COURT FILE NO.: CV-17-578980-00CP
DATE: 20210415
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: MANUEL KAUF and WEB OBJECTIVE INC., Plaintiffs
AND:
COLT RESOURCES, INC., NIKOLAS PERRAULT, SHAHAB JAFFREY, JOE KIN FOON TAI, and PAUL YEOU, Defendants
BEFORE: Justice Glustein
COUNSEL: Albert Pelletier and Joe Wahba, for the Plaintiffs
Scott Kugler and Marco Romeo, for the defendants Colt Resources, Inc., Joe Kin Foon Tai, and Paul Yeou
Jocelyn Howell, for the defendant Shahab Jaffrey
Paul Davis, for the defendant Nikolas Perrault
HEARD: April 6, 2021
REASONS FOR DECISION
Nature of motion and overview
[1] The plaintiffs, Manuel Kauf (Kauf) and Web Objective Inc. (Web), bring motions, on consent, pursuant to the Class Proceedings Act 1992, S.O. 1992, c. 6 (the “CPA”), asking the court to approve (with ancillary relief):
(i) the settlement of this action in accordance with the terms of the settlement agreement made as of December 1, 2020 (the Settlement Agreement),
(ii) the Plan of Allocation,
(iii) the short-form and long-form Notice of Settlement Approval (the Second Notice),[^1]
(iv) the payment of a $5,000 honorarium to each of Kauf and Web,
(v) the fee agreements between Class Counsel (Kim Spencer McPhee Barristers P.C.)[^2] and the respective plaintiffs, and
(v) payment of fees and disbursements to Class Counsel.
[2] At the hearing, I granted the relief sought. I signed the orders with reasons to follow.
Background facts
[3] In Kauf v. Colt Resources, Inc., 2019 ONSC 2179, 145 O.R. (3d) 100, I granted leave to the plaintiffs to proceed with a statutory claim under Part XXIII.1 of the Securities Act, R.S.O. 1990, c. S.5. I rely on my review of the parties and relevant facts at paragraphs 12-38 of those reasons.
Background to the settlement
[4] During the summer of 2020, the parties agreed to engage in mediation to resolve the claims with the assistance of Joel Wiesenfeld as mediator.
[5] After negotiations and with the assistance of the mediator, the parties reached a proposed settlement, as memorialized in the Settlement Agreement, to resolve the entire action.
Certification approval
[6] On January 4, 2021, this court (i) certified this action for settlement purposes, (ii) certified Class (Holders) and Class (Purchasers) as the classes for settlement purposes, (iii) appointed the plaintiffs as class representatives for their respective classes, (iv) approved the form, content and method of dissemination of the Short-form and Long-form Notice of Certification and Settlement Approval Hearing (the First Notice), (v) appointed Class Counsel as the objections and opt-out (O&O) administrator to receive objections and opt-outs to the proposed Settlement Agreement, and (vi) set the deadline for objections and opt-outs as March 7, 2021.
The Settlement Agreement
[7] Under the Settlement Agreement, the defendants will pay or cause to be paid the all-inclusive sum of $950,000 (the Settlement Amount). In return, the plaintiffs and the class members will provide a release to the defendants.
[8] The Settlement Amount is almost the full liability limit under Part XXIII.1 of the Securities Act, i.e. the greater of 5% of the company’s market capitalization or $1,000,000.
[9] Class Counsel believes Colt’s market capitalization was between $15,000,000 and $18,000,000 during the relevant time period and that would result in a liability limit approaching the $1,000,000 threshold.
Plan of Allocation
[10] The Plan of Allocation sets out the proposed distribution of the “Compensation Fund” (the Settlement Amount less payment of class counsel fees and disbursements, administration expenses, and the honoraria).
[11] The Compensation Fund is to be allocated between four groups (described as “classes”) of the class members. Varying percentages of the Compensation Fund are allocated to each class, with the loss per share deemed to be a particular amount depending on when a purchaser acquired and sold Colt shares.
[12] The claims process described by the Plan of Allocation contemplates class members making claims primarily by delivering claim forms with supporting documentation to Class Counsel via email. Class members will complete the form with their personal data and other data from their trading statements. Class Counsel will perform all of the necessary calculations.
