Court of Appeal for Ontario provides discussion on assessment of class counsel fees

7 avril 2011

Ce billet est disponible en anglais seulement.

In Smith Estate v. National Money Mart Company, the Court of Appeal examined several interesting issues in assessing class counsel fees in class proceedings, including the difficulties that arise in the absence of an adversarial forum.

Background

The plaintiffs alleged that they were charged a criminal rate of interest on small payday loans obtained from the defendants.  The principle issue in the case was whether the various charges on such loans (i.e. a finance charge, a cash checking fee and an item fee) were properly characterized as interest under the Criminal Code provisions prohibiting criminal rates of interest.  Following a mid-trial mediation, the parties agreed to a settlement, pursuant to which the defendants would (i) make a cash payment of $27.5 million to the settlement class, (ii) forgive the class members’ indebtedness to them in the amount of approximately $56 million, (iii) provide the class with $30 million of fully transferable transactions credits or coupons valued at $5 each so as to reduce the cost of using the defendants’ services in the future, (iv) make a payment to the Class Proceedings Fund in the aggregate amount of $3 million and (v) pay the costs of administering the settlement.

Class counsel initially sought to have their fees approved in the amount of $27.5 million, which amount would have depleted the entirety of the cash settlement provided by the defendants for the benefit of the class members.  However, the motion judge fixed counsel fees at $14.5 million.  On appeal, class counsel reduced the amount of fees sought for approval to $20 million.  Notwithstanding that reduction, the Court of Appeal dismissed that aspect of the appeal and upheld the motion judge’s determination that $14.5 million was a fair and reasonable amount for class counsel fees. 

Class counsel also sought to have the fees, disbursements and taxes of other counsel and professional consultants, who had provided their services on a contingency basis, treated as a component of the class counsel base fee rather than as disbursements, and increased by the same multiplier the court awarded to class counsel.  Class counsel also sought to have the compensation paid to the representative plaintiff paid out of the class fund rather than out of class counsel fees.

Discussion on Appeal

There were three principle issues on appeal: (i) whether the quantum of fees sought by class counsel were fair and reasonable, (ii) whether contingency fee arrangements between class counsel and professional consultants are permitted under the Class Proceedings Act, 1992 (CPA), and (iii) whether compensation to the representative plaintiff is properly payable out of the class settlement fund or class counsel fees. The latter two of these three issues are novel.  

Settlement Value to Class Members Key Consideration in Determination of Class Counsel Fees

On the issue of the quantum of fees, the appellants’ argued that the motion judge was bound to use the framework provided for in section 33(7) of the CPA and apply a multiplier to counsel’s base fee.  The Court of Appeal rejected that argument on the ground that the retainer agreement did not “permit counsel to apply to court for a multiplier but instead stipulates how counsel fees are to be calculated.”  The Court held that class counsel’s fees were subject to approval under section 32 of the CPA.  The fee agreement was therefore enforceable only if approved by the court, failing which the motion judge had broad discretion to determine counsel’s fees.

As to the reasonableness of counsel fees, the Court of Appeal endorsed the motion judge’s reasoning and agreed with his conclusion.  Notwithstanding the motion judge’s determination that “the class proceedings involved matters of high factual and legal complexity, had a substantial monetary value, was important to the class and class counsel performed with competence and admirable skill,” the motion judge did not accept that the settlement, which was comprised of cash, coupons and releases, was worth $120 million. The motion judge’s principal objection to the purported value of the settlement was that the transaction credits or coupons provided to class members did not provide a benefit equal to their face value.  Having regard to the all the factors, the motion judge held that an all-inclusive award of $14.5 million was “ample compensation and a reasonable fee.”  The Court of Appeal found no reason to interfere with the motion judge’s decision.

