COURT OF APPEAL FOR ONTARIO
CITATION: Bancroft-Snell v. Visa Canada Corporation, 2016 ONCA 896
DATE: 20161128
DOCKET: C61440
Cronk, Blair and Pardu JJ.A.
BETWEEN
Jonathon Bancroft-Snell and 1739793 Ontario Inc.
Plaintiffs
(Appellants)
and
Visa Canada Corporation, MasterCard International Incorporated, Bank of America Corporation, Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Capital One Financial Corporation, Citigroup Inc., Federation Des Caisses Desjardins du Québec, National Bank of Canada Inc., Royal Bank of Canada, and Toronto Dominion Bank
Defendants
(Respondents)
Proceeding under the Class Proceedings Act, 1992
Reidar Mogerman and Jennifer D. Winstanley, for the appellants
No one appearing for the respondent, Visa Canada Corporation
James Musgrove, for the respondent, MasterCard International Incorporated
Michael Eizenga, for the respondent Bank of America Corporation
Mahmud Jamal and David Rankin, for the respondent Bank of Montreal
Markus Kremer, for the respondent, Bank of Nova Scotia
Katherine Kay, for the respondent, Canadian Imperial Bank of Commerce
Daniel G. Cohen, for the respondent, Capital One Financial Corporation
No one appearing for the respondent, Citigroup Inc.
Vincent de l’Étoile, for the respondent, Fédération Des Caisses Desjardins du Québec
No one appearing for the respondent, National Bank of Canada Inc.
Paul J. Martin, for the respondent, Royal Bank of Canada
Christine Lonsdale, for the respondent, Toronto Dominion Bank
Anthony Tibbs and Venessa Vuia, for the intervenor, Merchant Law Group LLP
Brendan van Niejenhuis and Carlo Di Carlo, appearing as amicus curiae
Heard: May 25, 2016
On appeal from the order of Justice Paul M. Perell of the Superior Court of Justice, dated December 8, 2015, with reasons reported at 2015 ONSC 7275 and 2015 ONSC 7411.
R. A. Blair J.A.:
OVERVIEW
[1] At the heart of this appeal is a Fee Sharing Agreement entered into between Class Counsel and the Merchant Law Group in settlement of a carriage dispute involving competing multi-jurisdictional class proceedings launched across Canada. The Fee Sharing Agreement provided that the Merchant Law Group was to receive up to an $800,000 share of the fees recovered by Class Counsel from the proceedings, essentially in exchange for agreeing to stay its rival proceedings in two provinces.
[2] Perell J. took a negative view of this arrangement when asked to approve Class Counsel’s fees in conjunction with a subsequent motion to approve a partial settlement of the actions in all jurisdictions. He reduced the requested fees of approximately $3.4 million by 10% to reflect his refusal to approve of the Fee Sharing Agreement. In addition, he declared it unenforceable and ordered that Class Counsel not pay the Merchant Law Group “any sums from the settlement proceeds or from any other source now or in the future … on account of the Fee Sharing Agreement.”
[3] Not surprisingly, neither Class Counsel nor the Merchant Law Group is happy with this turn of events. They seek to set aside the motion judge’s disposition. The Merchant Law Group was granted intervenor status on the appeal. In addition, the Court appointed Mr. van Niejenhuis as amicus curiae to advance the perspective of the unrepresented class members.
[4] For the reasons that follow, I would uphold the motion judge’s decision to reduce Class Counsel’s fees by 10% and that part of the order enjoining Class Counsel from paying any sums to the Merchant Law Group from the settlement funds or the fees approved in relation to the settlements. I would also uphold the motion judge’s order that the Fee Sharing Agreement is unenforceable to the extent it renders paragraph 6 of that Agreement unenforceable. On procedural fairness grounds, however, I would set aside that part of his order declaring the Fee Sharing Agreement otherwise unenforceable and enjoining Class Counsel from making payment on account of the Fee Sharing Agreement from “any other source”.
FACTUAL BACKGROUND
The Underlying Class Actions and the Chronology
[5] The various class actions – including this one in Ontario – involve essentially the same defendants and the same subject matter.[^1] They are brought on behalf of merchants who challenge the allegedly anti-competitive nature of the Visa and MasterCard credit card networks in Canada. They are brought against Visa, MasterCard and ten different Canadian banks and major financial institutions. In brief, the representative plaintiffs allege that Visa and MasterCard and the various defendant banks and financial institutions have conspired to fix, maintain, increase or control merchant discount fees, including interchange fees, paid by merchants who accepted payment by Visa or MasterCard credit cards.
[6] A consortium of three law firms acts together as Class Counsel in the separate provincial proceedings: Branch MacMaster LLP; Camp Fiorante Matthews Mogerman LLP; and Consumer Law Group. Each is experienced and able in the conduct of class proceedings in Canada. I shall refer to the class proceedings brought by Class Counsel as the “Consortium Credit Card Actions”.
[7] I turn here to the chronology of these claims, which is of some importance.
[8] Prior to the commencement of any Canadian proceedings, beginning in mid-2005, more than 40 proposed class actions were filed by merchants across the United States making similar accusations regarding the structure of the Visa and MasterCard systems. These actions were ultimately consolidated and have proceeded through settlement.
[9] The Canadian Consortium Credit Card Actions were commenced first in Quebec (December, 17, 2010) and then in British Columbia (March 28, 2011) and in Ontario (May 16, 2011). British Columbia has been the lead jurisdiction, and the action has proceeded through the certification stage in that province. In all three actions, the representative plaintiffs signed contingency fee agreements with Class Counsel (the fee agreement in the Ontario action calls for fees of between 25% and 33 1/3% of the amounts recovered, depending upon the stage of the proceedings at which a settlement might occur).
[10] In July 2012, two events occurred. First, the U.S. proceedings were settled, for $7.25 billion ($US). Second, the Merchant Law Group commenced rival proposed class actions in Alberta and Saskatchewan (“the Merchant Law Group Credit Card Actions”). The latter turn of events prompted Class Counsel to commence their own class actions in those provinces in order to protect their interests and set up the carriage dispute that leads ultimately to this appeal.
[11] The British Columbia action proceeded through a certification hearing before Chief Justice Bauman in April and May 2013. The decision was reserved for nearly a year awaiting certain jurisprudential developments at the Supreme Court of Canada in competition law and other related fields.
[12] None of this prevented Class Counsel from engaging in negotiations with the defendants, however, and on August 26, 2013 – while the decision of the trial court on certification was still under reserve – they settled with one of the defendants, Bank of America. Bank of America agreed to pay the sum of $7.75 million and to cooperate with Class Counsel in the ongoing prosecution of the Canadian proceedings – a valuable “get” for Class Counsel in the continuing class action against the non-settling defendants – in exchange for a full release and the dismissal of the action against it.
[13] In March 2014, the action was certified as a class action. That decision was appealed and the British Columbia Court of Appeal rendered its decision in August 2015, varying the certification somewhat, but in ways that are not material here. While the certification decision was under appeal, the British Columbia action was certified for purposes of partial settlement in July 2014.
[14] Meanwhile, the carriage dispute was playing out in Alberta and Saskatchewan. At the suggestion of Associate Chief Justice Rooke, who was case managing the Alberta proceedings, Class Counsel and the Merchant Law Group attended a two-day Judicial Dispute Resolution Conference, presided over by a justice of the Alberta Court of Queen’s Bench. With her assistance, the carriage dispute was resolved by way of the Fee Sharing Agreement that is at the heart of this appeal.
