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Are Fee Sharing Agreements to Resolve Carriage Disputes Dead in Ontario?

4 minute read

We previously reported on the decision in Bancroft-Snell v Visa, 2015 ONSC 7275 (“Bancroft”) in the blog post “Fee Sharing Agreements in Trouble?” The Ontario Court of Appeal recently released the appeal decision in this case (2016 ONCA 896).

In Bancroft, a class action involving allegedly improper credit card merchant fees, Justice Perell, on a motion to approve counsel fees, approved the contingency fee sought by class counsel. However, he refused to give effect to a fee sharing agreement with other counsel or to allow class counsel to pay any money in respect of the fee sharing agreement, even funds not coming from the class action settlement. The fee sharing agreement had been reached between class counsel and the Merchant Law Group (“MLG”) after a mediation with a judge to settle a carriage dispute in Saskatchewan and Alberta. The resolution of the carriage dispute permitted a potential settlement in the action to proceed. Perell J.’s decision with respect to his refusal to approve the fee sharing agreement was appealed.

The Court of Appeal largely upheld Perell J.’s decision. The Court held that Perell J. was correct in his finding that the fee sharing agreement was reviewable on a motion to approve counsel fees and that it was within a court’s authority to reject the arrangement. The Court of Appeal held that Perell J.’s decision to reject the fee sharing agreement was discretionary and that his exercise of discretion in this case was reasonable. The Court of Appeal agreed that resolving the carriage dispute was not of benefit to the class and, therefore, was not a cost that should be imposed on the class. It was a cost of doing business for class counsel. However, the Court found that Perell J. had erred in holding that the fee sharing agreement was otherwise unenforceable and that class counsel could not pay MLG regardless of the source. The fee could be paid so long as any payment from the class action was not the source of the funds.

There are two important implications of the Court of Appeal’s decision. First, it is unlikely any court in Ontario would approve compensation to class counsel from class members in respect of or arising out of a carriage dispute. Even if a retainer agreement permitted compensation for carriage disputes, the court would likely not enforce it. The Court of Appeal held that class members should not have to pay to settle carriage disputes despite the fact that they often arise in Canada’s multi-jurisdictional constitutional landscape. Carriage disputes, in the Court’s view, are a business expense and should be borne by the law firms seeking to obtain carriage. Class counsel could try to increase the contingency fee sought to compensate for these costs, but the Court must still approve counsel’s fee and will not approve what appear to be high fees. Therefore, class counsel likely has no effective options to try to shift this cost to the class. At best, class counsel may be able to obtain some compensation for the cost of carriage disputes from opposing counsel, but such compensation will normally be partial at best.

Second, it is likely that there will be more contested carriage disputes since class counsel can not necessarily agree to share a portion of their fee with rival counsel to resolve such disputes. An increase in contested carriage disputes may be detrimental to class members as these disputes will slow class action litigation and lengthen the time it takes class members to receive compensation. Bancroft is a good example of how settlement agreements can be reached more expeditiously once carriage disputes are settled. In Bancroft, a settlement agreement was reached with Bank of America shortly after carriage was settled. It is understandable that the Court does not want class members to pay for work that does not advance the litigation. However, it is arguable that fee sharing arrangements do advance litigation given the current multi-jurisdictional class action landscape.

Notably, the fee sharing agreement that Ontario rejected was approved in Saskatchewan and Quebec. Given the inconsistent decisions and the effect this decision will no doubt have on class action practice, this may be an appropriate area for the Supreme Court to provide guidance.

The content contained in these blogs is intended to provide information about the subject matter and is not intended as legal advice. If you would like further information or advice on any of the subjects discussed in a blog post, please contact the author.

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