[13] Class Counsel proposes to act as the Administrator of the settlement, with administration fees capped at $60,000.
[14] A Referee is to be appointed to determine disputes related to acceptance or rejection of claims. The proposed Referee is Christophe Shammas, an experienced litigator in private practice with Loopstra Nixon LLP in Toronto. He is autonomous, independent, and neutral from the parties and counsel in the action.
[15] Once all of the submitted claims have been adjudicated by the Administrator (and the Referee, as necessary), each authorized claim will be allocated into four groups referred to in the Plan of Allocation:
(i) “Claim (Holders)” are class members who purchased common shares or units of Colt between March 15, 2015, and July 13, 2016, and held until after the close of trading on July 13, 2016;
(ii) “Claim (November Disclosure)” are class members who sold common shares or units of Colt between November 30 and December 20, 2016;
(iii) “Claim (December Disclosure)” are class members who sold common shares or units of Colt between December 21, 2016, and January 31, 2017; and
(iv) “Claim (January Disclosure)” are class members who held common shares or units of Colt until after trading in Colt securities was halted on January 31, 2017.
[16] Claimants will receive compensation based upon their pro rata number of eligible securities within each category, based on the following scale:
(i) All Claims (Holders) shall be deemed to have suffered damages in the amount of $0.005 per security;
(ii) All Claims (November Disclosure) shall be deemed to have suffered damages in the amount of $0.005 per security;
(iii) All Claims (December Disclosure) shall be deemed to have suffered damages in the amount of $0.010 per security; and
(iv) All Claims (January Disclosure) shall be deemed to have suffered damages in the amount of $0.025 per security.
[17] The distribution for each authorized claimant with a Claim (Holders) will be calculated by dividing 10 percent of the Compensation Fund (approximately $50,000) by the total number of eligible securities of authorized claimants with a Claim (Holders).
[18] The distribution for each authorized claimant with a Claim (November Disclosure) will be calculated by dividing 10 percent of the Compensation Fund (approximately $50,000) by the total number of eligible securities of authorized claimants with a Claim (November Disclosure).
[19] The distribution for each authorized claimant with a Claim (December Disclosure) will be calculated by dividing 20 percent of the Compensation Fund (approximately $100,000) by the total number of eligible securities of authorized claimants with a Claim (December Disclosure).
[20] The distribution for each authorized claimant with a Claim (January Disclosure) will be calculated by dividing 60 percent of the Compensation Fund (approximately $300,000) by the total number of eligible securities of authorized claimants with a Claim (January Disclosure).
[21] The Administrator will make a pro rata distribution to each authorized claimant from the net settlement amount allocated to each period, and based on the amount of each investor’s total loss (up to their actual loss).
[22] If there are not enough authorized claimants within any given category, the remaining funds will be allocated to the January Disclosure claimants.
Proposed distribution of the Second Notice
[23] Class Counsel is unable to determine precisely how many class members there are, as Colt’s securities were widely traded and have been subject to a halt-trade for over three years.
[24] Accordingly, the representative plaintiffs propose that the Second Notice be (i) published on websites administered by Class Counsel and (ii) disseminated by email to any potential class member who has contacted Class Counsel and for whom Class Counsel has an email address.
Objections and opt-outs
[25] No objections or opt-outs have been filed.
The representative plaintiffs’ involvement in the class action
[26] The relevant evidence is set out in (i) counsel’s affidavit filed in support of the motion for settlement approval and (ii) the affidavits filed in support of the consent certification motion by Kauf and Tom Douramakos (Douramakos), the representative of Web, which are incorporated in the affidavits filed by the representative plaintiffs for the present motions.
[27] I summarize that evidence as follows:
(i) The class action would not have been brought if not for Kauf and Douramakos initiating the litigation. Kauf and Douramakos separately contacted counsel in the spring of 2017 to raise concerns about the investor documents they relied upon in purchasing and holding Colt’s common shares;
(ii) Kauf and Douramakos independently conducted their own due diligence about the alleged wrongful conduct prior to contacting counsel; and
(iii) As sophisticated investors employed as executives, Kauf and Douramalos reallocated their time from employment, and specifically weekends, to correspond with counsel to advance the claim.
