Jurisdiction in Canadian Securities Law – We don’t follow Morrison v. National Australia Bank
Morrison is a big US Supreme Court decision because it limited the reach of US securities laws to trades occurring on US markets. Until June 2010 and the Morrison decision, “Foreign” cases, commonly called “F3” or “foreign-cubed”, would mean that a foreign investor, in a foreign-domiciled company, purchasing securities on a foreign market, could be part of a US class action claim. In Morrison the court decided the key determination was jurisdiction of purchase and sale, not conduct. So even if the investor was American, and the alleged wrongful conduct was committed by the US subsidiary of the foreign parent, the share purchase would have to be executed in the US.
In Abdula v. Canadian Solar Inc., here, and its attempted appeal dismissed here, the Ontario Court of Appeal decided that a Securities Act case can move ahead in Canada even though the company’s securities were not listed on any Canadian Stock Exchange, their principal place of business was China, and their public filings were not in Canada. Our courts are only looking for “responsible issuers” not “reporting issuer”, which includes “any other issuer with a real and substantial connection to Ontario, any securities of where were publicly traded.” This is obviously a much easier test than Morrison. The court was only looking for, 1) Canadian investor, 2) company governed under CBCA, 3) and office and an executive in Canada, and, 4) some of the disclosure emanating from Canada.
The loss control spin: if you are the “Canadian Resident Director”, and your litigation risk management is riding on the jurisdictional separation of activities, registration, governance, filing, and selling of securities, you better come up with something else.
The insurance spin: if you are the “Canadian Resident Director”, be very careful if your insurance is being purchased outside of Canada. Canadian directors should have their own insurance, purchased and negotiated in Canada based on the priorities of the Canadian directors. In your specific case, priority number 1 might not be Insuring Agreement 3 (or “C”) – Entity Coverage for Securities Claims – or Pre-Determined Allocation or Conduct Exclusions being Final Non-Appealable in the Underlying Action. These provisions might be acceptable if you also have a reasonable limit for Excess Side A DIC with some separate dedicated limit for Independent Directors.
Greg Shields is a D&O, Professional Liability, Employment Practices Liability, Fiduciary Liability and Crime insurance specialist and a Partner at the University and Dundas (Toronto) branch of Mitchell Sandham Insurance Services. He can be reached at gshields@mitchellsandham.com, 416-862-5626, or Skype at risk.first.
CAUTION: This article does not constitute a legal opinion or insurance advice and must not be construed as such. It is important to always consult a registered and truly independent insurance broker and a lawyer who is a member of the Bar or Law Society of the relevant jurisdiction with regard to this material before making any insurance or legal decisions. All material is copyrighted by Mitchell Sandham Inc. and may not be reproduced in any form for commercial purposes without the express written consent of Mitchell Sandham Inc. Anyone seeking to link this document from any external website must receive the consent of Mitchell Sandham Inc. by sending an e-mail to gshields@mitchellsandham.com.
