The RMS Titanic struck an iceberg on her maiden voyage from England to New York City. The ship sank on April 15, 1912. History repeated itself nearly 100 years later when the Costa Concordia hit a rock off the Coast of Italy and sunk on January 13, 2012. As of January 30, 2012, 17 are dead, and 15 are still missing. Since the incident, charges and lawsuits have started to roll in: criminal against the captain, and financial against Carnival Corp., the ship owner and the world’s largest cruise operator.

Francesco Schettino, the ship’s captain, has been charged with multiple counts of manslaughter and abandoning ship before the evacuation of more than 4,200 passengers and crew was complete.

There is prospect for an extended legal battle, with lawyers from around the world launching class action and individual suits against Carnival Corp. Codacons, Italy’s best known consumer group, a German lawyer, and two American law firms are filing a class action suit in Miami, Florida with the intention of seeking $165,000 per passenger.

This figure contrasts Costa’s “hush money” offer. Costa is offering all passengers aboard the Concordia €11,000 (roughly $14,000) in compensation in return for an agreement to drop any legal action. The settlement also offered the standard reimbursement for the full cost of the cruise, related travel expenses and additional funds for medical expenses after the accident, lost baggage, and psychological trauma incurred. While some passengers are taking the money, eager to put this trauma behind them, others are offended by the meagre sum, having suffered a traumatic experience and losing priceless items when the ship sunk.

This offer brings up the tension between the advantages of settling and the gamble of taking on litigation. While the sum of damages the suit is anticipated to award is more than ten times that of Costa’s offer, victims would receive the money immediately. The trial may be as far as ten years away, with the possibility of appeal, and then further delays in receiving the damages award. Mr. Ramadori, a lawyer for Codacon warned, “Today’s proposal from Costa simply exploits the lengthy Italian justice system to scare people away from the class action” – though this may just be an attempt to pressure passengers to join the suit.

While the Titanic spurred a major motion picture and several Oscars, this disaster will likely bring many more lawsuits and a spectacle for the world.

A Different Kind of Roadblock: The Indian Act Today

There was great excitement in Aboriginal communities last Tuesday, January 24, when hopes of repealing the highly contentious Indian Act came to the forefront at the Crown-First Nations Gathering in Ottawa. Those feelings were quickly replaced with disappointment when Prime Minister Harper called for creative changes to the Indian Act, rather than taking steps to abolish it. Ironically, this year will mark the 200th anniversary of the War of 1812, when Aboriginals joined forces with the Crown.

The Indian Act was enacted in 1876 alongside the Constitution, granting jurisdiction of related matters to the federal government under section 91(24). The Act largely covers issues of status, the administration of land and various rights, and the fiduciary duty the Crown has toward Aboriginals. Since its adoption, amendments have been made to better reflect the needs and concerns of the community, particularly with Bill C-31 in 1985, which made significant changes to how the Act grants Indian status.

Recent problems like the Attawipiskat housing crisis have reinvigorated discussions on the Act, with many First Nations groups pointing to the need for change in their relationship with the Crown. National Chief of the Assembly of First Nations Shawn Atleo has commented that the Act is a “painful obstacle to re-establishing any meaningful partnership.” For now, that obstacle seems like it’s here to stay.

Cultural Pluralism? Not in Our House

A “heinous crime against humanity” is what the Canadian embassy of Afghanistan called the deaths of four women Monday morning. Mohammad Shafia, his wife Tooba Mohammad Yahya, and their son Hamed were each convicted of four counts of first degree murder at a Kingston, Ontario courthouse. Zainab, Sahar, and Geeti Shafia, as well as Rona Amir Mohammed were found dead last June, drowned in a Nissan in the Kingston Mills locks.

The prosecution successfully argued that the car had been pushed into the lock by one of the family members driving behind. The damage on both vehicles, as well as Google searches by Hamed on “how to kill,” and “bodies of water,” were used as corroborating evidence. Wiretaps revealed the father’s disdain towards the girls, with remarks about how their deaths preserved the family honour, and how he hoped the devil would defecate on each of their graves.

The defence argued that the parents were together in a hotel room. Mohammed admitted to a private investigator that he had, in fact, hit the car and heard a splash, but did not tell anyone at the time, and not for several months after either.

Many have identified the deaths as honour killings, a cultural justification for murder and disownership found in some areas of the Middle East and South and Central Asia. Such crimes are mostly perpetrated against women for bringing shame to the family, tribe, or wider community, by dressing provocatively, or engaging in sanctioned sexual behaviour. At stake in these situations is the preservation of a family’s position and moral standing in the respective society. Bloodshed is, often, what the family believes to be the only thing that will purify the pollution caused.

The family has already appealed the decision, but they haven’t yet gotten around to fixing an error of a mistaken date of birth on one of the gravestones. Who knows if they ever will.

What links these cases together is the fact that they were brought by one riled plaintiff.  Indeed, most defamation cases are brought by one plaintiff.  But what happens if a defamation suit is brought as a class action?  Success gets a whole lot harder – was the message sent by the SCC in Bou Malhab v. Diffusion Métromédia CMR inc., 2011 SCC 9, released February 17.  In a 6-1 judgment (Justice Abella dissenting), the Court dismissed the plaintiff’s action for damages, holding that he had failed to show that each member of the group had sustained personal injury from inflammatory comments made by a radio show host.