Analysis
[28] There are five issues before the court:
(i) Settlement approval: is the proposed settlement fair, reasonable, and in the best interests of the class?
(ii) Plan of Allocation approval: is the Plan of Allocation fair, reasonable, and in the best interests of the class?
(iii) Notice approval: does the Second Notice satisfy the requirements under s. 17 of the CPA?
(iv) Honoraria approval: should the representative plaintiffs each be paid $5,000 as an honorarium out of the Settlement Fund?
(v) Fee approval: should Class Counsel’s retainer agreement with the representative plaintiff be approved and, as a result, Class Counsel’s fees, disbursements, and taxes be paid out of the Settlement Fund?
[29] I address each of these issues below.
Issue 1: Settlement Approval
1. The applicable law
[30] I rely on the test for settlement approval which I set out in Robinson v. Medtronic, 2020 ONSC 1688, 150 O.R. (3d) 328, at paras. 63-68, in which I held:
In deciding whether to approve a proposed settlement, the court must determine whether the settlement is fair, reasonable, and in the best interests of the class. Consideration must be given to the totality of the circumstances, including the factual context and the prevailing legal issues (See Dabbs v. Sun Life Assurance Co. of Canada, [1998] O.J. No. 1598 (Gen. Div.), at para. 9 (“Dabbs II”); Parsons v. Canadian Red Cross Society, [1999] O.J. No. 3572 (S.C.), at paras. 68-73 (“Parsons I”); and Waldman v. Thomson Reuters Canada Limited, 2016 ONSC 2622, 131 O.R. (3d) 367 (Div. Ct.), at para. 21 (“Waldman”)).
In undertaking this analysis, the following principles are to be used as a guide (see Nunes v. Air Transat A.T. Inc., 2005 CarswellOnt 2503, at para. 7; and Osmun v. Cadbury Adams Canada Inc., 2010 ONSC 2643, 5 C.P.C. (7th) 341 (“Osmun”), at paras. 31 and 34):
(i) The resolution of complex litigation through the compromise of claims is encouraged by the courts and favoured by public policy;
(ii) There is a strong initial presumption of fairness when a proposed settlement, which was negotiated at arm’s-length by counsel for the class, is presented for court approval;
(iii) To reject the terms of the settlement and require the litigation to continue, a court must conclude that the settlement does not fall within a zone of reasonableness;
(iv) A court must be assured that the settlement secures appropriate consideration for the class in return for the surrender of litigation rights against the defendants. However, the court must balance the need to scrutinize the settlement against the recognition that there may be a number of possible outcomes within a zone or range of reasonableness. All settlements are the product of compromise and a process of give and take, and settlements rarely give all parties exactly what they want. Fairness is not a standard of perfection. Reasonableness allows for a range of possible resolutions. A less than perfect settlement may be in the best interests of those affected by it when compared to the alternative of the risks and costs obligation;
(v) It is not the court’s function to substitute its judgment for that of the parties or to attempt to renegotiate a proposed settlement. Nor is it the court’s function to litigate the merits of the action or to simply rubber-stamp a proposal;
(vi) The burden of satisfying the court that a settlement should be approved is on the party seeking approval; and
(vii) The court cannot modify the terms of a proposed settlement. The court can approve or reject the settlement. In deciding whether to reject a settlement, the court should consider whether doing so would derail the settlement. The parties are not obligated to resume discussions and it is possible that the parties have reached their limits in negotiations and will backtrack from their positions or abandon the effort. This result would be contrary to the widely held view that the resolution of complex litigation through settlement is encouraged by the courts and favoured by public policy.
The court may also weigh the following factors, keeping in mind that they are not to be applied mechanically and that in any given case, some factors will have greater significance than others (Dabbs II, at para. 13; Osmun, at paras. 32-33; and Waldman, at para. 22):
(i) the presence of arm’s-length bargaining and the absence of collusion,
(ii) the proposed settlement terms and conditions,
(iii) the number of objectors and nature of objections,
(iv) the amount and nature of discovery, evidence or investigation,
(v) the likelihood of recovery or likelihood of success,
(vi) the recommendations and experience of counsel,
(vii) the future expense and likely duration of litigation,
(viii) information conveying to the court the dynamics of and the positions taken by the parties during the negotiations,
(ix) the recommendation of neutral parties, if any, and,
(x) the degree and nature of communications by counsel and the representative plaintiff with class members during the litigation.