[15] In essence, the Fee Sharing Agreement provided that the Merchant Law Group would agree to stay its rival class actions in Alberta and Saskatchewan in exchange for receiving up to $800,000 out of the fees recovered by Class Counsel in the Consortium Credit Card Actions, plus disbursements. As a result, the consortium of Class Counsel obtained carriage of the credit card class actions on a national basis.
[16] The specifics of the fee sharing arrangement are set out in paragraph 6 of the Fee Sharing Agreement:
[Class Counsel will] make the following payments to [the Merchant Law Group] from amounts [Class Counsel] recover on account of fees in connection with the prosecution of the Consortium Credit Card Actions:
a. The sum of $400,000 will be paid upon approval of fees in connection with the “BofA Settlement”
(the “First Installment”);
b. The sum of $300,000 will be paid at such time when a cumulative total of $8 million or more (including fees from the “BofA Settlement”) have been approved on account of legal fees in connection with future settlements or liability disposition in the Consortium Credit Card Actions; and
c. The sum of $100,000 will be paid at such time when a cumulative total of $14 million or more (including fees from the “BofA Settlement”) have been approved on account of legal fees in connection with future settlements or liability disposition in the Consortium Credit Card Actions.
d. On each of the same sums, applicable taxes will also be paid to [the Merchant Law Group]. [Emphasis added].
[17] In September and October 2014, Class Counsel obtained consent orders for certification of the class actions for the purpose of the Bank of America settlement in Saskatchewan, Alberta, Ontario and Quebec.
[18] Negotiations continued while the certification appeal in the main British Columbia action was pending and the appeal decision was under reserve. In April 2015, Class Counsel entered into further settlements with the defendants Capital One and Citigroup. These settlements were made on substantially the same bases as the Bank of America settlement: Capital One and Citigroup agreed to pay certain amounts and to cooperate in the ongoing litigation against the non-settling defendants, in return for releases and a dismissal of the action against them. At this point, Class Counsel had achieved settlements on behalf of the class members in the following amounts:
| Defendant | Amount of Settlement |
|---|---|
| Bank of America | $7,750,000 |
| Citigroup | $1,630,000 |
| Capital One | $4,250,000 |
| Total | $13,630,000 |
[19] To complete the chronology, the class actions in all five provinces were certified for purposes of the Capital One and Citigroup settlements in August 2015. Class Counsel proceeded to move for approval of the settlements and for approval of their fees and disbursements in all provinces. Approval was granted by the courts in British Columbia, Quebec, Alberta and Saskatchewan. On November 19, the approval motion in this Ontario action was argued. The motion judge approved the settlement. He also approved Class Counsel’s fees and disbursements, but subject to a deduction of 10% to take into account the Fee Sharing Agreement, which he considered to be unfair and unreasonable from the perspective of the best interests of the class members.
[20] This appeal followed.
The Decision Below
[21] Viewing the Fee Sharing Agreement in the overall context of whether it formed a fair and reasonable component of Class Counsel’s legal fees and disbursements, the motion judge gave three principal reasons for his conclusion that it did not.
[22] First, he held that the Fee Sharing Agreement required the court’s approval under s. 32 of the Class Proceedings Act, 1992, S.O. 1992, c. 6 (the “CPA”), but as approval had not been sought, it was unapproved and unenforceable. He added, as well, that in his view it was possibly illegal and unenforceable on champerty and maintenance grounds, although he made no finding to this effect.
[23] Secondly, he concluded that Class Counsel did not serve the best interests of the class members when they failed to disclose the details of the Fee Sharing Agreement to the court and “by participating in an unauthorized and possibly illegal agreement that ironically (given that this is a class action about anti-competitive conduct) tends to overprice the cost of legal services that the Class Members would have to pay and, further, that, in any event, undermines the integrity of the class action regime.” I note here for clarity that, in so doing, the motion judge did not attribute any bad faith to Class Counsel and was at pains to point out that they “genuinely and sincerely thought that it was both necessary and in the best interests of the Class Members” to sign the Fee Sharing Agreement and take the steps they took; he was not persuaded, however, that it was in the best interests of the Class Members to do so.
[24] Thirdly, he rejected the notion that the Canadian constitutional landscape, with its federal and provincial jurisdictions, provided an excuse “for the so-called jurisdictional problems of national class actions.” In his view, there are already in place “the legal tools necessary to stop the multi-jurisdictional tactics of law firms that get in the way of access to justice, behaviour modification, and judicial economy for Canadian citizens.” As a result, the proceedings in multiple provinces – and, in particular, the carriage dispute that arose from the multiple proceedings in Alberta and Saskatchewan – provided no added value for the class members (whose interests could have been protected in the lead action in British Columbia) and they should not be required to bear the costs of that dispute.
[25] As a result, the motion judge decreased Class Counsel’s legal fees by 10%, from $3,407,500 to $3,066,750 plus disbursements of $384,571.95 and applicable taxes. In addition, he ordered that Class Counsel were “not to pay any sums from the settlement proceeds or from any other source now or in the future on account of the unauthorized and possibly illegal Fee Sharing Agreement.”
The Positions of the Participants
[26] The issues raised by Class Counsel on appeal, and supported by the Merchant Law Group, may be summarized as follows. Did the motion judge err:
(a) in finding that the Fee Sharing Agreement was subject to court approval under s. 32 of the CPA and was therefore unenforceable in the absence of such approval?
(b) in finding that the Fee Sharing Agreement was “possibly illegal” and therefore unenforceable under the common law doctrines of champerty and maintenance?
(c) in deciding that Class Counsel had not acted in the best interests of the class members by entering into the carriage settlement and the Fee Sharing Agreement?
(d) by acting on his own motion, and without notice to the Merchant Law Group, in making findings as to the legality of the Fee Sharing Agreement and, in particular, in holding that Class Counsel were enjoined from making any payments to the Merchant Law Group from any source and at any time in relation to the Fee Sharing Agreement without notice to the Merchant Law Group of his intention to do so?
[27] As noted above, this Court appointed amicus curiae to advance the perspective of the unrepresented class members. In helpful and thoughtful submissions in that capacity, Mr. van Niejenhuis argued in response to the foregoing submissions that:
(a) the Fee Sharing Agreement was subject to approval under s. 32 of the CPA but, in any event, the motion judge had the jurisdiction to deal with it and to refuse to approve it under s. 12 of the CPA or pursuant to the court’s inherent jurisdiction;
(b) the motion judge’s comments with respect to the possible illegality of the Fee Sharing Agreement on champerty and maintenance grounds were simply a reflection of his broader underlying concern for the interests of the class members and his need to address whether it was fair and reasonable for the class members to bear the cost of the carriage settlement in the circumstances of this case;
(c) the motion judge’s view that the best interests of the class members were not served by the Fee Sharing Agreement was similarly driven by his substantive concern about whether it was fair and reasonable for the class members to absorb that cost in the circumstances;
(d) there is no basis for the procedural fairness argument because the Merchant Law Group knew that court approval of any settlement and fees would be necessary, but chose to leave it to Class Counsel to act as its agent in that respect in order to avoid incurring any expenses; the motion judge could not be expected to give notice on a matter on which he had not received full and frank disclosure (the details of the Fee Sharing Agreement were not disclosed to him until he requested them); and, in any event, there was no indication that there was anything in the way of evidence or arguments that the Merchant Law Group would have added had it received notice.
[28] Amicus added two other submissions.
