Social Policy in Ontario

A better country (with fewer lawyers)

Posted on July 19, 2013 in Child & Family Debates

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NationalPost.com – Full Comment
13/07/19.   F.H. Buckley, National Post

Notwithstanding puffery about the United States being “the greatest country on earth,” Canadians actually rank higher than Americans on most objective measures of the goods of this world, including longevity, wealth and income mobility. Canadians also have fewer of the bad things: government deficits, income inequality and murders. In addition, Canadians have more political freedom than Americans, according to think tanks that measure such things.

As for personal freedom, there’s the fact that, with 5% of the world’s population, America has nearly 25% of its prisoners, four times more per capita than Canada. Then there’s taxes: Right now, even Quebec is a tax haven compared to California, when top marginal rates are compared. Not surprisingly, when surveys are taken, Canadians report that they are happier than Americans.

A new book entitled The American Illness, which I edited and which was published in June by Yale University Press, describes another, lesser-known way in which Canada trumps the United States: its legal culture and procedures.

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No country more closely resembles the United States than Canada. Both countries have a similar inheritance of British traditions and institutions, notably the common law. Each country is the other’s largest trading partner, and they share the world’s largest bilateral trading relationship. Nevertheless, differences in civil procedure law should make American non-lawyers green with envy.

The discovery process in civil litigation is tightly restricted in Canada, for instance. By contrast, generous U.S. discovery rules, which often impose on defendants millions of dollars in expenses, permit opportunistic plaintiffs to hold up defendants with settlement offers that are less than the costs the defendant would incur on discovery alone.

Canada (and the rest of the world) makes losers pay for a portion of the successful party’s costs. That doesn’t happen in the United States, and that gives unmeritorious American plaintiffs a greater incentive to sue.

The right to have civil cases adjudged by a jury is afforded Constitutional protection in the United States. In Canada, civil juries were abolished as a sensible reform measure.

These differences serve to increase the costs and risk of failure for Canadian plaintiffs, and decrease their expected damage awards. If litigation rates are four times smaller in Canada than the United States, this should not occasion surprise: Subsidize something and you get more of it; penalize it and you get less of it.

Differences in legal ethics matter, too. In America, more than elsewhere, lawyers are encouraged to advance their client’s interests without regard to the interests of justice in the particular case or broader social concerns. American lawyers’ professional culture is unique in permitting and implicitly encouraging them to assert novel theories of recovery, coach witnesses, and wear down their opponents through burdensome pretrial discovery.

As for punitive damages, Canadian awards are many times smaller than American ones

America is also an outlier in its substantive tort law. Unlike U.S. courts, Canadian courts do not impose strict liability on manufacturers for product defects. Instead, a finding of negligence is required. Canadian courts also are a good deal more parsimonious in assessing damages. The Supreme Court of Canada capped damages for non-pecuniary losses (e.g., pain and suffering, wrongful death) at $100,000 in 1978 (adjusted subsequently for inflation). Remarkably, American courts have struck down such caps as unconstitutional when they were enacted by state legislatures. As for punitive damages, Canadian awards are many times smaller than American ones.

In America, and sometimes in Canada, the idea has taken hold that tort law should provide consumers with a kind of insurance against product defects. But tort law is an imperfect vehicle for insurance, since American trial lawyers typically will take 30-40 percent of the recovery as their fee. And that doesn’t include the defendant’s costs. Add them in, and the legal expenses can come to 75 cents for every dollar of recovery. State Farm and Allstate do it cheaper.

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Reading American contract law can give a Canadian or English lawyer a mild case of vertigo. The language is familiar, the signposts are the same, but peering into the dispositions of cases reveals an unfamiliar and disconcerting world.

The cross-country differences can be observed in how courts deal with excuses: the doctrines of mistake, frustration and impracticability that permit a party to walk from a deal when it turns sour. Anglo-Canadian courts are more likely to hold the parties to their bargain, and this permits both of them to invest more in the contract up front. That’s important, because the point of long-term contracts is precisely to encourage the parties to believe that their deals will be enforced and to rely on each other to perform.