Of the guiding principles, one of the most significant is whether “the settlement falls within a zone of reasonableness” (Dabbs II, at para. 30).
The court must balance the need to scrutinize the settlement against the recognition that there may be a number of possible outcomes within the range of reasonableness.
The parties have an obligation to provide sufficient information to allow the court to exercise its function of independent approval, although it is not necessary that discovery be complete at the time of settlement (Dabbs v. Sun Life Assurance Co. of Canada, 1998 CanLII 14855 (ON SC), [1998] O.J. No. 2811 (Gen. Div.), at para 40 (“Dabbs I”).
[31] I also rely on the following principles:
(i) The factors “must not be applied in a mechanical way,” and it “is not necessary for all factors to be present, nor is it necessary that the factors be given equal weight”. The circumstances of the case shape the analysis: Osmun v. Cadbury Adams Canada Inc., 2010 ONSC 2643, at para. 33; and
(ii) There is no requirement that a settlement treat all class members equally. The test is whether the settlement is fair and reasonable for the class as a whole: Hodge v. Neinstein, 2019 ONSC 439, at para. 41; McCarthy v. Canadian Red Cross Society, 2007 CarswellOnt 3735 (S.C.), at para. 17.
[32] I now review the above factors based on the evidence on this motion.
2. Application of the law to the evidence
a. Presence of arm’s length bargaining and absence of collusion
[33] Settlement negotiations were conducted between sophisticated and experienced counsel, before a professional and highly-qualified mediator. The parties bargained at arm’s length.
b. Zone of reasonableness and likelihood of success
[34] The terms of the Settlement Agreement fall within the zone of reasonableness, having regard to all of the circumstances, particularly in view of the litigation risks in this case. The action had potential weaknesses which may have resulted in certification being denied on certain issues or the action being unsuccessful if tried on the merits on a class-wide basis.
[35] The liability limit under Part XXIII.1 of the Securities Act is likely to restrict the quantum of damages to nearly the proposed Settlement Amount. Irrespective of whether the corporate defendant has insurance, the limit on liability would approach $1 million.
[36] The following risks are associated with the claims:
(i) This litigation would have been complicated, risky and expensive to pursue. The prosecution would likely have required the assistance of numerous experts;
(ii) A cease-trade order was imposed on Colt at the end of the class period;
(iii) Colt appears to have ceased operations. On January 31, 2017, its securities were halted from trading on the TSX-V. The last time Colt released any substantive investor document was November 30, 2016, and the last time Colt released any investor document was on March 26, 2018;
(iv) Prior to and during the class period, Colt included a Going Concern Warning within its financial statements and, as such, even if the impugned Turcolt transaction (as described in my reasons in the statutory claim leave application) had not taken place, Colt is likely to have run out of capital necessary to continue operations;
(v) It is unclear whether Colt retains either or both the insurance and capital necessary to make class members whole if the Claim is proved. There is a concern the defendants’ litigation insurance provider may take an off-coverage position with respect to the underlying wrongful conduct concerning the impugned Turcolt transaction. If the litigation continued without insurance support, the amount available to collect from a judgment would be negligible. Any monetary recovery would likely require the sale of the remaining Colt assets in Europe;
(vi) Continued litigation would have further eroded Colt’s capital such that recovery for the class members might have been further hindered. The defendants have denied, and continue to deny all liability, and have indicated they would have asserted statutory defences under Part XXIII.1 of the Securities Act if the action had not settled;
(vii) While the plaintiffs’ s. 138.8 motion was granted,
(a) the defendants refused to consent to certification of the Class (Holders) common-law claim. That motion would add an additional 12 to 18 months to the litigation through the appeals process—further depleting the available insurance proceeds and risking significant certification motion costs awards, and
(b) certain of the individual defendants indicated that they might rely upon the reasonable investigation defence set out in s. 138.4(6) of the Securities Act; and
(viii) A discovery plan that incorporates e-discovery protocols could require 6 to 9 months to negotiate, and e-discovery could cost more than $100,000 and take over 12 months to complete.
