Canada: 2015 Theme #2: Costs Battles And Class Counsel Fees

Costs and class counsel fees shape the commencement, prosecution and settlement of class proceedings. Canadian courts approach to costs in class actions has continued to develop this year, with significant decisions criticizing class counsel fee arrangements and confirming the symmetry of the costs regime. Additionally, Saskatchewan has recently transitioned from a "no-costs" class action regime to a "loser pays" regime.

Settlement-Driven Legal Fees Arrangements "Profoundly Unacceptable"

In McCallum -Boxe v. Sony, Justice Belobaba made scathing comments regarding the plaintiffs' legal fee arrangements with their counsel. Plaintiffs' counsel acknowledged that in this case (and many others involving his firm) there was no written retainer and no contingency fee provision. Instead, the class representatives agreed that counsel would look to recover legal fees from the defendant as part of a (hoped for) settlement agreement.

Justice Belobaba was "shocked" and noted that "[T]his type of settlement-driven legal fees arrangement in class action litigation is fundamentally and profoundly unacceptable. It provides all the wrong incentives."  Class counsel had no incentive to advance the litigation to trial – even if it would achieve a better result for the plaintiffs – since class counsel apparently would not be entitled to any compensation at all in the event of a victory at trial. This legal fee arrangement was not in the best interest of the class as it would lead to "sub-optimal settlements negotiated by class counsel who are primarily interested in recovering a generous legal fees payment."

Justice Belobaba awarded only $30,000 of the $120,00 – $250,000 in legal fees sought by class counsel (the defendant had argued for zero or alternatively even lower fees). However, despite the warning that it "would be wise to quickly abandon this settlement-driven legal fees arrangement," plaintiff's counsel from McCallum continues to see no problem with their approach, stating in an email to the National Post that "we do things differently out West."

Reducing Costs Awards for Novel Or Public Interest Class Proceedings

The Ontario courts released two significant costs decisions regarding section 31(1) of the Class Proceedings Act that were favourable to defendants. Section 31(1) provides that the court may consider whether a class proceeding is a test case, raises a novel point of law or involves a matter of public interest in exercising its discretion to award costs. Section 31(1) is often relied on by plaintiffs in order to resist costs awards when they are unsuccessful.

In Pillar v. Post, Justice Perell signalled that even though class actions tend to determine novel points of law and adjudicate matters of public interest, plaintiffs will still be on the hook for costs where their litigation is hard fought and financially motivated. The court noted that the plaintiffs would likely have demanded costs had they been successful in this case. Justice Perell encouraged parties to agree ahead of time about the novelty or public interest nature of a class proceeding rather than making these submissions after-the-fact. Pillar v. Post indicates that the court will not often exercise its discretion to negate or diminish a costs award pursuant to s. 31(1).

Fischer v. IG is one of the rare instances where the court found the class proceeding raised novel issues about the preferable procedure criterion such that no costs should be awarded. While the plaintiffs initially lost the certification motion, they were ultimately successful on appeal. As a result, they asked Justice Perell to revisit his initial costs decision and award costs to the plaintiffs.

When Justice Perell maintained his decision that each party should bear their own costs, the plaintiffs sought leave to appeal on the basis that s. 31(1) cannot be relied upon to reduce or deny a costs award to a successful plaintiff. The Divisional Court held that there was no support for the plaintiffs' proposition that s. 31(1) should be applied asymmetrically in favour of plaintiffs and refused to grant leave to appeal.  This is the first appellate comment regarding the symmetry of s. 31(1).

Saskatchewan Switches Back to "Loser Pays" Regime

On May 14, 2015, Saskatchewan's Class Actions Act was amended to restore the judicial discretion to award costs in class proceedings. The losing party may now be required to pay some or all of the other party's legal costs, fees and disbursements. In awarding costs, the court may consider one or more of the factors set out in s. 40(2) of the Class Actions Act:

(a) the public interest;

(b) whether the action involved a novel point of law;

(c) whether the action was a test case;

(d) access to justice for members of the public using class action proceedings;

(e) any other factor that the court or the Court of Appeal considers appropriate.

Section 40(3) specifies that only the representative plaintiff is potentially liable for costs of bringing the class action – other class members may only be liable for costs regarding the determination of their individual claim.

Prior to these amendments, parties in Saskatchewan (like other no-costs jurisdictions in British Columbia, Manitoba, Newfoundland, and the Federal Court) litigated class proceedings without any real fear of an adverse costs award. The no-costs regime tended to be favourable to plaintiffs, as there was much less risk entailed in trying and failing to certify non-meritorious claims. The new costs regime may result in fewer marginal proposed class actions being filed in Saskatchewan.

It remains to be seen how willing the Saskatchewan courts will be to exercise their discretion to award costs.  In the only reported case to consider costs submissions under the new regime, the court awarded costs for the summary judgment aspect of the proceeding but refused to award costs in respect of the certification hearing, despite the fact that certification was fully argued and the plaintiffs abandoned a major part of their claim after hearing the oral argument of defence counsel.

The Law Commission of Ontario will be addressing whether Ontario should become a no-costs class action jurisdiction rather than a loser pays jurisdiction later this year.

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.

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