“Polemicist” radio show host adds last straw

The facts of the case are as follows.  In November 1998, André Arthur, the provocative morning show host of Montreal’s CKVL radio station, made some controversial comments during a discussion on restaurants and hotels in the city.  This was the excerpt included in the SCC judgment:

[TRANSLATION] Why is it that there are so many incompetent people and that the language of work is Creole or Arabic in a city that’s French and English? . . . I’m not very good at speaking “nigger”. . . . [T]axis have really become the Third World of public transportation in Montreal. . . . [M]y suspicion is that the exams, well, they can be bought. You can’t have such incompetent people driving taxis, people who know so little about the city, and think that they took actual exams . . . . Taxi drivers in Montreal are really arrogant, especially the Arabs. They’re often rude, you can’t be sure at all that they’re competent and their cars don’t look well maintained.

Farès Bou Malhab, a taxi driver whose mother tongue was Arabic, heard Mr. Arthur’s comments and launched a class action suit of defamation against Diffusion Métromédia, which operates CKVL.  Justice Guibault of the Superior Court of Quebec held that (unofficial English translation here) Mr. Arthur’s statements were wrongful and awarded damages to those taxi drivers who had heard them.  The majority of the Quebec Court of Appeal overturned the trial judge (French only), holding that personal injury had not been established, as the group targeted by Mr. Arthur’s comments was large enough to dilute the accusations.

SCC re-visits the establishment of “injury” in defamation

In her reasons for the majority, Justice Deschamps first took some time to clarify the principles of civil liability for defamation.  She outlined a three-step analysis in awarding compensation for defamation:

1. Fault – Whether a reasonable person would have made the impugned remarks in the same context;
2. Injury – Whether an ordinary person would have believed that the comments damaged the reputation of each member of that group, with the result that each of them sustained personal injury; and
3. Causal connection between the fault and injury.

With respect to Step 2, Justice Deschamps wrote that “the plaintiff must prove an injury shared by all members of the group.”  More importantly, she introduced a non-exhaustive list of factors to consider in establishing personal injury.  They are:

Size of the group (the larger the group, the more difficult it is to prove each member sustained personal injury)

Nature of the group (homogeneity, history of stigmatization)

Plaintiff’s relationship with the group

“Real target” of the defamation (precision or generality of the allegations)

Seriousness or extravagance of the allegations

Plausibility of the comments and tendency to be accepted

Extrinsic factors (e.g. characteristics of the maker or target of the allegations, the medium used, general context)

Cab drivers fail to measure up to Supreme Court’s meter

In examining the factors she laid out, Justice Deschamps concluded that Mr. Bou Malhab had not proven that each member of the group had sustained personal injury from Mr. Arthur’s accusations.  She found that,

the group is of considerable size and is heterogeneous, that the characteristics attributed to the members of the group are individual and do not lend themselves well to extrapolation, and that the remarks are an extreme, irrational and sensationalist generalization.

She accordingly dismissed Mr. Bou Malhab’s action.

Justice Abella, on the other hand, raised a few salient points in her dissent.  First, she challenged the definition of the “ordinary person” the majority had adopted as one which would embody characteristics such as an awareness of prejudices and discriminatory practices and knowledge of systemic discrimination.  She likened such a description to that of “an ordinary third-year law student.”  Furthermore, although she agreed with Justice Deschamps’ list of personal injury factors, in applying them to this case, Justice Abella reached a different result.  She found that Mr. Arthur had made some serious allegations which distinguished an identifiable and vulnerable group that interacted with the public on a daily basis.  In her opinion, it was clear that this group of taxi drivers could suffer harm both to their reputation and to their business.

Freedom of speech driven too far?

Both the majority and the dissent set this case up as a balance between freedom of expression and the importance of restricting harmful speech.  Justice Deschamps opened her set of reasons with some substantial rhetoric on the importance of free speech and a survey of Western courts that are granting that freedom increasing scope and flexibility.  It was certainly a vigorous attempt to justify the majority’s decision when freedom of speech did not play into the legal analysis nor reappear in the rest of the judgment at all.  The repercussions of Mr. Arthur’s comments on Arab and Haitian taxi drivers, however, did.

In her description of the “ordinary person,” Justice Deschamps emphasized the perspective of “others.”  The ordinary person was “the embodiment of the society that receives the impugned comments.”  However, in its legal analysis, the majority of the SCC did not come close to describing who Mr. Arthur’s audience – which might already hold existing, unfavourable notions about the ethnic groups targeted – was.  I agree with Justice Abella that the targets of Mr. Arthur’s allegations were members of highly vulnerable and stigmatized social groups.  Mr. Arthur had made very serious accusations, which were not intended to be ironic or satirical, against groups that were already marginalized.  In fact, as Justice Abella pointed out, the trial judge had even concluded that the comments were racist.  An “ordinary person” who had heard Mr. Arthur’s serious allegations might very well have a lower esteem of Arab and Haitian cab drivers.  In fact, Justice Deschamps mentioned that another taxi driver who had heard Mr. Arthur’s comments phoned into the radio show to make similar remarks.

In closing, Justice Deschamps noted that defamation suits were not always the appropriate means of legal recourse in discrimination cases.  In this case, however, it is difficult to imagine what else Mr. Bou Malhab could have done.  There was no contractual relationship between him and Diffusion Métromédia, an intentional tort would have been almost impossible to prove, and Mr. Arthur is certainly not a government actor.  Yet his radio comments may have had a far-reaching audience… and far-reaching consequences as well.