[37] The Settlement Agreement requires the Claims Bar Deadline to be 90 days after the issuance of the Approval Order. Since I signed the Approval Order on April 6, 2021, the claims bar deadline would be July 5, 2021.
[38] The Claims Bar Deadline provides certainty for class members for when the distribution of funds can be reasonably expected to occur, given that the calculation of pro rata damages can only occur after claims have been accepted by the Administrator. The Claims Bar Deadline establishes a specific cut-off point after which time claims cannot be made, and provides a reasonable time to make a claim.
[39] For the above reasons, I find that the settlement is fair and reasonable and in the best interests of the class members. The settlement fulfills all of the objectives of the CPA, and provides immediate, direct benefits to class members with eligible claims, while protecting them from serious risks of litigation. The settlement falls within the zone of reasonable outcomes and should be approved.
Issue 2: Approval of the Plan of Allocation
1. The applicable law
[40] A proposed distribution of settlement funds will be appropriate if, in all the circumstances, the plan of distribution is fair, reasonable, and in the best interests of the class. The proposed distribution process must fall within a range of reasonableness in order to obtain court approval and need not be perfect: Zaniewicz v. Zungui Haixi Corporation, 2013 ONSC 5490, at para. 59.
[41] Class counsel can act as administrator, provided that the court is satisfied that class members will receive the promised benefits in a timely and efficient manner. Class Counsel is subject to the court’s supervision and will remain neutral: Barwin v. IKO, 2017 ONSC 3520, 65 C.L.R. (4th) 137, at para. 29.
[42] The court can appoint a referee, whose duty is to establish and employ a summary procedure to review any disputes arising from the decisions of the administrator, and to adjudicate them fairly, finally and conclusively to maintain a timely, fair and efficient claims and distribution process.
2. Application of the law to the evidence
a. The Plan of Allocation and Claim Form
[43] Under the Plan of Allocation, each authorized claimant in each respective period will have a fair rate of recovery in respect of their recoverable losses over the class period.
[44] The classes are within a zone of reasonableness based on their ability to recover for their losses and their reasonable damage claims given the different time periods and the limited recovery available.
b. Class Counsel should be appointed as the Administrator
[45] Class Counsel has served in this matter as the O&O Administrator to receive objections and opt-outs.
[46] Further, in anticipation of being appointed to serve as the Administrator for the claims process, Class Counsel has prepared the proposed Plan of Allocation and Claim Form and other aspects of the intended implementation of the Settlement Agreement.
[47] Class Counsel will act with neutrality and objectivity as Administrator in this action.
c. The proposed Referee should be appointed
[48] The proposed Referee, Christophe Shammas, is an experienced litigator in private practice in Toronto. He can adjudicate claims referred to him in accordance with the terms of the Plan of Allocation. He is autonomous, independent, and neutral from the parties and counsel in this action.
Issue 3: Approval of Second Notice and distribution
1. The applicable law
[49] Section 17 of the CPA requires notice to be given in certain circumstances (including after an action is certified), and sets out the issues courts should have regards to when making orders setting out when and by what means notice shall be given (ss.17(3)-(6)).
[50] Notices should be approved by the court before they are disseminated to class members (s.20 of the CPA).
2. Application of the law to the evidence
[51] The proposed Second Notice and Plan of Notice for its distribution will fulfill the requirements of providing notice to class members that the Settlement Agreement has been approved, of the time to submit Claim Forms, and of the manner and deadline for doing so.
[52] Given the limited recovery available, it is not practical to require Class Counsel to incur the costs of attempting to locate each potential class member who held shares in Colt through expensive information requests to Canadian investment dealers. Such a process would likely reduce any payments significantly.
[53] The proposed method of notice in this matter is appropriate, especially in proportion to the size of the settlement.
Issue 4: Approval of honoraria
1. The applicable law
[54] I reviewed the applicable law governing the award of an honorarium to a representative plaintiff in Robinson, at paras. 96-98. I rely on those comments, and do not repeat my analysis in these reasons.
