In the context of a class action settlement worth up to approximately $880 million, Justice Belobaba rejected a negotiated class counsel fee of $75 million as not being "anywhere close to reasonable", suggesting that "at most" a fee of $37.5 million could be reasonable.

In reasons released June 20, 2018 in Brown v Canada (Attorney General), Justice Belobaba of the Ontario Superior Court of Justice penned a cautionary tale to those who seek approval of negotiated class counsel fees.

The settlement agreement before Justice Belobaba sought a final resolution to the "Sixties Scoop" – an ugly period of Canadian history during which approximately 22,400 Indigenous children across Canada were "scooped" from their families and placed in non-Indigenous homes instead. The class action focused on a novel claim for damage to these Indigenous children as a result of "loss of cultural identity".

Approximately 23 actions were commenced in relation to the Sixties Scoop across Canada in superior and federal courts. By the time a settlement was reached, the lead action, Brown, had been engaged in high-risk litigation for approximately 9 years. The action was certified in 2013 (Brown v Canada (Attorney General), 2013 ONSC 563) and the plaintiffs succeeded on summary judgment to establish the government's legal liability in tort in 2017 (Brown v Canada (Attorney General), 2017 ONSC 251).

In the course of reaching a settlement agreement, the other outstanding class actions were consolidated into a federal court action – Riddle, White and Charlie v. Her Majesty the Queen ("Riddle").

Ultimately, the settlement agreement came before the Ontario Superior Court of Justice in Brown and the Federal Court in Riddle for approval. The settlement agreement provided for the establishment of a fund of $500 million to $750 million to cover payments to Sixties Scoop survivors, individual payments to claimants capped at $50,000 and the payment of $50 million towards establishment of a national foundation devoted to memorializing the stories of Sixties Scoop survivors and dedicated to the goals of reconciliation and healing.

The settlement agreement also provided that Canada would pay $75 million in legal fees to counsel, with $37.5 million going to the sole class counsel firm in Brown and $37.5 million being split between three class counsel firms in Riddle. The legal fees contemplated that class counsel would also provide future legal assistance to individuals who would file claims or pursue appeals for benefits.

In considering a class counsel fee contained within a negotiated settlement agreement, Justice Belobaba held that section 29(2) of the Class Proceedings Act, 1992 ("CPA") required him to approve every provision in a settlement agreement, including a legal fees provision (even when a defendant has agreed to pay a certain amount in legal fees). Because there was no contingent fee arrangement under sections 32 of 33 of the CPA, Justice Belobaba noted that he was not entitled to fix a reasonable fee but could only "approve or disapprove" the legal fees provision in its entirety.

Although Justice Belobaba noted that the majority of the settlement agreement was fair and reasonable, he concluded that the $75 million for legal fees was not "anywhere close to reasonable". This is despite the fact that the Federal Court in Riddle had already approved the entire settlement agreement, including class counsel fees, as fair and reasonable. Justice Belobaba held that this did not preclude him from reviewing the fees provision of the settlement agreement and that the "comity" principle - that the decision of one court approving counsel fees should be respected by another court - was not persuasive in this case.

In considering the appropriateness of a class counsel fee, Justice Belobaba noted that among the factors to be considered in assessing whether legal fees are fair and reasonable (see Smith v National Money Mart, 2011 ONCA 233) the two most important factors are (1) risk incurred and (2) results achieved. Justice Belobaba held that the first factor, risk incurred, is what most justifies premiums in class proceedings.

On the issue of determining an appropriate class counsel fee, Justice Belobaba reflected on the benefits of fees as determined by a "percentage of the fund" approach or "multiplier" approach. It was his view that a "percentage" approach may be appropriate for lower-value settlements under $50 million and should never be used for settlements over $100 million. This approach is only acceptable if a percentage would not result in a legal fee award "so large as to be unseemly or otherwise unreasonable".

In the circumstances of a mega-fund case (i.e. over $100 million) or a case where a percentage approach would result in an excessive or unseemly fee award, Justice Belobaba suggests that a supervising judge should examine the actual risk incurred to determine whether the requested fee is reasonable. For these cases, it is important that fees are not "clearly excessive or unduly high in the sense of having little relation to the risk undertaken or the result achieved".

Under the "risk incurred" approach, counsel will be required to produce evidence of time and money invested in the action. Other factors to be considered include degree of responsibility, stage of the action and how close class counsel were to "betting the firm".

Justice Belobaba proceeded to examine the risk incurred by the sole class counsel firm in Brown and the three class counsel firms in Riddle. In Brown, Justice Belobaba noted the risk was "enormous" with over $7 million in docketed time – it was a case where class counsel had "bet the firm". In this "most deserving case", Justice Belobaba would view a multiplier of 4 as appropriate.

For Riddle, Justice Belobaba noted that the risks incurred were not significant, with almost half of the consolidated actions filed after the successful summary judgment motion in Brown. Given that the risks incurred and responsibility assumed in Riddle were "modest at best", Justice Belobaba would have approved a multiplier in the range of 1.4 or 1.5 with a maximum of 2.

Ultimately, Justice Belobaba approved the settlement agreement after counsel had agreed to "de-link" the class counsel provision. The parties were sent back to negotiate an appropriate fee.

This decision provides an overview of preferred approaches to determine appropriate class counsel fees in routine and mega-fund class action settlements, while also serving as a warning to counsel that negotiated counsel fees may not necessarily be "fair and reasonable" and approved.

Author

John Hunter 
JHunter@blg.com
416.367.6339

Expertise

Class Actions
Litigation and Arbitration
Indigenous Law