December 04, 2015 Practice Points

Ontario Court Refuses to Approve Class Counsel Agreement to Share Legal Fees

By Markus Kremer

One of the unique challenges of litigating class actions in Canada stems from its constitutional structure. Most class actions are brought in provincial courts. While the courts of most provinces will certify national classes, no court can preclude a parallel action from proceeding in another province. This leads to interesting problems where different law firms commence competing claims in different jurisdictions.

In a recent example, two Vancouver-based law firms (collectively the “consortium”) jointly commenced a national class action against MasterCard International Inc., Visa Canada Corp., and most of the major financial institutions in Canada. The plaintiffs alleged a price-fixing conspiracy in respect of the “merchant discount fees” that apply to retailers on Visa and MasterCard transactions. The main action was commenced in British Columbia, with parallel consortium proceedings in Alberta, Saskatchewan, Ontario, and Quebec. The Supreme Court of British Columbia has certified a national class action, in a decision (Watson v. Bank of America Corporation, 2014 BCSC) that was upheld by the Court of Appeal for British Columbia earlier this year (2015 BCCA 362).

Things became complicated when a Saskatchewan-based class-action firm (the “Saskatchewan counsel”), commenced similar actions in Alberta and Saskatchewan a few years after the consortium had commenced their British Columbia action, but before the consortium had issued claims in Alberta and Saskatchewan. Importantly, the Saskatchewan counsel’s claims were issued after a similar U.S. action was settled. The consortium and the Saskatchewan counsel fought carriage motions (in which the parties move for the court to select which parallel proceeding in Canadian courts will proceed) in Alberta and Saskatchewan, but they were never decided. Instead, the two sets of law firms negotiated a deal through mediation.

The consortium then negotiated a settlement with three of the financial-institution defendants. As part of the settlement, the consortium agreed to arrange for the dismissal of the Saskatchewan counsel’s claims as against the settling defendants, and also agreed to pay a portion of its counsel fee to the Saskatchewan counsel.

When the proposed settlement was submitted to the Ontario Superior Court of Justice, Justice Perell found that the agreement to pay the Saskatchewan counsel a portion of the counsel fee was “unauthorized, unenforceable and possibly illegal” (Bancroft-Snell v. Visa Canada Corp., 2015 ONSC 7275).

Justice Perell found that the consortium “did not serve the best interests of Class Members by not disclosing the Fee Sharing Agreement 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. Class Members should not have to pay for this poor service that did not serve their best interests.” (Snell, para. 65).

With respect to the fees that were to be paid to the Saskatchewan counsel, Justice Perell found that it was “not fair and reasonable for a client to pay for legal services that were useless to the client” and to ask “[c]lass Members in Ontario to pay a ransom fee in order to stay late-arriving rival class actions in Alberta and Saskatchewan.” (Snell, para. 68). Justice Perell also questioned whether the arrangement with the Saskatchewan counsel might be unenforceable under the law against champerty and maintenance, and asked, “What purpose was being served by another class action other than opportunism to share in the contingency fee?” (Snell, par. 76).

In the end, Justice Perell approved the settlement and the retainer agreement between the consortium and the plaintiffs (subject to a 10 percent reduction), but ordered the consortium not to pay any sums from the settlement proceeds or from any other source to the Saskatchewan counsel.

If other Canadian courts adopt Justice Perell’s approach, this could make “copycat” class actions far less attractive to plaintiffs’ counsel. Counsel are less likely to commence a rival class action if they know that the only way they will be paid is if they win a carriage motion, rather than being able to negotiate a share of their competitors’ fees.

Markus Kremer, Borden Ladner Gervais, Toronto, ON

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