Litigation rated top legal trend in 2005

Key driver is the continuing campaign to improve corporate governance, finds BEPPI CROSARIOL

by Beppi Crosariol
Globe & Mail
Monday, January 3, 2005

Ask a random sampling of corporate lawyers in Canada to predict the top legal trends for 2005 and you're likely get an array of answers. But one thing's almost certain: They'll agree on the top three.

To echo that hackneyed real estate maxim about location, the top three legal trends for 2005 are likely to be litigation, litigation, litigation.

The key driver is the continuing campaign to improve corporate governance, as businesses scramble to confront a brave new landscape of legislative and regulatory scrutiny.

Ontario in particular is widely expected early this year to enact long-awaited amendments to its Securities Act that will make it easier for shareholders to launch civil lawsuits against public companies for errors and omissions that have an impact on stock prices.

Adding to that will be a more vigorous emphasis on the policing of public markets, says Peter Jewett, chairman of the corporate department at Torys LLP.

Mr. Jewett also cites the influential example of the United States, where the Securities and Exchange Commission has taken a forceful lead in pursuing corporate laggards in the wake of the Enron Corp. and WorldCom Inc. scandals.

"My perception is that our securities regulators here have enforcement very high on their agenda," he says, adding the federal government recently created several new RCMP units to combat white-collar crime. "It's been, in relative terms, very active this year and I think that's likely to increase going forward."

At Torys, several senior lawyers are now working "virtually full-time" advising directors and officers of client companies on best practices for corporate governance, he adds.

Related to that trend will be a new movement likely to spawn headlines in 2005 -- business cases reaching the Supreme Court of Canada. Deborah Glendinning, head of the class-action specialty group at Osler Hoskin & Harcourt LLP, says the country's highest court, whose major business pronouncements have been "few and far between," is showing greater willingness to take on complex corporate and commercial cases.

"The ability to get these cases up to the Supreme Court is going to be greater," she says, noting that lawyers have been eagerly anticipating clearer direction on issues concerning the duties of directors and officers. "Hopefully we'll get more guidance on commercial issues and on governance issues."

While such guidance may help lawyers, it isn't likely to pacify disgruntled shareholders. Arguably just as forceful a driver of litigation in 2005 will be the trend in Canada toward U.S.-style class-action lawsuits aimed not only at financial mismanagement but also at defective or dangerous products.

"Plaintiffs' lawyers here are kind of learning how to use class action as a weapon," says Mr. Jewett of Torys. A landmark multimillion-dollar shareholder class-action victory in Canada was decided last year against Toronto-based Danier Leather Inc., which, according to an Ontario Superior Court judge, gave "misleading" projections as it went public. The decision is being appealed.

As is happening south of the border, increased regulatory scrutiny and the publicity it generates is likely to add fuel to the class-action fire, as opportunistic litigators comb through newspapers to seize upon cases and then go in search of shareholders willing to stand as the main plaintiffs in class-action suits.

"Some regulatory body has done all the work for them," Ms. Glendinning says. "The case is served up on a silver platter," as litigators can cite the regulators' findings as the key evidence in a shareholders' lawsuit.

She says the centre of class-action activity in Canada is likely to be Quebec, where changes to the province's Code of Civil Procedure last January effectively granted a "rubber stamp" to plaintiffs seeking to register class-action suits.

In addition, Ms. Glendinning says, corporations in Quebec, unlike those in other North American jurisdictions, have no recourse to appeal a class-action certification once it's granted. As a result, that province "is sort of becoming a jurisdiction of choice in many circumstances," she says.

Another burgeoning area likely to see considerable growth in 2005 is legal advice for directors and officers seeking more comprehensive liability insurance. "In the old days, people just took the policy they got," says Simon Romano, a partner at Stikeman Elliott LLP. "Now, they want to negotiate it."

And with good reason. Prices for policies have been rising "astronomically," he says. He cites one client whose annual premiums recently rose to $250,000 from $75,000 for $20-million worth of coverage.

And there's another reason more and more clients are hiring their own advisers to negotiate personal coverage, Mr. Romano says. In many cases, directors' and officers' insurance is purchased as an umbrella policy that covers an entire corporate team. But if one rogue executive or director were to use up the entire liability limit as a result of litigation, there would be no coverage left in the pot for the rest of the group. Individual "D and O" coverage is "a very emerging area."

While litigation may be the chief external force affecting corporate law practices this year, lawyers themselves are shaping some of their own work trends.

One that's been growing for years is lateral career movement. The rise of headhunters specialized in legal recruitment has led to poaching as recruiters actively approach potential defectors on behalf of firms looking to fill weak spots.

"There's more appreciation that the grass may be greener somewhere else," says Richard Wajs, president of TWC International Executive Search Ltd.

He says a growing number of entrepreneurial lawyers are looking to join internationally oriented firms "that will allow them to have a platform where they can serve their clients beyond the Canadian border, and not, frankly, just have to turn the file over to a lawyer from a firm that's based in the United States or some other foreign country."

Also expected to continue apace is the movement of senior lawyers from private practice to in-house counsel positions at client companies -- and vice versa. The trend to leave private practice was sensationally typified last year by the jump of J. P. Bisnaire, the long-time mergers and acquisitions wizard at Davies Ward Phillips & Vineberg LLP, to the executive suite at Toronto-based Manulife Financial Corp.

At the same time, the brain-swap trend will place more pressure on firms to adopt more attractive pay packages and policies that offer flexible work arrangements. Susan McGrath, president of the Canadian Bar Association, says it's no longer just women with childcare duties who are complaining about the notoriously long law firm hours. "Now, young men are just as concerned about work-life balance."

Ms. McGrath also expects this year to be notable for paralegal regulation. Lawyers have for years been lobbying governments to adopt education requirements for lay people, such as immigration consultants, who provide quasi-legal services. The Ontario government, for one, is considering a regulatory plan put forward late last year by the Law Society of Upper Canada, and Ms. McGrath says she expects Attorney-General Michael Bryant to make a proclamation on the plan as early as this fall. "That would be a significant step forward," she says.

One trend that many lawyers believe may have reached a plateau is mergers between large corporate law firms. The 1990s saw much consolidation among prominent corporate firms as they sought to acquire new clients the fast way and establish a national network of offices to serve existing clients that were expanding from east to west.

Now, those firms are increasingly looking to establish non-equity partnerships with their international counterparts, particularly in the United States, where many Canadian corporate clients are seeking to expand their businesses.

"I don't think the perception is that [mergers] really work in the legal business," says Mr. Romano of Stikemans. "We have 30 or 40 firms that are big [in Canada]. I think we've had our mergers for a while."

But some lawyers aren't ruling out mergers altogether. Tony Merchant of Merchant Law Group in Regina, a Western firm with about 60 lawyers specializing in corporate litigation, says he expects to start seeing consolidation among the 12- or 15-lawyer litigation boutiques that sprang up across the country in the 1990s.

Most of those firms specialize in prosecuting plaintiff cases, which tend to be considered off-limits by large full-service corporate firms representing corporate clients that tend to be the targets of class-action litigation. As class-action lawsuits in particular grow in scope, those boutiques will be looking to bulk up their expertise, Mr. Merchant says.

"I think you'll see litigation coming together."