2. Application of the law to the evidence
[55] I find that the evidence supports the “exceptional” order of the payment of an honorarium to each of Kauf and Web for the same reasons I held in Kaplan v. PayPal Canada Limited, 2021 ONSC 1981 (and as similarly held by Justice Morgan in Miller v. FSD Pharma, Inc., 2021 ONSC 911, at paras. 17-18).
[56] Class Counsel did not submit that the conduct of either Kauf or Douramakos as a representative plaintiff involved in the litigation was exceptional. I agree that on the evidence, their conduct in the litigation was consistent with the conduct expected of a representative plaintiff.
[57] However, Class Counsel relied on the evidence discussed above to submit that the class action would not have been brought except for (i) the personal investigation by the representative plaintiffs of the basis for the class action and (ii) the decision of the representative plaintiffs to approach Class Counsel and to encourage Class Counsel to bring the litigation.
[58] I agree that Kauf and Douramakos were the driving force of this litigation. None of the class members would have received any recovery if not for their diligence in discovering the impugned transaction issues and seeking counsel for a class action. On that basis, I am satisfied that the conduct of the representative plaintiffs was of an “exceptional” nature justifying an honorarium.
[59] As I stated in Kaplan, I do not find that the mere initiation of the litigation and retainer of counsel is automatically a basis for an honorarium. Each case must be assessed on its own facts to determine the importance of that factor.
[60] However, in the present case, the evidence supports the conclusion that the class action would not have been brought but for the exceptional efforts of Kauf and Douramakos. On the basis of their exceptional diligence in discovering the claim and bringing it to Class Counsel, I award each of Kauf and Douramakos the requested honorarium of $5,000.
Issue 5: Approval of class counsel fees and disbursements
[61] Class Counsel are seeking approval for the payment of legal fees in the amount of $300,000 (inclusive of applicable taxes) and disbursements of $80,000 (inclusive of taxes).
1. The applicable law
[62] I rely on the applicable law I set out in Cass v. WesternOne Inc., 2018 ONSC 4794, at paras. 117-26, which I set out below:
Class counsel fees are to be approved on the basis of whether they are “fair and reasonable” in all of the circumstances (Parsons v. Canadian Red Cross Society (2000), 2000 CanLII 22386 (ON SC), 49 O.R. (3d) 281 (S.C.J.) (“Parsons 2”), at para. 13-14 and 56; Lefrancois v. Guidant, 2014 ONSC 1956 (“Lefrancois”), at para. 52).
The courts in Lefrancois, at para. 52, and in Silver v. Imax Corp., 2016 ONSC 403, at para. 41, set out the following factors which may be considered by the court when determining whether class counsel’s fees are fair and reasonable:
(i) the factual and legal complexities of the matters,
(ii) the risks assumed in pursuing the litigation, including the risk that the matter might not be certified, and the risk of loss at trial,
(iii) the opportunity cost to class counsel in the expenditure of time in pursuit of the litigation and settlement,
(iv) the amount in issue,
(v) the result achieved,
(vi) the importance of the matter to the class members and to the public,
(vii) the degree of responsibility assumed and the skill and competence demonstrated by class counsel,
(viii) the ability of the class to pay, and
(ix) the expectations of the representative plaintiffs, the class and class counsel as to the basis for calculating fees and the amount of fees.
An agreement to make a contingent payment, on the basis of a percentage of a settlement or recovery, is contemplated by the word “otherwise” in s. 32(1)(c) of the CPA, and has often been awarded (Nantais v. Telectronics Proprietary (Canada) Ltd. (1996), 1996 CanLII 7984 (ON SC), 28 O.R. (3d) 523 (Gen. Div.) at pp. 528-29; Crown Bay Hotel Ltd. Partnership v. Zurich Indemnity Co. of Canada (1998), 1998 CanLII 14842 (ON SC), 40 O.R. (3d) 83 (Gen. Div.) (“Crown Bay”), at 86).
