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

• Author: Natalie Kolos
• Pages: 157-196

157

DETERRING COMPENSATION:

CL ASS ACTION LITIGATION AND

DAMAGE AWAR DS AGA INST

CORPOR ATE DEFENDANTS

Natalie K olos

Abstract: The class action ha s been lauded as an eff‌icient

and effective procedural mech anism to modif y a defendant’s

wrongful behav iour and compensate the plaintiff. A dam-

age award against the defenda nt may modify beh aviour. If

fault is established at a cl ass action tri al on the merits, the

damage award forces the defendant to internali ze the costs

of its “wrongful” conduct, and simultaneously compensates

the plainti ff. The recent Létourneau c JTI-MacDonald Corp de-

cision in t he Superior Court of Quebec appeared to s upport

the theory th at class actions achieve deter rence: Riordan J

awarded the largest d amage award in Canadian legal histor y

against the th ree tobacco defendants. Although the d amage

award ref‌lected the level of fault of the companie s and was

aimed at compensating t he plaintiff s, the true costs of the

award showed how compensation and deterrence i n this case

were inadequate and ineffect ive. This paper argues t hat the

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

counterproductive in achievi ng deterrence and compensa-

tion, particul arly against corporate defenda nts. The f‌iduci-

ary duty that d irectors owe to their corporat ions makes the

deterrent effect of class act ions questionable. Moreover, the

f‌iduciary duty bri ngs into question the speci f‌ic faults alleged

against the corpor ations and highlight s an inherent contra-

diction in the law. Even if deterrence is not the pri mary aim

in one particula r case, the Létourneau decision illuminate s a

158 The Cana dian Cl ass Action R eview

paradox of compensatory da mages: not truly compens ating.

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

The class action, at least in t his circum stance, is just deter-

ring comp ensation .

159

DETERRING COMPENSATION: CLASS

ACTION LITIG ATION A ND DA M AGE

AWAR DS AGA INST COR POR ATE

DEFENDANTS

Natalie K olos*

A. INTRODUCT ION

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

dered the largest da mage award in Canadi an legal history.1 This award

was the result of seventeen ye ars of litigation, begin ning in 1998 when

Célia Létourneau a nd Jean-Yves Blais served two cla ss action certif‌ica-

tion motions on three tobacco companie s: Imperial Tobacco Canada Ltd

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

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

lion Quebec smokers. The plaintiffs alleged four separate faults against

the companies, including bre aching the general duty to not cau se injury

to another person, and the duty of a m anufacturer to inform it s 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, R iordan J awarded $15.5 billion in moral

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

* 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.nation alpost.com/

news/canada /tobacco-f‌irm s-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.