Business squeeze from high rates and regulatory scrutiny causing spike: PwC partner and litigator
High interest rates and a slowing economy are leading to a surge in real estate and white-collar litigation, says Chris Polson, a partner in advisory and disputes at PwC Canada.
In February’s Monthly Economic Monitor, the National Bank of Canada predicted the Canadian economy would contract by the middle of 2024, leading to stagnant growth this year.
The business squeeze from a challenging economic environment often reveals wrongdoing in businesses, says Polson. This tends to lead to a rise in white-collar criminal litigation.
“You can't hide the inappropriate behaviours in other areas that are doing well,” he says. “The rising tide lifts all boats, and when the tide goes out, you see who's got clothes on and who hasn't.”
According to Gowling WLG’s “2023 Year in Review: White Collar Defence and Investigations,” 2023 was not a robust year of white-collar criminal enforcement. However, many factors indicate that that may change. Because of the scandal over foreign interference, the federal government has enhanced scrutiny of international transactions. On Oct. 11, Ottawa released the regulations that amend the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) Act, which, among other things, brings more entities under the Act’s purview and imposes compliance obligations.
Last Wednesday, the Bank of Canada announced it will hold its key interest rate at 5 percent. The central bank first raised interest rates two years ago to ease inflation.
The higher rates are jeopardizing many major real-estate projects, says Polson. He says at least 25 percent of his team’s practice this year involves disputes in this area.
“People are either breaching contracts or looking to get out of existing agreements and partnerships – in whatever means possible.”
In the real-estate sector, high interest rates have also given rise to a spike in insolvencies among developers, says Bruce Reynolds, a construction lawyer and co-managing partner at Singleton Urquhart Reynolds Vogel LLP. This is triggering a series of receiverships, causing delays in real-estate developments.
“A subset of the folks who develop these types of projects are borrowing large amounts of money in order to build,” he says. “…The economic model of the development is undermined by the increase in the cost of debt, while at the same time, the market value of the units is declining.”
Singleton Urquhart Reynolds Vogel is sponsoring the Award for Construction, Infrastructure and Transportation Law Department of the Year at the 2024 Canadian Law Awards. Registration is now open for the highly anticipated gala, which takes place on May 9 at the Liberty Grand in Toronto.
PwC is also an award sponsor.
“I think we have an excellent bar here in Canada,” says Polson. “We're happy to see people who do good work get recognized.”
“It's inspirational, frankly, to see some of the accomplishments of some of our bar.”
