Ontario Court Upholds Citizenship Oath's Allegiance to the "Queen of Canada"

The Canadian Citizenship Act (“Act”) requires permanent residents who wish to become Canadian citizens to swear an oath or make an affirmation in the following form:

 

I swear (or affirm) that I will be faithful and bear true allegiance to Her Majesty Queen Elizabeth the Second, Queen of Canada Her Heirs and Successors and that I will faithfully observe the laws of Canada and fulfill my duties as a Canadian citizen. 

 

In the case of McAteer v. Canada (Attorney General), 2014 ONCA 578, the appellants objected to the portion of the oath that referred to being faithful and bearing true allegiance to the Queen, her heirs and successors.  They asserted that the requirement to swear or affirm allegiance to the Queen in order to become a Canadian citizen violated their rights of freedom of conscience and religion, freedom of expression and equality under the Charter of Rights and Freedoms.  They argued that the government could not justify any such violation as being a reasonable limit in a free and democratic society and sought a declaration that the impugned section of the Citizenship oath was optional. 

 

The appellants lost their application before Mr. Justice Morgan of the Ontario Superior Court.  They appealed from that decision to the Ontario Court of Appeal.  The Attorney General of Canada cross-appealed Justice Morgan’s finding that the oath violated the appellants’ right to freedom of expression (although Justice Morgan found that such violation was justified under Section 1 of the Charter). 

The application had been initiated by Charles Roach, a well-known human rights lawyer.  Mr. Roach died in October 2012.  Originally from Trinidad, Mr. Roach was a committed republican who believed that to swear fealty to a hereditary monarch violated his belief in the equality of human beings and his opposition to racial hierarchies.  When Mr. Roach died, Michael McAteer, also a committed republican took up the torch.  Mr. McAteer deposed that taking an oath of allegiance to a hereditary monarch who lived abroad would violate his conscience, betray his republican heritage and impede his activities in support of ending the monarchy in Canada.  Mr. McAteer further deposed that taking an oath to the Queen perpetuated a class system and was anachronistic, discriminatory and not in keeping with his beliefs of egalitarianism and democracy.

 

Other appellants supported Mr. McAteer’s position.  Dror Bar-Natan deposed that the oath violated his conscience because it was a symbol of a class system.  Simone Topey was a Rastafarian who regarded the Queen as the head of Babylon.  She deposed that it would violate her religious beliefs to take any kind of oath to the Queen.  She further deposed that on account of the oath she would feel bound to refrain from participating in anti-monarchist movements.  Howard Gomberg, a former applicant, deposed that taking an oath to any human being was contrary to his concept of Judaism. 

 

The Ontario Court of Appeal (Justices Weiler, Lauwers and Pardu) dismissed the appellants’ appeal and allowed the cross-appeal of the Attorney General of Canada.  The court found that the appellants’ arguments were based on a literal, “plain meaning” interpretation of the oath to the Queen in her personal capacity.  The court held that the correct approach was the "purposive" interpretation mandated by the Supreme Court of Canada, which led the court to the conclusion that the appellants' interpretation was incorrect because it was inconsistent with the history, purpose and intention behind the oath. 

Justice Weiler, writing for the court, held that the oath in the Act is remarkably similar to the oath required of members of Parliament and the Senate under the Constitution Act (1967).  In that oath, the reference to the Queen is symbolic of Canada’s form of government and the unwritten constitutional principle of democracy.  She held that the harmonization principle of interpretation leads to the conclusion that the oath in Act should be given the same meaning.   

Further, the Court of Appeal found that the appellants’ incorrect interpretation of the meaning of the oath could not be used as the basis for a finding of unconstitutionality.  The approach to analysing such claims as set out by the Supreme Court, requires the court to determine:

 

1. whether what is in issue is expression;
2. whether the purpose is to compel expression; and
3. whether there is an effect on expression that warrants constitutional disapprobation.  

 

Applying this approach, the Court of Appeal found that there was no issue that the oath was expression.  The purpose of the oath was not to compel expression but to obtain a commitment to Canada’s form of government from those wishing to become Canadian citizens.  Although the oath had an effect on the appellants’ freedom of expression, constitutional disapprobation was not warranted.  Thus, there was no violation of the appellants’ freedom of expression.  In the alternative, if there was a violation of the appellants’ right to freedom of expression, it was justified under Section 1 of the Charter.