[29] First, with respect to the standard of review – an issue not addressed squarely by Class Counsel or the intervenor – amicus emphasized the discretionary and highly contextual nature of decisions relating to settlements and the approval of fees in class action proceedings, and the high degree of deference to which such decisions are therefore entitled: see, Smith Estate v. National Money Mart Co., 2011 ONCA 233, 331 D.L.R. (4th) 208, at paras. 101-102. He noted – as this Court observed in Sutts, Strosberg LLP v. Atlas Cold Storage Holdings Inc., 2009 ONCA 690, 311 D.L.R. (4th) 323, at para. 18 – that the reasonableness of a counsel fee was “[the motion judge’s] call to make”, absent palpable and overriding error on the part of the motion judge.
[30] Secondly, amicus noted the unique context of settlement and fee approval hearings. Class counsel may find themselves in a conflict with their clients in seeking to uphold the settlement. Counsel for settling defendants have an equal interest in seeing the settlement approved. Thus, there is often no effective adversary to assist the court on this issue: Smith Estate, at para. 24. In this unique situation, the presiding judge is required to adopt a more protective role towards class members. An imperfect response to this difficulty is to recognize a duty of “full and frank disclosure” lying upon class counsel in unopposed approval motions: McCarthy v. Canadian Red Cross Society (2001), 8 C.P.C. (5th) 349 (Ont. S.C.), at paras. 19-21.
DISCUSSION AND ANALYSIS
Overview
[31] No one disputes the motion judge’s decision to approve the contingency fee agreements at issue. The sole debate is over whether – and, if so, the extent to which – he was entitled to take into account and otherwise deal with the Fee Sharing Agreement in the course of determining the quantum of fees that it was fair and reasonable for the class members to pay and Class Counsel to receive as a result of the settlements. For the reasons that follow, I resolve the debate with the following general conclusions.
[32] First, the court does have authority pursuant to s. 32 of the CPA to review the Fee Sharing Agreement and its effect, and to grant relief accordingly. Alternatively, it has the authority to do so pursuant to s. 12.
[33] Secondly, whether or not to give effect to the Fee Sharing Agreement in the context of the fee approval process, and in conjunction with the settlement approval process, and if so on what terms, is a matter of discretion. The motion judge is entitled to considerable deference in the exercise of that discretion.
[34] In the circumstances here, the motion judge did not err in exercising his discretion to reduce Class Counsel’s fees and order that no payments be made to the Merchant Law Group out of the fees approved or the settlement funds. Nor did he err in holding that the Fee Sharing Agreement is unenforceable insofar as it relates to paragraph 6 thereof (the provision that obliges Class Counsel to make the shared fee payment out of the fees recovered by Class Counsel in the class proceedings).
[35] However, the motion judge went too far in ordering that the Fee Sharing Agreement was otherwise unenforceable as between Class Counsel and the Merchant Law Group and in prohibiting Class Counsel from making any payments pursuant to it from any other source whatsoever, without giving notice to the Merchant Law Group that he was considering doing so and without giving them the opportunity to make submissions on the issue.
Jurisdiction: Sections 12 and 32
[36] Class Counsel and the Merchant Law Group contend that the Fee Sharing Agreement is a separate contractual arrangement between them and is therefore beyond the purview of the fee approval process under s. 32 of the CPA.
[37] Mr. Mogerman acknowledged that the motion judge could have dealt with the Fee Sharing Agreement under s. 12 of the CPA, but argued that, in either event, the motion judge erred in rejecting the Fee Sharing Agreement for reasons that I will address later. On behalf of the Merchant Law Group, Mr. Tibbs did not concede that s. 12 applied, although he agreed it opened the door widely. His primary argument appeared to be that there is a line-drawing problem if courts start assessing every agreement Class Counsel has entered into. Thus, the court should not have assessed the Fee Sharing Agreement. At one point, he argued that fee sharing arrangements made between competing counsel in settlement of carriage disputes are not reviewable by the courts in any circumstances. I do not accept this argument.
[38] Sections 12 and 32 of the CPA state:
Court may determine conduct of proceeding
- The court, on the motion of a party or class member, may make any order it considers appropriate respecting the conduct of a class proceeding to ensure its fair and expeditious determination and, for the purpose, may impose such terms on the parties as it considers appropriate.
Fees and disbursements
- (1) An agreement respecting fees and disbursements between a solicitor and a representative party shall be in writing and shall,
(a) state the terms under which fees and disbursements shall be paid;
(b) give an estimate of the expected fee, whether contingent on success in the class proceeding or not; and
(c) state the method by which payment is to be made, whether by lump sum, salary or otherwise.
Court to approve agreements
(2) An agreement respecting fees and disbursements between a solicitor and a representative party is not enforceable unless approved by the court, on the motion of the solicitor.
Priority of amounts owed under approved agreement
(3) Amounts owing under an enforceable agreement are a first charge on any settlement funds or monetary award.
Determination of fees where agreement not approved
(4) If an agreement is not approved by the court, the court may,
(a) determine the amount owing to the solicitor in respect of fees and disbursements;
(b) direct a reference under the rules of court to determine the amount owing; or
(c) direct that the amount owing be determined in any other manner.
[39] The fundamental principle of statutory interpretation today is that the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of the legislature: see Rizzo & Rizzo Shoes Ltd. (Re), 1998 CanLII 837 (SCC), [1998] 1 S.C.R. 27, at para. 21; R v. Gladue, 1999 CanLII 679 (SCC), [1999] 1 S.C.R. 688, at para. 25; Bell ExpressVu Limited Partnership v. Rex, 2002 SCC 42, [2002] 2 S.C.R. 559, at para. 26; ATCO Gas and Pipelines Ltd. v. Alberta (Utilities Commission), 2015 SCC 45, [2015] 3 S.C.R. 219, at para. 34.
[40] It is well-accepted that courts are charged with a broad supervisory role over the conduct of class proceedings, including the approval of settlements and the approval of fees and disbursements to be paid to class counsel. It is also well-accepted that the potential reward for class counsel must be sufficiently attractive to provide an incentive for counsel to take on such challenging cases, with their attendant risks. However, underpinning the court’s broad supervisory mandate is the need to ensure that the members of the class are protected and that outcomes are fair and reasonable and in their best interests in circumstances where the interests of class counsel and defendants may conflict with those of the class and there is no one to speak for the interests of the class. As this Court noted in Fantl v. Transamerica Life Canada, 2009 ONCA 377, 95 O.R. (3d) 767, at paras. 39-40 (“Fantl ONCA”):
The existence of the absent class members, among other factors, is the reason that the court’s supervisory jurisdiction is engaged from the inception of an intended class proceeding. It continues throughout the “stages” of the proceeding until a final disposition, including the implementation of the administration of a settlement or, where applicable, a resolution of all individual issues…. The parties acknowledge that the court has supervisory jurisdiction throughout the proceeding.
[41] Viewed through the lens of those governing principles, I interpret s. 32 to grant the motion judge authority to review fee arrangements like the Fee Sharing Agreement, and their effect, and to determine what terms and conditions, if any, should be imposed in relation to them in the fee approval process. In any event, if I am wrong in that interpretation, s. 12, alone or in combination with s. 32, provides the motion judge with that authority.
[42] Jurisprudentially, the broad approach courts have taken to the importance of their supervisory role in class proceedings – as reflected in this Court’s decision in Fantl ONCA – supports a wide and liberal interpretation of s. 32.
