. Yip’s action under Part XXIII.1 of the [274]
Ontario Securities Act should be dismissed; and (b) his common law misrepresentation claim
against HSBC Holdings should be stayed. I do not simply stay the whole action, because I have
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determined and declare that HSBC Holdings is not a responsible issuer in Ontario and, therefore,
Mr. Yip has no Part XXIII.1 claim against HSBC Holdings or against Mr. Bagley. He may have
a common law misrepresentation claim, but Ontario is not the forum conveniens for the claim.
If the parties cannot agree about the matter of costs, they may make submissions in [275]
writing beginning with the Defendants’ submissions within 20 days of the release of these
Reasons for Decision followed by Mr. Yip’s submissions within a further 20 days.
___________________
Perell, J.
Released: September 11, 2017
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CITATION: Yip v. HSBC Holdings plc, 2017 ONSC 5332
COURT FILE NO.: CV-14-507953CP
DATE: 20170911
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
WAI KAN YIP
Plaintiff
– and –
HSBC HOLDINGS plc and DAVID BAGLEY
Defendants
REASONS FOR DECISION
PERELL J.
Released: September 11, 2017
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