The Power of Perspectives

The Canadian Bar Association

Yves Faguy


Splitting the roles of the GC and the chief compliance officer?

By Yves Faguy February 19, 2013 19 February 2013

The separation of powers versus the combining of roles between general counsel and the chief compliance officer has become, over the years, the subject of heated debate. Michael W. Peregrine, a partner at the U.S. law firm McDermott Will & Emery, discusses lessons learned from JP Morgan’s $6-billion trading loss last year. The bank’s internal analysis revealed that its risk policy committee hadn’t been made aware (in a timely manner that is) of the full extent of the risks related to bets made by the bank on credit derivatives. Peregrine takes note of one particular recommendation from the report that should be of interest to those responsible for risk oversight practices:

One of the most direct recommendations in the report relates to the independence of compliance and risk managers. An emerging view is that these managers should now report directly to the chief executive and not to a company’s general counsel. (Last month, JPMorgan said it had changed the chain of command so that its head of global compliance and regulatory management will report directly to the bank’s chief operating officers).
Moreover, the title and compensation of compliance and risk officers should command the same heft and responsibility of the post. Also proposed is a greater link between executive compensation and satisfaction of the board’s risk reporting standards.

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Why are securities class action filings dropping?

By Yves Faguy February 17, 2013 17 February 2013

NERA Economic Consulting reported last week that the number of securities class action cases filed in Canada dropped from 15 in 2011 to nine in 2012. It’s hard to draw comparisons with trends in the U.S., given the much smaller sample size. Nevertheless:

In previous years, trends in US securities class action filings have tended to be reflected in Canadian filings. For example, last year we noted that the three Canadian filings against Chinese companies with securities listed on North American exchanges—Sino-Forest, Cathay Forest Products, and Zungui Haixi Corporation—reflected one of the trends driving filings in the US. Trends in US filings from 2008 to 2010 relating to options manipulation, Ponzi schemes, and the credit crisis were also reflected to some extent in Canadian filings.

In 2012, the abatement of these recent trends was evident on both sides of the border. In the US, only four cases filed in 2012 related to the credit crisis (down from a high of 103 in 2008), none of the filed cases involved allegations of a Ponzi scheme, and only 16 cases were filed against Chinese-domiciled companies (down from 37 in 2011).5 In Canada none of the cases filed in 2012 related to any of these trends.

Dimitri Lascaris and Daniel Bach run through the possible explanations behind the drop, from limited resources on the side of the plaintiffs’ bar to recent court decisions that have “caused some plaintiffs’ firms to become more reluctant to pursue securities class actions.” Ultimately the two authors propose another explanation:

The reforms to the Securities Act are working. Fresh research in the United States by professors Stephen Choi, of the New York University School of Law, and Adam Pritchard, of the University of Michigan Law School, shows that securities class actions provide at least as much deterrent – if not more – than enforcement actions by the U.S. Securities and Exchange Commission. We believe that the spectre of multimillion-dollar lawsuits, years of litigation and reputational damage to culpable defendants have helped deter stock fraud. We believe that there are fewer filings because there are fewer good cases, and there are fewer good cases because more of Ontario’s public companies are complying with their disclosure obligations. This is precisely what Ontario intended when it modernized the Securities Act in 2005.

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Insolvency and environmental clean-up costs

By Yves Faguy February 13, 2013 13 February 2013

After last week’s post on the Indalex case, we caught up recently with Dianne Saxe of Saxe Law Office in Toronto, and asked her to comment on another recent SCC insolvency ruling (from December), in Newfoundland and Labrador v. AbitibiBowater Inc.

Whereas the Indalex ruling hung on the conflict between insolvency law and pension law, the AbitibiBowater case presented the challenge of deciding whether the government of N&L could force an insolvent AbitibiBowater, which had obtained a stay of proceedings under the Companies’ Creditors Arrangement Act, to pay for an environmental clean-up ordered by the province. The SCC ruled that the province’s environmental claim has to be paid in accordance with federal insolvency law.

We asked Saxe in this video to explain what the impact of the decision will be for the provinces, taxpayers and companies that are still in operation. And sticking to the theme of who should pay for clean-up costs when polluting companies become insolvent, Saxe also raises a few red flags about the attempt by the Ministry of the Environment in Ontario to force directors of what was formerly Northstar Aerospace (now out of business) to cover clean-up costs related to contamination dating back to before they were appointed.


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The Indalex ruling explained

By Yves Faguy February 4, 2013 4 February 2013

Rachel Arbour of Hicks Morley in Toronto answers our questions about the Indalex ruling, handed down by the Supreme Court last week, and what it means for both pensioners and plan sponsors:

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The royal baby bill: Do the provinces have a say?

By Yves Faguy January 31, 2013 31 January 2013

There have been some amusing exchanges in the twitterverse over the law introduced in the House of Commons today aimed at changing the royal succession rules to make them compatible with announced changes to those in the UK. The question for many has been whether Canada’s assent is enough to incorporate the new rules into our own laws or whether we need a full-blown constitutional amendment. Scholars will certainly get a kick out of this paper by Anne Twomey of the University of Sidney (hat tip: Philippe Lagassé), who takes us from the pre-Statute of Westminster days, through the abdication crisis of 1936 and up until today. But first here’s some context explaining why both the Gordon Brown and David Cameron governments have treaded carefully with the matter of changing the laws of succession in the first place:

One of the notable aspects of the debate on this Bill was the confusion about whether all Commonwealth countries would have to be consulted about it, or whether consultation was confined to the 15 other Realms. It was even suggested that all the British overseas territories would have to be consulted, as well as devolved administrations, such as Scotland. There was also confusion about whether mere consultation was required, which could be done by a phone call, or whether the Parliament of each of these polities would have to legislate prior to the United Kingdom Parliament enacting its legislation.

The problem, Twomey explains, lies in the wording of the Statute of Westminster (more after the jump).

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