Cronos and the Future of the Global Shareholder Class Action

  • January 03, 2024
  • Garth Myers

In Badesha v. Cronos Group, Inc., 2023 ONSC 5678, the Ontario Superior Court of Justice provided additional clarity as to when it will take jurisdiction over claims of class member purchasers of securities on a foreign exchange for claims under Part XXIII.1 of the Ontario Securities Act (“OSA”).

This was a case about Cronos Group Inc.’s share price decline following its restatement of three quarters of revenue. Cronos’s shareholders sued Cronos and its officers for liability under OSA s. 138.3(1) for misrepresentations in Cronos’s financial statements.

The claims were advanced on behalf of a global class of Cronos shareholders, including those who purchased shares on the Toronto Stock Exchange and the Nasdaq.

A parallel class action had been commenced in New York on behalf of Nasdaq purchasers, in which the defendants had brought a motion to dismiss (similar to a motion to strike in Ontario). The decision for that motion was under reserve.

The representative plaintiff sought certification of the action as a class proceeding, and the defendants brought a motion based on forum non conveniens to exclude from the Ontario action those class members who made purchases on the Nasdaq.

The judge certified a global class of shareholders and dismissed the defendants’ forum non conveniens motion. Because Cronos was a TSX issuer, the motion judge found that the connection to Ontario for all class members was well-established, there were common issues to be adjudicated under Ontario law, and all class members will ultimately have the right to opt out of the Ontario claim if they so desired.

The Court held that the typical comparative convenience and expense factors at play in forum non conveniens motions pointed to preserving the Ontario forum since the Defendants’ motion only sought a partial stay of the Ontario proceedings – i.e., they only sought to stay the claims of the US shareholders. Accordingly, the Ontario action would have continued even it the Defendants obtained the stay that they sought.

The motion judge distinguished other cases excluding foreign share purchasers. In those cases, the evidence showed either that the defendant company had stopped trading on a Canadian stock exchange before the end of the class period, or that the company had never traded on a Canadian exchange. Neither of those situations applied to this case, either before or during the class period.

The motion judge noted that, when it came to liability for secondary market misrepresentation, the Ontario legislation was materially different from that of the US. US legislation is limited to purchasers on US exchanges, but the OSA applies to all shareholders, regardless of exchange of purchasers.

The motion judge concluded that dismissing the forum non conveniens motion would allow US shareholders to remain in the class in the present case, even though they have also brought a parallel US case, and it would be for the Ontario court in the event of a future settlement or judgment to keep in mind that no class member should get ‘two bites at the apple’.

The decision was not appealed.

Any article or other information or content expressed or made available in this Section is that of the respective author(s) and not of the OBA.