Canada: Sharing Is Caring … Or Maybe Not? Ontario Judge Refuses To Approve A Class Action Fee Sharing Agreement

Last Updated: May 23 2016
Article by Bevan Brooksbank and Ziad Yehia

Most Read Contributor in Canada, September 2016

On May 25, 2016, the Court of Appeal for Ontario will hear the appeal in Bancroft-Snell v Visa Canada Corporation, where Justice Perell held that a fee sharing agreement between class counsel and another law firm that had commenced rival class action proceedings was "unauthorized, unenforceable, and possibly illegal [para. 64]".

By way of background, a consortium of law firms ("Class Counsel") commenced class proceedings in 2011 in several provinces, including Ontario, on behalf of a proposed national class against MasterCard International Incorporated, Visa Canada Corporation and most of the major financial institutions in Canada (collectively, the "Defendants"). It was alleged that the Defendants engaged in a price-fixing conspiracy in respect of the "merchant discount fees" that apply to retailers on Visa and MasterCard transactions. A few years after Class Counsel had commenced the British Columbia action, but before they had issued claims in Alberta and Saskatchewan, Merchant Law Group ("MLG") launched similar actions in Alberta and Saskatchewan (the "MLG Claims").

Class Counsel and MLG initiated carriage motions in Alberta and Saskatchewan, but settled the dispute at mediation. Settlements were subsequently reached with three of the Defendants (following on a counterpart settlement reached in the United States). As part of the settlements, Class Counsel agreed to arrange for the dismissal of the MLG Claims as against the settling Defendants, and also agreed to share a portion of counsel fees with MLG (the "Agreement").

Class Counsel then sought to have the class action settlements and contingency fee agreements approved by the court, which is required under the various provincial class action statutes. On such a motion before the Ontario Superior Court, Justice Perell made it abundantly clear that he was not happy with the fee sharing Agreement, and he did not think the best interest of the class members was served by the Agreement. Justice Perell also took issue with the fact that the Agreement itself between MLG and Class Counsel was not produced until the hearing of the motion, and only upon the Court's request.

In lengthy reasons, Justice Perell held that it was unfair and unreasonable for "Class Members in Ontario to pay a ransom fee in order to stay late-arriving rival class actions in Alberta and Saskatchewan [paras. 68 to 69]". In particular, MLG made no contribution to achieving the settlement. Rather than agreeing to pay MLG, Class Counsel possessed the alternative of pushing on with a carriage motion for their own actions that were 15 months more mature than the rival class actions, and "strengthened by a companion action in British Columbia that was so far beyond a carriage fight that it had a certification motion that was scheduled for argument."

Justice Perell was prepared to accept that Class Counsel believed, in good faith, that the fee sharing arrangement was in the best interests of class members so as to avoid the confusion and delay created by a protracted carriage dispute. However, such a belief was mistaken. "[T]he integrity of the entrepreneurial model for the class action regime depends on genuine risk and genuine competition for the privilege of earning a contingency fee paid from the proceeds that belong to the class members. Putative class counsel should be [dis]abused of the idea that they can commence a class action in the anticipation that they will inevitably share in the contingency fee paid by the class members [para. 80]." It was also left open by Perell J. as to whether the Agreement ran afoul of the prohibition on champerty and maintenance.

In the end, Justice Perell approved the settlement and the retainer agreement between the Class Counsel and the representative plaintiffs, but ordered a 10% reduction in the fees payable to the Class Counsel and held the Agreement to be unenforceable. Class Counsel was consequently ordered to not pay any sums from the settlement proceeds or from any other sources to MLG. Class Counsel appealed, MLG has intervened on the appeal, and the Court of Appeal appointed an amicus curiae to make submissions in support of the validity of Perell J.'s order.

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