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This Document Contains Chapters 3 to 4 Chapter 3 Managing Legal Risks Instructor’s Manual–Answers by Dorothy DuPlessis and Steven Enman I. TEACHING OBJECTIVES After studying this chapter, students should have an understanding of • methods of managing the legal environment of business • the development of a legal risk management plan • the importance of anticipating and reacting to developments in the legal environment • how to access and manage legal services This chapter and the next are the most innovative and nontraditional chapters in the book. They are nontraditional in that they are not found in other business law texts and they contain very little substantive law. They are innovative for their approach in demonstrating the value of law to business in the broad sense and explaining how the law fits in the management of risks. These chapters appear before Contracts (Part 2) and Torts (Part 3) to emphasize the importance that the authors place on demonstrating the relevance of law to business and in particular the value of applying the risk management approach throughout the book. Chapters 3 and 4 form a comprehensive unit in that they continue the same Business Law in Practice scenario through Managing Legal Risks (Chapter 3) and Dispute Resolution (Chapter 4). Chapter 3 explains and applies a process for development of a legal risk management plan for a nickel mining company called Northland Mining Inc. (“Northland”). The template consists of steps, and, when applied to the business, results in a plan that identifies a number of legal risks and recommended action for dealing with them. Each risk relates to substantive law discussed in later chapters. Chapter 4 then deals with events that occur in that business by applying the risk management plan and suggesting how legal disputes might arise and be resolved. II. TEACHING STRATEGIES This chapter deals with the management of legal risks. The material in the chapter can be used to explore this theme, or the instructor may choose to use the chapter material as a base only. For example, the chapter follows the development of a risk management plan for the fictional business, Northland. The instructor may choose to help students follow that exercise or choose to use a different, perhaps real, business to demonstrate how the four-step process could work. The instructor might choose another business and prepare an outline of the risk management process or choose one in class based on suggestions from students. Examples of businesses that may be of interest to students and are accessible are health clubs, restaurants, processing plants, and retail stores. What is a risk management plan and how is it developed? The Business Law in Practice at the beginning, which is used throughout Chapter 3 and 4, may be used to both explain what a risk management plan is and what is involved in its creation. However, as noted above any other business could be analyzed in the same manner. The steps in the development of a risk management plan are on page 47: identify legal risks, evaluate the risks, develop strategies for managing the risk, and implement and monitor the risk management plan. For related study, see Situation for Discussion (SD) 1 (page 65). How are legal risks identified? Begin with an explanation of why identification is so important and explain the various approaches used by organizations to identify legal risks. Alternative assessment approaches are suggested here: functional areas, business decisions, business relationships, and operations and transactions. The objective is to analyze the business, identify potential risks, and determine how the law can be used to deal with those risks. The authors believe this is a much more effective approach than the traditional one of describing the law that affects business and leaving students to figure out the connection. The approaches suggest overlap. A business might choose to use one or two, depending on what seems appropriate for the industry and the particular organization. Emphasize that no one approach is best, rather the goal is to get a broad range of relevant legal risks because, as mentioned in the text, a risk that is not identified cannot be managed. Also note that risk identification should not only be an exercise in assessing a business’ past loss history but also it should be forward looking. A business needs to anticipate and account for events that, although they have not materialized in the past, may materialize in the future. See, for example, Technology and the Law: The Risk and Costs of a Breach of Privacy (page 48). Ultimately, the objective is to produce a comprehensive list of potential risks. A list of risks for Northland is presented in Figure 3.1 (page 50). See also International Perspective: Risks in Mining Abroad (page 52) for international risks related to mining. For related study see SD 2 (page 65). How are legal risks evaluated? All risks are not alike nor should they be treated alike. The key to effectively managing risks is to assess the probability of a risk occurring and to assess the severity of the impact on the business. Note that some businesses use sophisticated mathematical programs to do these calculations; others simple use intuition or “gut instinct.” One way to do this is to create a four-block matrix: Low