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Azar v Strada Crush Limited: The Importance of a Suitable Indemnity Agreement for Adverse Costs for the Representative Plaintiff in a Class Action

7 minute read

In the recent Ontario Superior Court of Justice decision, Azar v Strada Crush Limited,[1] the plaintiffs brought a motion to re-certify a class action involving overtime and holiday pay claims. Of particular note are the court’s comments on a representative plaintiff’s potential exposure to adverse cost awards, and the importance of having an indemnity for costs in place for the representative plaintiff, whether that is addressed in the retainer agreement by class counsel agreeing to indemnify the representative plaintiff, or by securing a third-party indemnity for costs from the Class Proceedings Fund (the “CPF”) or a third-party funding company.

Cost Awards in Ontario

In Ontario, the unsuccessful party usually pays a portion of the legal costs of the successful litigant. Depending on the particular litigation, adverse cost awards can range from many hundreds to even millions of dollars. The risk of an adverse cost award is a very real concern for a representative plaintiff considering proceeding with a class action and may discourage a representative plaintiff from proceeding without an indemnity in place.

Ontario is distinct from many other provinces in its approach to cost awards in a class action. Ontario follows the “loser pays principle”, which means the unsuccessful party in the litigation, in most cases, is ordered to pay a significant portion of the successful party’s (or parties’) costs. Costs include legal fees and disbursements.

Background

The Certification Motion and Subsequent Motions

This class action was originally certified by Justice Morgan in 2018.[2] The following year, class counsel and the representative plaintiff had a falling out which ultimately led to a motion by class counsel to either disqualify the representative plaintiff or appoint a litigation guardian over the representative plaintiff, and a motion commenced by the representative plaintiff to replace class counsel with another law firm. The motions were heard concurrently before Justice Morgan who dismissed the motion to replace class counsel and concluded that the representative plaintiff had failed to fairly and adequately represent the class as required under s. 5(1)(e)(i) of the Class Proceeding Act, 1992 (the “CPA”).[3]

Morgan J. also directed that the defendant was at liberty to move to de-certify the matter as a class action if class counsel did not serve a motion to replace the representative plaintiff within 60 days. Notably, in the court’s reasons for dismissing the motion to change class counsel, the court observed:

I will take this opportunity to observe that one legitimate complaint by the Plaintiff about his representation by Mr. Juroviesky is that the existing retainer agreement does not appear to adequately address the Plaintiff’s potential exposure to an adverse cost award. The agreement states that the Plaintiff is not responsible for the payment of costs, but it does not say who is.

I would strongly encourage Mr. Juroviesky to address this frailty in his retainer agreement going forward. Some provision must be made to indemnify the Plaintiff (or any future representative Plaintiff in this matter) for an adverse costs award, although I leave it to Mr. Juroviesky and any potential client to work out what form that indemnity might take.[4]

The De-Certification Motion

Subsequently, class counsel and the representative plaintiff reconciled, and class counsel brought a motion to reinstate the representative plaintiff.[5] Justice Morgan was not satisfied that the representative plaintiff was appropriate, and there was no proposed substitute representative plaintiff put forward by class counsel. Morgan J. granted the defendant’s order to de-certify the action and awarded costs to the defendant. We provided a summary of the important takeaways from this decision in an earlier blog post.

The Re-Certification Motion

Two years later, class counsel brought this motion to re-certify the class action with the appointment of a new proposed representative plaintiff. The new proposed representative plaintiff was not entirely new to the proceedings, had sworn a supporting affidavit in the original certification motion, and was cross-examined as part of that motion.

The new proposed representative plaintiff indicated that he had not considered cost arrangements for the re-certification motion and was apparently unware that as representative plaintiff he may be liable for costs awarded to the Defendant.[6] Further, class counsel refused to allow the new proposed representative plaintiff to answer questions on his cross-examination about whether he had an indemnity agreement with his counsel.[7]

Morgan J. noted:

Ensuring that the retainer agreement contained a costs indemnity clause was a specific condition of Mr. Juroviesky proceeding any further with a new representative Plaintiff. I did not think it appropriate for a new Plaintiff to have to bear the risk of costs in class action litigation the way that Mr. Azar had been made to do in his retainer agreement. For Mr. Juroviesky to refuse to allow any information in that regard to be part of the record effectively put Mr. Wineck offside as a potential representative Plaintiff and put Mr. Juroviesky offside as a potential class counsel in any re-certification.[8]

---

Permitting Mr. Wineck to serve as a representative plaintiff, with Mr. Juroviesky as his counsel, would effectively render meaningless my previous rulings. On July 23, 2019, I gave Mr. Juroviesky 60 days to produce a new representative plaintiff with an appropriate retainer agreement...

One goal of my July 23, 2019 ruling was to ensure that if a new representative plaintiff were found, Mr. Juroviesky would provide that person with a suitable indemnity respecting costs. As already indicated, I do not know if he has done that with Mr. Wineck. Mr. Juroviesky submitted at the hearing that the indemnity is irrelevant because Mr. Wineck has the means to pay costs himself. There is no evidence in the record of Mr. Wineck’s financial situation, and in any case that does not exactly answer my earlier concern about a representative plaintiff having a proper indemnity agreement in place. A wealthy person cannot be blindly led into exposing himself to costs liability as representative plaintiff any more than anyone else. Mr. Wineck specifically said under oath that he did not know the cost implications of this case.[9]

Conclusion

While counsel’s proposed fee and funding arrangement is one of many factors that the court considers when deciding carriage motions, typically the representative plaintiff’s indemnity arrangement is not a significant point of discussion on a certification motion.[10] Justice Morgan’s decisions suggest a new and important emphasis on having a proper indemnity agreement for costs in place for the representative plaintiff. Ensuring the representative plaintiff has an adequate understanding of the steps in the proceeding has always been an important part of the s. 5(1)(e) criteria. Part of that understanding should include an appreciation of the cost implications of the litigation, specifically the risk of an adverse cost award, the costs involved in retaining experts and expert reports, and other costs incurred over the course of a class action.

With this new emphasis on ensuring that a representative plaintiff is protected from an adverse cost award, class counsel should assess whether they are in a position to provide the representative plaintiff with an indemnity for costs, and if not, to explore other funding options such as the CPF and/or third party funding. Having an appropriate retainer agreement that addresses an indemnity for adverse cost appears to be an important consideration for the court in appointing a proposed representative plaintiff in a class action.

[1] Azar v Strada Crush Limited, 2021 ONSC 4758.

[2] See Azar v Strada Crush Limited, 2018 ONSC 4763.

[3] See also Azar v Strada Crush Limited, 2019 ONSC 4436.

[4] Azar v Strada Crush Limited, 2019 ONSC 4436 at paras 17-18.

[5] See also Azar v Strada Crush Limited, 2020 ONSC 549.

[6] Azar v Strada Crush Limited, 2021 ONSC 4758 at para 14.

[7] Ibid at para 15.

[8] Ibid at para 16.

[9] Ibid at paras 23-22.

[10] MacBrayne v LifeLabs Inc., 2020 ONSC 2674 at para 9.

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