 

The court held that there was no violation of the appellant’s right to freedom of religion and freedom of conscience because the oath is secular and is not an oath to the Queen in her personal capacity but to Canada’s form of government of which the Queen is a symbol. 

 

Finally, the court found that the oath was not a violation of the appellants’ quality rights when the correct approach to statutory interpretation was applied. 

Regards,

Blair

 

     

 

 

Parties Gearing Up For Chevron's Ecuadorean Pollution Case at the Supreme Court

The Canadian Bar Association (“CBA”) announced last week that it was withdrawing its application to intervene before the Supreme Court of Canada in the pollution case of Chevron Corporation et al. v. Yaiguaje, et al.  The original US$19 billion judgment of a court in Ecuador was one of the largest judgments ever imposed by a court for environmental pollution.

The CBA said that its Intervention Policy required that its Legislation and Law Reform Committee sanction the factum before it could be filed with the court.  In this case, the Committee concluded that while the factum was well-drafted and of a high standard of quality, it did not meet the specific requirements of CBA’s Intervention Policy.  As a result, the CBA concluded that without certification of the factum, its intervention could not move forward and would be withdrawn.

 

The withdrawal was reported as an “eleventh-hour reversal” by the CBA.   It had planned to intervene at the Supreme Court on behalf of Chevron in its on-going battle involving enforcement of the judgment obtained by Ecuadorian indigenous plaintiffs for pollution of their lands in the Amazon basin rainforest.  After a lengthy legal battle that has lasted nearly 20 years, an Ecuadorian court found Chevron liable for oil pollution.  The nearly US$18 billion damages awarded in 2011 was reduced by appeal courts in Ecuador to US$9.5 billion.  

 

Chevron has refused to pay and has condemned the judgment as a product of fraud and bribery.  It has obtained a US District Court fraud ruling against the plaintiffs’ US lawyers and others. 

News outlets reported that lawyers working in aboriginal affairs, environmental law and civil law had all objected to the CBA’s decision to support Chevron’s arguments. 

The original decision of the CBA sparked protests across the country, with some lawyers resigning their CBA members.  Reports say that critics complained that the action was being driven by Blake, Cassels & Graydon LLP, which prepared the factum on a pro-bono basis but also does corporate work for Chevron.

Other interveners, notably the International Human Rights Program at the University of Toronto’s Faculty of Law, MiningWatch Canada and the Canadian Centre for International Justice have argued in their factums filed with the Supreme Court that the jurisdictional requirements proposed by Chevron are novel and unnecessary and “are tantamount to asking this court to raise additional barriers for those attempting to enforce judgments obtained against transnational corporations for environmental or human rights harms”.   

Chevron has argued that its legal battle with the Ecuadorians has nothing to do with Canada and its Canadian subsidiary.  However, the Canadian Human Rights interveners argue that the well-established legal principle of separation of identity between a parent company and its subsidiaries should be disregarded in this case, “The rigid application of common law principles regarding the strict separate of parent corporations from their wholly owned and controlled subsidiaries has been repeatedly cited as an unjustified and unjustifiable barrier to justice and remedy that is out-moded in our current globalized world”.   

I will keep you posted.

Regards,

Blair

 

 

Supreme Court Rules that Iranian Government Cannot be Sued in Canada for Zahra Kazemi's Torture and Death

The Supreme Court of Canada recently released a decision -Kazemi Estate v. Islamic Republic of Iran 2014 SCC62 - that concluded that foreign states and their functionaries cannot be sued in Canada for acts of torture committed abroad.  The Court held that the State Immunity Act (“SIA”) in its present form, does not provide for an exception to foreign state immunity from civil suits alleging acts of torture occurring outside Canada.    

 

As the Court commented, the facts of this case are horrific.  Zahra Kazemi, a Canadian citizen, visited Iran in 2003 as a freelance photographer and journalist.  In June of 2003, Ms. Kazemi attempted to take photographs of individuals protesting against the arrest and detention of their family members outside the Evin Prison in Tehran.  Ms. Kazemi was ordered arrested and detained by Saeed Mortazavi, Tehran’s Chief Public Prosecutor. 

