In Bancroft Snell v Visa, 2015 ONSC 7275 ("Bancroft"), a class action involving allegedly improper credit card merchant fees, Justice Perell approved the contingency fee agreement of class counsel, but with an order not to pay any sums toward a fee sharing agreement with other counsel. The fee sharing agreement was reached between class counsel and the Merchant Law Group regarding disputes over carriage of the action in Alberta and Saskatchewan (the "MLG agreement"). Justice Perell's comments suggest a very negative view of fee sharing agreements such as the MLG agreement and will likely have an impact on the resolution of carriage disputes.
Class counsel had commenced actions in British Columbia and Ontario. Settlement discussions were taking place between class counsel and some of the defendants. Around this time, the Merchant Law Group commenced rival class actions in Saskatchewan and Alberta. The Merchant Law Group's proceedings were going to create delay and problems for any potential settlement. To resolve the carriage dispute, class counsel and the Merchant Law Group attended a dispute resolution conference presided over by Justice Martin in Alberta. At this conference the MLG agreement was reached. It provided for payment to Merchant Law Group of various sums depending on the size of future settlements of the class action, in exchange for ending the actions it had commenced and not initiating any new ones over the same allegations.
Justice Perell found the MLG agreement was unenforceable. Justice Perell concluded, first, that the agreement appeared to be illegal as it offended the doctrine against champerty and maintenance and, second, that the carriage dispute should have been fought instead of settled. In this regard it is important to note that the MLG agreement was reached during settlement negotiations presided over by an Alberta judge. Presumably, Justice Martin did not consider that the agreement was illegal and supported resolving the carriage dispute instead of fighting it.
Justice Perell's view of the MLG agreement was likely influenced by his view that Merchant Law Group's position on the carriage dispute was weak and that it was acting opportunistically by commencing actions at a late stage to take advantage of the work already done by class counsel. He believed that the interests of the class would have been better served by class counsel fighting the carriage dispute because the MLG agreement resulted in Merchant Law Group receiving fees for doing no work of benefit to the class. This is a principled position. However, one could compare the costs and delay required by a contested carriage battle to the efficiency of arriving at a mediated fee sharing agreement. Without guidance from the courts on factors relevant to being awarded carriage, opportunistic and copycat class actions may wind up being encouraged because effectively they would be rewarded.
It is unclear what long range impact Justice Perell's decision will have on carriage disputes and commencement of competing class actions. At the very least the decision serves as a warning that fee sharing agreements may be problematic.
Subsequent to Justice Perell's decision, in a related action in Saskatchewan, Justice Ball of the Saskatchewan Court of Queen's Bench approved the same MLG agreement when approving a proposed settlement. In Hello Baby Equipment Inc. v B of A Canada Bank, 2015 SKQB 410, the Court held that it would not look behind counsel's decision to enter a fee sharing agreement with judicial oversight. The Court refused to find that such an agreement was not in the best interests of the class or that such an agreement was unlawful.
These apparently conflicting decisions create great uncertainty over fee sharing agreements. It is appropriate for a higher court to provide guidance or class counsel will not know if fee sharing agreements are a viable way to resolve carriage disputes.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