[43] For example, fee arrangements between class counsel and outside counsel are routinely considered on fee approval motions, often in the context of determining whether they are to be treated as a disbursement or a component of class counsel’s fees and, if the latter, as a factor in the overall “fair and reasonable” analysis: see Wilson v. Servier Canada Inc. (2005), 2005 CanLII 7128 (ON SC), 252 D.L.R. (4th) 742 (Ont. S.C.); Pro-Sys Consultants Ltd. v. Infineon Technologies AG, 2016 BCSC 964; Ford v. F. Hoffmann-LaRoche Ltd. (2005), 2005 CanLII 8751 (ON SC), 12 C.P.C. (6th) 226 (Ont. S.C.); Stewart v. General Motors of Canada Ltd. (2008), 72 C.P.C. (6th) 361 (Ont. S.C.); Bilodeau v. Maple Leaf Foods Inc., 2009 CanLII 10392 (Ont. S.C.); Fantl v. Transamerica Life Canada (2009), 2009 CanLII 55704 (ON SC), 83 C.P.C. (6th) 265 (Ont. S.C.) (“Fantl ONSC”). This in spite of the fact that agreements between class counsel and outside counsel are no more agreements between class counsel and a representative party than is the Fee Sharing Agreement.
[44] In other circumstances, courts have reviewed the fee payment portion of class action settlement agreements in which defendants have agreed to pay the fee of class counsel, albeit that such agreements are not, strictly speaking, agreements between class counsel and a representative party. See, for example, McCarthy v. Canadian Red Cross Society, 2007 CanLII 21606 (Ont. S.C.), at para. 21 (“McCarthy 2007”); Quatell v. Canada (Attorney General), 2006 BCSC 1840, at para. 17; Fantl ONSC; Guilbert c. Sony BMG Musique (Canada) Inc., 2007 QCCS 432, [2007] R.J.Q. 983, aff’d 2009 QCCA 231; but see Killough v. Canadian Red Cross Society, 2007 BCSC 941, 74 B.C.L.R. (4th) 295; Northwest v. Canada (Attorney General), 2006 ABQB 902, 45 C.P.C. (6th) 171.
[45] The appellants place particular reliance on the decision in Killough. There, the British Columbia Supreme Court held that the provision in a settlement agreement whereby the defendant agreed to pay class counsel’s fees was not caught by the British Columbia counterpart to s. 32[^2] because the court only has authority to review fee agreements made directly between class counsel and a representative plaintiff.
[46] I do not think that case assists the appellants, for at least two reasons. First, it is noteworthy that even in declining to review the relevant portion of the settlement agreement, Pitfield J. made it clear that other considerations would apply if there was collusion between the parties for the purpose of reducing class benefits and increasing counsel fees or if approval of the settlement was made conditional on the approval of fees (paras. 9, 12-13). Secondly, the decision is inconsistent with the jurisprudence referred to above, particularly McCarthy 2007, Fantl ONSC, and the somewhat analogous Stewart. Indeed, in McCarthy 2007 – the Ontario counterpart to Killough in the national class action settlements involving HIV claims against the Canadian Red Cross – Winkler J. stated:
The global fees being sought are subject to an agreement between class counsel and [the defendant]. However, such agreements do not eliminate the requirement of court approval. The main concern of the court in settlements in complex cases such as this is to ensure that claimants are able to access, in total, the benefits promised. [Emphasis added.]
[47] In Northwest, although the court noted that all parties agreed the Alberta counterpart of s. 32[^3] was not engaged, it nonetheless conducted a review of the fees when approval was sought by the parties because a review was necessary in order to preserve the integrity of class proceedings and guard against abuse.
[48] The primary effect of a side agreement such as the Fee Sharing Agreement between two sets of counsel fighting it out for the right to retain or obtain the brief to represent class members in a national class proceeding is that putative class counsel are “bought off” in the carriage settlement in exchange for their agreement to stay their competitive class proceeding in favour of successful class counsel’s class proceeding. Where the price of that exchange is to be paid out of the proceeds of settlement and as part of the counsel fee provided for under the contingency fee agreement between class counsel and the representative party, I see no valid reason why the “shared fee payment”, and the value, if any, flowing from the services it is said to represent, cannot be reviewed as a component of the fees encompassed by the contingency agreement and subject to court approval under s. 32.
[49] There is a further factual and contextual basis for this interpretation of s. 32 as well.
[50] In his very helpful and able oral argument, Mr. Mogerman readily acknowledged that the percentage contingency fee sought from class members generally incorporates a risk factor to account for potential carriage fights and that if there were no carriage risk the “ask” in the contingency fee agreement would be less. “The ask bakes in carriage risk”, as he put it. He submits, however, that in the real world of national class actions in Canada there are carriage risks and that such a component of the fee is justifiable. A carriage settlement buys “certainty” that the class action will be able to proceed without the further complication of competing provincial proceedings.
[51] I will return to this submission in more detail later. For the purpose of interpreting s. 32, the important point is that the contingency fee agreement between class counsel and the representative party has as one of its risk components the potential for carriage disputes, including the potential for payment to competing class counsel in order to buy the “certainty” referred to above.
[52] “Certainty” in this context has more than one dimension, however. Under the Fee Sharing Agreement, the Merchant Law Group was entitled to receive up to $800,000 out of the fees to be paid by the class members to Class Counsel. While the “certainty” purchased through the carriage settlement and the Fee Sharing Agreement may have provided some benefit to the class, it is not insignificant that both Class Counsel and the Merchant Law Group stood to profit substantially by it as well. The Merchant Law Group because of the significant payment it became entitled to receive essentially for doing little except disappearing from the particular class proceeding landscape. Class Counsel because, as Winkler J. noted in Setterington v. Merck Frosst Canada Ltd. (2006), 2006 CanLII 2623 (ON SC), 26 C.P.C. (6th) 173 (Ont. S.C.), at para. 26, “[i]t would be to ignore the reality of class proceedings to disregard the fact that counsel granted carriage of a class proceeding stand to reap a substantial fee if successful.” It is these additional dimensions of “certainty” that bring the Fee Sharing Agreement within the court’s supervisory jurisdiction under s. 32.
[53] Moreover – at least anecdotally, if the reaction of the Bar and others to the motion judge’s decision below is any indication – there appears to be some recognition that fee-sharing agreements between competing law firms to avoid litigation over who has carriage of a class action are becoming more common in the industry. See Jared Biden & Jason Mohrbutter, “An Inter-Provincial Schism Over Class Counsel Fee Sharing Arrangements” (13 January 2016), online: MLT <www.mlt.com>; Shannon Kari, “Case to Target Judge’s Limit on Fee-sharing Deal” (16 May 2016), online: Law Times <www.lawtimesnews.com>; Brian N. Radnoff, “Fee Sharing Agreements in Trouble?” (25 February 2016), online: Lerners <www.lerners.ca>; Markus F. Kremer, “Ontario Court of Appeal Considers Fee-Sharing Agreement in Class Action” (26 May 2016), online: BLG <blog.blg.com>. I take that as some indication that class members are being exposed increasingly to accepting the “baked-in ask” that is designed to protect class counsel from incurring any costs in fighting for the right to represent them, as opposed to costs for providing legal services that are a benefit to the class.
[54] All of these factors support a contextual and purposive interpretation of s. 32 that brings the Fee Sharing Agreement within its reach.
[55] The appellants rely on the decisions of the Quebec Superior Court (9085-4886 Quebec Inc. c. Visa Canada Corporation, 2015 QCCS 5921) and the Saskatchewan Court of Queen’s Bench (Hello Baby Equipment Inc. v. B of A Canada Bank, 2015 SKQB 410) approving Class Counsel’s fees and the Fee Sharing Agreement in the counterparts to these proceedings in those provinces.
[56] Even in approving the fees in the Quebec proceedings, however, Corriveau, J.S.C. – after taking cognizance of the motion judge’s decision here – expressed her disapproval of agreements such as the Fee Sharing Agreement. At para. 32, she said:
The Court does not approve of agreements reached between competing groups of plaintiffs’ counsel that are intended to disinterest some of them.