The overarching issue at the federal district court and the Ninth Circuit Court of Appeals was whether the plaintiffs could be certified as a class action under Rule 23 of the Federal Rules of Civil Procedure. Rule 23(a) in particular states that a district court may certify a class only if:

(1) the class is so numerous that joinder of all members is impracticable,

(2) there are questions of law or fact common to the class ["commonality"],

(3) the claims or defenses of the representative parties are typical of the claims or defenses of the class ["typicality"]; and

(4) the representative parties will fairly and adequately protect the interests of the class.

Last April, in Dukes v. Wal-Mart Stores, 603 F.3d 571 (PDF), the Ninth Circuit released a controversial, 6-5 split decision in which the majority affirmed the district court’s certification of the action as a Rule 23(b)(2) class, a result the dissent vociferously opposed.  The tension on the split bench was palpable. In a pithy concurring statement, Judge Susan P. Graber wrote,

If the employer had 500 female employees, I doubt that any of my colleagues would question the certification of such a class. Certification does not become an abuse of discretion merely because the class has 500,000 members.

In his concurring dissent, Chief Judge Alex Kozinski immediately shot back,

Maybe there’d be no difference between 500 employees and 500,000 employees if they all had similar jobs, worked at the same half-billion square foot store and were supervised by the same managers… They have little in common but their sex and this lawsuit.

The Agenda

In accepting certiorari, SCOTUS asked the parties to prepare arguments addressing two main questions:

I. Whether claims for monetary relief can be certified under Federal Rule of Civil Procedure 23(b)(2) – which by its terms is limited to injunctive or corresponding declaratory relief – and, if so, under what circumstances.

II. Whether the class certification ordered under Rule 23(b)(2) was consistent with Rule 23(a).

Question I pertains to whether the Ninth Circuit erred in ruling that the plaintiffs, who were seeking monetary relief in the form of back pay, could be certified as a class under Rule 23(b)(2), the issue I find to be less scintillating.  The more interesting problem is rooted in Question II and, in particular, the Rule 23(a) challenges of establishing commonality and typicality in a proposed class that is both numerous and diverse.

Searching For Common Ground… Among 500,000

Betty Dukes does not have it easy.  Her proposed class action is marred by practical challenges in addition to legal ones, including the sheer size of the group, its manageability and the anticipated implementation of the trial itself.

Furthermore, she would have to disprove the dissent’s contention that the plaintiffs had failed to provide “significant proof” that all the members of the proposed class were affected by a company-wide discriminatory policy or practice.

The “significant proof” requirement was itself a disputed point in the Ninth Circuit judgment.  While the majority held that the plaintiffs merely had to show a common policy alleged to be discriminatory, the dissent maintained that they needed to adduce “significant proof” that the company policy was discriminatory.  The dissent extracted the “significant proof” requirement from General Telephone Co. of Southwest v. Falcon, 457 U.S. 147 (1982) (“Falcon“), in which the U.S. Supreme Court wrote, in a footnote,

Significant proof that an employer operated under a general policy of discrimination conceivably could justify a class of both applicants [for employment] and employees if the discrimination manifested itself in hiring and promotion practices in the same general fashion, such as through entirely subjective decision making processes.

Although the dissent’s “significant proof” requirement inference is perceivable, it will certainly be helpful for SCOTUS to clarify the meaning of its statement.  It seems difficult to conceive that all plaintiffs attempting to certify a class action based on a general company policy of discrimination – no matter what the size – would be required to provide “significant proof” of policy bias.  As noted by the majority, the common law has traditionally segregated the certification stage from the trial stage, during which “significant proof” of actual discrimination would appear to be more relevant.  It is also important to keep in mind that the proposed class in Falcon was much more exacting because the sole plaintiff sought to represent both employees and potential employees (applicants).  SCOTUS will have to clarify whether it really intended to place such an evidentiary burden on all future employment class actions.

The dissent also took issue with the evidence presented by the plaintiffs’ expert witnesses.  A professor of sociology had concluded from a social framework analysis that Wal-Mart’s centralized organizational culture and weak equal employment policies made those policies and practices vulnerable to gender bias.  Wal-Mart and the dissent immediately challenged the expert’s methodology, questioning its scientific validity.  The plaintiffs’ statistician also ran regression analyses across 41 regions, concluding that there were widespread, statistically significant disparities between male and female Wal-Mart employees in terms of pay and promotions.  The dissent argued that the store-by-store analysis conducted by the defendant’s expert would have been more appropriate in examining the way company-wide policies actually influenced the practices of individual stores.

Therefore, SCOTUS will be looking to define the relevance of the merits of a claim in class certification hearings and to weigh the specific evidence the plaintiffs adduced in this case.

Would Betty Dukes succeed in Canada?

If Betty Dukes were to attempt to certify her class action in Ontario, her application would proceed under s. 5(1) of the Class Proceedings Act.  Would she succeed?

(a) Is there a reasonable cause of action?

I would say Betty Dukes’ claim of employer discrimination is a reasonable cause of action.  Anyone object?

(b) Is there an identifiable class?

The proposed class would include all women who were in the past, or at present, employed by Wal-Mart in Canada and subjected to the retailer’s pay and promotion policies.  Though far from narrowly defined, this appears to be, at least, an identifiable class that would not be determined based on the merits of the action.

(c) Do the claims of the class members raise a common issue? (commonality)

Here’s the caveat.  According to Hollick v. Toronto (City), [2001] 3 S.C.R. 158, an issue will be common only where its resolution is necessary to the resolution of each class member’s claim.  Here, the issue would be whether Wal-Mart’s company-wide pay and promotion policies and practices are discriminatory against its female employees.  While its resolution would certainly be substantial to each member’s claim (in fact, it could be decisive), it is likely not necessary to proving individual claims, particularly if those claims are more relevant to the discriminatory practices of specific stores.

