Court File and Parties

CITATION: Cannon v. Funds for Canada Foundation, 2017 ONSC 2670

COURT FILE NO.: CV-08-362807-CP

DATE: 2017-05-10

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: MICHAEL CANNON / Plaintiff

AND

FUNDS FOR CANADA FOUNDATION, MATT GLEESON AND SARAH STANBRIDGE as trustees for the DONATIONS CANADA FINANCIAL TRUST, PARKLANE FINANCIAL GROUP LIMITED, TRAFALGAR ASSOCIATES LIMITED, TRAFALGAR TRADING LIMITED, APPLEBY SERVICES (BERMUDA) LTD. as trustee for the BERMUDA LONGTAIL TRUST, EDWIN C. HARRIS Q.C., PATTERSON PALMER also known as PATTERSON PALMER LAW, PATTERSON KITZ (Halifax), PATTERSON KITZ (Truro), MCINNES COOPER, SAM ALBANESE, KEN FORD, RIYAD MOHAMMED, DAVID RABY, GREG WADE, GLEESON MANAGEMENT ASSOCIATES INC., MARY-LOU GLEESON, MATT GLEESON and MARTIN P. GLEESON / Defendants

Proceeding under the Class Proceedings Act, 1992

BEFORE: Justice Edward P. Belobaba

COUNSEL: Margaret Waddell and Samuel Marr for the Plaintiff Bradley E. Berg and Andrea Laing for Defendant Estera Services Bermuda Ltd. (formerly Appleby Services) as trustee of the Bermuda Longtail Trust J.P. Brown for Defendants Parklane Financial Group Limited, Trafalgar Associates Limited and Trafalgar Trading Limited Mark Walli for Third Party Defendants BDO Dunwoody LLP and Ralph Neville Remissa Hirji for Third Party Defendants Gacich Financial Enterprises Inc. and Ted Gacich and others

HEARD: April 24, 2017

Class Action Settlement and Related Approvals

[1] In a short endorsement dated October 18, 2013 I approved the class action settlements with the FFCF-Gleeson Defendants and the Lawyer Defendants.[^1] The amount of the settlement was $28.2 million, with the Lawyer Defendants (their insurers) paying the bulk. I was satisfied that the settlements were fair and reasonable and in the best interests of the class members. I also approved class counsel’s contingency-based legal fees request.[^2] The class action then continued against the remaining defendants - namely, the ParkLane/Trafalgar Defendants (“ParkLane”) and Appleby Services, known today as Estera Services, as the trustee for the Bermuda Longtail Trust (“Appleby”).

[2] The action against the ParkLane and Appleby defendants has now settled for $17.5 million plus accrued interest. The plaintiff asks that the settlement, the contingency-based legal fees payable to class counsel and the requested honorarium be approved; and further that the claim, counter-claims, cross-claims and third party claims be dismissed without costs.[^3]

[3] For the reasons set out below, I approve each of these requests. The plaintiff’s motion is granted in its entirety. Order to go as per the draft Order signed on April 28, 2017.

Settlement approval

[4] I agree with class counsel that this settlement is akin to a late stage settlement.

[5] In a late stage settlement, the supervising class action judge will be justified in assuming that class counsel had a complete or almost complete understanding of the risks and rewards of further litigation and the court will be more comfortable relying on class counsel’s recommendation that the settlement is indeed in the best interests of the class.[^4]

[6] Class counsel’s knowledge level was based in part on information obtained in the summary judgment motions that were brought by the ParkLane and Law Firm Defendants (and dismissed) at the time of certification.[^5] The record on the combined certification/summary judgment motions consisted of 38 volumes of evidence and consumed 16 days of cross-examination. Even more information was obtained from the settlements with individual defendants, the Appleby jurisdiction motion, the additional documents production that the ParkLane and the Law Firm Defendants were ordered to produce and the examination of 18 witnesses on the pending motions. Class counsel also received hundreds of documents from class members including their correspondence with ParkLane and its distributors, their contract documents and Gift Program promotional materials in their possession. Class counsel’s knowledge level increased even more after the 2013 settlements. Further and extensive documentary productions were obtained from the ParkLane defendants and the FFCF-Gleeson and Law Firm Defendants.