 

During her time in custody, Ms. Kazemi was not permitted to contact counsel, the Canadian Embassy, or her family.  She was interrogated by Iranian authorities.  She was beaten.  She was sexually assaulted.  She was tortured. 

 

Sometime prior to July 6, 2003, Ms. Kazemi was taken from the prison and transferred to a hospital in Tehran.  She was unconscious upon her arrival.  She had suffered a brain injury and numerous other injuries including strip-like wounds on her back, the back of her legs, fractured bones, broken nails on her hands and toes and extensive trauma on and around her genital area. 

 

Ms. Kazemi died of the injuries that she had sustained.  

 

Ms. Kazemi’s son, Stephan (Salman) Hashemi, requested that his mother’s remains be sent to Canada for burial.  Despite such request, Ms. Kazemi was buried in Iran.

 

In late July, 2003, the Iranian government commissioned an investigation into Ms. Kazemi’s death.  Despite a report linking members of the judiciary and the Office of the Prosecutor to Ms. Kazemi’s torture and death, only one individual, Reza Ahmadi, was tried.  The trial was marked by a lack of transparency.  Mr. Ahmadi was acquitted. 

 

In commenting on these facts, the Supreme Court, in a decision written by Mr. Justice LeBel, concluded that it was impossible for Ms. Kazemi and her family to obtain justice in Iran.

 

In 2006, Mr. Hashemi instituted civil proceedings in Quebec seeking damages on behalf of himself and his mother’s estate against the Islamic Republic of Iran, its Head of State, the Chief Public Prosecutor of Tehran and the former Deputy Chief of Intelligence of the prison where Ms. Kazemi was detained and tortured.  Mr. Hashemi sought damages on behalf of his mother’s estate for her physical, psychological and emotional pain and suffering as well as on his own behalf for the psychological and emotional prejudice that he sustained as a result of the death of his mother.  Both Mr. Hashemi and the estate sought punitive damages.

 

The Iranian defendants brought a motion in Quebec Superior Court to dismiss the action on the basis of state immunity.  The plaintiffs raised exceptions provided in the SIA and challenged the constitutionality of certain provisions of that act.

 

The Quebec Superior Court dismissed the constitutional challenge to the SIA and dismissed the action with respect to the claim brought by Ms. Kazemi’s estate.  However, it allowed Mr. Hashemi’s action to proceed on the basis that it could potentially fall within a statutory exception to the state immunity applicable to proceedings related to personal injury that occurs in Canada.  The Quebec Court of Appeal allowed the Iranian defendants' appeal with respect to Ms. Hashemi’s claim.  The matter was further appealed to the Supreme Court of Canada. 

 

Justice LeBel held that an over-arching question which permeated all aspects of the appeal was whether international law had created a mandatory universal civil jurisdiction in respect of claims of torture, which would require Canada to open its courts to the claims of victims of acts of torture which were committed abroad.  In addition, the court was asked to determine whether torture could constitute an official act of a state and whether public officials having committed acts of torture can benefit from immunity.

 

The majority of the court (Madam Justice Abella dissented), held that neither Mr. Hashemi nor Ms. Kazemi’s estate could avail themselves of a Canadian court in order to sue Iran or its functionaries for the torture that Ms. Kazemi had endured.  Further, there are challenges based on the Canadian Charter of Rights and Freedoms and the Canadian Bill of Rights should be dismissed.

 

In coming to this conclusion, the Supreme Court held that state immunity is not solely a rule of international law, it also reflects domestic choices made for policy reasons, particularly in matters of international relations.  Canada’s commitment to the universal prohibition of torture is strong.  However, Parliament has made a choice to give priority to a foreign state’s immunity over civil redress for citizens who have been tortured abroad.  That policy choice is not a comment about the evils of torture but rather an indication of what principles Parliament has chosen to promote.

