Managing Legal Risk

A business can manage its legal environment by

-assessing that environment

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-developing a risk management plan

-reacting to changes in the legal environment

-managing its legal services


Why is it important for businesses to assess the legal environment?

Reduce the likelihood and impact of mistakes that are:

-costly in terms of expense of legal services and damage claims

-distracting in terms of time and effort

-harmful in terms of relationships and reputation



-a comprehensive action plan for dealing with legal risks involved in operating a business

-involves the cooperation of managers and employees at every level

-may use variety of methods, such as surveying, interviewing managers and employees, forming committees, or convening a panel of experts


Creating a legal risk management plan

Step 1 identify the legal risks

Step 2 evaluate the risks

Step 3 devise a risk management plan

Step 4 Implement the plan


Step 1 identify the legal risks

-Assess the organization’s functional areas

-reviews the organization’s business decisions

-examine the organization’s business relationships

-analyze the organization’s operations and transactions

Examples of Potential Legal Risks


Will vary between Businesses. Examples?

-business could harm the environment and result in prosecution under the environmental legislation or civil action by affected people

-employee harassment could result in human rights investigations

-aggressive marketing could result in investigation under the federal “Competition Act”

-machine breakdown could result in a loss of production and an inability to fulfill contracts, resulting in lawsuits for breach of contract





Step 2 Evaluate the Risks

Assess the probability of loss

Assess the severity of loss

Devise a Risk Management Plan


Step 3

Avoid or eliminate the risk

Reduce the risk

Transfer the risk

Retain the risk


How Might a business absorb or retain risk?

Self-Insurance-the organization can establish a funded reserve

Insurance policy deductibles-organization can retain risks to a certain dollar amount

Noninsurance-organization can charge losses as an expense item


Implement the Plan

Step 4: Implement the plan

-Carry out the plan

-Monitor and revise the plan


Reacting when prevention Fails

Can all risks be avoided?


-Maple leaf response to an outbreak of listeriosis that linked the company’s plant in Toronto, 22 deaths

-in 1982 7 deaths taking Extra Strength Tylenol that was laced by cyanide by an unknown culprit


Lessons From These Events?

React quickly and in a positive fashion

Use a prominent spokesperson to tell the company’s side of the story, and publicly apologize

-Use appropriate messages in different media: the companies expressed concern for the victims and did not argue whether it was responsible

-Be Open and consistent in acknowledging the problem and the company’s role in the problem and the company’s role in the problem


How to Choose a Lawyer

Find the lawyer or firm appropriate to the business’s needs in terms of expertise approach to dealing with clients and costs

Consult with business associates with similar legal problems

Consider meeting with each lawyer or with a representative of each firm

Discuss alternative fee structures with the prospects

Have a predetermined list of criteria when assessing prospects


Dispute Resolution

How Business Activities Can Lead to Disputes

-equipment breakdown (company can’t do maintenance like planes, close)

-dissatisfied customers (when you order online, returning stuff is a hassle)

-damaged goods (online shipping stuff breaks)

-problem employees (labor disputes, harassment cases employers will be pushing for results)


Is Litigation the Only Option For Resolving Legal Disputes

Alternative Dispute Resolution ADR

A range of option for resolving disputes as an alternative litigation (don’t want to litigation because private stuff become public, judges might go against your favor)


Advantages of ADR

Preserve Confidentiality (don’t want to expose religion)

Preserve relationship (Brad Pitt and Anglia Joli)

Less Costly

Less time consuming

Each side can agree on an outcome it “can live with”, whereas in litigation only 1 side can “win” (Trump has 4000 litigation cases,


ADR option

Negotiation: A problem solving process in which parties discuss their differences and attempt to reach a mutually agreeable resolution

-can be used to resolve almost every type of disputer, lawyer can be of assistance not required


Are there any situation when negotiation is not available?