(d) Would a class action be the “preferable procedure,” considering judicial economy, access to justice, and modification of the defendant’s behaviour?

In terms of judicial economy, if it is found that Wal-Mart does have company-wide discriminatory policies, then all the class members would be entitled to some form of relief and there would be no need to establish whether each member had individually experienced discriminatory treatment.  However, each class member may have been affected by the discriminatory practice in a different way and individual claims would have to be assessed to determine the type of relief required, be it an injunctive remedy or back pay.  That said, I see this more as an administrative rather than a legal challenge.   The class action is a means of legal recourse that would likely be extremely costly and inaccessible if pursued by the individual members.  Furthermore, if the claim were successful, there is no question that Wal-Mart would be immediately required to rectify its corporate policies.

(e)(i) Would the plaintiff representatives fairly and adequately represent the interests of the class? (typicality)

Only one of the six plaintiffs held a Wal-Mart management position and the plaintiffs are not representative of all the geographic regions included in the class.  However, if a discriminatory company-wide policy did exist, all the class members would likely have faced similar gender bias, so the plaintiffs could fairly and adequately represent all the members to that extent.  Moreover, Ontario does allow automatic class members to opt out of the action, a key difference between Canada and the United States, where courts have traditionally held that members cannot opt out of Rule 23(b)(2) classes.

No Longer Just a Class Action

Would Betty Dukes succeed in certifying her class action in Ontario?  It seems unlikely.  Her most challenging obstacle would be the issue of commonality, which hinges on the strength of the company-wide discriminatory policy argument.  The resolution of the latter might not be necessary to individual class member claims, but its success would be critical to them.  Class certification would become increasingly dependent on the merits of the action itself, an approach Canadian courts have cautiously avoided.

And that’s what has happened to the Dukes case.  Indeed, the commonality and typicality issues have been so closely tied to the allegation of company-wide gender bias that in determining whether to certify Betty Dukes’ proposed class, SCOTUS will inextricably be – whether expressly stated or not – deciding on the merits of her claim.  And, with SCOTUS’ notorious record of reversing Ninth Circuit rulings, it is rather disheartening to predict that Goliath may win this round.  Wouldn’t it be a vision to see the U.S. Supreme Court defy all expectations and set a new precedent to drive one home for the 60-year-old, former Wal-Mart greeter, Betty Dukes.

Update: On June 20, 2011, the U.S. Supreme Court unanimously rejected the plaintiffs’ application for class certification. The Court split with respect to whether a class claiming discrimination was required to show that the employer had operated under “a general policy of discrimination.” The majority, led by Justice Scalia, held that it did. The dissent, led by Justice Ginsburg, argued that it did not. The full judgment can be found here.

As noted by S. Dhawan in  “What is next for antitrust class actions suits after DRAM?”, class actions in Canada have infrequently proceeded to a contested certification motion since they often fail to meet the requirements of the Competition Act (R.S.C., 1985, c. C-34). The particularly onerous requirement for would-be class action parties is the stipulation to put forward expert evidence to prove there is a workable methodology for establishing harm or loss on a class-wide basis. Without this, our courts have ruled that it would be too difficult to discern the appropriate loss and therefore could not definitely rule on the extent of liability (see, for instance, Chadha v. Bayer Inc.).

In this case, the court found several issues with sufficient common elements beyond the damages claims to provide the basis for certification. Importantly, it also ruled that damages could be determined on an aggregate basis at trial rather than before the certification motion has been granted. This ruling will help ease the certification standard, which in turn should increase the availability of class action suits.

Background – We All Want a Well-Priced Submarine

This case was an appeal from an order conditionally certifying an action commenced by two former Quizno’s franchisees, in Oakville and Windsor, Ontario, as a class proceeding.

The former franchiesees seek to represent all Quizno’s franchises in their claim that Quizno’s corporate headquarters charged them exorbitant food and supply prices through an affiliated company (Gordon Food Services). They allege that this overcharging constituted price maintenance, contrary to s. 61 of the Competition Act, R.S.C. 1985, c. 19 (2nd Supp.), a breach of contract, and a breach of the statutory duty of fair dealing. They also alleged that the defendants were liable for the tort of conspiracy. Pursuant to these allegations, the plaintiffs brought a motion to certify the action as a class proceeding.

The defendants responded by denying all wrongdoing, and alleging that the plaintiffs did not meet four out of the five requirements for certification of a class proceeding.

The motions judge who first heard the plaintiff’s certification motion concluded that the plaintiffs had not established a methodology for calculating what the prices for the franchisees would have been if there had been no conspiracy or price maintenance.

The only issue on appeal was whether or not the plaintiffs met the following criterion for certification for a class action, per Ontario’s Class Proceedings Act 1992, S.O. 1992, c. 6 s. 5(1):

(a) the pleadings or the notice of application discloses a cause of action;

(b) there is an identifiable class of two or more persons that would be represented by the representative plaintiff or defendant;

(c) the claims or defences of the class members raise common issues;

(d) a class proceeding would be the preferable procedure for the resolution of the common issues; and

(e) there is a representative plaintiff or defendant who,

(i) would fairly and adequately represent the interests of the class,

(ii) has produced a plan for the proceeding that sets out a workable method of advancing the proceeding on behalf of the class and of notifying class members of the proceeding, and

(iii) does not have, on the common issues for the class, an interest in conflict with the interests of other class members. 1992, c. 6, s. 5 (1). [Bolded issues are the most usually contentious ones].

