Will American Courts Embrace "Loser Pays"?

In recent years, Canadian market participants have watched with interest as developments changed the American securities litigation landscape. The US Supreme Court's decision in Morrison limited the reach of US securities class actions. The fallout from Justice Rakoff's rejection of the SEC's settlement with Citigroup (which rejection was subsequently overturned) may have chilled the SEC's appetite for settling matters without admissions – right at a time when the Ontario Securities Commission had endorsed its own no-contest settlement regime.

A recent development is generating controversy: in May 2014, the Delaware Supreme Court held that fee shifting provisions in a corporation's bylaws may be valid and enforceable under Delaware law. These bylaws essentially require shareholders who commence unsuccessful litigation against the corporation to pay the corporation's legal costs.