Case: Homburg v Stichting Autoriteit Financiële Markten, 2017 NSCA 62 (CanLII)
Keywords: State Immunity from Civil Lawsuit; State Immunity Act, R.S.C. 1985, c. S-18; Sovereign Equality of States
The Appellants are licensed by the Respondents (a group of Dutch regulatory agencies) for the purpose of offering collective investment schemes to investors in the Netherlands. The Appellants offend aspects of the Dutch legal standard for offering securities, and are sanctioned by the Respondents. The Appellants sue the regulators in the Supreme Court of Nova Scotia, claiming the regulatory agencies’ sanctions are tortious.
A judge of the Supreme Court of Nova Scotia dismisses the action pursuant to the State Immunity Act, R.S.C. 1985, c. S-18 (under s. 3 of which “organs” of a foreign state are immune from civil action in a Canadian court). Although the Act provides state immunity does not protect “commercial activity”, the Trial Judge determines the Respondents’ activities would not meet the definition.
The Appellants appeal to the Court of Appeal. There were two issues:
- Did the judge err by ruling that the Dutch regulators did not engage in “commercial activity” within s. 5 of the Act?
- Did the judge misapply the principle of sovereign equality of states?
The Court of Appeal dismisses the Appeal, finding the Trial Judge applied the appropriate tests without committing any error of law or palpable and overriding error of fact.
The State Immunity Act provides that foreign states are immune from the jurisdiction of Canadian courts. Section 2 of the Act says the concept of a “foreign state” includes “any agency of the foreign state” including “any legal entity that is an organ of the foreign state but that is separate from the foreign state”. Pursuant to s. 5 of the Act, there is no state immunity for a foreign state’s “commercial activity”. What then is “commercial activity”? Would the conduct of the Dutch regulatory agencies qualify?
Section 2 of the Act defines commercial activity as follows: ‘“commercial activity’ means any particular transaction, act or conduct or any regular course of conduct that by reason of its nature is of a commercial character.”
Although the Court of Appeal acknowledged that a regulator of financial markets affects commercial enterprises, that “bare fact” was insufficient to qualify a financial regulator as a commercial actor. Citing the Supreme Court of Canada’s decisions in Kuwait Airways Corp. v. Iraq, 2010 SCC 40 (CanLII) and Re Canada Labour Code, 1992 CanLII 54 (SCC), the Court of Appeal determined the test involves a “full contextual inquiry into the nature and purpose of the regulator’s activity”. (See at paras. 40, 41).
The Court of Appeal determined that an important aspect of the inquiry in circumstances where the activity in question has both sovereign and commercial attributes is to ask which is the more substantial. Only substantial commercial connections trigger the s. 5 exception under the Act. (See para. 43).
The Court of Appeal summarized its conclusions on this point as follows:
We have Dutch regulators of the Netherlands’ domestic financial market applying Dutch securities standards to a Canadian company that sought to offer an investment scheme directly to residents of the Netherlands. The Dutch Authorities’ activity had a virtually exclusive sovereign aspect, namely the regulation of the internal Dutch securities market. Any impact felt by HII, in Canada or elsewhere, was a by-product of HII’s participation in the Dutch market. Neither the nature nor the purpose of the Dutch Authorities’ activity was commercial under s. 5 of the State Immunity Act. (See para. 46).
With respect to the second issue, the Court of Appeal determined the Trial Judge made no error. Questions pertaining to the “sovereign equality of states” are covered by the Act (“The immunity landscape is occupied by the State Immunity Act” (see para. 56)) and the Court noted any extra-territorial effect of the Respondents’ activities is based upon the Appellants’ decision to operate in the Netherlands:
HII, a Canadian company, chose not to incorporate a Dutch subsidiary. Instead, HII sought and obtained its own Dutch license to offer securities directly to residents of the Netherlands on the Dutch financial market. Consequently, notices from the Dutch Authorities, regulating HII’s activity in the Netherlands, were sent to HII in Canada. The address on the envelope did not make the Dutch Authorities’ activity extraterritorial. (See para. 53).
Counsel for the Appellants: Ian Blue, Q.C. (Gardiner Roberts, Toronto), and Blair Mitchell (Mitchell & Ferguson, Associates, Halifax)
Counsel for the Respondents: Sheila Block and Davida Shiff (Torys LLP, Toronto)