Executive Summary: Key Legal and Evidentiary Issues

• Territorial jurisdiction of Quebec courts over a foreign issuer (Volkswagen AG) in a securities class action involving purely economic loss suffered by Quebec resident investors.
• Interpretation of Civil Code of Québec article 3148(3) on where “injury was suffered” when securities are traded on foreign exchanges through foreign intermediaries.
• Alleged attornment by Volkswagen to Quebec jurisdiction, and whether procedural steps at the authorization stage barred a later declinatory exception.
• Characterisation of alleged misrepresentations and omissions about “dieselgate” as faults possibly committed in Quebec, versus conduct occurring entirely abroad.
• Scope of section 236.1 of the Quebec Securities Act and whether an extra-contractual class action on securities-price loss is “related to the distribution of a security” in Quebec.
• Use of class action procedure as a vehicle for claims where most connecting factors (issuer, exchanges, trading, documents) are foreign, and the limits imposed by private international law and comity.

Factual background and the dieselgate securities claims
Lawrence Chandler, a Quebec resident investor, sought to bring a class action on behalf of all Quebec residents who had purchased or held Volkswagen securities and allegedly suffered a loss of value when the “dieselgate” emissions-cheating scandal became public. The claim was framed in extra-contractual civil liability under article 1457 of the Civil Code of Québec, alleging that Volkswagen Aktiengesellschaft, a German company with no domicile or establishment in Quebec, had made misrepresentations and omissions of material facts in financial and corporate disclosure documents about the environmental performance of its diesel vehicles. The alleged misstatements concerned the installation of “defeat devices” that allowed vehicles to circumvent emissions testing and appear cleaner than they actually were, which, once revealed, was said to have caused a sharp decline in the price of Volkswagen securities worldwide. The proposed class included holders of three categories of instruments: Volkswagen shares listed and traded exclusively on European stock exchanges and related international marketplaces; American Depositary Receipts (ADRs) traded in United States over-the-counter (OTC) markets; and credit notes (Notes) issued by Volkswagen Credit Canada Inc. (VCCI), a Canadian subsidiary, some of which were privately placed with investors in Quebec. Chandler alleged that Quebec investors relied on, or were exposed to, Volkswagen’s financial reports, prospectuses, and other documents that failed to reveal the dieselgate scheme, and that they consequently suffered economic loss when the scandal broke.

Procedural history and the authorization stage
At the authorization stage, the Quebec Superior Court partially granted Chandler’s motion to institute a class action. The court accepted that, taking the allegations as true, Quebec courts appeared to have jurisdiction under article 3148(3) CCQ because Chandler had arguably suffered a loss in Quebec, and it considered that Volkswagen had, at that preliminary stage, waived its right to raise a declinatory exception on territorial jurisdiction. However, leave to appeal that authorization decision was refused. Volkswagen then applied to refine the class definition so that only shareholders and ADR holders, but not Note holders, would be included; that application was dismissed and leave to appeal that dismissal was also refused. After authorization, Chandler filed the Originating Application Instituting a Class Action. At that point, Volkswagen formally accepted service “under reserve” of its rights and promptly brought an Application for Declinatory Exception for lack of territorial jurisdiction. In the alternative, it asked the court to decline jurisdiction on the basis of forum non conveniens in favour of Germany (for the shares) and the United States (for the ADRs). In support of its application, Volkswagen filed an expert report from Jean-François Bernier explaining the trading infrastructure for the securities at issue and emphasising that the shares and ADRs were traded only on foreign markets via foreign brokers, while the Notes were privately placed by VCCI, not Volkswagen, and only on a limited basis in Quebec.