[57] In the Saskatchewan proceedings, Ball J. directly addressed the issue whether the Fee Sharing Agreement was subject to approval under the Saskatchewan counterpart to s. 32.[^4] He concluded it was not. At paras. 21-23, he said:
Even so, if a 25% contingency fee on the settlements would have been approved as fair and reasonable in the absence of the Fee Sharing Agreement, and if the Fee Sharing Agreement imposes no additional costs on the class, my view is that the 25% contingency fee requested by Class Counsel should be approved. Neither the fact of the Fee Sharing Agreement, nor Class Counsel’s failure to disclose it, transformed a fee that was otherwise fair, reasonable and in the best interests of the class into one that is not.
There is a cogent argument to be made that the purpose and intent of the Fee Sharing Agreement was to provide for the payment of fees to lawyers acting for representative plaintiffs out of funds recovered for the benefit of class members and, as such, both parties to the agreement must apply for approval of the amounts pursuant to [the Saskatchewan equivalent of s. 32]. However, the Fee Sharing Agreement is not an agreement between a lawyer and a representative plaintiff; it is an agreement between lawyers. Accordingly, it is not subject to approval pursuant to [the Saskatchewan equivalent of s. 32]. If one party to the Fee Sharing Agreement does not adhere to it, the other party may take steps to enforce it.
I will not look behind Class Counsel’s decision to enter into the Fee Sharing Agreement with [the Merchant Law Group] in order to resolve the carriage disputes. Class Counsel are knowledgeable and experienced, they made their decision knowing the circumstances, and they resolved their dispute with judicial oversight. I accept that they did so because they believed it to be in the best interests of the class. If there is to be a determination that [the Merchant Law Group] acted unlawfully, it should be made in a proceeding in which [the Merchant Law Group] is before the court and has an opportunity to address the issue.
[58] Respectfully, I disagree.
[59] It may be, taking the language of s. 32 literally, that the Fee Sharing Agreement is not “an agreement with respect to fees and disbursements between a solicitor and a representative party”. Strictly speaking, it is an agreement between that solicitor and another solicitor. In my view, however, such a literal interpretation of the section is too narrow and fails to give effect to the purpose and context of the CPA and s. 32. More specifically, it fails to give sufficient recognition to the important supervisory role of the court in ensuring that the fees and disbursements paid by class members are fair and reasonable and that they reflect payments made for legal services that benefit the class members.
[60] I prefer the reasoning of the motion judge, at para. 56 of his reasons:
The Fee Sharing Agreement is an agreement respecting fees and disbursements between a solicitor and a representative party under s. 32 of the Act, because it is an agreement about how the fees paid to Class Counsel by the Class Members are to be paid and then shared. [Emphasis added.]
[61] In short, the payments to be made under the Fee Sharing Agreement are properly considered as a component of the fee package for which Class Counsel is seeking approval under their contingency agreement with the representative party, because they are to be paid out of those fees. To the extent the fee sharing payment reduces the amount to be received by the class from the settlement, it becomes subject to the court’s supervisory review in order to ensure that the shared fee and the legal services it purports to represent are fair and reasonable and in the best interests of the class.
[62] Because counsel’s fee is ultimately borne by the class members, this Court has recently confirmed that courts have an interest in knowing how the work and fees are divided and accounted for: see Mancinelli v. Barrick Gold Corporation, 2016 ONCA 571, 400 D.L.R. (4th) 550, at para. 71. This comment was made in the context of a carriage motion competition between prospective class counsel arguing about who should be entitled to institute a proposed securities class action and in relation to the division of work and fees as between a group of counsel forming a consortium of class counsel. However, it arises out of the court’s concern to be assured that work done by counsel, and paid for by the class, will be beneficial to the class. In my opinion, the same concern arises – and triggers the court’s supervisory role – where fees are being shared between the class counsel consortium, on the one hand, and lawyers they have paid not to interfere in an already instituted (and certified) class proceeding, and whose services were of little value to the class proceeding, on the other hand.
[63] I do not think it is an answer to dismiss the impact of the Fee Sharing Agreement simply on the basis that it does not “[transform] a fee that was otherwise fair, reasonable and in the best interests of the class into one that is not.” To do so simply begs the question: how is it fair and reasonable, and in the best interests of the class, to require class members to pay a potential $800,000 out of their settlement funds to lawyers whose services, in the motion judge’s view, made no contribution to the settlement and provided no benefit to their class proceeding?
[64] Nor do I accept the view that the court ought not to look behind Class Counsel’s decision to enter into the Fee Sharing Agreement in order to resolve the carriage dispute. The court is not entitled to delegate its responsibility to ensure that the best interests of the class are protected to what class counsel – even experienced class counsel – believe to be in the best interests of the class. To put it another way, the fact that class counsel genuinely believe they are acting in the best interests of the class does not transform a fee sharing agreement that is in reality one that is not in those best interests into one that is. That class counsel are in an inherently conflicting position in such circumstances cannot be ignored.
[65] I pause here to repeat that the motion judge deliberately emphasized that he was not suggesting Class Counsel were acting in bad faith or did not genuinely believe they were acting in the best interests of the class. That said, Class Counsel may be forgiven if they perceived some of his comments as being unduly critical of them and unnecessarily inattentive to the judicial and judicially-assisted processes in Alberta and Saskatchewan. While I do not read the motion judge’s comments as intending to go that far, I agree that a criticism of that nature would not be warranted in the circumstances. Nor do I accept that class counsel are obliged “to fight the good fight” and see a carriage dispute through to the end without settlement in order to justify their fees. As I shall explain, however, I do not think the class members should be obliged to pay for the good fight or the carriage settlement. That is the responsibility of the duelling lawyers.
[66] For all the foregoing reasons, I conclude that the Fee Sharing Agreement is subject to approval under s. 32 of the CPA.
[67] As I have said, though, even if I am wrong in this conclusion, s. 12 provides the motion judge with the authority to review the Fee Sharing Agreement. To repeat, s. 12 permits the court to make any order it considers appropriate respecting the conduct of the class proceeding to ensure its fair and expeditious determination and, for that purpose, to impose such terms on the parties as it considers appropriate. This broad general power is designed to buttress the court’s wide-ranging supervisory role in ensuring the interests of class members are protected, as this Court noted in Fantl ONCA, at para. 39, “from the inception of an intended class proceeding … throughout the ‘stages’ of the proceeding until a final disposition.” To the extent that any gaps may exist in the court’s authority to review the Fee Sharing Agreement under s. 32, those gaps are more than adequately traversed by the broad authority provided in s. 12.
[68] It follows from the foregoing that the motion judge had the authority to consider the Fee Sharing Agreement, to determine in the exercise of his supervisory discretion whether to approve or not to approve it, and – having determined that he would not approve it – to consider whether to declare that it was unenforceable. I turn now to the manner in which the motion judge exercised that authority.
Decision to Reduce Class Counsel’s Fees and Prohibit Class Counsel from Making Any Payments under the Fee Sharing Agreement from Class Counsel’s Fees or the Settlement Funds
[69] The motion judge’s role was to review and approve or disapprove of the fees claimed by Class Counsel arising out of the partial settlements they had negotiated on behalf of the class members, and to do so in the context of the Ontario class proceedings. In the course of this highly contextual discretionary exercise, it was open to him to reduce those fees by an amount that he considered judicious to reflect his disapproval of a fee sharing arrangement that in his view amounted to a “ransom fee” to stay late-arriving class actions in Alberta and Saskatchewan brought by counsel who in his judgment did not make any contribution to the settlement, whose work was redundant and useless to the class members, who should not share in the fees generated by the settlements, and whose fees should not be borne by the class members.