In certifying the action as a class proceeding, the Divisional Court judge reversed the motions judge by finding the statement of claim disclosed causes of action for breaches of competition and contract law, as well as the tort of civil conspiracy. He found the two representative plaintiffs satisfactory, and ruled that there was a discernible class. The main issue was whether or not damages were a common issue amongst class members. The motions judge found that the refusal to certify the damages portion of the franchisees’ claim meant that all other aspects of the claim had to fail on the basis that common issues were not identified. The Divisional Court found that that fact that damages could not be ascribed to individual franchisees was not fatal to the class certification.

The Court of Appeal judge agreed with the Divisional Court’s decision, affirming the certification of the class action. They found that although a civil claim for damages under the Competition Act requires proof of harm or damage, proving the existence of price maintenance under s. 61 does not require evidence of damage, and can be determined on a class-wide basis.

A Warning to the Sandwich Cartel – The Importance of this Decision

The importance of this decision rests with the idea that the allegation of a competition, contract and tort breach are considered common issues that can proceed through certification without a damages assessment.

The implications of this are far-reaching. First, the Court of Appeal seems to have embraced a lower threshold for class action certification, especially with respect to claims that require proof of harm as an integral part of liability. Now, class action suits involving indirect or direct purchasers in Ontario are more likely to pass the certification stage and get to argue their cases on the merits. This could well lead to a significant increase in the quantity of Canadian class action suits brought and that proceed through to the lengthy and expensive trial process. Some may well see this as a clogging up of our courts, or a decision that helps pave the way for a more litigious Canada. On the other hand, this decision will improve access to justice for plaintiffs and reduce multiplicity of proceedings issues.

Secondly, it looks like this decision will have less-than-obvious implications for franchisors in Ontario. As the June 24 2010 Osler Update speculates, this decision implies that courts hearing franchise class actions are willing, when appropriate, to certify as a common issue whether there has been a breach by the franchisor of a specific provision of a franchise agreement. The Court of Appeal noted that a dispute between a franchisor and their franchisees is exactly the type of case for a class proceeding.

If, in a few years, you notice you’re getting more bang for your buck at Quizno’s, thanks should be directed to the Ontario Court of Appeal for allowing more class proceedings to be certified for trial. This could do wonders to avoid price-gouging franchisors and could pave the way for more class action certifications.

Dozens of disgruntled St. Clair Avenue West merchants and landlords who claim to have suffered financial harm are named in the suit as plaintiffs. The proposed $48 million St. Clair project was intended to improve transit service in midtown Toronto. Presently, the final cost is tallied at well over $106 million.  The construction of the streetcar line has been plagued by delays and five years later, it remains incomplete. Representative plaintiff, Curactive Organic Skin Care Ltd., is one of the affected businesses. Hundreds of businesses in the area were allegedly forced into bankruptcy or experienced financial loss due to the construction blocking pedestrian and vehicle traffic. The Statement of Claim also accuses the City of using the construction as a means to “gentrify” existing businesses. Gentrification, or “blockbusting,” involves forcing small, weak entrepreneurs into bankruptcy, thereby enabling larger, established companies to move in. The suit is currently awaiting certification.

Certification, as the most difficult aspect of a class proceeding, is the “make it or break it” stage. This post will examine the test for certification of a class proceeding and explore the issues surrounding this particular suit. I predict this class proceeding will not achieve certification.

The class proceedings trilogy of Western Canadian Shopping Centres Inc. v. Dutton, 2001 SCC 46, Rumley v. British Columbia, 2001 SCC 69 and Hollick v. Toronto (City), 2001 SCC 68 establish five threshold rules for certification.

(1) The pleadings must disclose a cause of action

The claim states that construction was directly responsible for financial harm to St. Clair businesses. Proving negligence of a public authority is more challenging than proving negligence of a private individual. More specifically, the Province is  alleged to have breached its duty of care through “insufficient oversight,” while the City is alleged to have breached its duty through public abuse of authority, malevolence and negligence, which are all recognized causes of action at law.

As determined the landmark case of Holland v. City of Toronto, [1927] S.C.R. 242 at p. 243, “fault (if any) attributable to a municipal corporation is so much more than merely ordinary neglect that it should be held to be very great or “gross” negligence.”

The challenge of satisfying this threshold concerns the question of whether a report commissioned by the TTC with respect to the St. Clair project provides enough evidence to establish gross negligence.

(2) There is an identifiable class of two or more persons

The identifiable class test will be the challenge for satisfying this threshold. While two or more persons certainly exist (as numerous parties have been named on the Statement of Claim) the problem will concern the simple question of “Is the class identifiable?”

What is “identifiable” is an issue that many class proceedings have struggled with. In Hollick, the SCC stated that it must be possible to describe the class in a “sufficiently narrow way”. Simply put, any member of society should be able to place themselves into the proceeding upon seeing the class description.

Whether this is possible in the St. Clair suit is unclear. A geographical approach will be emphasized, outlining those businesses in the area of St. Clair from Bathurst to Old Weston. However, this method may include businesses that were able to avoid financial loss, or possibly exclude individual establishments located on side streets whose customers may have relied on St. Clair as a method of travel. Moreover, it will be difficult for business owners to clearly identify the construction as being directly responsible for financial loss. Due to the significant difficulty in outlining an “identifiable class,” I predict the certification motion will fail on this threshold.

