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Chapter 2

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Ryerson University
Law and Business
LAW 122
Jane Monro

1 Chapter 2: Litigation and Alternative Dispute Resolution This handout was adapted from Chapter 2 in McInnes et al., Managing the Law: The Legal Aspects of Doing Business, 3rd edition (Toronto: Pearson Canada, 2011). The Litigation Process: Who Can Sue and Be Sued? Who has access to the courts in Ontario? Who can be sued in an Ontario court?  All adults, regardless of their citizenship.  Corporations, even if they are incorporated outside of Ontario. (Remember that the law treats corporations as legal persons for some purposes.)  Trade unions.  Special cases: o Children: children can sue and be sued, but they must be represented by a parent or litigation guardian. o Adults suffering from a mental incapacity (e.g., dementia or Alzheimer’s): they can sue and be sued, but they must be represented by a litigation guardian. Unincorporated organizations, such as clubs, amateur teams, and community groups, are generally not recognized in law as “persons”. Thus, these organizations cannot sue or be sued as an organization. If you want to sue a club, you must sue individual members of the club. If members of a club wish to pursue legal action against another party, they must bring their legal action as individuals. They cannot sue in the name of the club or organization. Trade unions, however, are an important exception to this rule. Historically, it was not possible to sue the government. However, legislation has now made it possible to sue the government under some circumstances. The person who initiates a law suit is called the plaintiff. The person being sued is called the defendant. The law suit as a whole is frequently called the action. The Litigation Process: Class Actions1 Case 1: Why do we have class actions? George v. Shark Loans When George’s car unexpectedly broke down, he needed a loan to cover the repair costs. Because he had bad credit, George went to Shark Loans, a company that makes relatively small loans to people who are considered bad credit risks. Shark Loans not only charges high interest rates, but it also imposes a major penalty for any late payments. George was charged a $75 late penalty when he paid an instalment on the loan three days late. 1 The Canadian Bar Association maintains a database of class actions initiated throughout Canada. See: http://www.cba.org/ClassActions/main/gate/index/ to explore what types of class actions have been brought in Canada. 2 George wondered if charging this late penalty was legal, so he asked his friend Wendy, who is a lawyer, for advice. Wendy did some quick calculations, reviewed the case law, and then told George that the late penalty very likely violated the criminal interest rate provisions in the Criminal Code. She told George that he could sue Shark Loans to get the late penalty back, but that he would have a hard time finding a lawyer who would take a case worth $75. Even if George represented himself, the cost of the filing fees and the time wasted on pursuing the matter would be far more than $75. At first, George was content to let the matter go. But as he thought about it, he started to become angry. How many other people were stuck paying this late penalty? Shark Loans was breaking the law – and profiting from it. Shark Loans knew that hardly anyone would bother to challenge the late penalty in court; it simply would not be worth the time and money. At the same time, George estimated that Shark Loans could be making up to $7 million from the collection of the late penalties. Something had to be done. George went back to his friend Wendy for more advice. “You see, if it is just me, then the law suit is only worth $75. But what if there were 100,000 people in my position? Or even 250,000 people? Shark Loans is a pretty big company; it has locations all over Ontario. Shark Loans claims that it has given over 400,000 loans. So what would Shark Loans do if we all sued the company, all at once – and all together? Is that possible?” Wendy thought about the matter, and replied, “You would need a class action. You would ask the court for permission to join all the claims against Shark Bank in one proceeding, with a representative plaintiff. You wouldn’t sue for $75. You would sue for $7 million – the value of all the claims combined. Since the claims are all very similar, it makes sense for the court to hear one or two cases and apply its decision from those cases to the rest of the cases. It’s a better use of the court’s limited resources to decide these cases altogether than to hear very similar claims separately.” George smiled. “Shark Loans might not care about $75 claims, but a $7 million claim will get its attention!” What are the benefits of class actions? In this Case, who would be the plaintiff and who would be the defendant if George decides to sue Shark Loans? In Case 1, George is contemplating bring a class action against Shark Loans. A class action allows a single person (like George) or a small group of people to bring a legal claim on behalf of a larger group of people. The class is the group of people on whose behalf the legal claim is brought; a class can range in size from very small (even just two people) to very large (thousands of people). In Ontario, the Class Proceedings Act governs class actions. You should read this Act, particularly s. 1, 5, 6, and 9. In order to bring a class action, a representative plaintiff must take steps to have the class certified. (Certification basically means that the Court has decided to allow the claims of the individual members of a proposed class to be joined together; this allows someone like George to initiate a lawsuit on behalf of everyone else.) The Class Proceeding Act states that a judge will certify a class if the following requirements are met: 3  There is a “cause of action” (a legitimate claim recognized by the law). The representative plaintiff does not have to prove his case during the certification phase, but he must show that there is some basis in law and in fact for the claim being made.  