SUPREME COURT OF Nova Scotia
Citation: Homburg v. Stichting Auroriteit Financiele Markten, 2016 NSSC 317
Date: 20161117
Docket: HFX438492
Registry: Halifax
Between:
Richard Homburg, Homburg Bondclaim Limited,
and Homburg Shareclaim Limited
Plaintiffs
v.
Stichting Autoriteit Financiele Markten, De Nederlandsche Bank N.V., Belastingdienst, Theodor Kockelkoren, Marcus E. Wagemakers,
Government of the Kingdom of the Netherlands
Defendants
Decision
|
Judge: |
The Honourable Justice Michael J. Wood |
|
Heard: |
November 1, 2, and 3, 2016, in Halifax, Nova Scotia |
|
Counsel: |
Ian Blue, Q.C. and Blair Mitchell, for the Plaintiffs - Richard Homburg, Homburg Bondclaim Limited, and Homburg Shareclaim Limited
Sheila Block and Davida Shiff, for the Defendants - Stichting Autoriteit Financiele Markten, De Nederlandsche Bank N.V., Belastingdienst, Theodor Kockelkoren, Marcus E. Wagemakers, Government of the Kingdom of the Netherlands
Daniela Bassan and Jennifer Taylor for James Miles |
By the Court:
[1] The defendants include the Kingdom of the Netherlands and two agencies which form part of the regulatory structure for overseeing financial markets in that country. They have been sued in Nova Scotia as a result of actions which the agencies took in relation to Homburg Invest Inc. (“HII”), a company licensed as a financial market participant under the laws of the Netherlands.
[2] As a result of the regulatory actions taken by the defendants, the plaintiffs claim they have lost their investment in HII in an amount of approximately $200 million dollars. The statement of claim alleges the defendants are liable on the basis of the torts of misfeasance in a public office, unlawful means, and conspiracy.
[3] The defendants have brought this motion for an order to stay or dismiss the proceeding on the basis that they are immune from the jurisdiction of this Court. As the government of the Netherlands and its agencies, the defendants are entitled to that immunity unless some exception applies. The one relied upon by the plaintiffs is for conduct by the state that relates to commercial activity.
[4] The plaintiffs have the obligation to show that the commercial activity exception should apply in the circumstances of this case. For the reasons which follow I am not satisfied they have met this burden.
Background
[5] HII was incorporated and registered under the laws of the province of Nova Scotia with Richard Homburg as an officer, director and majority shareholder. Its business involved a portfolio of commercial and investment properties with holdings in Europe and North America.
[6] The defendant Stichting Autoriteit Financiele Markten (“AFM”) is an administrative body established under the laws of the Netherlands responsible for overseeing the conduct of business and disclosure of information by financial market participants in that country. Its supervision is focused on maintaining an orderly and transparent process to ensure integrity in relations between market participants and in the provision of services to investors.
[7] The defendant De Nederlandsche Bank N.V. (“DNB”) is a limited liability company incorporated under the laws of the Netherlands whose founder and sole shareholder is the government. It is essentially the Dutch national bank, responsible for various monetary policy issues.
[8] The defendant Belastingdienst is a branch of the Ministry of Finance and is known as the Dutch Tax Authority.
[9] The individual defendants Messers Kockelkoren and Wagemakers are officers of AFM which is alleged to be vicariously responsible for their actions.
[10] In 2006 HII applied for and was granted a license to offer investment schemes to the Dutch public. As part of that process HII agreed to be regulated and supervised by AFM and DNB.
[11] Under Dutch law AFM and DNB have the authority to impose a number of enforcement measures and sanctions. These include:
▪ issuing an instruction to adhere to a particular course of conduct;
▪ appointment of a trustee or custodian over all or part of an investment scheme or management company;
▪ cancellation of a license;
▪ imposition of a specific duty with a judicial penalty for non-compliance;
▪ imposition of an administrative fine.
[12] Before making a formal decision to take enforcement measures or impose a sanction, AFM is obliged to send a written notice of their intention to do so with an opportunity for the affected party to respond.
[13] Where a party wishes to challenge actions taken by AFM, Dutch law has created administrative and judicial avenues to do so.
[14] In 2009 – 2010 AFM intensified its supervision of HII and began requesting information concerning public disclosures made by HII’s management. They also sought information with respect to the company’s corporate structure and financial circumstances.
[15] Because of concerns with respect to the management of HII, AFM advised the company in March 2011 that it intended to appoint a custodian under Dutch law. HII was given the opportunity to provide its views prior to any decision being made. The company’s response was that such a custodian could not be appointed under Canadian law. As a result, AFM did not proceed further with that issue.