 

With respect to Mr. Hashemi’s claim for “personal or bodily injury”, the Court held that the exception to the SIA only applied where the tort causing the personal injury or death had occurred in Canada.  It does not apply where the impugned events or the tort causing the personal injury or death did not take place in Canada.

 

Further, the Court held that the SIA provides that a “foreign state” is immune from the jurisdiction of any court in Canada.  The definition of “foreign state” includes a reference to the term “government”.  Public officials must be included in the meaning of “government” as that term is used in the SIA.  States are abstract entities that can only act through individuals.  However, public officials will only benefit from state immunity when acting in their official capacity.  The heinous nature of the acts and torture did not transform the actions of the individual defendants into private acts undertaken outside of their official capacity.  By definition, torture is necessarily an official act of the state. 

 

The Court reasoned that Parliament has given no indication the Canadian courts are to deem torture an “unofficial act” and creating this kind of jurisdiction would potentially have considerable impact on Canada’s international relations.  This decision is to be made by Parliament and not the courts.

 

The Supreme Court held out one ray of hope in concluding that the fact that a foreign state and its functionaries cannot be sued in Canada for acts of torture committed abroad does not freeze state immunity in time.  It stated that Parliament has the power and the capacity to change the current state of the law on exceptions to state immunity, just as it has done in the past, and to allow those in situations like Mr. Hashemi and his mother’s estate to seek redress in Canadian courts.   

Time will tell as to whether Canada's Parliament will find the courage to take such action

Regards,

Blair  

 

Supreme Court Strikes Down Legislation Providing For Court Hearing Fees

The Supreme Court of Canada recently released its decision in Trial Lawyers Association of British Columbia v. British Columbia (Attorney General) 2014 SCC 59.  The majority of the Supreme Court struck down legislation in British Columbia which obliged parties to pay fees to use courtrooms for trials. 

 

The parties in the case were involved in a child custody dispute.  The plaintiff brought an action to have the custody issues resolved.  In order to get a trial date, she had to undertake in advance to pay a court hearing fee.  At the outset of the trial, the plaintiff asked the judge to relieve her from paying the hearing fee.  The judge reserved his decision on the request until the end of the trial.  The parties were not represented by lawyers and the hearing took 10 days.  The hearing fee amounted to $3,6000 – almost the net monthly income of the family.  After legal fees had depleted her savings, the plaintiff could not afford to pay the hearing fee.  In declaring the legislation unconstitutional the Supreme Court held that these hearing fees infringed upon the plaintiff's constitutional right of access to justice and offended the rule of law.

 

Writing for the majority of the court, Chief Justice Beverley McLachlin, stated, “As access to justice is fundamental to the rule of law and the rule of law is fostered by the continued existence of the section 96 Courts (Superior Courts of the Provinces) it is only natural that section 96 of the Constitution Act, 1867 provides some degree of constitutional protection for access to justice…when hearing fees deprive litigants of access to the Superior Courts, they infringe the basic right of citizens to bring their cases to court.  That point is reached when the hearing fees in question cause undue hardship to the litigant who seeks the adjudication of the Superior Court.”  

Justice McLachlin held that a fee that is so high that it requires litigants who are not impoverished to sacrifice reasonable expenses in order to bring a claim may, absent adequate exemptions, be unconstitutional because it subjects litigants to undue hardship, thereby effectively preventing access to the courts.  She held that it is the role of the provincial legislatures to devise a constitutionally compliant hearing fee scheme.  As a general rule, hearing fees must be coupled with an exemption that allows judges to waive the fees for people who cannot, by reason of their financial situation, bring non‑frivolous or non‑vexatious litigation to court.  A hearing fee scheme can include an exemption for the truly impoverished, but the hearing fees must be set at an amount such that anyone who is not impoverished can afford them.  Higher fees must be coupled with enough judicial discretion to waive hearing fees in any case where they would effectively prevent access to the courts because they require litigants to forgo reasonable expenses in order to bring claims.                      

Regards,

Blair

Court Disallows Executive's Golden Parachute Benefits

The Ontario Court of Appeal has ruled that a former public company executive is disentitled to receive "golden parachute" benefits under an employment agreement with the corporation as a consequence of the breach of his fiduciary duties.

