Joe Fresh, lawsuit must answer arms-length legal questions

Analysis

A proposed class action lawsuit seeking to sue Joe Fresh for $2-billion about its role in the 2013 Bangladesh garment factory collapse raises thorny legal questions about how much responsibility companies should have over their arms-length operations in other countries.

And while such lawsuits are commonplace in the mining sector, the Ontario case probing Loblaw’s role as one of 29 companies whose apparel was made in the Rana Plaza complex before the death of 1,100 workers could fire a warning shot into the much more high-profile business sector of retail if a judge agrees to hear it, legal experts say.

But that “if” is a big one.

“It is not much of a stretch to understand why the Bangladesh companies that manufactured the apparel could be held negligent,” said Kernaghan Webb, a professor of law and business at Ryerson University’s Ted Rogers School of Management and director of its Institute for the Study of Corporate Social Responsibility.

Similarly, he said, it could be argued that the Bangladesh regulatory authorities responsible for inspecting and ensuring the safety of Bangladeshi workers failed to exercise reasonable care, and were therefore also negligent — something known as contributory negligence. “However, there are some very significant legal challenges that have to be met by the lawyers for the plaintiff if Joe Fresh and its corporate affiliates are to be found liable.”

Indeed, in many proposed class actions, the corporations involved decide to settle, said Penny Collenette, an adjunct professor in the faculty of common law at the University of Ottawa, whose specialties include corporate social responsibility and international business.

“If this successfully went to trial, it could be a legal juggernaut,” she said, but noted a settlement would serve as a warning to other companies.

“Corporations are normally very litigious. For the plaintiffs it can be a tough road. A corporate defendant kicks it around and they can keep it going for a long time if they have deep pockets.”

That said, optics may have an overriding role when it comes to strategy in retail, a much more visible business sector to the general public than, say, mining: Pretty much everybody shops. “If they are at the same time getting adverse publicity, a company might not have an interest in doing [litigation],” Collenette said. “The issue of companies being held responsible for their actions while operating overseas is a giant issue,” she said. “It all gets into due diligence — who knew what and when? What was the monitoring, what was the reporting?”

Jasminka Kalajdzic, a law professor at University of Windsor who specializes in class actions, said a judge will first need to rule on the legal issue that there is a cause of action against the defendant in order to certify a class action.
“This veers into corporate social responsibility territory: To what extent is a Canadian corporation liable for the misconduct or the actions of a company with whom it contracts?” Kalajdzic said.

“The rest of the criteria are going to be equally interesting in this context, because you have a domestic corporation over which a Canadian court clearly has jurisdiction being sued for an activity that took place abroad and that caused damage abroad to foreign, non-resident class members. There are some jurisdictional questions.”

Such cases could be gaining traction. A precedent-setting Ontario Superior Court decision in 2013 allowed a lawsuit against Hudbay Minerals Inc. to proceed to trial in Ontario. The lawsuit represents a number of Guatemalan plaintiffs over alleged human rights violations at Hudbay’s Guatemalan mining project.

“That one has really sparked a lot of legal interest, because it is the first time [a case of this type] is going to be allowed to be heard in Canada when the actual events did not happen in Canada,” Collenette said.

Webb said in order to argue that Loblaw is negligent, the Toronto law firm representing garment workers in Bangladesh will need to establish that Joe Fresh owed a duty of care to the workers and that it was reasonably foreseeable that the workers would suffer harm if Joe Fresh failed in its duty of care; that the actions of Joe Fresh fell below the expected standard of care that it would reasonably be assumed businesses in the position of Joe Fresh would meet, that the actions of Joe Fresh were the cause of the injuries or fatalities in question, and that it was reasonably foreseeable that harm of this sort would happen if Joe Fresh failed to exercise care.

-Financial Post