[16] One of the requirements under Dutch law is that the policymaker of a license holder must be such that their reliability is “beyond doubt”. Mr. Homburg was designated as a policymaker by HII. As a result of their investigation of HII and dealings with Mr. Homburg, AFM was not satisfied his reliability was beyond doubt. In order to alleviate this concern AFM advised the company it intended to issue an instruction requiring that steps be taken to ensure Mr. Homburg no longer had this position of influence.
[17] HII responded to AFM’s requests for information and the notice of intention, however AFM was not satisfied and on April 22, 2011, issued a formal instruction to HII. At that time AFM was of the opinion that there were serious inadequacies in HII’s control of its business and that the interests of shareholders and bond holders were at risk because of the financial condition of the company.
[18] The specific instruction from AFM to HII on April 22, 2011, was as follows:
2. Decision
On the basis of the factual matrix set forth in this letter, AFM has reached the conclusion that the reliability of Mr. Homburg is no longer beyond doubt under the terms of Article 4:10 Wft in conjunction with Article 12 et seq. of the BGfo and Annex C to the BGfo.
Considering the above, AFM issues an instruction to HII that the following line of conduct must be followed as referred to in Article 1:75 of the Wft. This line of conduct will have the effect that HII:
– ensures that Mr. Homburg ceases to act as policymaker in his capacity of registered Director of HII until his reliability has been found to be beyond any doubt upon review by a Dutch supervisor; and
– provides AFM, within 50 business days of the date of the instruction, with documentation evidencing that Mr. Homburg has ceased to act as co-policymaker of HII by holding (substantial) controlling interests, and explains how it is guaranteed that Mr. Homburg can no longer exercise substantial influence on the policies or decision-making of HII; and
– complies within 15 business days with the [Dutch] Policy Rule on Collective Investment Schemes in a Non-Designated State (06-12) and ensures that HII has two officers who can be addressed by AFM and who are resident in the Netherlands.
[19] Mr. Homburg unsuccessfully challenged AFM’s decision to require his removal as a policymaker through administrative processes and the domestic courts of the Netherlands.
[20] In August 2011 AFM issued an intention to revoke the license of HII which it ultimately did in November 2011 due to regulatory non-compliance.
[21] On September 11, 2011, HII initiated proceedings in the Superior Court of Quebec under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36.
[22] On April 23, 2015, the plaintiffs initiated these proceedings claiming damages as a result of the defendants’ actions as described above.
Testimony of James F. Miles
[23] In July 2016 the plaintiffs made a motion for permission to issue a subpoena requiring the attendance of James F. Miles at the jurisdictional motion scheduled for November 1 and 2, 2016. Mr. Miles was an officer of HII in 2011. The motion was made under Civil Procedure Rule 23.13 and the parties agreed to resolve it on the basis that the subpoena would be issued subject to various conditions. These were incorporated in a protocol which was expressly without prejudice to any submissions that any party may wish to make regarding the relevance or admissibility of Mr. Miles’ evidence. One issue specifically noted was the applicability of an earlier Court of Appeal decision refusing the issuance of a discovery subpoena directed to Mr. Miles (2016 NSCA 36). The protocol also said the examination of Mr. Miles would be limited to his dealings with officials of AFM for the period August 22, 2011, to September 9, 2011.
[24] Mr. Miles attended the hearing and objected to testifying, primarily on the basis of the earlier appeal decision. After hearing from counsel for Mr. Miles and the plaintiffs I granted the motion to have Mr. Miles testify. I advised that my reasons for doing so would be included in this jurisdictional decision.
[25] The Court of Appeal upheld this court’s decision that a discovery subpoena should not be issued to Mr. Miles because the plaintiffs could not satisfy the requirements of Rule 18.12(3). That Rule required, in part, that the applicant show that the proceeding “cannot be determined justly without the discovery”. Since there had been no document production or discovery of the parties the motion was premature.
[26] The request to have Mr. Miles testify on this motion was made under Rule 23.08(4) which provides as follows:
23.08(4) A person may give evidence in chambers by direct examination, followed by cross-examination, only if a judge is satisfied that it is impossible or undesirable for a party to present the evidence by affidavit.
[27] As this indicates, the test is different than for a discovery subpoena and I simply need to conclude it was impossible or undesirable to present the evidence by way of affidavit in order to permit Mr. Miles’ testimony.