[7] In short, by the time class counsel became involved in settlement discussions with the ParkLane and Appleby defendants, they had a commanding understanding of the risks and rewards of further litigation.

[8] Some of these risks included the fact the ParkLane Defendants were most likely judgment proof. Appleby (now Estera) and based in Bermuda, remained solvent and could certainly be pursued but several obstacles materialized: enforcing a class action judgment in Bermuda where class actions do not exist would be problematic; further, Appleb insisted that any attempt to enforce a judgment that found Appleby jointly liable with the ParkLane defendants would be litigated, if need be, to the Privy Council.

[9] There was also the damages question. Initially, the class members’ global loss in the charitable Gift Program was in the range of $138.5 million. After the CRA unexpectedly agreed to settle the objections filed by many class members and recognize the amount of the class member’s cash donation to the Gift Program as a valid charitable credit, the global loss was reduced to about $50 million, and then adding CRA interest, to just under $60 million. Deduct the $28.2 million recovered from the FFCF-Gleeson and Law Firm Defendants[^6] and the global loss was about $32 million.

[10] Class counsel explained with considerable nuance how they determined that the $17.5 settlement was more than reasonable. I agree with their analysis but I am also prepared to simply accept their recommendation based on their enhanced understanding of the risks and rewards of further litigation. Given the significant risks that confronted the plaintiff in his pursuit of Appleby, a settlement of $17.5 million (an amount that is more than half of the remaining global loss) is, in my view, fair and reasonable and in the best interests of the class. Not surprisingly, no class member or third party has objected to the settlement.

Legal fees approval

[11] As I explained in Cannon[^7] and again in Middlemiss v. Penn West Petroleum,[^8] I am prepared to accord presumptive validity to a properly executed contingency fee arrangement. It is only through a robust contingency compensation system that class counsel will be appropriately rewarded for the wins and losses over many files and many years of litigation and that the class action will continue to remain viable as a meaningful vehicle for access to justice.[^9] In this case, and in any event, the contingency fee agreement was approved by this court at the time of the 2013 settlements.[^10]

[12] Class counsel is entitled to the 33 per cent contingency as set out in the retainer agreement which amounts to $5,829,427.20 plus HST. The fees request is approved.

Honorarium for Mr. Cannon

[13] Class counsel also requests that the court approve the payment of an honorarium to the representative plaintiff, Michael Cannon, in the amount of $50,000 to compensate him for his extraordinary effort in prosecuting this case over the course of eight years. This is a large honorarium but, in my view, it should be approved.

[14] Out of a class of more than 10,000 individuals, all of whom suffered significant losses in this charitable tax scheme, Mr. Cannon was the only person willing to take on the role of representative plaintiff. He spent more than 280 hours working on the case, meeting with and instructing class counsel, swearing affidavits, being cross-examined, producing his private financial documents, participating in the mediation and settlement negotiations, and suffering the notoriety of being the named plaintiff in a highly publicized claim involving a charitable tax scheme that the CRA initially disallowed.

[15] Mr. Cannon also put himself at risk financially through his personal intervention in the Appleby (Bermuda Trust) proceedings. Bermuda does not have class proceedings, and the courts may not have recognized Mr. Cannon’s intervention as being in a representative capacity. The intervention was not part of the class proceeding and so would not have been covered by the indemnity from the Class Proceedings Fund. Yet Mr. Cannon was prepared to take this step because of the importance of preserving Appleby’s undertaking with respect to the Bermuda Longtail Trust funds.