(3) The claim must raise common issues

Also discussed in Hollick, the common issue must be a substantial ingredient of each class member’s claim. It is likely that financial loss will easily qualify as a common issue among the plaintiffs.

(4) Preferability Analysis

The class proceeding method must be the ideal way of addressing the issue, and must be assessed in light of access to justice, judicial economy and behavior modification. Rumley set forth five guidelines to determine whether a class proceeding is the best way to proceed:

1. Whether questions of fact or law common to members of the class predominate over any questions affecting only individuals?
2. Whether a significant number of the members of the class have a valid interest in individually controlling the prosecution of separate actions?
3. Whether the class proceedings would involve claims that are or have been the subject of any other proceedings?
4. Whether other means of resolving the claims are less practical or less efficient?
5. Whether the administration of the class proceedings would create greater difficulties than those likely to be experienced if relief were sought by other means (e.g.  joinder)?

A class proceeding would certainly support behavior modification, as the City and the TTC would be forced to plan and implement projects effectively in the future. Further, access to justice would be improved since small entrepreneurs could benefit from the cost savings of a class proceeding. The issues  at stake are also common enough that judicial economy would favour the use of a class proceeding instead of giving rise to a multiplicity of proceedings. Provided that the “hundreds” of alleged St. Clair businesses (a) exist and (b) experienced financial loss, a class proceeding will likely be found as preferable. However, if the class is any smaller, there is a high probability that a joinder of parties may be preferable.

(5) Class Representative

There appear to be no issues with respect to the existing representative plaintiff, Curactive Organic Skin Care Ltd.

A Caveat

The decision of Western Canadian Shopping Centres also held that the court has discretion to determine whether it would be fair to allow a class proceeding to proceed, notwithstanding the conditions for certification have been met. Predicting the outcome of a discretionary-based decision is near impossible. The real challenge of this class proceeding concerns the significant economic recession which occurred at the same time the construction allegedly damaged the plaintiffs’ businesses. It will be  difficult for the class to prove that the construction delays (and not the economy), are responsible for the approximately 200 businesses’ financial ruin.

As well, proving gross negligence and abuse of authority will also be challenging. A similar suit in Vancouver, Heyes v. City of Vancouver, 2009 BCSC 651 was decided against only the transit authority and a provincial agency. Both the City and Province in that case were absolved of liability.  It appears that courts are hesitant to challenge governments with respect to policy decisions.

These hurdles may very well factor into a court’s decision to use its discretionary power to deny certification of the class proceeding. It would hardly be surprising if a court were to use this power to further an underlying goal of limiting the liability of provincial and municipal governments. Even if the plaintiffs were successful in having their class proceeding certified, it is quite likely that this claim, like similar cases that preceded it, will settle before trial. Time will only tell whether this attempt to hold the public authorities in charge of infrastructure development accountable will succeed in encouraging reform in this contentious area of urban planning.

The plaintiffs in both cases (Fresco v Canadian Imperial Bank of Commerce and Fulawka v. Bank of Nova Scotia) are bank tellers and other customer service representatives and account officers. They are being represented by the same firm, and the cases are in many ways carbon copies of each other. The core issue is whether the banks’ overtime policies contravene the Canada Labour Code. Specifically, both banks require that overtime be approved in advance; if not, it is not paid. However, section 174 of the CLC provides that when an employee is “required or permitted” to work more eight hours a day, then that person must be paid at least 1.5 times their regular rate. The argument is that many employees must work overtime to meet their sales goals and customer service standards, but they are rarely compensated for it. In a decision released in June, Justice Lax denied certification of the action against CIBC (2009 CanLII 31177); that decision was appealed to the Divisional Court, which will hear argument in the case sometime in March. The appellants’ case got a boost on February 19, when Justice Strathy released his decision in the Scotiabank case (2010 ONSC 1148), in which he disagreed with Lax J.’s view of the issues and held that the case should be certified and go to trial.

Lax J. disposed of the CIBC case essentially on the basis that the plaintiffs failed the commonality requirement that is key to certifying a class action. She found that none of the common issues put forward by the plaintiffs could be answered on a class-wide basis, and even if some could, they would not materially advance the litigation. The reasons for allegedly failing to pay overtime would have to be examined on a case-by-case basis, meaning that a class proceeding would serve no useful purpose. The plaintiffs had also argued, unsuccessfully, that a common issue was resolving whether CIBC owed a duty to its employees to accurately record their hours worked and establish a system for ensuring they were properly compensated for overtime. As Lax J. put it:

Ultimately, the central flaw in the plaintiff’s case is that instances of unpaid overtime occur on an individual basis. This lack of commonality cannot be overcome by certifying an issue that asks whether the defendant had a duty to prevent a series of individual wrongs, without any basis for the existence of this duty and where the duty does not relate to any pleaded cause of action.

As Justice Lax’s decision on the duty issue appeared to be partly based on the fact that no duty was pleaded, the plaintiffs amended their statement of claim in the Scotiabank case to include an action for negligence.

Dueling judges
The principle underlying Lax J’s decision appears to be embodied in the following passage:

[I]t is the fundamental right of the employer to control its business, including employees’ schedules, hours of work and overtime hours. … An employee cannot unilaterally and without agreement of the employer determine what is “work” (i.e., services to be paid for). Put another way, an employee cannot foist services on an employer and expect to be paid wages for them.