probability of event occurring High probability of event occurring Low severity of impact High severity of impact Each of the identified risks is then placed in one of the four blocks, according to the rating on probability and severity. Keep in mind, however, that the probability of an event occurring and the severity of the impact are on a continuum and risks may not fit neatly into one block or another. . For related study, see QCT 2 (page 64) and SD 3 (page 64). How should the legal risks identified be managed? There are four suggested strategies for dealing with the identified risks after they have been evaluated and measured: avoid, reduce, retain, and transfer. A combination of these approaches, particularly reduce and transfer, may be appropriate for many risks. The placement in the matrix above could be used to identify the basic approach for dealing with the risk, as indicated below: Low probability of event occurring High probability of event occurring Low severity of impact Retain Reduce High severity of impact Transfer Avoid For related study, see QCT 1 and 3 (page 64). How is the risk management plan implemented? And how is it monitored? The key point here is the allocation of responsibility for implementing and monitoring the plan. To work, the plan must be understood and used. Otherwise it is another document sitting on company shelves. A plan for Northland is presented in Figure 3.3 on page 58. It is fairly brief and would need much more detail to be used, but the action recommended for each risk is meant to be specific and to emphasize the need to assign responsibility. For related study, see QCT 4 (page 65). The remainder of the chapter deals with reacting when prevention fails and interacting with the legal environment. What happens when an event occurs that was not foreseen, or what if a situation spirals out of control? A risk management plan can be valuable in reacting to events. The text describes such an event on page 59 (injury on the job). The authors also recognize that events may occur that are not contemplated by the risk management plan, or the consequences of an event is much greater than anticipated. The Business Application of the Law: The Management of a Crisis (page 59) explores this possibility. For related study, see SD 4, 5, 6, 7, and 8 (pages 65–66). What is the role of legal services in risk management? Emphasize the role of legal services in risk management: developing a plan, operationalizing the plan, and managing a crisis. For a discussion of legal services in this context, see Business Application of the Law: The Role of Lawyers in Legal Risk Management (page 62). For related study, see QCT 5 (page 65) and QCT 6 (page 65). Further information on lawyers is in Chapter 22. III. STUDENT ACTIVITIES Task 1: Ask students to choose a business and apply the legal risk management process to it. It can be an individual student assignment or done in small groups. Any business (local or remote, large or small) could be used. Ideally, students would have an interest in or connection with the business to facilitate direct contact for gathering information. The assignment can be low key and used only as a basis for class discussion when this chapter is being covered. It can also be a comprehensive project through Parts 1, 2, and 3 of the book. Students can do a risk analysis and apply to it the knowledge of contracts and torts that they build as the course proceeds. There is potential for a comprehensive report on each business, as well as a presentation to the class. Since the range of businesses and risk management approaches is likely to be broad, the class presentations will feature a lot of variety. For a complete description of such a project, see D. DuPlessis and S. Gunz, “Legal Risk Assessment Exercise,” Journal of Legal Studies in Education, (1997), Vol. 15–1 at 153–160. Task 2: As an alternative to developing a risk management plan, have students prepare a crisis management plan, an evaluation of a business’ response to an actual crisis or a comparison of businesses’ responses to a crisis. The DVD, which supports the Instructor’s Manual, has a segment on GM ignition defects. Other examples of crises are in the Business Application of the Law: The Management of a Crisis (page 59), SD 4, 5, 6 and 8 (pages 65–66 A more recent example of a business that is dealing with a crisis is Volkswagen; see Geoff Colvin, “Volkswagen’s scandal management: Needs improvement,” Fortune (24 September 2015) online: Fortune . Examples of questions that could be considered by the students include: • When is a problem a crisis? • What should a business do to prepare for a crisis? • What should a crisis management plan contain? • Are there any opportunities in managing a crisis? Task 3: Assign students, in small groups, Technology and the Law: The Risk and Costs of a Breach of Privacy (page 48). Have students identify the risks to both consumers (customers) and businesses of a breach of privacy. How are the risks the same and how are they different? Have students consider how the parties can manage the risks both in terms of the prevention of a breach and reaction if the breach occurs. IV. EXPLANATION OF SELECTED FEATURES Page 48 Technology and the Law: The Risk and Costs of a Breach of Privacy Critical Analysis: Most businesses depend on computer and network systems to conduct their