 

In Unique Broadband Systems, Inc. (Re) 2014 ONCA538, the Court of Appeal reversed the decision of trial judge, Justice R. Mesbur in certain fundamental respects. 

 

Unique Broadband Systems, Inc. (“UBS”) is a public company listed on the TSX Venture Exchange.  In 2002, Gerald McGoey was appointed a director and acting CEO of the company and later became CEO on a permanent basis.  McGoey’s relationship with UBS was governed by a management services agreement between UBS and his personal company.  The agreement contained a “golden parachute provision” which granted McGoey enhanced termination benefits in certain circumstances.

 

UBS had in place an incentive-driven share appreciation rights plan (“SAR Plan”) for its directors and senior management.  Upon certain triggering events, a SAR unit holder would be paid an amount equal to the difference between the market trading price of a UBS share and a strike price identified in the SAR Plan. 

 

In 2003, UBS acquired a controlling equity interest in Look Communications Inc. (“Look”), a telecommunications company.   McGoey was also a director and the CEO of Look.  Look’s primary asset was a band of telecommunications spectrum.  In early 2009, Look engaged in the process of selling the spectrum through a court-supervised plan of arrangement.  Ultimately, the spectrum was sold for $80 million.  McGoey expected that the sale would generate a significantly higher price and was very disappointed with the figure offered by the buyer. 

 

UBS’ board of directors resolved to treat the spectrum sale as a “triggering event” pursuant to the SAR Plan.  Prior to the announcement of the sale, UBS’ shares were trading at approximately $0.15 per share.  The board anticipated that the sale would cause the UBS shares to appreciate however, the anticipated share price increase did not materialize and the shares continued to trade at the $0.15 after the announcement. 

 

McGoey engaged in negotiations to sell the balance of Looks’ assets but the transaction did not materialize. 

 

After the sale of the spectrum, the compensation committee of UBS’ board, which consisted of McGoey and two others, began reviewing the SAR Plan.  Each member of the compensation committee had a considerable number of SAR units. 

 

At a meeting of the board, each director disclosed his conflict of interest regarding their SAR unit holdings.  The directors then unanimously resolved to cancel the SAR units and established a SAR cancellation payment pool of $2.31 million based on a fixed unit price of $0.40 per share.  Under this new arrangement, McGoey and others would receive a SAR cancellation award based on the $0.40 per unit figure. 

 

At a subsequent board meeting, McGoey proposed the establishment of a bonus pool of $7 million.  That proposal was not approved.  However, the board did approve establishing a bonus pool of $3.4 million. 

 

Under the SAR cancellation award, McGoey was allocated to receive $600,000 and under the bonus pool he was allocated to receive $1.2 million.

 

Such awards were resisted by UBS’ shareholders.  Faced with this resistance McGoey caused UBS to advance to him $200,000 for the payment of anticipated legal fees. 

 

At a special shareholders meeting McGoey and the other directors were removed and were not re-elected.  McGoey then resigned as CEO and took the position that he was terminated without cause because he was not re-elected to the UBS board.  McGoey brought an action against UBS seeking payment of enhanced severance in the amount of $9.5 million.  He successfully moved for partial summary judgment before Justice Marrocco. 

 

On July 5, 2011, UBS was granted protection under the Companies’ Creditors Arrangement Act (“CCAA”).  McGoey filed a proof of claim in an amount in excess of $10 million which the CCAA monitor disallowed in its entirety.  The court ordered a trial of the issue. 

 

At trial, Justice Mesbur found that McGoey and the other directors had breached their fiduciary duty to UBS in establishing the SAR cancellation awards and the bonus pool as these actions were driven by the board’s own self-interest and were of no benefit to the UBS shareholders.  She set aside the allocations to McGoey pursuant to the SAR cancellation award and the bonus pool.   However, Justice Mesbur found that the breach of fiduciary duty did not qualify as a default under McGoey’s management services agreement with UBS and that he was therefore entitled to the benefit of the golden parachute provisions of the agreement.  Finally, Justice Mesbur found that UBS had no obligation to indemnify McGoey for his legal fees because he had breached his fiduciary duties. 

 

UBS appealed and McGoey cross-appealed.