Members of the proposed class must have common issues. That is, the claims of class members must involve similar (but not necessarily identical) questions of fact or law. Here are some examples: o The class members are all suing the same defendant in relation to the same product line or service or in relation to the defendant’s employment practices. o The class members all suffered the same sort of injury. o The class members suffered different injuries, but the injuries arose from the same incident. Sometimes, class members have quite different types of injuries, but their claims still have a lot in common with each other. In such cases, the class might be certified with sub-classes that divide the class members into different sub-groups, based on the different types of injuries suffered. Each sub-class must have its own representative plaintiff. See Case 2 for an example.  There must be a representative plaintiff. The facts of the representative plaintiff’s case must be typical of all the members of the class. In Case 1, George could be the representative plaintiff, but not Wendy. Wendy hasn’t suffered a loss as a result of Shark Loan’s late penalty. Representative plaintiffs have a number of responsibilities, including a responsibility to have a workable plan for fairly representing the all members of the class. Someone who has a potential conflict of interest with other members of the class, for example, could not satisfy this requirement.  The representative plaintiff must demonstrate that he or she has a workable plan to notify all potential members of the proposed class. People are not required to be part of a class action; they are allowed to sue the defendant on their own. However, in Ontario, class actions are “opt- out”, which means that people are deemed to be included in a class action unless they specifically opt-out of participating. It is only fair to require the representative plaintiff to give notice to everyone who could be a member of the proposed class so that people can opt out of the class if they want to sue the defendant on their own. Notices about proposed class actions are frequently published in newspapers and magazines.  A class action must be the preferable procedure for addressing the various claims. For example, if the members of the proposed claim do not have enough in common or if joining the claims together would result in an overly complex proceeding, the judge may find that a class action is not appropriate. Question: Do you think George (Case 1) will be successful if he attempts to have his class action certified? Why or why not? 4 Case 2: Dealing with Complexities: Sub-classes in a Town Terrorized by Tainted Water Suppose the company responsible for monitoring a town’s water supply carelessly failed to do its job. As a result, the water supply became tainted with E.Coli. Some people get very sick and some people even die. Other people don’t get sick, but their family members do. The claims of the townspeople have an important fact in common: the claims all arise from the failure of the company to monitor the town’s water supply. If the company is found liable in one case, it will almost certainly be found liable in every other case, too. But the types of injuries are different. People were hurt in different ways. Some people need compensation for illness; other people need compensation for the loss of a child or a parent. Other people might want compensation because they had to take time off work to take care of sick family members. Some people may even try to get compensation for lost revenue since the tainted water issue kept tourists away from the town. These injuries will probably be evaluated differently. The court can allow the townspeople to proceed as a class, but divide the class members into sub-classes. The determination of whether the company was negligent can be generally applied to all class members, and then the compensation for specific types of injuries can be decided separately, based on the sub- classes. When we study negligence, you will see that some of the townspeople might not receive any compensation because their claims are too remote. But this should not prevent other people from being compensated. As with all legal class proceedings, someone has to pay for the costs of the action, including the lawyers’ fees. Section 31(2) of the Class Proceedings Act makes clear that the Representative Plaintiff alone is liable for costs related to the action; other members of the class are not liable for the general costs of litigation. Nevertheless, section 17(7) of the Act allows a Representative Plaintiff to ask the court for an order that permits him or her to ask other members to contribute to the cost of lawyers’ fees and disbursements. The Representative Plaintiff is not entitled to any special form of compensation such as payment for the time and effort expended on bringing the class action. The Class Proceedings Act also permits a lawyer to charge contingency fees in class actions. Contingency fees are fees that are only payable if the case is successful. The Litigation Process: Legal Representation There are three broad options for obtaining legal representation in the litigation process: you can represent yourself; you can hire a paralegal; or you can hire a lawyer. In Ontario, both lawyers and paralegals are regulated by the Law Society of Upper Canada. This means that you must obtain certain credentials and meet certain requirements in order to be licensed to practise as either a lawyer or a paralegal. The licensing process is part of ensuring that lawyers and paralegals are competent and remain competent. Clients can sue their lawyers and paralegals for carelessness (negligence) and for intentional wrongdoing. However, the lawyer or paralegal may not have enough money to compensate the client. There are mechanisms in place to protect clients, however. Lawyers and paralegals in Ontario are required to hold professional liability insurance. This insurance provides compensation to clients who have suffered losses as a result of a lawyer’s or a paralegal’s carelessness. The Law Society also 5 maintains an Assurance Fund to compensate people who have suffered losses as a result of a lawyer’s or a paralegal’s dishonest conduct. The Litigation Process: An Overview of the Life of a Legal Action The basic steps in a legal action are set out below. Cause of Action occurs. • Action must be commenced within applicable limitation period Pleadings • The parties exchange various filings that outline the issues that they will raise at trial and the facts upon which they will rely. Pre-trial Activity • Parties have the opportunity to "discover" each other's case through the exchange of documents and pre-trial examination of witnesses, which occurs under oath. Discovery gives the parties an opportunity to evaluate the relative strength of the other party's case and to gauge how much the claim is really worth. • Parties have a pre-trial conference in which they meet with a judge. The judge may give the parties a frank assessment of which side is likely to win if the case goes to trial. This gives the potential losing party more incentive to settle. • In some cases, there is court-mandated mediation. Determination of Claim • The parties either settle or the case goes to trial. The vast majority of cases settle before trial. • If the case goes to trial, the plaintiff must prove its case on a balance of probabilities. In other words, every important part of the plaintiff's claim must be shown to be more likely true than not. (The claim must be probably true.) • At trial, the defendant is found either liable (and therefore responsible) or not liable. If the defendant is held liable, the plaintiff will be awarded a remedy. The most common remedy is compensatory damages. Enforcing the Judgment • If the plaintiff wins an award of damages, the defendant becomes a judgment debtor. The plaintiff now has the difficult task of getting its money from the defendant. 6 Appeals • In some cases, a party may appeal all or part of a judgment. This means that the party (called an appellant) asks a higher court to review the case and to decide if the judge made the correct legal decision. Appeals are very different from trials. See Figure XX below for more details. In civil litigation, the clock is always ticking. There are rules that require that claims be made and that various pleadings are filed in a timely way. Limitation Periods: Limitation periods are the period of time within which an action must be started. Legal claims must be made within a certain period of time or the court will not allow the claim to proceed. These time periods are governed by statute, and can range from six days (e.g., if you want to sue a city in tort) to 21 years (e.g., if you want to assert certain property rights). In Ontario, in cases involving torts or breach of contract, the most common limitation period is two years from the date on which the plaintiff should have become aware that he or she had a claim against the defendant. If the plaintiff misses the limitation period, she still has a claim…but she cannot enforce that claim through the courts unless there are very special circumstances. From a practical perspective, this means that the plaintiff likely will not be able to get a remedy. A special exception applies to debts, however. If a debtor acknowledges a debt after the limitation period expires, the creditor may bring an action to recover the outstanding monies even though the limitation period has passed. Consider Ethical Perspective 11.1 on page 264 in the textbook in this regard. Pleadings: There are strict limits on the time that each party has to respond to the other’s pleadings. The failure to file your pleadings in response to the other party’s pleadings could have disastrous results. For example, if a defendant does not file a Statement of Defence on time, the plaintiff can move for a default judgment in favour of the plaintiff. The failure to file the Statement of Defence on time is interpreted as meaning that the defendant accepts all of the plaintiff’s allegations in the Statement of Claim, including the allegation that the defendant is liable! If you are served with a statement of claim or other form of pleading, you should immediately contact your lawyer. Do not wait. There are serious consequences to missing filing deadlines. The Litigation Process: Remedies and Enforcing Judgment If the plaintiff wins its case at trial, the plaintiff will be entitled to a remedy. In civil litigation, the most common remedy is compensatory damages. Other remedies, along with a brief description of these remedies, are set out in the table below. Remedy Description Example Compensatory damages Pay the plaintiff money to Provide an injured plaintiff with 7 compensate for the plaintiff’s the amount he lost as a result of loss not being able to work and the amount spent on medical bills Punitive damages Pay the plaintiff money as a Punish an insurance company means of punishing the that made up allegations of defendant for acting very badly arson in order to avoid paying a benefit under an insurance policy Nominal damages Pay the plaintiff a very small Recognize the right of a store amount of money (e.g., $1) to that sued for trespass even recognize symbolically that the though the unwanted customer defendant acted wrongfully even did not do any harm though the plaintiff did not suffer any loss Specific performance Order the defendant to fulfill a Force a defendant who promised contractual promise to sell a piece of land to the
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