The Superior Court’s decision on jurisdiction and forum non conveniens
The Superior Court (Chatelain J.) approached the problem by applying article 3148 CCQ, informed by the Supreme Court’s real-and-substantial-connection framework in Van Breda and related authorities. The judge held that Volkswagen had not, at the merits stage, attorned to the jurisdiction of Quebec courts. The earlier statement at authorization that Volkswagen had “waived” jurisdictional objections was confined to that specific procedural stage and did not constitute a permanent or global submission to jurisdiction. Turning to the connecting factors under article 3148(3), the court first rejected any basis for jurisdiction under article 3148(2), because Volkswagen had no establishment in Quebec, and the presence of an entirely separate subsidiary (VCCI) did not transform Volkswagen into an entity with a Quebec establishment. The judge also found that alleged misrepresentations and omissions occurred in documents prepared and issued in Germany, not in Quebec, and that the mere accessibility of those documents in Quebec, or their being referenced in materials filed by VCCI with the Autorité des marchés financiers, did not amount to a fault “committed in Quebec.” For the “injury suffered in Quebec” limb of article 3148(3), the judge carefully analysed where the relevant economic loss occurred. Relying on the Bernier Report and the case law on purely economic injury, she concluded that, for the shares and ADRs, the material juridical facts were the trades executed on foreign exchanges by non-Canadian brokers acting as intermediaries. Although Quebec residents placed their orders with local or Canadian brokers, the actual purchase and sale contracts for the securities were formed abroad, and the economic loss materialised where those trades occurred, not in Quebec, even if Quebec investors recorded their losses in Quebec. As for the VCCI Notes, the judge accepted that some Notes had been privately issued to a small number of accredited investors in Quebec, and that those contracts may have been formed in Quebec. However, she stressed that Chandler had pleaded a single cause of action covering all three instruments, not three discrete causes, and that the class definition was global, without sub-classes. In that procedural and factual context, the limited private placements of Notes in Quebec were too weak, remote, and tenuous a connecting factor to ground Quebec jurisdiction over a class that also encompassed holders of foreign-traded shares and ADRs whose loss arose from foreign transactions. The Superior Court also rejected Chandler’s attempt to invoke section 236.1 of the Quebec Securities Act as an independent jurisdictional hook. The judge held that the action was not “for facts related to the distribution of a security” within the meaning of that provision: it was an extra-contractual civil liability claim about misrepresentations affecting secondary-market prices, not a primary distribution case under securities law. Moreover, the Notes had been distributed in Quebec, if at all, by VCCI, not by Volkswagen, and section 236.1 did not rewrite or displace Quebec’s private international law rules in article 3148 CCQ. On that basis, the court granted Volkswagen’s declinatory exception and dismissed the Originating Application for lack of territorial jurisdiction. In an obiter analysis, the judge added that if jurisdiction had existed, she would not have declined it on forum non conveniens grounds, because Quebec’s connection to the class members and their residence, as well as considerations of access to justice and efficiency, would have weighed against sending the case to Germany or the United States.

The Court of Appeal’s treatment of attornment and procedural structure
On appeal, Chandler argued that Volkswagen’s decision not to raise jurisdiction at the authorization stage, combined with accepting service and participating in various procedural steps, amounted to a submission to the jurisdiction of Quebec courts under article 3148(5) CCQ. The Court of Appeal rejected this argument. It reaffirmed the distinction between the authorization phase of a class action and the merits stage: while they are part of a “global proceeding” for some purposes (such as appeal rights), they remain procedurally distinct. An implied submission to jurisdiction must be clear and unequivocal; in this case, Volkswagen had expressly reserved its right to challenge jurisdiction when served with the Originating Application and promptly brought its declinatory motion. The appellate court endorsed the Superior Court’s reliance on Infineon, where the Supreme Court held that jurisdictional rulings at the authorization stage are interlocutory and can be revisited at trial, especially once a fuller evidentiary record is available. The Court of Appeal held there was no error in the conclusion that Volkswagen had not attorned to Quebec jurisdiction and had preserved its right to challenge territorial competence under article 3148 CCQ.

Appellate analysis of where the injury occurred
The Court of Appeal then turned to Chandler’s core contention that Quebec courts had jurisdiction because investors suffered their injury in Quebec. It reiterated that each connecting factor in article 3148(3) (fault in Quebec, injury in Quebec, injurious act or omission in Quebec, contractual obligation to be performed in Quebec) is independent and must be assessed on its own. For purely economic loss, Infineon and subsequent cases require that the injury be “substantially suffered” in Quebec, based on one or more material facts that tie the financial loss to the province; it is not enough that the loss is merely recorded there. Applying that framework, the Court of Appeal accepted the trial judge’s reasoning that, for the shares and ADRs, the key juridical facts were the foreign trades executed on non-Canadian exchanges by non-Canadian brokers, acting for Quebec or Canadian intermediaries. The economic injury arising from the collapse in security values flowed from those foreign market transactions. While Quebec investors entered into order-execution service contracts with local brokers, those contracts were not the immediate source of the securities-price loss; the contracts of purchase and sale for the securities themselves were concluded abroad, which is where the loss legally materialised. As for the VCCI Notes, the Court of Appeal acknowledged that the contracts might have been formed in Quebec, and that could be a relevant factor in some circumstances. However, Chandler had framed a single, undivided cause of action and a single class including holders of all three types of instruments. In that procedural posture, the limited and largely undocumented private placements of Notes in Quebec—especially given that the identified placements to 13 accredited investors occurred outside the certified class period—could not be used to bootstrap jurisdiction for all securities and all class members. To do so would, in the Court’s view, amount to jurisdictional overreach contrary to principles of comity and the limits recognised in Van Breda and Infineon. The appellate court therefore upheld the finding that, for the purposes of article 3148(3), the injury was not “suffered in Quebec” in a legally sufficient way to confer jurisdiction over the class proceeding.