[28] Discovery examinations and testimony at a hearing are distinct concepts and serve different purposes. Discovery allows the parties to identify the evidence they may wish to present at a hearing, whereas testimony at the hearing is to assist the judge in deciding the merits of the dispute. Witnesses may testify at discovery but not at the hearing and vice versa.
[29] The Court of Appeal decision concerning the discovery subpoena did not expressly or by implication restrict the evidence to be admitted at the jurisdictional motion.
[30] There was some discussion about whether Mr. Miles’ evidence was relevant because it related to the merits of the claims against AFM rather than the jurisdictional issue. There was significant other evidence about the plaintiff’s dispute with AFM including some of the topics Mr. Miles would testify about. I saw no logical reason to exclude his evidence in light of the remaining record.
[31] I was sensitive to the issue of proportionality and the desire to avoid having a significant amount of the hearing time devoted to Mr. Miles examination. For this reason I limited his direct and cross-examination to 45 minutes each.
Positions of the Parties
Defendants
[32] The defendants have brought this motion to stay or dismiss the action on the grounds that the court does not have jurisdiction because of the principle of sovereign immunity as codified in the State Immunity Act, R.S.C. 1985, c. S-18. They acknowledge that the Act includes an exception if the proceedings relate to commercial activity by the foreign state. The defendants argue that all of the actions complained of by the plaintiffs were regulatory in nature and undertaken by Dutch agencies to preserve the integrity of their domestic financial markets.
[33] According to the defendants, the actions relied on by the plaintiffs do not amount to commercial activities by the Dutch authorities and therefore this exception to sovereign immunity does not apply.
[34] As an alternative, the defendants argue that the principle of forum non conveniens favours the adjudication of this dispute in the Netherlands and this court should decline to exercise jurisdiction for that reason.
Plaintiffs
[35] The plaintiffs’ arguments tended to lump all of the defendants together however it is the conduct of AFM, and to a lesser extent DNB, that was the focus of the evidence and argument at the motion. It is the actions of these agencies which the plaintiffs allege are commercial in nature.
[36] The plaintiffs say that the defendants’ dealings with them took place in Canada because that is where HII was incorporated and had its head office. They describe the defendants’ conduct as an attempt to control the operations of HII and argue there was no legal authority to interfere in the management of a Canadian domiciled corporation.
[37] By acting without jurisdiction in Canada and attempting to direct the management of HII the plaintiffs argue that the defendants have been engaged in commercial activity as that term is used in the State Immunity Act. This argument is summarized in the following passage from their pre-hearing brief:
61. Purpose: The Defendants made these demands because they believed that Mr. Homburg’s properness as a policy maker for HII was in doubt and HII was not being managed prudently. Their purpose was to exercise the legal authority that Wft. granted them in the public interest of the Netherlands. The purpose of their actions was therefore regulatory.
62. Nature: Shorn of any legal authority in Canada, the nature of the Defendants’ actions and demands were similar to those that creditors or shareholders might make of a financially stressed company. The nature of requests for a new business plan, a change in management, and a change of control of a real estate investment company is that they are inherently related to how the company is to be operated in the market. Actions to direct how a company operates in the market are related to commerce.
63. Conclusion: The nature of the Defendants’ actions and demands was purely commercial and, therefore, constituted commercial activity. In their full context, the commercial activity nature of the Defendants’ actions, and the self-help method of furthering them in Canada, completely outweigh their regulatory purpose. The Plaintiffs therefore submit that viewed in the full context of their actions, the Defendants engaged in commercial activity and are not entitled to state immunity.
Analysis
[38] The codification of sovereign immunity is found in s. 3 of the State Immunity Act which reads as follows:
State immunity
3(1) Except as provided by this Act, a foreign state is immune from the jurisdiction of any court in Canada.
Court to give effect to immunity
(2) In any proceedings before a court, the court shall give effect to the immunity conferred on a foreign state by subsection (1) notwithstanding that the state has failed to take any step in the proceedings.
1980-81-82-83, c. 95, s. 3.
[39] The exception for commercial activity is found at s. 5 of the Act which reads:
Commercial activity
5 A foreign state is not immune from the jurisdiction of a court in any proceedings that relate to any commercial activity of the foreign state.
1980-81-82-83, c. 95, s. 5.
[40] S. 2 of the Act sets out various definitions including the following:
“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;
[41] The Supreme Court of Canada dealt with the commercial activity exception to sovereign immunity in Kuwait Airways Corp. v. Iraq (Republic), 2010 SCC 40, which involved the enforcement of a judgment granted by a United Kingdom Court. The circumstances giving rise to the judgment involved a seizure of aircraft and equipment from Kuwait Airways Corp. by the Iraqi Airways Company. This was done by order of the Iraq government which controlled and funded the national airline.