[70] That decision is not unreasonable on this record, and is entitled to considerable deference. The motion judge’s ruling that the Merchant Law Group was not to be paid any amount out of the fees generated by the settlements or from the settlement funds flowed naturally and correctly from this decision.
[71] To summarize Class Counsel’s position, Mr. Mogerman submits that, even if the motion judge had the authority to review the Fee Sharing Agreement, his decision should be set aside because it was wrongly founded on:
(a) a finding that the Fee Sharing Agreement was “possibly illegal” and therefore unenforceable under the common law doctrines of champerty and maintenance;
(b) an incorrect view – arising from an improper criticism and second-guessing of counsel – that Class Counsel had not acted in the best interests of the class in entering into the carriage settlement and Fee Sharing Agreement; and, in particular
(c) a failure to recognize that the carriage settlement and the Fee Sharing Agreement were beneficial to the class because they created certainty that the class action could proceed unhindered by the distractions and delays created by the co-existence of the competitive Merchant Law Group actions (and, the Merchant Law Group adds, by potentially protecting the class members in Alberta and Saskatchewan from limitation period problems); and
(d) a failure to give effect to principles of comity by not respecting the fact that the carriage issue developed in Alberta and Saskatchewan (a reality of the multi-jurisdictional class action landscape in Canada), was fought and aggressively dealt with in those provinces, and finally settled with the facilitation of a judge of the Alberta Court of Queen’s Bench.
[72] To this list of complaints, which he supports, Mr. Tibbs adds, on behalf of the Merchant Law Group, that the motion judge erred in reviewing and dealing with the Fee Sharing Agreement without giving notice to the Merchant Law Group of his intention to do so and without providing them with the opportunity to make submissions on that issue.
[73] I agree that it may have been preferable had the motion judge focussed less on the possibly illegal nature of the Fee Sharing Agreement on champerty and maintenance grounds – particularly in view of the lack of a proper record on that issue before him – and less on his somewhat academic cri de coeur that it is time to stop blaming the Canadian Constitution for the jurisdictional problems of national class actions. That said, the motion judge did not make a finding that the Fee Sharing Agreement was illegal. He is very experienced in class proceedings, having supervised them for many years, and he evidently saw a problem in this area and a need to send a message. And, as I shall explain later, although he has done so previously as well, he is not the only jurist to have expressed concern over the potentially abusive nature of competing class proceedings.
[74] In the end, I accept the submission of amicus that it was open to the motion judge, based on his experience and supervisory role, to factor into his fair-and-reasonable fees analysis (i) his concerns about the potentially unacceptable impact of the Fee Sharing Agreement, and (ii) his unwillingness to accept as simply an unfortunate reality of the Canadian national class action landscape – to be worn on the backs of class members, at their expense – the existence of late-arriving class actions with their attendant costs and delays but little corresponding advantages to the class.
[75] In his submissions, Mr. van Niejenhuis underscored the need to view the motion judge’s reasons through the prism of the ultimate question that he was required to, and did, address, namely, whether the counsel fee claimed was fair and reasonable in all the circumstances, including the best interests of the class members. I agree.
[76] The motion judge was concerned about the potential abuse and harm to the integrity of class action proceedings as a whole that could arise from some class counsel taking advantage of the multi-jurisdictional class action landscape in Canada by commencing competing and superfluous class action proceedings for the primary tactical purpose of obtaining an advantageous fee sharing agreement without making any real or legitimate contribution to the benefits received by the class. He used the tools at his disposal to address this problem, which he saw arising from the relationship between the Fee Sharing Agreement and the settlements in the class proceedings.
[77] Read as a whole, the motion judge’s reasons demonstrate that his primary and underlying concern was to ensure that the fees to be paid by the class to Class Counsel out of the settlement funds were fair and reasonable and in the best interests of the class. This approach is encapsulated in his comments at paras. 68-69 of his reasons:
I do not approve of [the Fee Sharing Agreement]. The Fee Sharing Agreement requires court approval and approval requires that the fee be fair and reasonable to the Class Members. The Fee Sharing Agreement is not fair and reasonable. It is not fair, reasonable, or just to have the Class Members pay the putative Class Counsel of a stayed rival class action. It is not fair and reasonable for a client to pay for legal services that were useless to the client. In the case at bar, there is nothing fair and reasonable in asking the Class Members in Ontario to pay a ransom fee in order to stay late-arriving rival class actions in Alberta and Saskatchewan.
In the case at bar, the Merchant Law Group did not make a contribution to the achievement of the settlement agreement and the firm should not share in the recovery. The alleged $1 million of work-in-progress of the Merchant Law Group was redundant and useless for Class Members.
[78] These findings were open to the motion judge on the record and his decision falls well within the parameters of his broad discretionary authority in the circumstances, the exercise of which attracts considerable deference from an appellate court.
[79] Apart from the arguments that the carriage settlement and Fee Sharing Agreement enabled Class Counsel to “buy certainty” and avoid delay, the possibility of the carriage fight highlighting potential weaknesses in the case that could then be addressed, and the suggestion that the Merchant Law Group actions in Alberta and Saskatchewan may have tolled certain limitation periods, neither Class Counsel nor counsel for the Merchant Law Group pointed to anything demonstrating that the carriage settlement and Fee Sharing Agreement – or the Alberta and Saskatchewan proceedings themselves – benefitted the class members in these class proceedings in any significant way. None of these submissions helps.
[80] I have already noted that, while Class Counsel may have smoothed the way for the class proceedings to go ahead by entering into the carriage settlement and Fee Sharing Agreement, they, too, along with the Merchant Law Group, stood to reap substantial benefits from the arrangement. The motion judge was not only entitled to consider this factor, he was required to do so, in my view.
[81] Nor do I accept that it is a valid rationale for multi-jurisdictional class proceedings to speculate that somehow the potential weaknesses of the case may be exposed by the late-arriving action so that class counsel may then address them. One must assume that competent class counsel will independently understand and address the potential weaknesses of their case without the need of assistance from another competing class action.
[82] In addition, courts have discouraged the practice, in the national class action context, of commencing actions solely for the purpose of tolling a limitation period: see, for example, Turon v. Abbott Laboratories Ltd., 2011 ONSC 4343, 340 D.L.R. (4th) 510, leave to appeal to Div. Ct. refused, 2011 ONSC 4676, 340 D.L.R. (4th) 519; Duzan v. GlaxoSmithKline Inc., 2011 SKQB 118, 372 Sask. R. 108; BCE Inc. v. Gillis, 2015 NSCA 32, 384 D.L.R. (4th) 111, at para. 75, leave to appeal to S.C.C. requested.
[83] There are many cases as well where the courts have attempted to discourage the practice of commencing subsequent – the motion judge would call them “late-arriving” – copycat or competing class actions, or simply multiple class actions, for the purpose of securing carriage of the national class proceedings. Coincidentally, many have involved the Merchant Law Group. Generally, courts have resorted to the doctrine of abuse of process to sort these problems out. See, for example, Boehringer Ingelheim (Canada) Ltd. v. Englund, 2007 SKCA 62, 284 D.L.R. (4th) 94; Bear v. Merck Frosst Canada & Co., 2011 SKCA 152, 345 D.L.R. (4th) 152; Duzan; Turon; BCE Inc. v. Gillis; Drover v. BCE Inc., 2013 BCSC 1341, [2014] 4 W.W.R. 554; Hafichuk-Walkin et al. v. BCE Inc. et al., 2016 MBCA 32, 395 D.L.R. (4th) 734, leave to appeal to S.C.C. requested.