[16] There is another dimension to the request for an honorarium. Mr. Cannon gave up a substantive right – his right to maintain a notice of objection with the CRA – in order to continue as the representative plaintiff without the appearance of a conflict of interest. He obviously did so for the benefit of the class and to his own personal detriment. Because he abandoned his notice of objection and paid the reassessed taxes and interest, Mr. Cannon did not receive the benefit of the CRA offer to settle. As a result of this financial sacrifice, Mr. Cannon is out of pocket some $16,241.

[17] As a result of Mr. Cannon’s efforts, the defendants have now paid over $45.7 million that will be distributed to the class members. I agree with class counsel that Mr. Cannon is entitled to an honorarium that recognizes his remarkable contribution to the success of this class action. An honorarium in the range of $30,000 would not be inappropriate. Add to this the $16,241 out of pocket loss and one can understand why the requested $50,000 makes sense.

[18] The $50,000 honorarium is approved and shall be paid out of the settlement funds.

Costs request by the Gacich third parties

[19] The distributors of the charitable donation scheme (many of whom also class members) were added as third parties to this class proceeding by the ParkLane Defendants. The Gacich group agrees with the settlement but says it incurred significant costs in a 2014 skirmish relating to the amendment of the common issues and the stay of the third party proceedings.[^11] The Gacich group blames the plaintiff for the legal costs that were incurred and asks for $143,369 on a partial indemnity basis.

[20] I dealt directly with this very issue in a costs decision that was released on July 18, 2014.[^12] I concluded that deciding who was responsible for which costs relating to the amendment of the common issues would be “an almost impossible task” and that “the most sensible decision was to award costs in the cause.”[^13] Having now reviewed the competing submissions (both sides repeating much of what was said in 2014), I stand by my earlier decision. I cannot in fairness conclude that Gacich “won” any aspect of the motions in question or that the plaintiff can be blamed in any way for the legal costs that Gacich incurred.

[21] The re-activated costs request of the Gacich group is dismissed.

Disposition

[22] The $17.5 million settlement (plus accrued interest) is approved as fair and reasonable and in the best interests of the class. Legal fees payable to class counsel in the amount of $5,829,427.20 plus HST and the honorarium payable to the representative plaintiff in the amount of $50,000 are also approved.

[23] Order to go as per the draft Order signed on April 28, 2017.

Belobaba J.

Date: May 10, 2017

[^1]: Cannon v. Funds for Canada Foundation, 2013 ONSC 7686 at para. 1. [^2]: Ironworkers Ontario Pension Fund v. Manulife Financial, 2017 ONSC 2669 at para. 4. [^3]: The costs request of the Gacich third parties is considered at the end of these reasons. [^4]: Ironworkers Ontario Pension Fund v. Manulife Financial, 2017 ONSC 2669, at para. 4. [^5]: Cannon v. Funds for Canada Foundation, 2012 ONSC 399. [^6]: Of the $28.2 million settlement, the Law Firm Defendants paid $27.25 million and the FFCF-Gleeson Defendants paid $950,000. [^7]: Cannon, supra, note 1. [^8]: Middlemiss v. Penn West Petroleum, 2016 ONSC 3537. [^9]: Ibid., at para. 19. Also see Ramdath v. George Brown College of Applied Arts and Technology, 2016 ONSC 3536, at note 14: “Over a period of years, plaintiff-side class action firms will win cases and lose cases. The “risk” that contingency lawyers face cannot be assessed case-by-case or one-off, but must be measured across a great many files. A “large” contingency recovery in one case will offset the loss or losses in other cases. That is why the “multiplier” approach that purports to assess risk by considering only the case that is currently before the court is fundamentally flawed, indeed unprincipled.” [^10]: Cannon, supra, note 1, at paras. 12 -13. [^11]: Cannon v. Funds for Canada Foundation, 2014 ONSC 1056. [^12]: Cannon v. Funds for Canada Foundation, 2014 ONSC 4334. [^13]: Ibid., at para. 6.