business. While there are enormous benefits to conducting business over network systems, there is a downside. The loss or theft of data is one risk associated with computer technology. What are other computer technology or cyber risks faced by business? How can these risks be effectively managed? Businesses face a host of e-business risks aside from the loss or theft of customer data. The increasing incidence of interference by hackers and other sources of contamination can wreak havoc on a business’s computer network and website and cause a disruption in business, a shutdown of operations, and a loss of sales. In some cases, the interference by hackers can also result in the theft of proprietary information, the breach of intellectual property rights, and liability to third parties for passing on malicious codes or facilitating an attack on a network. Managing e-Business Risks Know all your e-business applications and examine the risks: For example, what would happen if your e-commerce application were temporarily disabled by a hacker? Set priorities: Focus, first, on those risks that would have the greatest impact on your business’s profit or reputation. Gauge your vulnerability: Arrange for an audit of your security policies and procedures, including a systems penetration test. This involves having an outside consultant attempt to break into your system. Ask for recommendations to reduce or eliminate weaknesses. Assess values affected: Try to put a value on your e-business activities and on information—like trade secrets and customer lists—that you maintain electronically. Review your Insurance: Does your existing policy cover your e-business risk? According to Emily Freeman, “In most instances, traditional insurance has not kept pace with the emerging risks associated with networked computing and the use of Internet technologies. The result can be an uninsured loss of revenue, lawsuits filed by individuals or business partners who trusted a victimized company with their information; or adverse publicity that can damage a firm’s reputation.” Examine contracts with vendors who provide critical functions for your Web business: Determine which risks remain with your company and which are transferred to outsider service providers, such as telecommunication providers and Web site developers. Use a team approach: Assemble a team devoted to managing e-business risks. Establish e-business security procedures: Devise due diligence security procedures and have these procedures periodically tested by outside experts. Get outside help if needed: If you do not have the resources to devise and manage security systems, outsource to a reputable vendor. Source: Emily Freeman, “Taking steps to protect against e-business risks,” Global Risk (New York), Second Quarter, 2000 at 4. Page 49 Photo caption: What steps can a business take to protect its sensitive data from hackers? The protection of sensitive data is critical because once a customer’s or an employee’s personal information or the company’s secrets are disclosed, it is impossible to get them back. All businesses should, at a minimum, • have security measures in place to protect sensitive information • have data-retention polices that adequately protect information that is no longer being used • have programs to ensure employees are trained in respect to privacy matters • have a policy in place to deal with breaches of privacy so as to minimize the damage Source: Cappone, D’Angelo et al., “Responding to privacy breaches,” McCarthy Tétrault (25 April 2007) at . Page 50 Photo caption: What are the legal risks from mining operations? Figure 3.1: Legal Risks at Northland (page 50) presents a fairly comprehensive list of risks faced by a mining company. Page 52 International Perspective: Risks in Mining Abroad Critical Analysis: What steps should Canadian mining companies take to manage the risks of operating abroad? Steps that businesses can take to manage the risks associated with international operations include: • Consider business strategies that can mitigate risk. Through local partnerships, corporate social responsibility, and public relations campaigns, companies can reduce their exposure to actions such as expropriation, discriminatory regulation, and breaches of government contracts. • Structure foreign investments to take full advantage of any foreign investment protection and promotion agreements or bilateral investment treaties that may be in place. Agreements and treaties can mitigate risk by providing guarantees against expropriation, unfair treatment, and other forms of host government misconduct. • Determine the cost and availability of political risk insurance. Although coverage is often limited, it has the advantage of claiming against an insurer rather than the host government. • Negotiate for international arbitration and stabilization clauses in license agreements, concessions, and other contracts with host governments. An arbitration clause creates a neutral forum for the resolution of disputes and a stabilization clause provides some assurance against unexpected changes in the law governing the foreign investment. Sources: Robert Wisner, “Limiting political risk in international projects,” The Lawyers Weekly (28 March 2008) 12; and Cyndee Todgham Cherniak, “Reducing risk in international business,” The Lawyers Weekly (11 July 2008) 13. Page 