[42] Kuwait Airways sued for damages for the loss of its property and the UK court ordered payment by both the Iraqi Airways Company and the government of Iraq. Iraq’s liability arose from the fact that it controlled, funded and supervised the Iraqi Airways’ defence throughout the litigation which was marked by perjury and tactics on the part of Iraq that were intended to deceive the British courts. The court concluded that Iraq’s actions were not sovereign in nature but fell within the commercial exception to state immunity.
[43] The Supreme Court of Canada made a number of important observations concerning this exception to sovereign immunity. The first is that there is an evidentiary burden on the party seeking to rely on it to establish that it should apply (see para. 22). This means that, in this case, the onus is on the plaintiffs to prove that s. 5 of the State Immunity Act is applicable.
[44] In addition, the Supreme Court emphasized that all of the circumstances must be considered, including the nature of the action and its purpose. This is illustrated by the following comments of Justice LeBel:
31 In Canadian law, La Forest J. recommended in Re Canada Labour Code that this analytical approach be adopted to resolve the issues related to the application of the SIA. But he also made it clear that the Canadian commercial activity exception requires a court to consider the entire context, which includes not only the nature of the act, but also its purpose:
It seems to me that a contextual approach is the only reasonable basis of applying the doctrine of restrictive immunity. The alternative is to attempt the impossible — an antiseptic distillation of a “once-and-for-all” characterization of the activity in question, entirely divorced from its purpose. It is true that purpose should not predominate, as this approach would convert virtually every act by commercial agents of the state into an act jure imperii. However, the converse is also true. Rigid adherence to the “nature” of an act to the exclusion of purpose would render innumerable government activities jure gestionis. [p. 73]
[45] In the particular circumstances of that case the Supreme Court concluded that Iraq’s participation in the commercial litigation was an attempt to protect its interests in the national airline and amounted to commercial activity. This meant Iraq could not rely on the sovereign immunity provided by s. 3 of the State Immunity Act.
[46] In Bombardier Inc. v. AS Estonian Air, 2013 ONSC 3039, the plaintiff sued the Estonian national airline and its majority shareholder, the Republic of Estonia. Bombardier had entered into a contract for the sale of aircraft to the airline which was subsequently cancelled. Estonia brought a motion to stay the proceeding for lack of jurisdiction relying upon the State Immunity Act. Bombardier argued that the commercial activity exception in s. 5 of the Act was applicable. The court held that Bombardier was required to provide evidence to show activities on the part of Estonia which would trigger the commercial activity exception. It was unable to do so. The mere fact that it was a shareholder was insufficient for the following reasons:
63 The contract negotiations between Estonian Air and Bombardier were, of course, commercial activities. But they were not the commercial activities of the Republic as shareholder. If the Republic was involved, which will be discussed below, it would be because it stepped outside of its shareholder role and involved itself qua government. The Republic's activities qua shareholder had, like those of all shareholders, an investment character, but they were not managerial or transactional in nature.
64 Section 5 of the SIA requires that commercial acts of the foreign state be in the foreground, not the background, of the claim in order to qualify for the exception to sovereign immunity. As the Court of Appeal put it in Bouzari v. Islamic Republic of Iran (2004), 71 O.R. (3d) 675, at para 51, "[i]t is not enough that the proceedings relate to acts which, in turn, relate to commercial activity of the foreign state."
[47] The mere fact that a foreign state may engage in activities that affect management of a commercial operation is not sufficient to bring the commercial activity exception into play. The judge in Bombardier described the issue as follows:
84 In examining the foreign state's acts from the perspective of section 5 of the SIA, a court is generally asked to determine not whether the state's acts "touch on" or are "merely incidental" to commercial activity, but whether the state has, as LaForest J. described it, "intruded deeply into the management sphere". Re Canada Labour Code, supra, at para 43. Under the circumstances, Bombardier has not come anywhere close to meeting this burden.
[48] When I apply these principles to the circumstances of this case I do not believe the plaintiffs have come close to establishing that the commercial activity exception in s. 5 of the Act applies. One of the factors to be considered in the contextual analysis is the purpose of the defendants’ actions. I am satisfied on the evidence before me that everything done by AFM and DNB in relation to HII was for the purpose of regulation and supervision of that company as a licensed participant in Dutch financial markets. This was essentially acknowledged in para. 61 of the plaintiffs’ pre-hearing brief.
