Fee-Shifting By-Laws in Canadian Shareholder Litigation

A fee-shifting by-law in the shareholder litigation context, “obligate[s] the plaintiff-shareholder to reimburse the corporation’s expenses (including attorneys’ fees and other costs) when the plaintiff [is] unsuccessful in litigation.” Shareholder litigation in the United States operates under the “American Rule” which provides that each party is responsible for their own attorney’s fees. Unlike South of the border, in Canada lawyers’ fees are largely recoverable by the prevailing party. The 2008 financial crisis escalated the number of shareholder-initiated suits, especially in the United States. To address this, American corporations have attempted to avoid bearing the cost burden of unsuccessful shareholder initiated litigation. One method which proved successful for ATP Tour Inc. was a fee-shifting by-law. This by-law was unilaterally adopted by the board of directors without express shareholder consent. The purpose of the…

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