BP PLC’s disastrous oil spill in the Gulf of Mexico and Facebook Inc.’s botched initial public offering have a lot in common.
Neither event occurred in Canada. Neither company is based in Canada. And neither company issued shares on a Canadian stock exchange. But both are being sued in potential class actions filed by shareholders in Canadian courts.
Whether those cases go anywhere is another matter. But the question of whether investors should be able to launch securities class actions in Canada over shares they purchased on foreign stock exchanges could soon come before the Supreme Court of Canada.
On Thursday morning, Canada’s top court will announce whether it will grant leave to hear an appeal from Kitchener, Ont.-based Canadian Solar Inc. The company wants to challenge an Ontario Court of Appeal ruling that declared Canadian Solar could be sued by shareholders in an Ontario court, even though its stock never traded on a Canadian exchange and its operations are mostly in China.
The result could have ramifications in light of a recent U.S. Supreme Court ruling in a case called Morrison v. National Australia Bank Ltd., which declared that only shareholders who bought stock in the U.S. can sue in U.S. courts.
That U.S. ruling, which goes in the opposite direction of the Canadian approach, may push enterprising plaintiffs’ lawyers to file more shareholder lawsuits against multinationals north of the border, some Bay Street lawyers say.
“I think that’s the concern, that Morrison will turn Ontario into an overflow jurisdiction, if our courts are not skeptical in their approach to these cases,” said Andrea Laing, a lawyer at Blake Cassels & Graydon LLP who defends companies against shareholder class-action claims.
The ruling in the Canadian Solar case upheld by the Ontario Court of Appeal deems that Canadian Solar has the required “real and substantial” connection to Ontario to be considered a “responsible issuer” under the Ontario Securities Act. While its shares trade on the U.S. Nasdaq and much of its operations and executives are in China, it is based in Ontario, the appeal court notes, and has held its annual meeting here.
The case against the company was launched by Markham, Ont., investor Tajdin Abdula, who used his computer to buy shares two years ago on the Nasdaq. Mr. Abdula and his lawyers, led by Dimitri Lascaris of Siskinds LLP, allege that Canadian Solar misstated its financial results in 2009, in a potential class-action claim demanding $100-million. The lawsuit has not been certified as a class action, and the allegations, which the defendants deny, have not been proven in court.
Canadian Solar’s lawyers tried to have the case tossed out, arguing that only shareholders who buy stock in Ontario should be allowed to sue in Ontario. The company lost at the Ontario Court of Appeal, and then applied for leave to appeal from the Supreme Court.
Mr. Lascaris, a veteran plaintiffs’ lawyer in the growing world of securities class actions, dismisses concerns that the Canadian Solar ruling could invite a flood of foreign litigants as “hyperbole.”
He said the issue in the U.S. was the existence of what lawyers call a “foreign-cubed” case: Foreign shareholders, a foreign company, and stock bought on a foreign exchange. That was what the U.S. Supreme Court stamped out with its ruling in Morrison, establishing a “bright-line test” for future securities cases in the U.S.
In Canada, courts generally look at a long list of contextual factors to determine if a case should be heard here. They have long been cautious about cases with tenuous connections to Canada, Mr. Lascaris said, and he doubted a foreign-cubed case would get off the ground here.
“Canadian courts have never shown the kind of aggressive tendencies in the jurisdictional context that U.S. courts have,” Mr. Lascaris said. “Canadian courts have never gone there and I don’t think they will ever go there.”