Fault, misrepresentation by omission, and links to Quebec
Chandler also argued that Volkswagen had committed a fault in Quebec because allegedly misleading financial documents, including documents incorporated by reference into VCCI’s base prospectuses, were sent to or made accessible to Quebec investors and to the AMF. The Court of Appeal agreed with the Superior Court that the evidence did not support this theory. The correspondence with the AMF and the materials filed in connection with the Notes programme showed that VCCI, not Volkswagen, filed the relevant base prospectuses and related documentation. The fact that those prospectuses referred to Volkswagen’s financial statements and guarantees did not convert Volkswagen into the issuer or filer of the prospectus in Quebec. More broadly, while some of Volkswagen’s documents may have been accessible in Quebec, there was no evidence they were prepared, approved, or issued from Quebec. They were produced in Germany for worldwide use. The Court linked this analysis to concerns articulated in Van Breda about avoiding “universal jurisdiction” based solely on the accessibility of information in a given province. In the context of misrepresentation by omission, the Court emphasised that there must be at least one material fact connecting the wrongful omission to Quebec—such as a document legally required to be delivered to Quebec investors by the foreign issuer, or a decision to publish made in Quebec. On the record before it, those elements were missing. Accordingly, the Court of Appeal upheld the conclusion that no fault was “committed in Quebec” by Volkswagen within the meaning of article 3148(3) CCQ.

Section 236.1 of the Quebec Securities Act and its limits
A further pillar of Chandler’s jurisdictional argument was section 236.1 of the Quebec Securities Act, which allows actions based on that statute or “under the ordinary rules of law” for facts related to “the distribution of a security” to be brought in the plaintiff’s place of residence, and provides that Quebec law applies where the subscriber or purchaser resides in Quebec, regardless of the place of contract. Chandler characterised his class action as one brought under the ordinary rules of law (article 1457 CCQ) in respect of facts related to the “distribution” of Volkswagen securities, arguing that the dieselgate-related misstatements were part of efforts to obtain acquirers of securities in Quebec. The Court of Appeal endorsed the Superior Court’s narrower reading. It held that the action, as pleaded, was about post-issuance secondary-market price declines allegedly caused by misrepresentations and omissions, not about primary distributions of securities in Quebec that would trigger the statutory prospectus regime. The detailed statutory definition of “distribution” in section 5 QSA—largely focused on endeavours by issuers, underwriters, or agents to obtain subscribers or purchasers in Quebec, and on distributions that trigger a prospectus requirement—did not fit the facts shown on the record for Volkswagen. The Bernier Report underscored that Volkswagen was not distributing securities in Quebec; instead, VCCI had privately placed Notes with a small number of qualified investors, largely outside the class period and under prospectus exemptions. There was no public distribution in Quebec, and the prospectus requirement itself was not engaged, which further signalled that the statutory concept of “distribution” was not met. The Court was also mindful that reading section 236.1 as Chandler proposed—so that any Quebec resident who suffered economic loss on a foreign-traded security could sue in Quebec regardless of the place of contract or marketplace—would effectively allow Quebec to assert jurisdiction over an unlimited range of global securities disputes based solely on investor residence. That, in the Court’s view, would create unconstitutional overreach and conflict with the constitutional requirement that Quebec’s securities legislation apply within the province and within the bounds of private international law. For those reasons, the Court held that section 236.1 did not give the Quebec Superior Court jurisdiction over Chandler’s claim against Volkswagen.

Outcome at the Court of Appeal and practical consequences
On all material points, the Court of Appeal found no reviewable error in the Superior Court’s reasoning. It agreed that Volkswagen had not attorned to jurisdiction, that no sufficient injury or fault was legally located in Quebec under article 3148(3) CCQ, and that section 236.1 of the Quebec Securities Act did not apply to transform this extra-contractual, secondary-market misrepresentation claim into a “distribution” case anchored in Quebec. Because the Court affirmed the finding of lack of territorial jurisdiction, it did not need to revisit in depth the Superior Court’s alternative analysis under article 3135 CCQ and the doctrine of forum non conveniens; the class action could not proceed in Quebec in any event. The Court of Appeal therefore dismissed Chandler’s appeal and left intact the dismissal of the class action for want of jurisdiction. It also dismissed Volkswagen’s incidental appeal, in which Volkswagen had argued that, if jurisdiction were found, Quebec should nonetheless decline it in favour of Germany or the United States; that question was moot once the lack of jurisdiction was confirmed. In this appellate disposition, Volkswagen Aktiengesellschaft emerges as the successful party, as the Quebec courts ultimately refused to entertain the securities class action against it. The Court ordered that the main appeal be dismissed with legal costs in Volkswagen’s favour, but did not specify any dollar amount for those costs; no damages or classwide monetary recovery were awarded, and the precise quantum of costs, if any, must be determined separately under applicable tariffs or agreements and cannot be determined from the decision itself.