-if the loss is one for which there is insurance, the insurer should carry out the negotiation or insurance coverage can be jeopardized


Business Application of the Law

Saying “sorry”

What are the pros and cons of an apology in face of a legal dispute? (admits you are wrong, which is bad)

The finality of Out of Court Settlements

Twin brother Cameron and Tyler Winklevoss lost their legal effort to re-open a 2008 settlement with Facebook


ADR options Mediation

Mediation-a neutral person, called a mediator, assists the parties in reaching a settlement of their dispute

-can be used for most disputes

-parties choose the mediator

-mediator do not make decisions, rather they facilities discussion that lead to the parties resolving the dispute voluntarily

-has a very high success rate, but each side must be ready to compromise

(guy with schizophrenia gets kicked out apartment because he smokes, but people with mental illness can’t be sane, filing case of discrimination, mediation with 1st lawyer didn’t change stance, 2nd lawyer allowed to smoke)

(dog weight limit, dog was too heavy, person has cancer single 9 months to live, moved out and died)



Popular because

-less expensive and quicker

-private and confidential if the parties choose

-helps to preserve the relationship between parties

-can result in a resolution tailored to the needs of the parties



A third person, called an arbitrator, appointed by the parties decides. It is similar to litigation in that it involves a hearing where the parties or representative makes submissions and resolution is outside the control of the parties (happens in athlete’s contracts)


When is Arbitration Used?

-Works particularly well for commercial and business disputes because the parties can select an arbitrator with relevant experience and keep commercially sensitive info private

-Can be agreed upon by the parties at any time. (rent a hotel room)

-very common in international contracts, significant commercial contracts

-parties can agree in contract not to sue and use arbitration to resolve disputes


How Arbitration Works

Parties may agree on an arbitrator or they may have a third party choose an arbitrator. There is no mandatory qualification

-parties decide on rules for conducting arbitration

-may establish own rules or incorporate rules set out in arbitration statutes or developed

At the end of the arbitration, the arbitrator renders a decision

The finality of the decision depends on what the parties have agreed to beforehand

The award, less it is overturned or varied on appeal, is binding and enforceable by the court


Business Application of the Law

Arbitration clauses in consumer contracts

Should arbitration clauses be prohibited in consumer contracts

Why or why not? (profs are arbitrators)


The litigation Process

-Arises when 1 party brings a legal action against another

-Should be a last resort

-Plaintiff-party initiates a lawsuit against another party

-Defendant-party being sued


Private (civil) Litigation

-Must be brought by the person claiming the loss at their own cost

-Each province has its own rules for civil litigation

-Some provinces have “small claims courts” that hear lawsuits involving smaller claims.

-Usually a lawyer is not required and the process is quicker and less expensive


Consideration before you sue

-what further steps are available, and how long will they take

-can the business devote the resources necessary to support the dispute, in terms of commitment and time of business personnel?

-Will a lengthy dispute affect the public profile and reputation of the business?

-Is the relationship with the other side valuable? (Never destroy a bridge where there is a river to be crossed)

-Will that relationship be harmed, whatever the outcome?

-What is the likely cost in terms of legal fees and company time?

Are they worthwhile principles at stake that go beyond the particular dispute?


Limitation Periods

Limitation Periods-the time period specified by legislation for commencing legal action

-vary widely depending on lawsuit and province

-the right to sue is lost after the applicable period of time ends


Example: Ontario/Alberta Limitation Act

Section 3 provides

A general limitation period of 2 years (meaning that the action must be commenced within 2 years of when the cause of action is discovered)


an ultimate limitation period of (10 years Alberta 15 Ontario) commencing when the cause of action arises, whichever period expires first (no limitation on sexual misconduct)

(Johnson Johnson Baby Powder Example)


Stages of a Lawsuit

4 stages

1)Pleadings-Each side files formal documents setting out their claims and defenses

2)Discovery-Each side shares its evidence and cross examines the other to gather evidence

3)Trial and Decision- “Cost” will normally be paid for by the loser

4)Enforcement-Winner can be collect judgment by using seizure and garnishment procedures


The Litigation Process

-Burden of Proof: The obligation of plaintiff to prove its case “beyond the balance of probabilities”

Pleadings: the formal documents concerning the basis for a lawsuit

Counterclaim: A claim by the defendant against the plaintiff

Discovery-The process of disclosing evidence to support the claims in a lawsuit


Legal Costs

-Normally the court will order the loser to pay the winner’s costs

-Costs do not refer to actual costs and are usually based on a schedule and do not cover all the actual costs

Contingency Fee-A fee based on a percentage of judgement awarded and paid by the client to the lawyer only if the action is successful


International Perspective

The Risk of Litigation in the US
How do the risk of litigation in the US differ from those in Canada? (There is a panel, like arbitration)


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