[84] While these decisions did not involve the approval of fees or fee sharing arrangements – the actions had not reached those stages – they signal that courts have been grappling with the same concerns revolving around carriage disputes arising out of competing multi-jurisdictional class proceedings that underpinned the motion judge’s concerns here: the need to maintain the integrity of the adjudicative system in general and the class action process in particular where it appears that the competing class proceeding in question does not serve any useful purpose for the plaintiffs: Duzan, at para. 30. Each court in a multi-jurisdictional class proceeding retains this responsibility when called upon to assess the fairness and reasonableness of counsel fees.
[85] This was reinforced again in this Court’s recent carriage motion decision in Mancinelli, where Strathy C.J.O. made the following observation, at para. 72:
The court has a duty to protect class members and a broader duty to the administration of justice when approving counsel in a carriage motion. The discharge of this duty may require the exclusion of counsel due to prior misconduct. It may also require the exclusion of counsel with a record of commencing class actions, not pursuing them, and then using them to demand ransom from other counsel in carriage disputes.
[86] Moreover, as some of the foregoing jurisprudence has recognized, it is sometimes necessary for the court to look below the surface of the proceedings to understand what is really going on, in order to preserve the integrity of the administration of justice: Bear v. Merck Frosst, at para. 74; Hafichuk-Walkin v. BCE Inc., at para. 56. That is precisely what the motion judge did here.
[87] In a Report of the Rand Institute for Civil Justice, Rand analysts reported a wide variation in what was delivered to class members in U.S. class proceedings as a result of litigation and in what class counsel received in return. Deborah R. Hensler et al., Class Action Dilemmas: Pursuing Public Goals for Private Gain (2000), online: Rand Corporation <www.rand.org>. The analysts concluded that the balance of benefits and costs was more salutary when judges determined fees in relation to the actual benefits created by the lawsuit. They observed at p. 490 that, in relation to fee awards:
The single most important action that judges can take to support the public goals of class action litigation is to reward class action attorneys only for lawsuits that actually accomplish something of value to class members and society.
[88] Tellingly, when this observation was put to counsel for the Merchant Law Group during oral argument on the appeal, he readily accepted and agreed with it.
[89] I make this final observation.
[90] While it may be that in an ideal world, the tools exist to enable class counsel to avoid the necessity of multiple parallel class proceedings in different provinces, we do not live in an ideal world and we do live in a Canada where jurisdictional competence is divided between the federal, provincial and territorial governments. There will be carriage disputes – some justified, some perhaps not – until there is a legislative or other effective solution to these problems. And, if there are carriage disputes, there will and should be carriage settlements such as occurred here.
[91] The issue on a fee approval motion is not so much whether the carriage dispute or the carriage settlement was justified. The issue is who should bear the cost of that fight – the lawyer participants for whose primary benefit the struggle is waged, or the class members? It seems to me that it is the lawyer participants who should bear the costs.
[92] If class counsel see it in their best interests to resolve carriage disputes by agreeing privately, amongst themselves, to remunerate one set of class counsel for leaving the scene, that is a matter for their private business determination. But they should bear the cost of that business decision as well, in my view. The class members ought not to be exposed – either directly or through some form of “potential carriage dispute mark-up” built into the contingency fee negotiated with the class members – to having to pay for what is essentially a general business expense of the firm associated with the litigation and not an expense providing any added value to the class action itself.
[93] While the risk of a potential carriage fight may provide some part of the rationale for permitting class counsel to pursue a class proceeding on a contingency fee basis – an incentive that, in itself, provides a substantial reward in the event of success – it does not follow, in my view, that class members should bear the burden of a fee sharing agreement that benefits only the lawyers.
[94] In this respect, I agree with and adopt the following observation of Perell J. in Fantl ONSC, at para. 87:
I agree with Transamerica’s submission that [Class Counsel’s] counsel fee should not include charges for fees associated with its carriage fight with [putative class counsel]. It seems to me that this expenditure of effort, which did little to advance the litigation for the Representative Plaintiff or the Class is part of the risk assumed by Class [Counsel] when it takes the retainer. This expenditure is part of what may justify the contingency fee or the multiplier of a base fee, but it is not reasonable to charge a client for what it costs the lawyer to safeguard a retainer from a competitor. These costs are a risk that the lawyer assumes when he or she takes on the retainer. Viewed in the context of the public’s interest, it strikes me as a bad idea to encourage and intensify carriage fights by the prospect that the winner will not only get the file but be paid something by his or her client for getting the file. [Emphasis added.]
[95] This comment takes on even greater force and logic when what the class is being asked to absorb is not only successful class counsel’s costs in getting the file but also the costs of third-party putative counsel, whose services are redundant to the settlement, for agreeing to give up the file.
[96] Class counsel and putative class counsel ought not to be able to immunize their side agreements from court scrutiny where the effect of those side agreements may be to cause the class members to pay for services that are of little benefit to them and – to adopt the language of the motion judge – “that simply ran up the expense of the legal services that actually had some utility.” Not only may such agreements tend to overprice the cost of legal services the class members are called upon to pay, as the motion judge observed, they may as well undermine the integrity of the class action regime (para. 65).
[97] In conclusion, I see no basis for interfering with the decision of the motion judge to reduce Class Counsel’s fee and to prohibit Class Counsel from making any payment to the Merchant Law Group from Class Counsel’s fee or the settlement proceeds. He made the 10% reduction not on the basis of the $400,000 plus disbursements and taxes that had been earmarked for the Merchant Law Group but to reflect his view of legal services that were not earned. The 10% reduction was his call and well within the purview of his discretion.
[98] If competing class counsel wish to engage in a competitive carriage dispute for the right to carry the class action and in the process make a side agreement respecting fees as a way to persuade one or the other to back away, they should pay the fees out of their own pockets as part of their variable costs of doing business and not expect that the counsel walking away will have direct access to payment out of the contingency fee. To hold otherwise would be to defeat the purpose of attempting to discourage these types of competing actions that provide little or no benefit to the members of the class.
The Decision to Declare the Fee Sharing Agreement Unenforceable In Its Entirety
[99] Section 32(2) of the CPA provides that an agreement governed by it “is not enforceable unless approved by the court”. Section 32(4) provides that if an agreement is not approved by the court, the court may nonetheless determine the amount owing to the solicitor in respect of fees and disbursements, which is precisely what the motion judge did.
[100] For the reasons outlined above, the motion judge was entitled to prohibit Class Counsel from making any payment to the Merchant Law Group out of Class Counsel’s fees, as approved by him, or out of the settlement funds in order to give effect to his determination that class members were not to bear the burden of the Fee Sharing Agreement. He was also entitled, in my opinion, to declare that paragraph 6 of the Fee Sharing Agreement was unenforceable, although he went further and ordered that the Agreement was unenforceable in its entirety.
[101] Paragraph 6 obliges Class Counsel “jointly [to] make the following payments to [the Merchant Law Group] from amounts they recover on account of fees in connection with the prosecution of the Consortium Credit Card Actions”.[^5] The obligation is the quid pro quo for the Merchant Law Group’s agreement to stay its similar class proceedings (paragraph 8) and to discontinue the actions upon payment of the first fee instalment (paragraph 9). These are the central provisions of the Fee Sharing Agreement.
[102] Class Counsel and the Merchant Law Group argue that the motion judge overstepped the bounds of procedural fairness by declaring the Fee Sharing Agreement unenforceable without providing any notice to the Merchant Law Group of his intention to consider doing so. I do not accept this argument, at least as it relates to paragraph 6.