 

The Court of Appeal held that UBS’ appeal should be allowed and McGoey’s cross-appeal should be dismissed.

 

Justice Hourigan wrote the decision of the Court of Appeal.

 

The Court of Appeal held that Justice Mesbur had reasonably concluded that the board’s actions were driven by self-interest and therefore that McGoey had breached his fiduciary duties to UBS.  The $0.40 share price was unjustified and unrealistic.  The board did not seek any expert advice on an appropriate bonus structure and did not have any comparable or other data regarding executive compensation in the marketplace.

 

The Court of Appeal also found that there was no documentation that stipulated the performance factors or criteria by which McGoey’s performance would be evaluated, and there was no documentation that showed how the bonus pool was quantified.  The breach was not incomplete because McGoey was removed from office before he could be paid.  The court held that it would be a remarkable result if a fiduciary could be allowed to act in a manner contrary to his duty with impunity on the basis that he was prevented by the beneficiaries' vigilance from receiving a personal benefit.

 

The Court of Appeal held that McGoey’s actions were not undertaken with the assistance of independent legal advice.  His actions were not protected by the business judgment rule as he did not satisfy the rules' preconditions of honesty, prudence, good-faith and a reasonable belief that his actions were in the best interests of the company.  Accordingly, because McGoey had breached his fiduciary obligations, UBS was not required to indemnify him for his legal fees.

 

The Court of Appeal disagreed with Justice Mesbur’s interpretation of the management services agreement.  It held that her interpretation had ignored section 134(3) of the Ontario Business Corporations Act (“OBCA”) which provides that no provision in a contract relieves a director or officer from the duty to act in accordance with the OBCA or from his or her liability for a breach thereof.  The Court of Appeal held that Justice Mesbur’s interpretation had led to a commercially absurd result.  Interpreting the provisions of the agreement which defined a "default" which would disentitle McGoey to an enhanced severance payment as including a serious breach of fiduciary duty that was materially injurious to UBS would give effect to the entirety of the words used in the definition in their context.  Such an interpretation was also commercially sensible and was not inconsistent with the OBCA.

Regards,

Blair

Ontario Court of Appeal Stays Securities Class Action

In a recent discussion (Kaynes v. BP, PLC 2014 ONCA 580), the Ontario Court of Appeal stayed a proposed class action against BP, PLC for secondary market misrepresentation on the principle of forum non conveniens.  The Court concluded that while Ontario Courts had jurisdiction to hear the class action, there was another forum that was clearly more appropriate for the adjudication of the plaintiff's claim and of the claims of foreign exchange purchasers of BP's securities.

 

The plaintiff's claim rose out of the Deep Water Horizon oil spill that occurred in the Gulf of Mexico in April of 2010.  The plaintiff alleged that BP made certain misrepresentations in its public disclosures, before and after the spill, related to its operations, safety programs, and the accident that impacted the price of BP's shares.  His claim was based on part XXIII.1 of the Ontario Securities Act which provides a statutory cause of action for secondary market misrepresentation.

 

The plaintiff, a resident of Ontario, purchased his shares over the New York Stock Exchange. The proposed class included all residents of Canada who acquired BP securities between relevant dates wherever those securities were purchased.

 

BP's challenge of Ontario's jurisdiction to hear the class action was dismissed by a motion Judge.  BP appealed that decision to the Court of Appeal.  The Court of Appeal agreed with the motion judge that Ontario did have jurisdiction simpliciter, but concluded that the motion Judge had erred in principle in failing to decline jurisdiction on the basis of forum non conveniens.

 

The Court of Appeal held that there was a real and substantial connection between BP, or the subject matter of the claim and the forum despite the fact that BP was a UK corporation headquartered in London, England and did not own any real or personal property in Canada, nor did it carry on business in Canada.  BP's common shares were listed for trading on the London Stock Exchange, the Frankfurt Stock Exchange and the New York Stock Exchange.  They had never been listed on the Toronto Stock Exchange.

