Deterring Compensation: Class Action Litigation and Damage Awards Against Corporate Defendants

• Author: Natalie Kolos
• Pages: 157-196

157

DETERRING COMPENSATION:

CLASS ACTION LITIGATION AND

DAMAGE AWARDS AGAINST

CORPORATE DEFENDANTS

Natalie Kolos

Abstract: The class action has been lauded as an eff‌icient

and effective procedural mechanism to modify a defendant’s

wrongful behaviour and compensate the plaintiff. A dam-

age award against the defendant may modify behaviour. If

fault is established at a class action trial on the merits, the

damage award forces the defendant to internalize the costs

of its “wrongful” conduct, and simultaneously compensates

the plaintiff. The recent Létourneau c JTI-MacDonald Corp de-

cisionin the Superior Court of Quebec appeared to support

the theory that class actions achieve deterrence: Riordan J

awarded the largest damage award in Canadian legal history

against the three tobacco defendants. Although the damage

award ref‌lected the level of fault of the companies and was

aimed at compensating the plaintiffs, the true costs of the

award showed how compensation and deterrence in this case

were inadequate and ineffective. This paper argues that the

unique nature of the cla ss action renders large damage award s

counterproductive in achieving deterrence and compensa-

tion, particularly against corporate defendants. The f‌iduci-

ary duty that directors owe to their corporations makes the

deterrent effect of class actions questionable. Moreover, the

f‌iduciary duty brings into question the specif‌ic faults alleged

against the corporations and highlights an inherent contra-

diction in the law. Even if deterrence is not the primary aim

in one particular case, the Létourneau decision illuminates a

158 The Canadian Class Action Review

paradox of compensatory damages: not truly compensating.

Therefore, while the plaintiff “won” the action, it also lost.

The class action, at least in this circumstance, is just deter-

ring compensation.

159

DETERRING COMPENSATION: CLASS

ACTION LITIGATION AND DAMAGE

AWARDS AGAINST CORPORATE

DEFENDANTS

Natalie Kolos*

A. INTRODUCTION

On 27 May 2015, the Quebec Superior Court (Class Action Division) or-

dered the largest damage award in Canadian legal history.1 This award

was the result of seventeen years of litigation, beginning in 1998 when

Célia Létourneau and Jean-Yves Blais served two class action certif‌ica-

tion motions on three tobacco companies: Imperial Tobacco Canada Ltd

(ITL); JTI Mac-Donald Corp (JTI); and Rothman s, Benson & Hedges Inc

(RBH). Together, Létourneau and Blais represented a class of over 1 mil-

lion Quebec smokers. The plaintiffs alleged four separate faults against

the companies, including breaching the general duty to not cause injury

to another person, and the duty of a manufacturer to inform its custom-

ers of the risks a ssociated with its products.2 The court found the defend-

ants jointly liable for all four faults.

After 251 days of hearing, Riordan J awarded $15.5 billion in moral

(compensatory) damages, $131 million in aggregate punitive damages,

* Natalie Kolos is a t hird-year law student at the Unive rsity of Western On-

tario and w ill be articling at McCa rthy Tétrault LLP in Toronto, Ontario. The

author would like to th ank Professor Erika C hamberlain for her invaluable

support while re searching and writ ing the original ver sion of this article. The

author would also li ke to thank the Canadian Class Act ion Review’s editors for

their feedback a nd assistance in prepa ring this paper for publicat ion.

1 Graeme Hamilton, “Tobacco Fir ms Ordered to Pay Quebec Smokers $15B in

Dama ges” Natio nal Post (3 June 2015), online: http://news.nationalpost.com/

news/canada/tobacco-f‌irms-ordered-to-pay-quebec-smokers-15b-in-damages

[Hamilton].

2 The court also found the de fendants liable for faults under t he Charter of Hu-

man Rights and Freedoms, CQLR c C-12 as wel l as under the Consumer Protec-

tion Act, CQLR c P40.1.