From that starting point, it is hardly surprising that she resolved the case in the manner she did. There was nothing inherently unlawful about the pre-approval requirement, and therefore there were no common issues to be decided.

On the other hand, Justice Strathy focused on the fact that the employees in this case were in a position of “particular vulnerability”, since they were not members of a union or of management:

The understandable need for managers to control overtime costs and the pre-approval requirement in the policy create institutional impediments to claims for overtime pay. … Putting the onus on the employee to obtain pre-approval for overtime does not adequately reflect the realities of the work place. It puts emphasis on protecting the interests of the employer as opposed to protection of the employee, to whom the duty of good faith is owed.

Strathy J. positioned the duty of good faith and fair dealing as the fulcrum of his reasoning. The plaintiffs pleaded that the Canada Labour Code and its regulations set up implied terms in their contracts with the bank. Scotiabank tried to strike these parts of the statement of claim, but Strathy J. held that, because Scotiabank owed a duty of good faith, the Code could potentially inform the content of those duties.

Different Approaches to Common Issues
Justice Lax and Justice Strathy approached the common issue question in different ways. While Justice Lax held that the case involved individual claims that would have to be proven on a case-by-case basis, Justice Strathy chose to accept the plaintiff’s formulation of the case, based on a contract common to all class members and the system nature of the breach of duties owed by Scotiabank. In his view, resolving the issues of whether Scotiabank had a duty to put a fair overtime system in place and whether it had a duty to maintain accurate records would advance the claim of each class member.

While nothing is ever certain in the legal field, the opposite outcomes of the nearly identical cases pretty well guarantees that these cases will head up the appeal chain together. Scotiabank is certain to appeal Justice Strathy’s decision, and one of the lawyers for the plaintiffs told the Financial Post’s Legal Post blog that he believes the cases will be resolved at the Ontario Court of Appeal level, if not the Supreme Court of Canada. Both sides are likely to fight tooth and nail: the plaintiffs in the CIBC case are seeking $600 million, while the Scotia employees are looking for $300 million. Watch for the Divisional Court’s ruling in the appeal later this year.

On November 12, 2009, the British Columbia Court of Appeal released its decision in Pro-Sys Consultants Ltd. v. Infineon Technologies AG, 2009 BCCA 503 (DRAM). The BCCA overturned the lower court ruling and instead certified the class action against five technology manufacturers accused of fixing prices on computer memory chips. DRAM is one of the first significant appellate decisions dealing with competition law. It departs from earlier cases, most notably the Ontario Court of Appeal decision in Chada v. Bayer (2003), 63 O.R. (3d) 22, where certification was denied in similar circumstances. This conflict between the Ontario and B.C. courts at the appellate level has set the stage for a foreseeable review by the Supreme Court of Canada.

Background

The respondents (Infineon, Hynix Semiconducter Inc., Samsung Electronics Co. Ltd., Micron Technology Inc. and Elpida Memory Inc.) manufactured semi-conductor memory chips known as Dynamic Random Access Memory (DRAM) used in almost all electronic products including computer mainframes and servers, laptops, automobiles, and cell phones. The respondent companies account for more than 76% of the worldwide production of DRAM.

Three of the respondents have settled in the U.S. for $160 million (USD). All the respondents, except Micron, have pleaded guilty in the U.S. to criminal charges of an international conspiracy to fix DRAM prices and have paid fines of more than $731 million (USD). There have been no pleas in Canada.

On May 8th, 2009, the B.C. Supreme Court denied certification for a class action suit because the plaintiff failed to “put forward any issues of liability on a class-wide basis”. Given this failure on the part of the plaintiff, the court concluded that the case lacked “the semblance of a manageable and workable process.” Furthermore, the courts found that the appellant was not a suitable representative for the class because he had “irreconcilable differences” with other class members. Predictably, the plaintiffs appealed this decision and the case was reviewed by the B.C. Court of Appeal on November 12, 2009.

Current Test for Certification In Canada

To get certification for a class action, the plaintiff needs to demonstrate (a) a viable cause of action, (b) a identifiable class of two or more people who are willing be represented by representative plaintiff, (c) meaningful common issues, (d) preferable procedures and (e) an adequate representative plaintiff, as per section 5(1) of the Class Proceedings Act 1992, S.O. 1992, c.6. The test for certification has to be applied in a flexible and purposive manner.

The courts in Canada have rejected certification for most cases based on the fact that plaintiffs have failed to advance adequate expert evidence to prove that there was a workable methodology for confirming the issues of loss and liability on a class-wide basis. The harm and damages have been deemed to be viable common issues as per the test. Proof of loss or harm is a required element of liability for both the tort of conspiracy and section 36 of the Competition Act. Furthermore, without a workable methodology, the courts would have to find the liability of hundreds of class members. The complexity of the proceedings would not make the class action procedure the most preferable approach for certification.

Chadha, an Ontario Court of Appeal decision, denied certification of indirect purchasers for an alleged price-fixing conspiracy for the distribution of iron oxide. Chadha was the first Canadian case to deal with class certification of indirect purchasers. The court held that the plaintiff did not provide sufficient evidence that the loss could be ascertained on a class-wide basis, following a similar line of reasoning described above.