Contingency fee arrangements are an “important means” to provide “enhanced access to justice to those with claims that would not otherwise be brought because to do so as individual proceedings would be prohibitively uneconomic or inefficient”. Similar to a multiplier, a contingency fee retainer “gives the lawyer the necessary economic incentive to take the case in the first place and to do it well” and, as such, “that opportunity must not be a false hope” (Gagne v. Silcorp Limited (1998), 1998 CanLII 1584 (ON CA), 41 O.R. (3rd) 417 (C.A.), at 422-23).
The policy of the CPA is to provide an incentive to class counsel to pursue class actions in order to increase access to justice. Class counsel fees have been awarded and are intended to compensate law firms for the risk that they may never be paid for their time or reimbursed for their disbursements. In Parsons 2, Justice Winkler (as he was then) stated (at para. 56, see also para. 14):
[…] The legislature has not seen fit to limit the amount of fees awarded in a class proceeding by incorporating a restrictive provision in the CPA. On the contrary, the policy of the CPA, as stated in Gagne, is to provide an incentive to counsel to pursue class proceedings where absent such incentive the rights of victims would not be pursued. It has long been recognized that substantial counsel fees may accompany a class proceeding. […]
In Crown Bay, Winkler J. commented on the benefits of a contingency fee in class actions to encourage settlement (at 88):
[…] On the other hand, where a percentage fee, or some other arrangement such as that in Nantais, is in place, such a fee arrangement encourages rather than discourages settlement […] Fee arrangements which reward efficiency and results should not be discouraged.
Similarly, in Osmun v. Cadbury Adams Canada Inc., 2010 ONSC 2752, Strathy J. (as he then was) endorsed contingency fee arrangements in class actions. He held (at paras. 21 and 22):
There is much to be said in favour of contingent fee arrangements. Litigants like them. They provide access to justice by permitting the lawyer, not the client, to finance the litigation. They encourage efficiency. They reward success. They fairly reflect the considerable risks and costs undertaken by class counsel, including the risk that they will never be paid for their work, the risk that their compensation may come only after years of unpaid work and expense, and the risk that they will be exposed to substantial cost awards if the action fails. Effective class actions simply would not be possible without contingent fees. Contingent fee awards serve as an incentive to counsel to take on difficult but important class action litigation.
[…] in my respectful view, courts should not be too quick to disallow a fee based on a percentage simply because it is a multiple – sometimes even a large multiple – of the mathematical calculation of hours docketed times the hourly rate.
In Abdulrahim v. Air France, 2011 ONSC 512, Strathy J. (as he then was) approved a “one-third” contingency fee, referring to it as “standard in class action litigation”. He held (at para. 13):
A contingency fee of one-third is standard in class action litigation and has been common place in personal injury litigation in this province for many years. It has come to be regarded by lawyers, clients and the courts as a fair arrangement between lawyers and their clients, taking into account the risks and rewards of such litigation. Fees have been awarded based on such a percentage in a number of class action cases.
In Cannon v. Funds for Canada Foundation, 2013 ONSC 7686 (“Cannon”), Justice Belobaba also approved a one-third contingency fee and held that there was a presumption that such arrangements are valid and enforceable provided that they are “fully understood and accepted by the representative plaintiffs”. He held (Cannon, at para. 8):
What I suggest is this: contingency fee arrangements that are fully understood and accepted by the representative plaintiffs should be presumptively valid and enforceable, whatever the amounts involved. Judicial approval will, of course, be required but the presumption of validity should only be rebutted in clear cases based on principled reasons.
In Cannon, Justice Belobaba provided “examples of clear cases where the presumption of validity could be rebutted” which included (Cannon, at para. 9):
(i) “Where there is a lack of full understanding or true acceptance on the part of the representative”,
(ii) “Where the agreed-to contingency amount is excessive”, and
(iii) “Where the application of the presumptively valid one-third contingency fee results in a legal fees award that is so large as to be unseemly or otherwise unreasonable”.
[63] I further rely on the principle that the risks of an action should be assessed at the time the action was commenced and include risks of certification as well as those on the merits: Robinson, at para. 89, citing Gagne v. Silcorp Ltd. (1998), 1998 CanLII 1584 (ON CA), 41 O.R. (3d) 417 (C.A.), at para. 16.
[64] I apply the above principles to the present case.