55 Ethical Considerations: Faulty Ignition Switches at General Motors Critical Analysis: Do you think there can be any justification for the “business decision” not to fix the faulty ignition switch? Why do you think information about the fixed switch was withheld? Why do you think the cars with the faulty switches were not recalled until 2014? The intent of these questions is to initiate a debate on the ethics of business decisions. If the problem with the faulty switch relates only to performance of the car then the “business decision” not to fix the problem may be justifiable. However, when the problem is a safety issue then it is not justifiable to make a “business decision.” Recall the Ford Pinto case where engineers had an $8.59 per car fix for exploding gas tanks but decided not to fix because the costs from deaths and injuries were cheaper ($2.20 per car). It is hard to know why the engineer did not report the fix but perhaps it was fear or embarrassment. The fix would point to the existence of the problem and earlier decisions not to fix it. It was probably an easier path to simply say nothing. Mary Barra, the CEO in testimony to congress stated, “Sitting here today, I cannot tell you why it took years for a safety defect to be announced in that ‘small car’ program, but I can tell you that we will find out.” The internal investigation conducted by Anton Valukas for GM ascribed the delay to a pattern of incompetence and neglect in the organization. Although many in the organization knew of the problem, the problem was never passed onto the highest levels of the company—to those that were in a position to demand answers. Valukas points to several flaws in corporate culture including: “The GM Nod,” which is the practice of GM managers sitting in a room, nodding in agreement at steps that need to be taken, then leaving the room and doing nothing and “the GM Salute,” which is the habit of employees going through meetings, with their arms folded and pointing outward at others, as if to say that the responsibility lay with them, not with the employee. Sources: Anton Valukas, “Report to board of directors of General Motors Company regarding ignition switch recalls,” Beasley Allen (29 May 2014) online: ; Tom Krisher, “Initial lawsuit could limit GM’s legal liabilities,” Herald Business (1 July 2014) online: Herald Business ; Adam L. Penenberg, “GM’s hit and run: How a lawyer, mechanic, and engineer blew open the worst auto scandal in history,” Pando Daily (18 October 2014) online: Pando Daily ; David Friend, “GM faces barrage of lawsuits,” The Edmonton Journal (21 March 2014) B3; Jeff Green, “GM CEO apologizes for stalled recall,” The Globe and Mail (19 March 2014) B9; Matthew Goldstein & Barry Meier, “G.M. calls the lawyers,” The New York Times (16 March 2014) 1. Page 59 Business Application of Law: The Management of a Crisis Critical Analysis: How can the lessons learned from a crisis be incorporated into an organization’s risk management plan? A crisis usually occurs because an unforeseen or unexpected event happens or because a minor or expected event spirals out of control. Once a crisis occurs, an organization can use the information in identifying its risks and thereby develop a more comprehensive list of its risks. The information from a crisis can also be used in evaluating risks. If an event occurs that was anticipated but had a much greater impact than anticipated, this information can be used not only in evaluating risks (in terms of their probability of occurrence and the severity of their impact) but in developing a strategy for managing the risk. Page 62 Business Application of the Law: The Role of Lawyers in Legal Risk Management Critical Analysis: What skills and techniques do lawyers need to contribute effectively to the risk management process? Andrew M. Whittaker (“Lawyers as Risk Managers,” Butterworths Journal of International Banking and Financial Law (January 2003) 5) suggests that the skills a lawyer needs as a risk manager include expertise in a particular area of law, the ability to understand concepts from other disciplines, the ability to work effectively in multidisciplinary teams, and an open approach to the quantification of what may be at stake. Whittaker also suggests that the techniques a lawyer needs as a risk manger are different from what lawyers learned in the past. He suggests three techniques: (1) constructive challenge: avoid group think and standardized practices that might lead to overlooking risks, and instead think laterally (what would happen if the opposite were true? how can this go wrong?) in an attempt to identify all risks; (2) breadth of vision: take account of changes in society and new approaches and do not be limited by narrow specializations and thinking by incremental deduction; and (3) “doing what you can”: even if a risk cannot be solved, identify what can be done to mitigate its consequences and deal with it as effectively as possible. Chapter 4 Dispute Resolution Instructor’s Manual–Answers by Dorothy DuPlessis and Steven Enman I. TEACHING OBJECTIVES After studying this chapter, students should have an understanding of • how business activities may lead to legal disputes • the options for resolving a legal dispute • alternative dispute resolution methods • the litigation process This chapter explores how business activities may lead to