American academics are only now beginning to recognize the superiority of Anglo-Canadian contract law. The idea that every bargain deserves its day in court, that a contract might be set aside when things turn out badly for one side after, say, commodity prices increase, and that judges know the minds of the parties better than the parties do themselves, has not proven as valuable for the American economy as it has for American lawyers.

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A decade ago, the New York Stock Exchange launched half of the world’s new public companies. By 2006, this had dropped to one in 12, as firms moved to the London Stock Exchange and other venues. The American Illness lays much of the blame on Paul Sarbanes and Mike Oxley, sponsors of the 2002 Sarbanes-Oxley corporate reform legislation (“SOX”), whose photographs (as their favorite Americans) are displayed by London brokers: They know whom to thank for legislation that drove the American securities industry to Britain and other countries.

While SOX greatly and inefficiently increased the reporting duties of U.S. public firms, it is not the only factor that drives securities business offshore. The prospect of litigation based on federal securities law is another reason for the decline in the American securities market. Firms are less exposed to shareholder suits, and pay less for directors’ and officers’ insurance, in other countries. For smaller companies in particular, the savings are significant.

When regulatory regimes have been compared, American regulatory law stands out as more detailed, complex, legalistic and adversarial

Trial lawyers intent on defending America’s high litigation levels sometimes argue that, were they lower, the nation would require a greater degree of regulation. But this assumes that litigation and regulation are substitutes: more of one, less of the other. That argument would be more persuasive if the regulatory burden were higher in Canada and other countries with lower litigation levels. That’s not the case, however. When first world regulatory regimes have been compared, American regulatory law stands out as more detailed, complex, legalistic and adversarial. Regulatory enforcement is “by the book,” and severe criminal may be meted out on breach. Relative to similar countries, America has both more litigation and heavier regulation.

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One of my book’s most interesting chapters, by Stephen Magee, reprises work he did 20 years ago on the optimum level of lawyers. There is such a thing as too few lawyers, where it’s hard to do business for lack of legal advice. But then there is also such a thing as too many lawyers, where everyone seems to have a law degree (a state we seem to approach in the Washington, D.C. area, where I live). The result is the upside down U-shaped curve, now called the Magee curve.

After mapping lawyers per capita against measures of wealth for 27 countries, Magee puts the optimum number of lawyers — the apex of his curve — at significantly less than the American level of 3.65 lawyers per 1,000 people. We’d be worse off economically without any lawyers, he notes, but we’d be even better off if we had a third fewer lawyers (which happens to be where Canada’s level sits); and he reports that this excess works out to a cost of $1 trillion to the American economy.

There are benign explanations for why we might expect to see more lawyers in a relatively low-trust society such as the United States: In more traditional societies such as Japan and Canada, post-contractual misbehavior is checked by a thicker set of norms and long-term business relationships. Reputations matter more in such countries, and lawyers matter less. Explanations of this kind might explain part of the puzzle — but likely no more than a part.

Magee has been faulted for assuming that the value of lawyers is to be measured only by their contribution to GDP, as if the benefits of the rule of law — including the protection of civil liberties — did not matter. However, the criticism rests on the false assumption that America’s level of lawyers results in a society where civil liberties are better protected than in other developed countries with a smaller numbers of lawyers. Somehow, other countries — Japan, England, Canada — manage to be civilized even if they lack America’s prodigious number of lawyers.

The American legal academy, especially that part that stubbornly defends the country’s private law regime, is insular. It resists the world’s judgment and ignores the fact that it has become the global outlier. It is in part because Canadians have rejected the idiosyncratic and wasteful legal doctrines of its neighbour that Canada, in little-noticed ways, has become the fortunate country which it is.

National Post

F.H. Buckley teaches at George Mason School of Law in Arlington, Virginia. His next book, The Once and Future King (Encounter Books, 2014), describes the rise of executive power in the White House and the Canadian Prime Minister’s Office.

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