Excalibur: When Should An Ontario Court “Go-Global”?

In a recent blog post, we discussed the implications of the Ontario Superior Court of Justice’s decision in Excalibur Special Opportunities LP v. Schwartz Levitsky Feldman LLP and, in particular, the findings in respect of the preferable procedure requirement for class certification. Notably, the decision is also instructive insofar as it contains an important discussion on the identifiable class requirement, namely, when should an Ontario court certify a global or national class?

The Decision And The Proposed Class

The proposed representative plaintiff was a Canadian investment fund that purchased privately-placed shares of a Chinese hog producer. The Private Placement Memorandum given to potential investors included a clean audit report prepared by the defendant, a Canadian accounting firm. When the company went bankrupt shortly thereafter, the plaintiff sued the defendant for negligence and negligent misrepresentation and sought to certify the action as a class proceeding on behalf of all those who had invested in the private placement.

The proposed class definition included all persons or entities who had purchased investment units during a defined period, and held such units until the end of the period (other than excluded parties). Through the closing documents and public filings, the proposed representative plaintiff had ascertained the identity of all 57 accredited investors that would make up the class. These investors resided in various other jurisdictions across the United States and globally, with only one investor residing in Ontario. The defendant argued that a global class should not be certified and therefore the identifiable class requirement was not met.

Global Classes: A Matter Of Conflict Of Laws

The analysis of Perell J. started from the premise that, under the Class Proceedings Act, there is no doubt that an Ontario court has jurisdiction to certify a national or global class. The question is, as a matter of conflict of laws, whether the Ontario court can assume jurisdiction over the particular matter at issue. The following factors were deemed to be relevant to this analysis:

(a) whether the Ontario court has jurisdiction simpliciter over the defendant;

(b) whether the Ontario court can assume jurisdiction over a non-resident class member, which assumption of jurisdiction largely depends upon whether Ontario has a real and substantial connection with the subject matter of the jurisdiction and on principles of order and fairness and comity between courts;

(c) whether it would be reasonable for the non-resident class member to expect that his or her rights would be determined by what to him or her would be a foreign court; and

(d) whether the non-resident plaintiff can be accorded procedural fairness including adequate notice and a meaningful opportunity to opt-out.

Perell J.’s analysis of the relevant jurisprudence demonstrates that, ultimately, it is the existence of a real and substantial connection[1] of the claim as a whole to Ontario that creates a reasonable expectation for the proposed class members that their legal claims will be tried in Ontario (and, by extension, gives rise to the Ontario court’s jurisdiction).

In Excalibur, the proposed claim had virtually no connection to Ontario, aside from the fact that it was the defendant auditor’s place of residence. The investors were almost exclusively non-residents of Ontario, and their investments were made in U.S. dollars in a U.S. corporation, in respect of a transaction that was governed by U.S. corporate and securities law. Moreover, in resolving liability issues, the defendant would be held to U.S. accounting standards.

Conversely, a global class of shareholders was certified by the Ontario courts in Silver v. IMAX, notwithstanding the fact that only 15% of the proposed class members made their purchases on the TSX (with the remaining 85% of the class comprised of NASDAQ purchasers and non-residents). However, as in Excalibur, the court’s determination in IMAX was made on the basis of a real and substantial connection between the claims asserted on behalf of the non-resident members of the global class and Ontario. In particular, IMAX was a CBCA corporation with its head office in Ontario, a reporting issuer under the Ontario Securities Act, and its shares were traded on the TSX. Notably, as we wrote about here, the global class of shareholders was subsequently reduced to a domestic class of TSX purchasers after a parallel U.S. class proceeding was certified for settlement purposes on the condition that the Ontario court amend its class definition to exclude all persons who would be bound by the settlement of the U.S. proceedings.

Go Global?

The decision in Excalibur reinforces the fact that certification of a global class will depend on a conflict of laws analysis. This requires consideration of all of the factors that may connect the claim to Ontario, and whether it would be fair for the Ontario court to assert jurisdiction in the circumstances. While residency of class members is a factor, this consideration may ultimately be trumped by the other factors at play in the “real and substantial connection” analysis. In Excalibur, with an almost entirely non-resident proposed class and no meaningful connection to Ontario, this was not a situation where the court had jurisdiction to “go global”.

In an era where global classes are becoming increasingly prominent, a jurisdictional challenge becomes another tool for defendants to levy against certification. While Perell J. considered the appropriateness of a global class under the identifiable class arm of the test for certification, it is, in effect, a stand-alone challenge to the court’s jurisdiction outside the test for certification. If a court does not have jurisdiction over a proposed claim, it matters not whether any of the certification requirements are met.

[1]       Interestingly, in analyzing the presence of a “real and substantial” connection, Perell J. cited to the principles set out in Morguard Investments Ltd. v. De Savoye. However, the test recently articulated by the Supreme Court in Club Resorts Ltd. v. Van Breda remains the governing test for determinations of jurisdiction.