[49] The defendants’ actions were directed to ensuring HII was properly managing what the regulators perceived to be financial risk and to have Mr. Homburg withdraw from his position of influence in the management of the company. This was because of AFM’s assessment that he no longer qualified as an appropriate corporate policymaker for HII. The merits as to whether this was the proper conclusion to reach is irrelevant to the jurisdictional issue.
[50] The actions undertaken by the defendants were within the scope of their authority under Dutch law. The instruction issued on April 22, 2011, sought documentation to show that Mr. Homburg was no longer a policymaker and requested an explanation about how HII would ensure that he could no longer exercise substantial influence over the management of the company. It was up to HII and its directors to decide whether and how to achieve those objectives.
[51] The nature of the defendants’ actions must also be considered. AFM issued written instructions to a company which had obtained a license to participate in Dutch financial markets. In applying for this license HII agreed that it would be subject to regulation by the defendants. The instructions in issue are permitted under Dutch law and directed to the steps which must be taken by HII to come into compliance with that country’s regulatory requirements.
[52] A financial regulator with the authority to determine who may act as policymaker for a license holder will take actions that may impact on the management of that entity. That is the nature of a regulated industry. This is not the sort of influence that intrudes so far into the management sphere that sovereign immunity is lost. The state is not engaging in commercial activities or otherwise trying to protect its own financial interests. It is engaged in the sovereign action of regulating and protecting participants in its own financial markets.
[53] The plaintiffs argue that the defendants’ actions have extended into Canada and violate its territorial jurisdiction. They say this is contrary to the sovereign equality of states and rely on the Supreme Court of Canada decision in R. v. Cook, [1998] S.C.J. 68, for the proposition that this doctrine prohibits the extraterritorial application of domestic law. While acknowledging this principle, the Supreme Court held that it did not prevent the Charter from applying to investigatory actions by Canadian law enforcement officials in the United States. The court’s analysis can be found in the following passage:
53 We are not persuaded by the intervener's submissions. We caution that the holding in this case marks an exception to the general rule in public international law discussed above that a state cannot enforce its laws beyond its territory. The exception arises on the basis of very particular facts before us. Specifically, the impugned actions were undertaken by Canadian governmental authorities in connection with the investigation of a murder committed in Canada for a process to be undertaken in Canada. The appellant, the rights claimant herein, was being compulsorily brought before the Canadian justice system. This situation is far different from the myriad of circumstances in which persons outside Canada are trying to claim the benefits of the Charter simpliciter.
54 The application of the Charter in this case does not violate the principle of state sovereignty by imposing Canadian criminal law standards on foreign officials and procedures. Our conclusion that the Charter applies in the present case must be understood within this narrow context, i.e., where no conflict occurs in the concurrent exercise of jurisdiction by Canada on the basis of nationality and by a foreign state on the basis of territoriality. It may well be a different case where, for example, Canadian authorities participate, on foreign territory, in an investigative action undertaken by foreign authorities in accordance with foreign procedures. As McLachlin J. observed in Terry, supra, at para. 19 "any cooperative investigation involving law enforcement agencies of Canada and the United States will be governed by the laws of the jurisdiction in which the activity is undertaken" (emphasis added). However, such facts are not before the Court in this case and remain to be resolved another day.
[54] This supports my view that AFM was not in violation of Canadian territorial jurisdiction by issuing instructions to HII. In any event, I am not satisfied the defendants have, in fact, undertaken any action in Canada. They issued an instruction to a licensee which happens to be a Canadian company. If HII refused to comply AFM might choose to invoke a fine or withdraw their license but neither of those actions would take place in Canada. It was HII’s decision whether to follow AFM’s instruction. If it chose not to do so its ability to participate in the Dutch financial markets might be impacted. There is nothing to suggest HII would be prevented from otherwise carrying on business in Canada or any other jurisdiction.
[55] The plaintiffs have not established that the commercial activity exception in s. 5 of the State Immunity Act applies to the conduct of any of the defendants. As a result, the sovereign immunity which applies to the Kingdom of the Netherlands and its agencies has not been displaced.
Disposition
[56] For the above reasons I am satisfied that all of the defendants are entitled to rely on the sovereign immunity set out in s. 3 of the State Immunity Act. In light of this conclusion it is not necessary to deal with the forum non conveniens argument. I will grant an order dismissing this proceeding on the basis that the Court does not have jurisdiction over the defendants.
[57] In the event the parties cannot agree on the issue of costs they may make written submissions within two months of the date of this decision.
Wood, J.