The direct answer to the subject question is yes; even if a foreign shareholder did not directly conduct the business activities in British Columbia (“BC”), in a lawsuit, the British Columbia courts may still have jurisdiction to adjudicate the claim, and may hold foreign shareholders liable for their wrongdoing.

If you are a shareholder, or an executive of a company that has subsidiaries doing business in British Columbia, this blog post will explore salient points for you to consider when it comes to running your business and mitigating potential pitfalls.

What is jurisdiction, anyways?

Jurisdiction is commonly defined as the legal authority for a court to adjudicate a matter, within a geographic area. In Black’s Law Dictionary, jurisdiction is defined as “a government’s general power to exercise authority over all persons and things within its territory.”

The court, being a branch of the government in Canada and the United States, derives its authority from the laws enacted by the elected parliaments. Domestically, therefore, the checks and balances built into the division of power prescribe that the enacted law limits the court, or the judges’ powers. The British Columbia legislature does not enact laws that extend authority outside the province, and their power is not unlimited.

If a company’s shareholders are located in the US or China, and subsidiaries are located and doing business in BC, can the foreign shareholders be sued?

On March 12, 2024, the BC Court of Appeal released its decision in Altria Group, Inc. v. Stephens, 2024 BCCA 99, which provided insight into such a scenario.

Altria is one of Philip Morris International’s parent companies. The latter was alleged to have marketed and sold JUUL e-cigarettes in BC. Altria challenged the claim against it, at the BC Supreme Court (the trial court), that BC courts lacked jurisdiction because Altria is an American corporation holding a 35% interest in one of its co-defendants. The plaintiffs, on the other hand, alleged that the Canadian subsidiary conspired with the other defendants in devising marketing and advertising strategies for e-cigarettes which caused harm to the BC plaintiffs’ health.

To further their positions, Altria’s evidence shows (paras. 31-33) that it is a Richmond, Virginia-based company, a minority shareholder of the co-defendants which does not do any business other than being a holding company and earning passive income. In addition, (ibid, paras. 34-36) Altria’s evidence shows that Altria has a service agreement with its direct US subsidiary, this agreement was under US law for services exclusively rendered in the US.

The plaintiffs’ expert evidence shows (ibid, paras. 38-42) that internet marketing of the e-cigarettes has an impact on the Canadian market. From the exchanges between Altria’s executives and the other defendants, there were discussions on marketing outside the US.

How can the decision on an interim motion be appealed to the BC Court of Appeal?

This is a special, yet logical feature related to the trial court’s determination on jurisdiction. Ordinarily, an interim decision requires the Court of Appeal’s permission to bring the appeal; final decisions, however, allow for the automatic right to appeal.

When determining jurisdiction, the BC trial court’s accepting jurisdiction is considered a final decision vis-à-vis the party in Altria’s shoes, as its challenge, in the form of a Jurisdictional Response, a pleading, was dismissed. A pleading summarizes the legal basis of a party’s claim or defence. If that cause is dismissed, that dismissal is final.

A similar case was commented on in 2018 in the article “This is Why We Have a Court of Appeal”. In that case, the respondent attempted to prevent the appellant to exercise his right to appeal: the justice considering the issue of whether permission to appeal is required, and confirmed the above reasoning: a permission to appeal is not required, there is an automatic right of appeal. In fact, in that case, the BC Court of Appeal instructed an expeditious appeal process due to the nature of the jurisdictional challenge.

To put it simply, a determination of jurisdiction, which usually happens early on in a court proceeding, is a final decision and is subject to appeal.

Court of Appeal confirms whether the BC court has jurisdiction over Altria

Madam Justice Horsman wrote the unanimous decision which confirmed the trial court judge’s reasons on jurisdiction. First, she noted that it is established law in BC that for the tort (or a wrong) of conspiracy (at para. 47), that the BC courts’ jurisdiction is presumed to exist once an alleged harm was suffered from in the province, regardless of where the conspiracy took place.

Section 10 of the Court Jurisdiction and Proceeding Transfer Act establishes the presumption that a conspiracy in a lawsuit contains a real and substantial connection to the province if the following was claimed:

10 Without limiting the right of the plaintiff to prove other circumstances that constitute a real and substantial connection between British Columbia and the facts on which a proceeding is based, a real and substantial connection between British Columbia and those facts is presumed to exist if the proceeding

…

(f) concerns restitutionary obligations that, to a substantial extent, arose in British Columbia,

(g) concerns a tort committed in British Columbia,

(h) concerns a business carried on in British Columbia.

As the court observed, writing in a claim to establish this presumption is not onerous, but this presumption can be challenged using evidence, as Altria did, to establish the contrary. To put more precisely, as a second step, Altria needs to show that the plaintiffs do not have a good case against Altria.

What evidence can be used to prove the lack of connection between Altria and BC?

The focus of the plaintiffs’ case against Altria is the JUUL brand of e-cigarettes as it was marketed and sold in BC, was addictive, and caused harm to the plaintiffs, who were two young people. Madam Justice Horseman confirmed the trial court judge’s findings that Altria did not sufficiently rebut the presumption that the alleged conspiracy related to Altria. In particular, in Altria’s evidence there was no evidence showing Altria’s discussions with the co-defendants as to marketing and doing business in BC (at para. 47). Further, the evidence was insufficient to insulate Altria from the marketing and advertising of the JUUL e-cigarettes to BC residents. In particular, she stated that “in other words, Altria’s insistence that it did not directly distribute, market, advertise, or sell JUUL products in British Columbia was not an answer to the conspiracy claim.”

From the perspective of a foreign shareholder, in Altria’s shoes, it would have to show a complete isolation of itself, as a passive minority shareholder, that its executives were not involved in the alleged unlawful conspiracy to harm young consumers with the JUUL e-cigarettes. It also needs to show that it played no part in online advertising and marketing using social media.

As conspiracy is an intentional wrong, the above, if the evidence could have been presented, would conclusively show that Altria was the passive holding company that had no intention to conduct any of the alleged conspiratorial acts.

The cautionary tale for foreign shareholders whose subsidiaries do business in BC is, to avoid unnecessary liabilities, the passive holding shareholders should establish, at the outset, its insolation from the subsidiary’s business in BC. Online marketing has a global outreach, inevitably, but marketing is a very driven, orchestrated and targeted activity, which a passive holding company does not do.

Contact Roland Law in Vancouver for Trusted Legal Advice on Complex Commercial Disputes and Jurisdiction-Related Matters

At Roland Law, Roland Luo represents clients in complex commercial matters involving shareholder and international disputes. Matters involving jurisdiction-related issues can be confusing and because each case is unique, we work closely with our clients to develop a tailored legal strategy to address their specific needs. Contact Roland Law online or by phone at (604) 800-4628 to learn how we can assist you and ensure your interests are protected.