legal disputes and the range of options for resolving those disputes. It examines the litigation process while emphasizing that litigation should be a last resort for resolving most disputes. The chapter continues the Northland Mining Inc. (Northland) Business Law in Practice scenario that was introduced in Chapter 3. In that chapter, a number of risks were identified and a risk management plan to deal with them was outlined. In this chapter, four events occur that relate to the risks and the plan. The events are introduced as a group, but in reality, they would occur over time. They serve as examples of situations a business might face. In the chapter, all four potential disputes are dealt with in a different way. Two of the potential disputes were anticipated by the plan. One was dealt with by the plan, and the other, although it did not result in a dispute, caused Northland to revise its risk management plan. The third dispute was settled through negotiation, and the fourth requires litigation. This last event is used to illustrate the features and stages of the litigation process. It concludes with a hypothetical outcome and an evaluation of the degree of success. Through the analysis of these events, the teaching objectives of the chapter are explored: • show how disputes arise from normal business activities • demonstrate the range of options for resolving disputes • illustrate the versatility and advantages of alternative dispute resolution • provide an overview of the litigation process II. TEACHING STRATEGIES The chapter presents the options for resolving disputes, with the focus on resolution as quickly and cheaply as possible. A business should strive for the most efficient manner of resolving disputes and generally not be preoccupied with winning at any cost. The chapter focuses on four events that occur in the business of Northland. With each event, four questions could be asked: • What happened? • Was the event preventable? • What is the best way to deal with the immediate situation? • How can the risk management plan be revised to prevent similar events in the future? Each event relates to a risk in the plan outlined in Figure 3.3 on page 58 and is resolved as follows: • The delinquent customer was resolved by writing off the debt. • The hacking attempt caused a revision to the risk management plan. • The pollution incident was resolved through negotiation. • The equipment breakdown was resolved through litigation. How well did the risk management plan developed in Chapter 3 work? Use the Business Law in Practice scenario to test the risk management plan developed in Chapter 3 by reviewing the four events that might occur in relation to the business. The purpose is to get students thinking about the events that occur in any business and that have the potential to lead to legal complications. The business needs to have a plan in place to deal with events and a strategy for resolving legal disputes that might result. Explain that the intent of a risk management plan is not to eliminate all risks. That is impossible. Rather, the plan anticipates risks and proposes methods for dealing with them if they materialize. The goals of management should be to deal with developments and potential disputes efficiently to preserve relationships. Litigation should be used only as a last resort. Examine the events introduced in the Business Law in Practice scenario in more detail to indicate how they might have arisen and where they might lead. It is anticipated that the hacking attempt will not result in a dispute and the customer’s bad debt could be written off. That leaves two disputes to be resolved. This is a good opportunity to apply a similar process to another business through Question for Review 1 (page 91). How are disputes resolved through negotiation? This is the point at which to introduce the negotiation process. Emphasize its importance and usefulness at all stages of a dispute. It is a non legal, unstructured process that is used to resolve the majority of legal disputes at some stage. Even if negotiation does not prevent a dispute from escalating or proceeding to some other process, it may ultimately be the method of resolution. For example, many lawsuits are settled just before they go to court or even during or after a trial. Identify and discuss the factors that will indicate the probability of success of negotiation. See Figure 4.1: In Deciding Whether to Proceed or Not to Proceed with a Legal Dispute, Consider the Following Questions (page 73). Examine the two remaining disputes—the pollution incident and the equipment breakdown—in this context. Also consider the effect of an apology (see Business and Legislation: Saying Sorry on page 72), Situation for Discussion (SD) 2. How are disputes resolved through mediation and arbitration? Use this section to demonstrate that there are a range of options for avoiding litigation. Ensure that students understand the key points of mediation and arbitration. The instructor may explore when each is used, how they work, and what happens when they end. It may also be useful to discuss the pros and cons of each, particularly in relation to litigation and the effect they have on the parties involved in a dispute and on the legal system in a more general way. For study, see QCT 4, 5, and 6 (page 92) and SD 3 (page 93) and 6 (page 94). How are