A reassessment of risk in class proceedings

A reassessment of risk in class proceedings
The Class Proceedings Act,1992 was intended to promote access to justice. To do so, it incentivizes lawyers to undertake class actions with contingency fee agreements and the availability of premium fee awards. However, if class counsel are not adequately and consistently provided an amount that fairly compensates them for the seriousness of the risks undertaken over the course of many years, the purpose of the legislation as set out by the framers of the act will not be achieved.

The CPA provides the court with oversight over the fees class counsel may earn when success is achieved for the class. Class counsel may not be paid fees in a class action unless those fees are first approved by the court. Virtually all class counsel prosecute class proceedings under a contingency agreement that provides for payment of fees and disbursements only in the event of success.

Contingency agreements typically provide for the calculation of class counsel’s fees based on either a percentage of the recovery (i.e. 25 per cent of the amount recovered) or a base fee (hours x hourly rate) with a multiplier applied to the base fee. While s. 33(3)-(7) of the act provide specific guidance on the calculation of fees using a multiplier, courts have recently commented the percentage of recovery approach is more appropriate and should be the starting point for discussion of fee approval.

According to the Ontario Court of Appeal’s 2011 ruling in Smith Estate v. National Money Mart Co., whichever method is used, a determination of the appropriate fee by the court will engage the consideration of:

•    the factual and legal complexities of the matters dealt with;
•    the risk undertaken, including the risk the matter might not be certified;
•    the degree of responsibility assumed by class counsel;
•    the monetary value of the matters in issue;
•    the importance of the matter to the class;
•    the degree of skill and competence demonstrated by class counsel;
•    the results achieved;
•    the ability of the class to pay;
•    the expectations of the class as to the amount of the fees;
•    the opportunity cost to class counsel in the expenditure of time in pursuit of the litigation and settlement.

Since the enactment of the Class Proceedings Act, courts have been trying to assess the risks undertaken by class counsel in order to attempt to compensate them for undertaking these risky endeavors and to provide the necessary incentive for them to enable access to justice for other classes in other cases. That assessment is vitally important to whether the CPA meets its objectives.

Without an appropriate assessment of the risks in prosecuting class actions the courts will not be able to adequately reward class counsel for undertaking the actions and there will be fewer sophisticated and hard-working class counsel who are prepared to act for class members.

This is the lens through which risk evaluation at the fee-approval stage must be viewed. As a result, it is paramount the court carefully consider not only all of the risks incurred by class counsel in prosecuting class proceedings, but also the ultimate risk concerning the fulfillment of the objectives of the legislation.

Although the risks incurred in undertaking and continuing a class proceeding are varied and complex, the purpose of assessing the risks incurred by class counsel is clear: the issue of compensation will ultimately determine whether or not the CPA is successful in fulfilling its legislative objectives.

Since class proceedings began here, the risks undertaken by class counsel are increasing. Class actions now require a massive investment of time and money to prosecute. Certification motions are longer and involve significantly more materials. The time required to prosecute class actions to recovery is increasing. Adverse cost awards have skyrocketed.

These factors are increasing the risks undertaken by class counsel to the point, for many, that undertaking class actions may risk the viability of their law firms. Based on all of the above, there is, predictably, a relative dearth of lawyers prepared to accept such risks.

If we are to be serious about providing the access to justice the act was intended to promote, a reassessment of the modern risks undertaken by class counsel, as set out above, must be applied. Only then will a proper an appropriate reward and incentive be provided to counsel to undertake class proceedings and thereby contribute to the fulfillment of the objectives of the CPA.

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