Canada: Quebec Superior Court Refuses To Approve Bank Fee Class Action Settlements On Account Of Unjustified Class Counsel Fees

On January 23, 2017, Justice Claudine Roy of the Superior Court of Quebec rendered an important judgment on settlement approval motions in four related class actions. The actions involved unilateral credit limit increases, over limit fees, cash advance fees, and interest calculations, with the plaintiffs alleging various violations of Quebec's Consumer Protection Act (the "CPA"). Similar or related settlements against other banks had been approved for each cause of action involved.

Justice Roy's decision to refuse approval of the five settlements at issue was therefore somewhat unexpected.

After setting out the seven settlement approval criteria traditionally referred to by Quebec courts, Justice Roy explained that the seventh criterion, i.e., the "terms, conditions, and modalities of the settlement," prevented the court from approving any of the settlements. Her disapproval was largely based on the disproportion between the fees payable to class counsel and the compensation payable to members.

Justice Roy did mention that she was not questioning the parties' good faith or suggesting that they had colluded. However, she did find it significant that the plaintiff considered that it no longer had reasonable chances of success. She also noted that the defendants continue to charge the fees at issue, and that the amount payable to members (about $5 each) represented a small portion of said fees.

The settlement amounts ranged from $350,000 to $4,250,000 per bank, representing between 0.5% and 40% of the fees collected by the different institutions. In two actions, there was no distribution to members at all; they involved distributions pursuant to article 597 of the Code of Civil Procedure instead (these are akin to cy-près agreements in the common law). Justice Roy held that, in light of the evidence, it appeared that the parties had negotiated without knowing what was really at stake in each file. This is a harsh criticism of the experienced counsel on both sides.

The Court did explain, however, that the "poor result" was due to the defendants' view that they had done nothing wrong, and Option consommateurs' view that its chances of success had been compromised by the Supreme Court's judgment in Bank of Montreal v. Marcotte. Recall that in Marcotte, the Supreme Court held that conversion charges for purchases made in foreign currencies were not "credit fees" within the meaning of the CPA. Option consommateurs had pleaded that this could have a negative impact on its ability to characterize over limit fees and cash advance fees as "credit fees" within the meaning of the CPA.

Justice Roy also took issue with the parties' request to extend the class definitions to the date of the signature of each settlement agreement. She explained that there was no reason to do so because the parties had negotiated on the basis of figures available in 2010 that had not been updated. Moreover, Option consommateurs did not seek to add any amount to compensate so-called "new" class members. This may have been particularly objectionable given that there was a lengthy delay (13 to 22 months in each case) between the date on which the agreements-in-principle were concluded and the date of the signature of each agreement. Justice Roy explained that although the courts usually agree to extend class definitions to the date of the settlement, she could not do so in all cases here, because the parties negotiated without taking new members' interests into account at all.

Nevertheless, she did say that had the result been different, she would have extended the class in two of the files before her, given the following:

  • the poor chances of success of the actions,
  • many class members who paid fees after 2010 were likely also clients before 2010,
  • the amount payable to each member would not vary as a function of the amount of fees paid, and
  • the difficulty of finding members going back to 2001.

The court also took particular issue with the amount payable to class counsel. Justice Roy noted gradual inflation in the amount of the percentage typically payable pursuant to contingency agreements, which was once as low as 15% and is now regularly as high as 33%. She also noted that many of the agreements were signed long after the proceedings were filed, and that there had been very little information provided with respect to class counsel's expenses, applicable taxes, the levels of experience of lawyers who worked on the file, and their hourly rates. She seemed to question how class counsel, having already received $13,025,000 pursuant to six settlements approved separately in related matters, could possibly be seeking another $2,312,500 now, especially in light of the fact that their work had not caused any of the defendants to modify their behaviour. She also noted that the total of $15,337,500 in fees sought by class counsel amounted to some $2000 per hour of time actually logged.

The main source of Justice Roy's criticism lies in the very purpose of class proceedings, i.e., providing access to justice for members. As she aptly pointed out, "the courts must be vigilant in order to ensure that class actions do not become a mere source of enrichment for class counsel and a source of funding for non-profit organizations."[*]

Justice Roy concluded that an amount of 5% of the sums collected would be fair and reasonable as compensation for class counsel "in finishing their work." Whether she meant that this would be the amount payable to class counsel for all of their work or the final phase of the action only (and how that final phase might be delineated) is unclear.

What is clear is that counsel will have to go back to the drawing board and significantly re-work their settlement agreements in order to obtain the Court's approval (unless their clients decide to appeal the judgment). This would likely mean providing more compensation for the class members, and a lesser amount in fees for counsel. The next judgment in these matters should provide further guidance on the terms and conditions of class action settlements that will be acceptable to the courts.

In the meantime, it should be noted that Justice Roy's decision has already had an impact. On January 27, 2017, Justice Denis Jacques refused to approve a settlement in another class action involving a bank. This was due in large part to the fact that this other settlement was contingent on approval of the settlement that was before Justice Roy. Nevertheless, Justice Jacques did say that he agreed with Justice Roy's reasons and conclusions, and that her decision was in the interests of the class members.

Footnote

[*] See paragraph 110. The quotation has been translated from the original French.

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