EDITORIAL PAGE — A vicious circle

The lawsuit filed by Exdiam against Diamond Fields Resources and various other parties has stalled the proposed takeover of Diamond Fields by Inco.

Whatever its merits, the case is being taken seriously, simply because it was filed in the United States, where governments have yet to reform excesses of the civil justice system.

By now, everyone has heard about the problems of Vancouver-based Loewen Group, which became embroiled in a legal dispute with a small Mississippi funeral home. What began as a claim for $26 million ended when a jury awarded the American plaintiffs damages of $500 million. Loewen eventually reached an out-of-court settlement of $175 million, but the outcome has affected its bottom line, as well as the job security of its employees.

The unpredictability of the civil justice system in the U.S. has spawned uncertainty for every business sector. Restaurant chains are being hit by copycat claims after a woman was awarded millions after spilling coffee on her lap. A man received $4 million in damages because his new BMW was repainted after being scratched in transit. And so on.

The public sector has found that it is not immune and some cities have been driven to near-bankruptcy by the huge sums awarded by juries to people who, in some cases, were architects of their own misfortune. Personal accountability has gone out the window and some cases are so ludicrous as to be laughable, if not for the fact that the costs are borne ultimately by taxpayers, along with the escalating bills for liability insurance. In the case of commercial defendants, the damage awards and legal bills are passed along to consumers in the form of higher prices at the cash register.

Economists warn that American competitiveness is being hampered by the rampant escalation in the number and cost of civil jury awards. The country’s business environment is notoriously litigious. It is estimated that the U.S.

has more than 800,000 lawyers serving a population of 250 million. In contrast, Japan has just 15,000 lawyers serving a population of about half that of the U.S.

The situation is exacerbated by the fact that most civil cases in the U.S.

are tried by jury, rather than by judge. In Canada, by comparison, high damage awards are less common, mostly because civil disputes are rarely heard by juries. Americans have the constitutional right to trial by jury for civil cases and juries usually have little business or legal knowledge and a poor understanding of what constitutes a reasonable award. Trial lawyers prefer juries because they are easier to influence by emotion than judges; they also tend to award higher damages.

Another problem is that government officials are loath to deal with legal reform and lawsuit abuse for the simple reason that trial lawyers are huge political contributors. For years, they have succeeded in defeating even the most moderate attempts at reform. The business sector is not happy that politicians routinely choose to pander to trial lawyers rather than enact common-sense legal reform. But with an election rolling around every four years, and with campaign costs mounting, politicians are forced to tin-cup immediately after being elected; otherwise, they wouldn’t be able to stay in the game. It is a vicious circle, with little relief in sight for consumers and taxpayers.