[103] The Fee Sharing Agreement provides specifically that the Merchant Law Group “will not be required to do any further work regarding the Credit Card Litigation”. I take this to refer to both the Consortium Credit Card Actions (including this class proceeding) and the Merchant Law Group Credit Card Actions. This is confirmed in an affidavit filed on the appeal on behalf of the Merchant Law Group, which stated:
As an outcome of the [judicial dispute resolution conference in Alberta] and pursuant to the Carriage Agreement, Class Counsel was solely responsible for obtaining any necessary court approvals for settlement purposes or otherwise, and Merchant Law Group was not obliged to do any further work in connection with this litigation (including attending the various settlement approval hearings). [Emphasis added.]
[104] It is apparent that the interests of the Merchant Law Group were tied into “any necessary court approvals for settlement purposes or otherwise” (emphasis added), that is, including any fee approval process. The staged fee payments under the Fee Sharing Agreement were all triggered by the approval of fees with respect to settlements or litigation dispositions. Indeed, the Bank of America Settlement, which triggered the $400,000 fee claim in question here, had already been entered into at the time.
[105] In effect, then, the Merchant Law Group delegated Class Counsel to represent their interests in the settlement and fee approval processes. The extent to which that delegation was operative, when the Merchant Law Group’s interests were affected, without further notice to them may be debatable, but it surely extended to the approval of Class Counsel’s fees out of which the $400,000 claimed by them was to be paid and to the reasonable consequences flowing from that approval process.
[106] One of the reasonably foreseeable consequences of the fee approval process was that the payments to the Merchant Law Group under the Fee Sharing Agreement might not be approved and that orders might issue to give effect to such a determination. In an article entitled “Fee Agreements and Fee Approval in Ontario Class Proceedings” (2010) 6 Can. Class Action Rev. 355, at p. 368, Kirk M. Baert and Jonathan Bida noted that courts assessing fees will not always permit fees or disbursements relating to carriage disputes. Moreover, as mentioned above, different courts – particularly in Ontario, including the motion judge here – have previously signalled their concerns over these types of side agreements or other agreements that do not benefit the class, and their reluctance to saddle class members with the responsibility to make the payments called for in such agreements: see Fantl ONSC (Perell J.); Bilodeau (Perell J.); Stewart (Cullity J.); Pro-Sys (B.C.S.C.).
[107] Neither Class Counsel nor the Merchant Law Group are neophytes in this area; they are all very experienced class counsel. When class members are being asked to foot the bill for legal services that are of little or no benefit to the class – out of the settlement and the fees for which approval is sought – it should come as no surprise to experienced counsel that the court, once informed of the Fee Sharing Agreement, would insist on taking it into account and on reviewing its impact on the best interests of the class. Given the expert environment in which it practices, the Merchant Law Group must have been aware of that potential eventuality. By entrusting the approval process to Class Counsel, the Merchant Law Group took the risk that the consequences of such a review might reasonably affect their interests negatively.
[108] They cannot now complain, in my opinion, that they have been deprived of their rights to procedural fairness in this respect when they have left it to Class Counsel to make their case and when – in spite of those efforts – the Fee Sharing Agreement is not approved and orders that reasonably follow from that decision are made to enforce the determination that Class Counsel are not to be required to pay the fees called for under the Fee Sharing Agreement. I note as well that Class Counsel did not request an adjournment so that notice could be given to the Merchant Law Group once it became apparent, after the details of the Fee Sharing Agreement had finally been disclosed to him, that the motion judge was going to deal with it in coming to his decision.
[109] Accordingly, I would not give effect to the procedural fairness arguments as far as the decision to prohibit payment to the Merchant Law Group out of the settlement funds or out of Class Counsel’s fees is concerned. This includes the motion judge’s declaration that the Fee Sharing Agreement is unenforceable insofar as Class Counsel’s obligation under paragraph 6 to pay “from amounts they recover on account of fees in connection with the prosecution of the Consortium Credit Card Actions” is concerned.
[110] I am less persuaded about the declaration of unenforceability in relation to the balance of the Fee Sharing Agreement, however. It is one thing for the Merchant Law Group to have left the issue of fee approval to Class Counsel, with the attendant risk that payment under the Fee Sharing Agreement from the settlement funds and Class Counsel’s fees might not be approved. It is another thing for the court to go a step further and declare the Fee Sharing Agreement unenforceable in its entirety and prohibit payment to the Merchant Law Group from any source whatsoever, thereby altogether depriving the Merchant Law Group of any personal rights that it may have had vis-à-vis Class Counsel.
[111] Whether, in the absence of the paragraph 6 requirement to make payment out of the amounts recovered by Class Counsel for fees, there remains anything of substance in the Fee Sharing Agreement or any effective remedy as between the Merchant Law Group and Class Counsel is a matter for determination by another tribunal. In my opinion, however, the Merchant Law Group ought not to have been deprived of the opportunity to speak to that particular issue without notice that it was in play and the opportunity to make submissions. The motion judge went too far in that aspect of his order, but in that aspect only.
DISPOSITION
[112] For the reasons set out above, I would dismiss the appeal with the exception that I would vary the wording of paragraphs 3 and 4 of the Order of the motion judge, dated December 8, 2015 to reflect the foregoing caveat with respect to the declaration of unenforceability of the Fee Sharing Agreement in its entirety and the prohibition of payment from any source whatsoever. I would do so by adding the words “paragraph 6 of” before the words “the Fee Sharing Agreement” in paragraph 3 of the Order, and by amending the wording of paragraph 4 of the Order by deleting the words “or from any other source” and, for clarity, by adding the words “or from the legal fees and disbursements awarded in this Order” in their place. Paragraphs 3 and 4 of the Order will therefore read as follows:
THIS COURT ORDERS that paragraph 6 of the Fee Sharing Agreement entered into between Class Counsel and the Merchant Law Group is unenforceable.
THIS COURT ORDERS that Class Counsel not pay any sums from the settlement proceeds or from the legal fees and disbursements awarded in this Order now or in the future to the Merchant Law Group on account of the Fee Sharing Agreement.
[113] Otherwise, I would dismiss the appeal.
[114] The Court appointed Mr. van Niejenhuis as amicus curiae to advance the perspective of the absent class members. The submissions of amicus were very helpful to us (as, indeed, were the submissions of all counsel) because they enabled us to approach our decision with a more balanced perspective on the issues than would otherwise have been the case. I would award amicus its costs of the appeal, and do so on a full indemnity basis. Neither Class Counsel nor the Merchant Law Group contended that the amount claimed by amicus in the Costs Outline was outside an acceptable range for the appeal. Accordingly, I would grant amicus its costs fixed in the amount of $68,640.29 inclusive of disbursements and all applicable taxes. I would also order that these costs are to be paid jointly and severally by Class Counsel and the Merchant Law Group.
Released: November 28, 2016
“R.A. Blair J.A.”
“I agree E.A. Cronk J.A.”
“I agree G. Pardu J.A.”
[^1]: Although some of the defendants named in a later action commenced by the Merchant Law Group in Saskatchewan were different, nothing seems to turn on this fact for purposes of the appeal.
[^2]: Class Proceedings Act, R.S.B.C. 1996, c. 50, s. 38.
[^3]: Class Proceedings Act, S.A. 2003, c. C-16.5, s. 39.
[^4]: The Class Actions Act, S.S. 2001, c. C-12.01, s. 41.
[^5]: There followed a list of staged payments of $400,000, $300,000 and $100,000 depending on the level of fees recovered in future settlements or liability dispositions – of which $400,000 was the subject of this approval motion.