The legislation that governs class action lawsuits in B.C. is more liberal than the U.S., and legal experts say that’s increased the risks for the business community.
“There are three broad areas of concerns that we have for Canadian business, and all of this leads to uncertainty, which is bad for business, and I think most people would say if it’s bad for business it’s bad for Canada,” explained Brad Dixon, a commercial litigation partner at Borden Ladner Gervais LLP’s Vancouver office.
Class actions are a form of lawsuit in which a number of people collectively deliver a claim to court.
These types of legal actions were once thought to be more prevalent in the U.S., with many claims focused on mass-produced products, price fixing, arrangements between franchisees and franchisors and securities investigations.
Although Canadian class action law was enacted a number of years ago, Dixon said these types of lawsuits take so long to work their way through the system that it’s still a “developing” area of law.
He also said the legislation that governs these actions was “deliberately intended” to be more liberal than U.S. rules.
“What you have to understand about these things is they’re driven … by plaintiffs’ council because they’re designed to have this entrepreneurial role,” Dixon said.
In other words, the rules have actually fuelled a new breed of class action lawyers that announce investigations into companies via a press release and then seek out members to form a class and support the action.
Tony Merchant’s Merchant Law Group LLP claims to have more active class action lawsuits than any other firm in Canada.
Merchant has concluded suits against Conrad Black’s Hollinger Inc., Maple Leaf Foods and Molson-Coors Brewing Co. (NYSE:TAP).
His firm recently issued a press release searching for shareholders to sue Vancouver’s Taseko Mines Ltd. (TSX:TKO) regarding its Prosperity project (see “Lawyers seeks support for Taseko Mines class action suit” – issue 1107; January 11-17).
“The whole class action world allows people who are taken advantage of to get compensation, but better than that the fact that we’re here doing these kinds of things means corporations and government are more fair because they know that somebody is watching them,” said Merchant.
The consequence, said Dixon, is that B.C.’s class action rules have created a new tension between private and public regulators, forcing businesses to worry about the risk of class action investigations and regulatory investigations.
“Often that gives rise to undue settlement pressures because a business is trying to control risks and costs that they face,” said Dixon.
On top of that, plaintiffs are bringing more waiver of tort claims to Canadian courts, which seek disgorgement of revenue or profit from businesses.
Waiver of tort cases turn on whether or not the plaintiffs’ lawyer can show the defendant committed wrongful conduct in its business practices.
“What they don’t have to then prove is that the individual people suffered a loss, and that used to be the focus of these kinds of cases,” Dixon said.
That means a lawyer might have an easier time certifying the class action suit, advancing its status in court and placing more pressure on businesses.
It also means that businesses need to take a closer look at their practices, because “conduct that you might have thought didn’t cause anyone any harm might still be the subject of scrutiny in a class action.”
But what can businesses do to protect themselves?
Warren Milman, a partner with McCarthy Tetrault’s Vancouver office and a class action expert, said businesses need to focus on risk management strategies and be on top of issues or complaints that could come back to haunt them.
“There’s something to be said for keeping your eye on the exposure a problem creates and thinking about ways to diffuse that even if in the short term it creates an expense. In the long term, it can give you peace of mind and save you a bill,” Milman said.
Dixon said that if a class action claim shows up, businesses first need to decide if the claim has any merit.
Milman said businesses can also use the “cloak of privilege” with lawyers to conduct internal investigations without handing over information that could be used against them.
Dixon also said public relations experts can help businesses weather the media storm should news of the class action hit the press.
Finally, Milman has one simple piece of advice: “It’s important not to panic … once you have a plaintiffs’ lawyer smelling blood in the water it’s usually not a good idea to jump in.”