Court of Appeal for Ontario

Date: 2019-01-24

Docket: C65528

Judges: Sharpe, Juriansz, and Roberts JJ.A.

Between

Christopher Welsh Plaintiff (Appellant)

and

Her Majesty the Queen in Right of the Province of Ontario Defendant (Respondent)

Counsel

Michael Eizenga, for the appellant

Christopher A. Wayland and Jonathan Sydor, for the respondent

Stephanie DiGiuseppe, for the Intervenor, Aaron Zachary Smith

Heard: January 17, 2019

On appeal from: the order of Justice Paul Perell of the Superior Court of Justice, dated May 24, 2018, with reasons reported at 2018 ONSC 3217.

Reasons for Decision

Overview

[1] The appellant, the representative plaintiff in this class action proceeding, appeals from the order of the motion judge approving the legal fees of class counsel, subject to certain conditions. There is no appeal from the motion judge's order approving the settlement contained in a separate order, dated May 24, 2018.

Background

[2] This class action was commenced in August 2015 and certified on consent by the motion judge in August 2016. The class consists of about 4,500 former students of three provincial schools for the Deaf. The common issues centred on whether the respondent was negligent in its management and operation of these schools and whether it breached fiduciary duties to the class members. The claims included very serious allegations of physical, sexual and emotional abuse. Through mediation undertaken in November 2017, the parties achieved a settlement and entered into a settlement agreement.

[3] The settlement agreement provided that the respondent would establish a $15 million settlement fund in full settlement of the action. The settlement agreement sets out how the settlement funds are to be disbursed and provides that they are first to be applied towards payment of class counsel's fees and disbursements, and applicable taxes. It was agreed that class counsel's fees could be up to 25% of the settlement funds, in an amount to be approved by the court. The settlement funds are also to be used to pay the claims of class members, the costs of notice to the class and to administer the claims process, and the required levy to the Class Proceedings Fund. The settlement agreement expressly provides in para. 5 that if any amounts remain after payment for all these fees, claims, and costs has been made and the claims period has come to an end, they are to revert to the respondent.

Motion Judge's Decision

[4] At the motion to approve the settlement, class counsel requested that the motion judge approve fees of $3.75 million, which represented 25% of the $15 million settlement fund. The motion judge expressed serious concerns about the merits of the settlement achieved because under its terms, only about 10% of the class members would receive compensation while the remaining 90% would be required to forego their claims without any payment or other benefit. Notwithstanding his concerns, the motion judge approved the settlement, finding it was "within the range of reasonableness" because "the settlement agreement was better than the alternative of proceeding to a trial." As earlier noted, the motion judge's approval of the settlement was incorporated into a separate order, dated May 24, 2018, which has not been appealed. Counsel advised that the settlement has been implemented and that the claims process provided for under the settlement agreement is underway.

[5] With respect to the approval of class counsel's fees, the motion judge found that a counsel fee of $3.75 million was not fair and reasonable to all the class members because he was of the view that "the results achieved for the whole of the Class was disappointing" in that only about 10% of the class would benefit from the settlement. As a result, he approved class counsel's fees of $3.75 million on the condition that class counsel would donate $1.5 million of its fees to a charity for the Deaf to be approved by the motion judge. The motion judge also determined that the $2.25 million balance of class counsel's fees would be subject to a proportionate reduction depending on the reversion to the respondent of the settlement funds not taken up by the class claimants.

Appellant's Submissions

[6] The appellant's principal submission is that the motion judge erred in his disposition of class counsel's fees by effectively rewriting the parties' settlement. Specifically, the appellant submits that the motion judge erred by making the approval of class counsel's fee subject to a $1.5 million charitable donation and to a proportionate reduction. The appellant asks that this court order without conditions the payment of class counsel fees in the amount of $3.75 million.

Respondent's Position

[7] The respondent takes no position respecting the quantum of the fee to be paid to appellant's counsel but agrees that the motion judge erred in imposing the impugned conditions and in failing to allow the parties to make further submissions. The respondent points out that the order, in effect, directs public funds to a third party that might have reverted to the Crown.