 

However, BP was a "reporting issuer" under Ontario securities regulations when the plaintiff purchased what is known as American Depository Shares ("ADS") a form of equity security currently listed for trading only on the New York Stock Exchange.  BP was a reporting issuer during the period when ADS were traded on the TSX.  In 2009 after ADS were delisted from the TSX, BP ceased to be a reporting issuer in Ontario and other Canadian provinces on the undertaking that it would continue to send relevant investor documents to its shareholders in Canada.

 

BP did not dispute that it was required by the undertaking send the plaintiff the documents that contained the alleged misrepresentations.  The Court of Appeal held that when BP released the documents, BP knew by virtue of the undertaking it had given that even if the initial point of release was outside Ontario, the documents were "certain to find (their) way to Ontario and to its Ontario shareholders".  Accordingly, by releasing such documents, BP committed an act that had an immediate and direct connection with Ontario.  That was sufficient to establish a real and substantial connection between the claim and Ontario.

 

Accordingly, the Court of Appeal agreed with the motion judge that such connection was a presumptive connecting factor for a tort committed in Ontario and therefore there was jurisdiction simpliciter in Ontario.

 

However the Court of Appeal indicated that a court has discretion to decline to exercise its jurisdiction under the forum non conveniens doctrine if the defendant showed that another forum was clearly more appropriate for the adjudication of the action.

 

In this case, BP argued that Ontario should decline jurisdiction in favour of the United States and the United Kingdom.   Laws of both countries related to jurisdiction over such claims was based on the principle that securities litigation should take place in forum where the securities transaction took place.  Their approach to jurisdiction over securities litigation was based principle of comity.

 

The Court of Appeal held that the motion Judge had erred in failing to take to account the principle of comity and erred in law with respect to a related issue of avoiding a multiplicity proceedings.

 

Both the US and the UK reserved jurisdiction on the basis of the location of stock exchange where the securities are traded. US law goes one step further and provides for the exclusive jurisdiction of the US courts over such claims. In keeping with the principle of comity, the court is obliged to consider that claim of exclusive jurisdiction.  The Court of Appeal  held that asserting Ontario's jurisdiction over the plaintiff's claim would be inconsistent with the approach taken under both US and UK law with respect jurisdiction over claims for secondary market misrepresentation. The principle of comity strongly favoured declining jurisdiction. 

In addition, avoiding a multiplicity of proceedings means that what should be avoided is litigation in more than one jurisdiction over the same claims of the same parties. Proposed class parties who have not opted out of the US proceedings would be problematic in that regard.

As a result, the Court stayed the proposed class proceeding.

Regards,

Blair

Ontario Securities Commission Rejects Insider Trading Allegations

The Ontario Securities Commission (“OSC”) released its long awaited decision in the Baffinland insider trading case.  Hearings in the case began in January of  2013 and concluded in September of that year.  The decision was a disappointment to observers who have been clamouring for stiffer penalties for violation  of securities regulations as the OSC dismissed all allegations of wrongdoing against the respondents.

 

In its statement of allegations, staff of the OSC (“Staff”) made allegations of insider trading, tipping and conduct contrary to the public interest in connection with the purchase of 20 million common shares and 5 million warrants of Baffinland Iron Mines Corporation by Nunavut Iron Ore Acquisition Inc., a company owned and controlled by Jowdat Waheed and Bruce Walter.  Nunavut Iron Ore acquired a “toehold” purchase of Baffinland on September 9, 2010 and launched a hostile takeover bid for Baffinland on September 22, 2010.

 

At the time, Baffinland was a publicly-traded junior mining company focused on developing iron ore deposits on its Mary River property located on Baffin Island in Nunavut. 

 

In February of 2010, Waheed entered into a consulting agreement with Baffinland to provide strategic advice to its board of directors and CEO with respect to potential partnerships, mergers and raising capital for the Mary River project.  Waheed ceased to provide those services in  April of 2010. 

 

In July 2010, Waheed approached Walter about a potential transaction involving Baffinland.  Discussions between them progressed over the summer and ultimately resulted in the launch of the takeover bid.  Waheed and Walter incorporated Nunavut Iron Ore in August of 2010.  Walter was the Chairman and Waheed was the President of Nunavut Iron Ore. 