2. Application of the law to the facts of this case
[65] There is no basis to rebut the strong “presumption of validity” of the contingency fee arrangement.
[66] Class Counsel entered into a written Fee Agreement with Kauf on June 28, 2017. Class Counsel entered into a written Fee Agreement with Web on May 5, 2017.
[67] The Fee Agreement provides that Class Counsel “will finance all aspects of the litigation and will only be compensated for its legal services if there is a recovery to shareholders”. The Fee Agreement further provides that “[f]ees, reasonable disbursements and HST will not be charged to you unless the litigation is ‘successful’”.
[68] In exchange, but only if successful in the matter, the Fee Agreement provides that (i) Class Counsel would request a fee of “28% of the total/gross value of the amount recovered, or on the basis of a 4-times multiplier of the time spent prosecuting the claim, whichever is higher” and (ii) “HST is added to any fee recovered by Morganti Legal”. Under the Fee Agreement, Class Counsel was entitled to request a fee of 33% recovery if the case had proceeded to trial.
[69] Class Counsel requests approval of legal fees in this matter in the amount of 28% of the settlement amount, i.e. $266,000, plus HST of $34,000, and disbursements of $80,000 (inclusive of applicable taxes), for a total of $380,000.
[70] I approve of the fees and disbursements as requested. I rely on the following factors:
(i) The result achieved for the class: As discussed above, the proposed settlement is a good result for the class, obtaining nearly the anticipated Part XXIII.1 liability limit. Class Counsel secured a strong settlement at an early stage in the litigation;
(ii) Risks incurred by Class Counsel, the complexity of the action, and skill and competence of Class Counsel: This was a complex case in which Class Counsel took on significant risk and obtained a good result for the class.
In this case, the risks are connected with the legal and factual complexities of the case. Counsel was successful in a complex leave motion which raised important legal issues. If the leave motion had been unsuccessful, it would have significantly affected liability and recovery, and likely have resulted in significant cost consequences. Class Counsel incurred a large risk that the case would be unsuccessful and counsel would receive no or limited compensation of any kind for their considerable work, valued at over $400,000 up to January 2021.
The risks on the merits of the action are set out in my analysis of the Settlement Agreement discussed above. The complexity of the action is such that Class Counsel had to spend substantial time investigating this action, litigating the leave issue, and addressing the other defences raised by the defendants.
The plaintiffs did not make use of the Class Proceedings Fund or any other third party funders. As a result, Class Counsel undertook all the financial risk of the litigation;
(iii) Expectations of the class: The representative plaintiffs would have a clear understanding of how Class Counsel would be compensated for this litigation. The retainer agreement provides for 28% of the total amounts recovered plus the applicable taxes.
The 28% fee sought is below the 33% contingency fee amount that Justice Belobaba has described as “presumptively valid” for contingency fee arrangements in Ontario. Further, the amount sought is on the low end of the range for fees awarded to class counsel in other Ontario decisions in similar circumstances; and
(iv) Reasonable multiplier: The total value of the docketed time for all class counsel on the two actions was more than $400,000. Awarding fees of $266,000 would therefore be equivalent to a multiplier of approximately 0.6, which is much lower than the range accepted in the case law: see Fantl v. Transamerica Life Canada (2009), 2009 CanLII 55704 (ON SC), 83 C.P.C. (6th) 265, 81 C.C.L.I. (4th) 18 (Ont. S.C.), at para. 92.
[71] Having regard to the factors identified above, including the risk assumed by Class Counsel, as well as the complexities of the proceeding, Class Counsel’s request for legal fees is fair and reasonable.
[72] For the above reasons, I approve the fees and disbursements requested by Class Counsel, as well as the ancillary relief in the draft order provided to the court.
Order
[73] For the above reasons, I grant the relief as set out in the orders signed on April 6, 2021.
GLUSTEIN J.
Date: 20210415
[^1]: The “First Notice” was the short-form and long-form Notice of Certification and Settlement Approval Hearing, approved by my January 4, 2021 endorsement on consent certification for the purposes of settlement.
[^2]: The Fee Agreements were entered into with Morganti & Co., P.C. and Morganti Legal, now with Kim Spencer McPhee Barristers P.C.