Class actions may be the biggest icebergs on the Canadian business-law landscape right now — it’s what you can’t see that could sink you.

Class actions are relatively new to Canadian courtrooms, compared with U.S. trends, but a raft of recent judgments suggests that the financial risks for companies from these types of lawsuits, with their gargantuan damage awards, are rising. Indeed, plaintiffs often target companies with deep pockets — several major Canadian banks, accounting firms and at least one large life insurer have or are battling multimillion-dollar class actions.

As well, the courts appear to be increasingly willing to give plaintiffs a hearing and are clearing procedural hurdles that have discouraged or sidelined Canadian class actions in the past.

So, what’s beneath the surface, when it comes to the future impact of these slow-moving legal icebergs?

Fresh sources of funding for plaintiffs, for one thing. A decision by the Ontario Superior Court of Justice this past spring was the first in Canada to permit funding of class actions by a party not involved in the lawsuit. Typically, plaintiffs in class actions are ordinary individuals who claim they have been harmed by the actions of a large company. If they lose, they may be exposed to huge cost awards.

Law firms that represent class action plaintiffs sometimes agree to foot the bill. If a firm wins the bet — by winning the case — it takes a large slice of the award.

But an Ontario judge ruled earlier this year in Dugal v. Manulife Financial Corp. that a foreign company that specializes in funding class actions (in exchange for a big piece of the pie if the lawsuit is successful) may fund those proceedings. The area is controversial because funding litigation purely for profit was long barred under English common-law traditions. (The funding company in the Dugal case stands to collect up to 7% of any win, with a cap of $5 million-$10 million, if the plaintiffs are successful.)

But Justice George Strathy ruled that the arrangement is justified because it may be a factor in creating access to justice by allowing a reasonable claim to proceed. Not all the plaintiffs in this case are of modest means — they include the Canada Pension Plan Investment Board, the Ontario Teachers’ Pension Plan Board and OMERS Investment Group. (The lawsuit alleges that Manulife misrepresented its risk-management practices, resulting in significant losses for investors.) If this decision is upheld, it is likely to make class actions easier for plaintiffs at all income levels.@page_break@For financial services firms and their investors, the stakes are particularly high. They are watching the progress of a clutch of class actions dealing with pay issues at large institutions, including three banks. The lawsuits, which mimic a series of actions in the U.S., range from unpaid overtime for tellers and mortgage salespeople to overtime for commissioned salespeople such as financial advisors.

Most recently, Bank of Nova Scotia lost an appeal against a certification order in a huge overtime case. In June, the Ontario Divisional Court agreed with a lower court that there was evidence of systemic deficiencies in the way that the bank dealt with overtime issues and that the claims, if successful, could be resolved on an aggregate basis. (Class actions require sufficient similarity among the many individual claims to justify them being tried together in one action.)

The Scotiabank case has been appealed to the Ontario Court of Appeal, which is due to hear a similar appeal in an overtime case against Canadian Imperial Bank of Commerce. In that case, more than $650 million has been claimed for unpaid overtime. The CIBC case was denied certification in a lower court, despite what many view as similar facts. Both cases now await resolution by Ontario’s highest court.

Another class action has been launched against BMO Nesbitt Burns Inc. dealing with claims by advisors for overtime. There is no decision yet on the certification issue. (See Investment Executive, March 2010).

But, as a recent note from law firm McCarthy Tétrault LLP points out, class actions like these can have a big impact on defendants even before a final decision is reached. A $300-million overtime class action against Canadian National Railway Co., while still unresolved, has already resulted in the largest single award for court costs in Canadian legal history — $750,000 — as a result of the certification hearing, which was won by the plaintiff.

Another sign of the trend is that provinces and the legal community are trying to co-ordinate actions against the same defendant in multiple jurisdictions. Alberta’s Class Proceedings Act was recently amended to provide that non-residents will be included in a class action, as long as there is a “real and substantial connection” between the non-resident class members and the claim and they do not “opt out.” Some other provinces already have similar legislation. Clearly, larger classes could lead to larger awards.

The Canadian Bar Association, Canada’s professional association for lawyers, launched a National Task Force on Class Actions last year, with the aim of dealing with overlap among courts in different provinces. Says a recent note from Stike-man Elliott LLP: “What is certain is that with the ever-increasing number of class actions being filed with the courts, defendants may well be faced with multiple actions in several forums and will have to develop creative strategies to deal with parallel proceedings.” IE