Why are class actions on the rise? There is an increase in the amount of litigation funding options for these class actions, coupled with encouragement from regulators, which have spurred the amount of class actions. Class actions are one of the top legal risks for businesses in 2018, a year focused on privacy, cybersecurity, data breach, anti-spam and major product recalls.
Many business executives question who funds these class action lawsuits. Litigation funding helps to facilitate litigation — especially class actions. Individual shareholders in a class action will recover only small damages, which will be insufficient to pay for their litigation costs, and class members do not want to be personally liable for costs. So litigation funding agencies step in by offering to pay the legal costs in return for a share of the winnings if the class action is successful.
From the 100 companies surveyed, 69.1 per cent advised they had one or more open class actions on an ongoing basis. This number was up from the year before of 68.5 per cent. From the companies surveyed, 17.6 per cent advised they got a class action almost every two years and 13.2 per cent advised class actions were rare and were happening every few years.
In-house experts say class action lawyers were rubbing their hands together and counting the days until phase two of Canada's Anti-Spam Legislation came into effect on July 1, 2017, ushering in the much-feared private right of action while general counsel across the country were slamming the private right of action and the consequences of it.
Much to everyone’s surprise, the Canadian government indefinitely suspended the commencement of CASL’s private right of action, and a parliamentary committee recommended that CASL be revised to clarify its scope and application, reduce the cost of compliance and better focus enforcement. A significant theme of the report and its recommendations is concern for the "unintended cost of compliance": lack of clarity in the legislation and associated regulations adds to the cost of compliance, estimated by some witnesses as reaching into the millions of dollars for large organizations. Imagine if there was no parliamentary review of CASL and the private right of action had been effective July 1, 2017. There would an increase in the number of lawsuits, many of them class actions.
Sometimes, a small risk goes a long way, and the smaller risks an executive team is willing to take can quadruple into millions of dollars of class action litigation. Some of these perils can come from taking risks around data protection, collection of proper consent from customers and cybersecurity. As an in-house counsel, you just have to be ready for “the next thing.” Like I always say, keep your corporate insurance up to date and talk to your carriers or brokers on a regular basis so you are all on the same page when a class action suit lands on your desk so coverage counsel can be assigned quickly to assist you. The moral of the story is: Class actions are the next big thing for Canadian in-house legal departments to be aware of — as if you didn’t have enough risk to worry about!
Harpreet K. Sidhu is general counsel, corporate secretary and privacy officer at Pethealth Inc. – A Fairfax Company. She advises in all areas of corporate compliance, litigation, general contracts, employment, mergers and acquisition, and patent and trademark matters. She also manages governance and regulatory compliance for the corporation and is responsible for in-house ethics programs, government affairs and public policy activities on domestic and international affairs.