disputes resolved through the litigation process? This section takes the one remaining dispute—the equipment breakdown—and uses it as an illustration for the various stages in the litigation process. Although students may be getting rather weary of Northland by this time, this extended treatment can be used to demonstrate how disputes and litigation have a background and a context that often are not evident from news reports or even law reports. Rather than focusing on Northland, instructors may examine the risks and cost of litigation in general before detailing the litigation process. For study see, QCT 1 (page 92), and SD 5 (page 93). Although Northland is not involved in a class action lawsuit, its importance can be emphasized, and the instructor could explore the possibility of a class action being brought against Northland. See Business and Legislation: Class Action Lawsuits (page 79) and Environmental Perspective: The Risks of Environmental Litigation (page 85). For study, see QCT 3 (page 92) and SD 8 (page 94). The litigation process is described here in a generic fashion and is roughly applicable in every province. Instructors who want their students to have a more detailed knowledge of how the system works in their province can present that material here. Note particular requirements, such as limitation periods. For study, see SD 7 (page 94). Emphasize that negotiation and settlement can occur at any stage. Although the various stages have some time limits, the parties are largely in control of the process. It is difficult to determine how long a lawsuit will be in the system. Many factors are relevant, including the strategies of the parties and the availability of courts. The system is designed to discourage litigation, even by those who are likely to win. Regarding pleadings, students need to understand the difference between allegations and evidence. Plaintiffs can make whatever allegations they want but must be prepared to prove them eventually. The discovery process is worthy of discussion in terms of its basic purposes (disclosure and promotion of settlement) and how it operates in practice (sometimes a delaying tactic). ADR is becoming significant here as courts in different provinces make some forms of ADR mandatory at a certain stage of the process. For study, see QCT 4, 5 and SD 1 (page 92). For the trial, emphasize the different forms and applications of the evidence, the law, and the arguments of counsel. The sample dispute can be expanded to explore these three components. Students could be invited to make arguments on behalf of Northland and the insurer. A judge’s decision is uncertain in terms of timing and result. Only one potential outcome is presented in the text. The instructor may want to examine other outcomes. Emphasize the different components of the judgment (damages, interest, costs) and compare them with the real “costs” to the parties. For study, see QCT 2 (page 92). Make the key point that the winning party is responsible for its own collection, with some assistance from the court. Any money that is collected comes from the assets of the loser. There is no government-funded source of compensation. Emphasize the expense and slim chance of winning because of the presumption that the lower court is right and the restriction of appeals to alleged errors in law rather than facts. A description of the sterile and controlled atmosphere of the appeal court may be effective to dispel any misconception of the drama about the process. Conclude discussion of the chapter with the following: • International Perspective: The Risks of Litigation in the United States (page 87). Make sure students understand how our system differs from most of what they see in the media. For study, see QCT 2 (page 92) and SD 4 (page 93). • Figure 4.2: Forms of Dispute Resolution (page 89) brings together all the resolution options in the chapter and helps to identify the most promising options for a particular situation. For study, see QCT 6 (page 92) and SD 6 (page 94). III. STUDENT ACTIVITIES Task 1: Have students compare negotiation, mediation, and arbitration. Students may use their personal experience of negotiations. They may find newspaper, magazine, or journal articles dealing with mediation and arbitration. Explore the context of the methods of dispute resolution, how they worked, whether they were successful, and what the positive and negative outcomes were. SD 6 (page 94) provides a useful example of the use of negotiation, mediation, and arbitration in the resolution of a dispute. It may be assigned in conjunction with the task of comparing the three methods of dispute resolution. Task 2: As a follow-up to the examination of the management of a crisis in Chapter 3, have students explore the role of an apology in managing a crisis. . For background, students may review Business and Legislation: Saying Sorry (page 72) and Karen Kleiss, “Company at centre of beef recall must apologize, experts say,” Ottawa Citizen (8 October 2012) at . Task 3: Assign QCT 1 and SD 2 and have students in small groups consider the following: • Why are such a high percentage of disputes settled out of court? • What are the disadvantages of settling out of court? • What should a release contain? • Why are courts reluctant to open up releases? • In what circumstances should releases be opened up? IV. EXPLANATIONS