Contingency Fees Limited to Properly Appointed Class Counsel

With respect to the second issue, the Court was asked to approve contingency fee arrangements between class counsel and certain professional consultants, including other counsel retained to perform discrete, specialized tasks.  The contingency fee arrangements in issue, like the arrangements between the representative plaintiff and class counsel, provided for the payment of a premium (in the form of a multiplier) in the event of success, and payment out of the class fund rather than out of class counsel fees.  The motions judge considered it unwise to decide the general issue of whether contingency fee arrangements with professional service providers are permitted under the CPA on an “essentially an ex parte motion.” The motion judge accordingly declined to make a direct ruling on the issue and instead treated the professional fees as disbursements payable by class counsel.  While the Court of Appeal expressed appreciation for the motions judge’s concern over answering such a far-reaching question in the absence of submissions from those that may be affected by such a ruling, it determined that the answer to this particular question was sufficiently straightforward that such submissions were unnecessary in this case.  “The CPA does not contemplate contingency fee arrangements with persons other than class counsel and does not give the court the jurisdiction to allow a service provider a premium on its fees.”  The evidence before the Court did not support a finding that the “other counsel” were properly appointed by the class, but that they were retained to provide specialized tasks.

Representative Plaintiffs to be compensated from Class Fund

Class counsel also sought to compensate the representative plaintiff for its contribution to the class action, which “exceeded that which is normally expected of a representative plaintiff,” out of the class fund rather than out of class counsel fees.  On this issue, the Court of Appeal overturned the motions judge’s ruling, holding that “as a general matter the representative plaintiff’s fee should be paid out of the settlement fund and not out of class counsel fees,” which are “predicated on the work that class counsel have done for the class.”  In so holding, the Court expressed concerned over rising the “spectre of fee splitting” were the representative plaintiff to share in class counsel fees.

Courts Encouraged to Appoint Amicus to Oppose Class Counsel’s Fees

Prior to addressing the legal issues raised on appeal, the Court, with the appellants’ consent, embarked on a detailed discussion of the “difficulties that stem from the fact that class counsel fees are determined in a non-adversarial forum.”  The Court voiced its concern and frustration over the non-traditional role that courts are often required to assume on unopposed fees approval motions.  In such cases, the court is required to act as both adversary and impartial adjudicator.  The Court also noted the conflicting position that class counsel is put in on such motions.  On the one hand, counsel seeks to maximize the settlement for the benefit of the class, while on the other they seek fees that will diminish the amount of the settlement that is available for distribution.  The Court posited four potential solutions to the problem, all of which involved the appointment and/or use of an independent and objective third party, including (i) amicus curaie, (ii) monitors, (iii) guardian ad litems, and (iv) independent counsel. 

Although the Court endorsed the use of any of the foregoing means of ensuring that an independent perspective is put forward on a fees approval motion, the Court seemed to favour the appointment of an amicus curaie.   The Court returns to this proposal at several points throughout the judgment and strongly encourages courts to “give serious consideration to the appointment of amicus curiae or a guardian of the settlement fund on the hearing of counsel’s application for the approval of their fees.”  The implementation of such strategies is, however, at the discretion of the court.

As further noted by the Court, the appointment of an amicus has received positive support from commentators.  The Court cites articles by Professor Gary Watson, and Winkler, C.J.O. and Sharon D. Matthews, both of which endorse the use of an amicus to “precipitate an adversarial hearing” and “assist the courts in understanding the merits of the settlement generally and as it relates to fees in particular.”  Notwithstanding such support, the only Canadian court to consider the appointment of an amicus in the context of a class counsel fees approval motion cautioned against doing so too quickly, citing concerns regarding increasing complexity and expense as reasons not to engage an amicus absent special reasons.

Conclusion

While the appointment of an amicus may assist the courts in reaching more informed, considered and impartial decisions on class counsel fees, such appointments are certain to raise concerns regarding increasing complexity and expense of fees approval motions.   The obvious question of which party (class counsel, class members or the defendants) should ultimately bear the additional expense of compensating an amicus is oddly absent from the Court’s discussion.   The answer to this question will undoubtedly influence the frequency with which the courts, class counsel and/or class members embrace the Court’s direction in this regard.

MISE EN GARDE : Cette publication a pour but de donner des renseignements généraux sur des questions et des nouveautés d’ordre juridique à la date indiquée. Les renseignements en cause ne sont pas des avis juridiques et ne doivent pas être traités ni invoqués comme tels. Veuillez lire notre mise en garde dans son intégralité au www.stikeman.com/avis-juridique.

Restez au fait grâce à Notre savoir