 

Staff alleged that:

a)  both Waheed and Walter authorized, permitted or acquiesced in the toehold purchase (i.e. the purchase of a significant block of shares in Baffinland) while they were in a special relationship with Baffinland and while they had knowledge of material facts with respect to Baffinland that had not been generally disclosed;

 

b)  Waheed, while in a special relationship with Baffinland, informed third parties including Walter of material facts of Baffinland before the material facts were generally disclosed and that both Waheed and Walter had used material facts and confidential information belonging to Baffinland to make the toehold purchase and launch the takeover bid contrary to the public interest; and

 

c)  Waheed had acted contrary to the public interest by not always acting in Baffinland’s best interest while he was a consultant and afterwards.

 

After over 40 days of evidence and submissions in which over 2,600 documents were filed, the OSC dismissed Staff’s allegations finding that the respondents did not trade or tip in respect of undisclosed material facts.  The OSC held that at the time of the toehold purchase, Waheed did not have knowledge of material facts about Baffinland that were not generally disclosed.  In addition, the OSC concluded that there was no other conduct by Waheed and Walter that warranted the exercise the OSC’s public interest jurisdiction.  

 

The statutory framework for insider trading is found in subsection 76(1) of the Ontario Securities Act (“Act”).   That subsection provides that no person or company in a special relationship with a "reporting issuer" shall purchase or sell securities of the reporting issuer with the knowledge of a material fact or material change with respect to the reporting issuer that has not been generally disclosed.  

 

Baffinland’s only mining asset was the Mary River property on which high grade iron ore deposits are located.  The property is approximately 100 km south of the northern coast of Baffin Island which is north of the Arctic Circle.  Two individuals gained a controlling interest in Baffinland Iron Mines Ltd., the private company that held the Mary River Project in 2002 and took it public through a reverse takeover in 2004.  Baffinland reactivated exploration work on the project that had been dormant for some time and by January 2008 had spent over $150 million.

 

In March 2008, Baffinland completed a $193 million public equity offering for the stated purpose of further exploration and development activities and for general corporate purposes.  In 2008, Baffinland initiated a process to identify a strategic partner (or partners) that would assist in financing the Mary River project.  It engaged CIBC and CitiGroup Global Markets Inc. to act as its co-financial advisors.  Baffinland entered into a number of confidentiality agreements with companies in 2008.  In 2009, it appointed a strategic committee to oversee its strategic partnering activities .  It entered into the consulting agreement with Waheed subsequently.  

 

The commission found that as a consultant, Waheed had access to information about a potential transaction between Baffinland and ArcelorMittal, a large steel and mining company.  However, given the status of negotiations between Baffinland and  ArcelorMittal, the information that Waheed had was stale and was not material by the time the toehold purchase was made.  Therefore, the insider trader and tipping allegations failed.

Because at the time of the toehold purchase, Waheed did not have knowledge of material facts about Baffinland that were not generally disclosed, it followed that he did not convey any such material, non-disclosed facts to Walter. 

 

The commission held that an assessment of materiality is fact-specific and will vary with every issuer according to multiple facts.  The test to be applied when determining whether any fact is a material fact is an objective market impact test set out in the definition of material fact in subsection 1(1) of the Act.  In this case, that would require that the OSC determine if any of the alleged material facts would reasonably be expected to significantly affect the market price or value of Baffinland’s securities. 

 

With respect to its public interest jurisdiction, the OSC held that  two aspects of the public interest jurisdiction are of particular importance as found in the purposes of the Act, i.e. to provide protection to investors from unfair, improper or fraudulent practices and to foster fair and efficient capital markets and confidence in capital markets. 

 

The OSC concluded that its public interest jurisdiction was not invoked by the respondents’ conduct.  Although Waheed was in a special relationship with Baffinland as a result of his consultancy, he was not a director or officer of Baffinland or a registrant.  Consequently, the OSC was not required  to exercise its public interest jurisdiction to ensure honest and responsible conduct by market participants.

 

The OSC found that toehold purchases are excluded from the prohibition against insider trading and acknowledged that the acquisition of toeholds is a permitted strategy for bidders.  Absent insider trading or tipping, there was  nothing in the respondents’ toehold purchaser takeover bid that was contrary to the public interest.

Regards,

Blair