OF SELECTED FEATURES Page 72 Business and Legislation: Saying Sorry Critical Analysis: What are the pros and cons of an apology in face of a legal dispute? What should an apology contain? The pros of an apology in face of a legal dispute are that the apology can de-escalate the dispute, and in many provinces, full apology legislation protects the apologizer. In those provinces, the apology may not be taken as an admission of guilt and does not jeopardize insurance coverage. The cons of an apology in the face of a legal dispute are that in some provinces there is no or incomplete apology legislation and thus the apology may be taken as an admission of liability or may jeopardize insurance coverage. Further, as there is little in the way of reported decisions on the interpretation of apology legislation, the circumstances in which an apology may be admissible are not known and neither is the impact it will have on litigation. See Donalee Moulton, “No spike in mea culpas from apology laws,” The Lawyers Weekly (9 March 2012) 5. Pamela Large Moran states that for an apology to be beneficial and effective, it must be genuine, sincere, and contain some key elements such as: • An identification of the offence, acknowledgment that it was wrong, and an appreciation of the harm done: • A sincere expression of regret; • An acceptance of responsibility for the harm; and • A plan for improved behaviour. Pamela Large Moran, “Strategic ‘sorry’,” The Lawyers Weekly (8 February 2013) 10. Page 72 Photo caption: Why do apologies de-escalate legal disputes? Apologies de-escalate legal disputes because they speak to a person’s dignity and self-worth in situations where they feel they have been wronged. Susan Alter, in a report to the Law Commission of Canada, concludes that “for a victim, an apology is often the key that will unlock the door to healing.” See Ellen Desmond, “Saying sorry,” The Lawyers Weekly (28 March 2008) 7. Page 76 Business Application of the Law: Arbitration Clauses in Consumer Contracts Critical Analysis: Should arbitration clauses be prohibited in consumer contracts? Why or why not? It is often assumed that arbitration is a more consumer-friendly process than litigation. It ought to be faster, cheaper, and more accessible to consumers. However, arbitration does involve a cost that may not be justified to recover a relatively small amount. In some cases, a class action, in which there is recovery of many small claims, may be the most cost-efficient method. Arbitration clauses may preclude consumers from joining in a class action. In such cases, the clauses force consumers to engage in a practice that may not be effective or efficient. As noted in the box, some jurisdictions have prohibited arbitration clauses in consumer contracts, and the Supreme Court of Canada has indicated that, in some cases, consumer protection legislation will operate to override an arbitration clause. Page 76 Photo caption: What are the advantages and disadvantages of arbitration clauses in consumer contracts? The advantage of arbitration clauses in consumer contracts is for the business in knowing that contractual disputes will follow a uniform arbitration process. This has many advantages, such as reduced jurisdictional uncertainties, reduced litigation costs, and resolution of disagreements through an impartial adjudicator instead of in the media. The disadvantage is for the consumer, who is subject to a mandatory clause in a standard form contract that is not subject to negotiation or change. Such clauses, when enforced, oust the jurisdiction of the court and prevent the consumer from pursuing a remedy through a class action. Source: John P. Brown & Charles S. Morgna, “Arbitration clauses in consumer contracts: The Canadian approach,” McCarthy, Tetrault (17 July 2007) Online: McCarthy, Tetrault . Page 77 International Perspective: Arbitration Is the Norm in International Transactions Critical Analysis: Is arbitration of international disputes a positive development? Arbitration of international disputes is a positive development for the parties involved in a dispute. Arbitration, in general, has many advantages over litigation in that it is usually faster and cheaper, and the parties choose the decision maker. In international transactions, arbitration is advantageous because it can overcome the difficulties with international litigation relating to choice of law and jurisdiction. As well, as noted in the box, there is ease in enforcing arbitral awards because of the widespread adoption of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Page 79 Business and Legislation: Class Action Lawsuits Critical Analysis: Class action legislation has significantly increased the risk of a class action for business. How can a business address this risk in its legal risk management plan? The change in class proceedings legislation, and the resultant dramatic increase in class actions lawsuits, has resulted in a change in the risk profile of many businesses. In the past, businesses could perhaps ignore minor defects and problems relating to their goods or services because the losses to consumers were small, and consumers were not unlikely to take legal action. Now the possibility of class actions for millions of dollars should make businesses more aware of the risks, however minor, and more accountable for their actions. In other