Spine broken on vacation, woman's lawsuit tests courts

Share

It was June, 2003, and Morgan van Breda, then 24, and had just arrived for a stay at an all-inclusive Cuban resort with her boyfriend, Canadian squash star Viktor Berg.

After a swim in the ocean, the couple took a walk on the beach. According to court documents, they noticed a "metal athletic apparatus that resembled a chin-up bar." Mr. Berg did a few chin-ups, then Ms. van Breda tried to do some as well.

The equipment was not secured to the ground. It collapsed, throwing Ms. van Breda to the beach and falling on top of her, crushing her spine and leaving her paraplegic.

It's a heartbreaking story. But Ms. van Breda's lengthy legal battle for compensation from the Cayman Islands corporation that managed the Cuban resort is now before the Supreme Court of Canada. And it is more than just a personal-injury lawsuit: Some of the country's top securities lawyers on Bay Street are also watching it closely.

The reason is simple. The van Breda case hinges on the question of jurisdiction - whether Ms. van Breda and her family can sue a foreign corporation in an Ontario court. It's an issue common to many other court battles. For Canadian investors suing U.S. insurance giant American International Group Inc. (AIG) in the wake of the 2008 financial crisis, it is pivotal.

That $550-million securities class-action, launched in 2008, has been on hold in Ontario Superior Court for more than a year, ever since the Ontario Court of Appeal ruled in favour of Ms. van Breda last February. Lawyers on both sides of the AIG case agreed to wait for the Supreme Court to decide in her case before arguing their own jurisdictional question.

How Ms. van Breda's case is decided could have wide implications, lawyers say, and not just for AIG. For example, a decision that makes it easier to sue foreign companies could mean more securities class actions in Ontario against U.S. firms, especially under the province's 2005 securities legislation that makes it easier for investors to sue after stock prices tumble.

AIG's lead lawyer on the case, Larry Lowenstein, a litigator with Osler Hoskin & Harcourt LLP in Toronto, said the question of jurisdiction is in a "state of flux" after the Ontario Court of Appeal's ruling in Ms. van Breda's case.

"Just from a practical perspective, both sides said to the Ontario court, 'Why don't we put this on hold, let's see what the Supreme Court makes of van Breda, let's get a clear sense of what the rules of the game are,'" Mr. Lowenstein said.

The Canadian case against AIG, was launched on behalf of an Ontario investor by lawyer Dimitri Lascaris of Siskinds LLP in London, Ont. - a frequent filer of securities class actions on behalf of investors.

The statement of claim accuses the insurer of deceiving investors about the risky investments it made in the lead up to the 2008 financial crisis that caused AIG's spectacular collapse and government bailout. The claims have not been proven in court, and the case has not been certified as a class action, as the two sides have been locked in their battle over jurisdiction.

Mr. Lowenstein argues that AIG should not have to face a securities class action in Ontario, since it never actually sold its securities here and is already facing a case in U.S. courts. Canadian investors should seek redress in the United States, not in Ontario, he said.

"What is AIG alleged to have done in Ontario? It didn't come into our securities market and offer these securities, they were never traded on the Toronto Stock Exchange, so in effect we say … 'Sorry, why should this be an Ontario problem?'" he said.

The question in both the AIG case and that of Ms. van Breda comes down to whether the claims, and the defendants, have a "real and substantial connection" to Ontario. Last year, the Ontario Court of Appeal streamlined the eight-step legal test courts had been using to settle these questions, ruling that the main defendant in Ms. van Breda's case did have such a connection, despite being an offshore corporation.

Mr. Lowenstein said upholding that ruling could make Ontario more attractive for cases against foreign entities, including U.S. companies: "It will really mean that Ontario becomes a very, very open forum for cases that seem to be someone else's problem."

The Supreme Court of Canada heard oral arguments in the van Breda case in March, and a ruling is still months away. In the meantime, the AIG case - one of a growing number of securities class actions filed in Ontario on behalf of angry investors - remains in limbo.

Mr. Lascaris, the lawyer representing investors suing AIG, said it is unclear what kind of impact the Supreme Court's ruling will have on his case, or other similar court battles: "[The van Breda case]could turn out to be a complete non-event. But it could also turn out to be a hugely important decision."

______

THE (NOT SO LONG) ARM OF U.S. COURTS

In a decision last June, the U.S. Supreme Court significantly reigned in the jurisdiction of U.S. courts asked to preside over cases involving foreign investors suing foreign companies.

The case involved Australian investors trying to sue National Australia Bank in a U.S. federal court for securities fraud. The Australians bought their shares in the bank, one of the country's largest, in Australia.

But their case centred on a failing Florida mortgage company owned by the bank, which they accused of exaggerating its success and causing the bank's share price to sink in 2001.

The investors argued that this connection justified the filing of their claim in the United States. But in an 8-0 decision, the U.S. Supreme Court ruled that foreign investors could not sue a foreign company in cases involving securities traded on foreign exchanges.

U.S. courts and law enforcement have a well-deserved reputation for "extraterritoriality," or ignoring national borders. But this ruling appeared to reverse course, legal analysts said at the time, overruling decades of lower-court precedents.