Intervenor's Position

[8] The intervenor submits that the motion judge's decision was fair and reasonable, and should not be disturbed.

Court's Analysis

The Charitable Donation Error

[9] In our view, the motion judge erred in making his approval of class counsel's fees subject to the charitable donation condition that he imposed, particularly in the absence of submissions from the parties.

[10] By requiring class counsel, without the parties' input or consent, to donate part of its fees to a designated charity, the motion judge inserted into the settlement agreement a material condition not agreed to by the parties. This altered the settlement provision that surplus settlement funds would revert to the respondent. That this was the intended outcome of the motion judge's order is evidenced in para. 105 of his reasons when the motion judge states that "it is not appropriate to make Ontario the beneficiary of a reduction of Class Counsel's fee."

[11] Given the motion judge's concerns, the appropriate course of action would have been for him to allow the parties an opportunity to make submissions and, if they desired to do so, agree to change the terms of the settlement in order to address those concerns and obtain approval of class counsel's fees. However, he was not permitted to modify unilaterally the terms of a negotiated settlement without the consent of the parties. See: Dabbs v. Sun Life Assurance Co. of Canada, [1998] O.J. No. 1598, at para. 10; Ford v. F. Hoffmann-La Roche Ltd., 74 O.R. (3d) 758, at para. 127.

[12] There is no question that it was within the motion judge's discretion to express concerns about the amount of class counsel's fees, and to reduce the amount of class counsel's fees and make them proportionate to the settlement result achieved. However, the motion judge erred in law by imposing the donation term that altered the settlement agreement.

Other Alleged Errors

[13] The appellant also submits the trial judge failed to appreciate the litigation risk and the benefits of the settlement; his assessment of these factors was tainted by his palpable and overriding error in finding as a fact that only victims of sexual and physical abuse would benefit from the settlement.

[14] Given our conclusion that the motion judge erred in imposing the donation condition, it is not necessary for us to determine whether he also erred in his assessment of litigation risk and benefits of the settlement. We set aside the motion judge's order on the basis that the donation error permeated his entire decision. We express no views on the other errors alleged by the appellant.

Factors for Assessing Class Counsel Fees

[15] In our view, the entire detailed analysis necessary to determine and approve class counsel's fees must be undertaken afresh without regard to the motion judge's findings. The consideration of whether the fees proposed in the circumstances of this case are fair and reasonable involves the analysis of myriad factors. These include the following oft-cited factors referenced by the motion judge and reiterated with approval by this court in Smith Estate v. National Money Mart Co., 2011 ONCA 233, at para. 80:

Factors relevant in assessing the reasonableness of the fees of class counsel include: (a) the factual and legal complexities of the matters dealt with; (b) the risk undertaken, including the risk that the matter might not be certified; (c) the degree of responsibility assumed by class counsel; (d) the monetary value of the matters in issue; (e) the importance of the matter to the class; (f) the degree of skill and competence demonstrated by class counsel; (g) the results achieved; (h) the ability of the class to pay; (i) the expectations of the class as to the amount of the fees; (j) the opportunity cost to class counsel in the expenditure of time in pursuit of the litigation and settlement.

[16] It is clear from a review of these factors that their consideration and application necessitate a thorough consideration of the factual underpinnings of this class proceeding and the settlement. While this court has the power under s. 134 of the Courts of Justice Act to undertake such an analysis, we decline to do so in this case. It is neither appropriate nor feasible for us to hear the detailed submissions that would be required to carry out that analysis in this case. We are of the view that this decision is best made at first instance by one of the highly experienced and expert class action judges who regularly undertake this analysis.

Disposition

[17] Accordingly, the motion judge's May 24, 2018 order approving class counsel's legal fees is set aside. The matter is remitted for a new hearing before a different judge on the class action list of the Superior Court of Justice.

"Robert J. Sharpe J.A."

"R.G. Juriansz J.A."

"L.B. Roberts J.A."