words, businesses will need to build the risk of a class action into their risk management plans in terms of both identifying the risk and developing strategies for managing the risk. Page 79 When is a class action the preferable method of settling a claim? In order to have a class action certified, Courts must compare the costs and benefits of a class action to alternative procedures (see for example, Ontario’s Class Proceedings Act 1992, SO 1992, s 5(1)(d)). This requires the court to consider which avenue would be best suited to offer a fair process and access to a just and effective remedy. The Supreme Court of Canada has provided a framework for analyzing these issues: • What are the barriers to justice? (economic, psychological, social) • What is the potential for a class action to address these barriers? • What are the alternatives to the class proceeding? (both within and outside the court system) • To what extent do the alternatives address the barriers to access to justice? • How do the proceedings compare? Sources: AIC v Fischer 2013 SCC 69, [2013] 3 SCR 949; Micheal A. Eizenga, Ranjan K. Agarwal, & Gannon Beaulne, “Regulatory proceedings and class actions: The Supreme Court of Canada speaks on preferable procedure,” Bennett Jones LLP (23 December 2013) online: Mondaq at . Page 83 Ethical Considerations: Freemen-on-the-Land Critical Analysis: What is the threat to the Canadian justice system of the group, Freemen-on-the-Land? What is the danger of turning away members of the Freemen-on-the-Land movement from the judicial system? The Freemen-on-the-Land movement provides a real challenge for the court system because its adherents not only clog up the courts with time consuming and spurious oral and written arguments but they cause stress and worry to the victims (government officials, lawyers, police, court clerks, and anyone else that gets in their way) of their aggressive tactics. They also tend to erode respect for the administration of justice when their vexatious and sometimes incomprehensible cases end up in court. Turning members of the movement away from the courts may result in turning away a potentially legally relevant case. Sources: Katherine Dalgleish, “Guns, border guards, and the Magna Carta: the Freemen-on-the-land are back in Alberta Courts,” Davis LLP (14 March 2014) online: Davis LLP . Page 85 Environmental Perspective: The Risks of Environmental Litigation Critical Analysis: What are the risks that litigants such as Smith take in commencing an action of this kind? Are these risks outweighed by the possible benefits? The risks that such litigants as Smith take in commencing an environmental class action lawsuit is that they might lose and receive nothing for their time and effort, in addition to having costs awarded against them. As noted in the box, the Court of Appeal awarded costs of $100 000 against the plaintiffs. Presumably, additional costs will be calculated for the trial portion of the dispute. The other risk that a plaintiff undertakes is the time involved in pursuing a case. The Smith v Inco case took ten years to bring and the trial itself took months. That is a tremendous amount of time to devote to an issue. The benefit of class action environmental lawsuits is that they are the mechanism for addressing historical contamination originating from one source. If it is successful, the possible benefits are enormous. That said, the Smith v Inco case illustrates that success is not easy. Page 85 Photo caption: How does the risk of litigation make industry more accountable for the pollution it may cause? Litigation has the potential to make industry more accountable for the pollution it may cause. Successful litigation against a business can result in large damages and costs awards and negative publicity. This may lead the defendant business and other businesses to make greater efforts to avoid polluting the environment so that they can avoid future litigation. Even unsuccessful litigation against a business can cause the business to change its ways in an effort to avoid negative publicity associated with an environmental lawsuit. Page 87 International Perspective: The Risks of Litigation in the United States Critical Analysis: How can Canadian businesses manage the litigation risks of doing business in the U.S.? A Canadian business could avoid the litigation risks of doing business in the United States by simply not doing business there. That approach, however, would result in the Canadian business missing the opportunities afforded by one of the largest markets in the world. Richard Saunders suggests the following as a means of minimizing U.S. litigation risks: • Consult United States legal counsel as they can advise on U.S. law, how to avoid running afoul of it, what the legal risks are, and how to minimize them. • Negotiate risk-shifting contract provisions, such as limitation of liability, remedies and liquidated damages clauses, alternative dispute resolution clauses, forum selection clauses, indemnification clauses, jury waiver clauses, and choice of law clauses, for example. See Richard S. Saunders, “Litigation is a risk of doing business in the United States,” The Lawyers Weekly (6 February 2004) 15. Instructor Manual for Canadian Business and the Law Philip King, Dorothy Duplessis, Shannon O'byrne 9780176570323, 9780176509651, 9780176501624, 9780176795085
