Canada: Ontario Court Of Appeal Limits The Award Of Premium Fees To Class Counsel

In its recent decision in Lavier v MyTravel Canada Holidays Inc., the Ontario Court of Appeal denied plaintiffs' counsel additional fees following the settlement of a class action. In doing so, the court provided guidelines on the award of class counsel fees and warned against fee awards disproportionate to the benefits provided to class members through the settlement.

Facts

Lavier was a class proceeding against MyTravel, a seller of all-inclusive holidays, on behalf of approximately 4,000 travelers who allegedly became ill at a resort in the Dominican Republic over a three-month period. The parties agreed to settle after long negotiations and without any admission of liability by MyTravel.

MyTravel established a settlement fund of $2.25 million from which class members could submit a claim for set amounts depending on the length of their illness. Under the settlement, MyTravel also agreed to pay an initial counsel fee of $600,000 to class counsel. If any money remained in the settlement fund after all eligible claims by all class members were paid, class counsel could apply to the court for an additional counsel fee. Any money that remained in the settlement fund would revert to MyTravel, and it reserved the right to oppose any application by class counsel for an additional fee.

The motion judge approved the settlement and the initial counsel fee, although he noted that the quality of the settlement would ultimately depend on the take-up rate (the number of class members who are able to provide that they are eligible for a payment from the settlement fund).

Of the 4,000 class members with potential claims, only 354 class members actually submitted an eligible claim. This meant the settlement had a take-up rate of roughly 9%, and the total amount of payments from the settlement fund to class members was just over $333,000.

Decision by motion judge on additional counsel fee

Despite the low take-up rate, class counsel applied for additional counsel fees in the amount of $395,000. If approved, class counsel would have received a total counsel fee of $995,000 – almost three times the amount paid out of the settlement fund.

The motion judge granted class counsel's application for additional counsel fees, focusing on the total value of funds available to class members in the settlement fund rather than the actual take-up rate when determining appropriate counsel fees. MyTravel appealed the motion judge's decision.

Decision by the Court of Appeal

In its February 14, 2013, decision, the Ontario Court of Appeal set aside the motion judge's decision and directed the claims administrator to return $395,000 to MyTravel. The Court of Appeal acknowledged that fixing counsel fees in class proceedings is "an art, not a science," and the court had to rely on a number of "yardsticks" to come up with a counsel fee that was fair and reasonable. Nonetheless, the Court of Appeal found that the motion judge had not adequately recognized the importance of the take-up rate, which led to a counsel fee that was "manifestly disproportionate to the results actually achieved for the class":

The starting point for the "yardsticks" analysis must be recognition of the result achieved for people who fell ill at the resort. In this case, the result was that approximately nine percent of the class received compensation through the efforts of Class Counsel and this compensation amounts to about one-sixth of the total negotiated fund. This is not a spectacular result.

The Court of Appeal also rejected class counsel's argument that the additional fee was required to account for the litigation risk involved with taking on the action. The Court of Appeal held that the litigation risk ended with the conclusion of the settlement agreement and was accounted for in the initial counsel fee.

This decision provides an important check on the practice of awarding premiums to class counsel to account for the risks involved in bringing a class proceeding. While the court will continue to award a premium where warranted, the court must ensure the total counsel fees are proportionate to the results achieved by class counsel. If the court awards a counsel fee without due regard to the actual benefit to class members of the action, the court runs the risk of making class counsel the main beneficiary of any class proceeding.

* MyTravel Canada Holidays Inc. is represented in this action by Norton Rose.

Norton Rose Group

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