On the other hand, a recent Ontario Superior Court decision, Irving Paper Limited v. Atofina Chemicals, 89 O.R. (3d) 578, came to an opposite conclusion, granting certification to a class of direct and indirect purchasers relating to a price-fixing conspiracy for distribution of hydrogen peroxide. This was one of the first decisions in Canada where certification was granted in such a situation. The courts were moving away from the decision in Chadha where plaintiffs can show liability by demonstrating that the defendants were acting unlawfully, without proving loss on a class-wide basis. After this decision, the defendants facing competition class action suits pinned their hopes on DRAM, proliferating the significance of the DRAM decision in determining the direction of Canadian antitrust class proceedings.

Test revised in DRAM

In overturning the B.C. Supreme Court decision, the BCCA in DRAM has endorsed the Ontario Superior Court decision in Irving Paper. The BCCA concluded that the lower court set the bar for the appellant too high. It held that the B.C. Class Proceedings Act should be construed “generously” in order to achieve its objectives of behavior modification, improved access to justice, and minimized multiplicity of court cases. They noted that “[t]he certification hearing does not involve an assessment of the merits of the claim; rather it focuses on the form of the action in order to determine whether the action can appropriately go forward as a class proceeding.” The onus is on the plaintiff to show some basis in fact. This evidentiary burden is not onerous.

The courts held that in this case, it “may be possible for the appellants to prove that the respondents benefited from their wrongful conduct, and thus prove liability, without resorting to statistical evidence.” Furthermore, expert evidence at the certification stage “should not be subjected to exacting scrutiny required at trial”, thus lowering the standards currently in place. A detailed scrutiny of the evidence was considered unfair at this stage because the appellant had not had discovery and sufficient time to gather evidence.

The BCCA concluded that the appellants had to show “only a credible or plausible methodology” when considering expert evidence, contrary to the stricter prevailing standards. The courts essentially lowered the threshold for establishing loss and liability on a class-wide basis at the certification stage, in direct and indirect purchaser cases.

With regard to the common issues branch of the certification test, the court found that the common evidence – based on the guilty pleas and plea agreements in the U.S. criminal proceedings – were sufficient to prove defendants class-wide liability. The class proceedings procedure was the preferable approach because of the flexible and powerful nature of the B.C. Class Proceedings Act, which provided judges with the “tools to deal with such complexities”. Finally, the court found the lower court’s conclusion that the appellant was not a suitable representative plaintiff was a minor issue.

But what is the next step?

The major question we must consider is whether Irving Paper and DRAM are forging a path towards a lower threshold for certification, or, conversely, whether DRAM is a passing trend and the Ontario Court of Appeal decision in Chadha will prevail in forthcoming similar cases. If the DRAM decision is upheld and applied in other cases, then the certification and expert evidence standards may be more liberal, and may be followed by an influx of class action suits brought about by indirect purchasers of cartelized products.

Notwithstanding subsequent decisions, DRAM is significant as it is the first time an appellate court has granted certification to an antitrust class action on a contested basis. The decision is a marked departure from the current standards set out in Chadha, lowering the threshold and employing a less onerous standard. However, the court in DRAM did not consider the conflicts between direct and indirect purchasers. Considering the conflicted views and the differing standards of the Ontario and B.C. courts, it is anticipated that the decision might be appealed and reviewed by the Supreme Court of Canada.

Bob owns a house in a town in Quebec. In 2020, Quebec passes legislation to the effect that no municipality may increase property taxes by more than 10% each year. In 2022, citing the need for higher revenues to account for an increase in police services due to rising crime, the town increases property taxes by 15%.

Can Bob claim that the 15% tax hike is ultra vires the municipality and attempt to recover the extra 5%?

Yes.

But can Bob launch a class action suit against the municipality as a representative plaintiff for all property owners affected by the tax hike in his town?

In the words of Justice Deschamps of the Supreme Court of Canada: “…if an individual plaintiff can in an ordinary action seek both a declaration that a municipal by-law is null and the recover [the] taxes, I do not see why a similar claim could not be made by means of a class action” (at para. 125).

Unfortunately, Justice Deschamps’s reasoning forms the four-justice dissent in the recent Supreme Court ruling in Marcotte v. Longueuil (City), 2009 SCC 43. Justice Lebel, writing for the five-justice majority, held that a class action is not an appropriate procedure to challenge the validity of a municipal by-law. Besides the negative practical implications for access to justice through class actions, the majority reasons lacked the vigour and depth that the dissent provided in analyzing Quebec class action law.

Marcotte involved two cases against the City of Longueuil that were joined together at appeal. The appellant Marcotte was a resident of Saint-Lambert, Quebec and the appellant Usinage Pouliot Inc. was a business in St-Bruno-de-Montarville, Quebec. On January 1, 2002, as a result of a municipal reorganization, the eight cities of Boucherville, Brossard, Greenfield Park, LeMoyne, Longueuil, St-Bruno-de-Montarville, Saint-Lambert, and Saint-Hubert amalgamated and became the City of Longueuil. A foreseeable consequence of the amalgamation was to equalize municipal taxation within the newly formed city. The Quebec National Assembly accordingly established a scheme to gradually equalize taxes between the different sectors over a period of 20 years. As part of the scheme, the Province limited Longueuil’s taxing power by placing a cap of 5% on annual tax increases in any one sector.

The appellants alleged that the City exceeded this 5% tax increase ceiling in the fiscal years 2003, 2004, and 2005. They filed motions for authorization of class actions to have the municipal by-laws nullified and the tax amounts refunded.

The Quebec Superior Court did not authorize either class action, holding that, although the plaintiffs had established prima facie cases, a class action was not an appropriate avenue for actions seeking to quash municipal by-laws. The Quebec Court of Appeal upheld the lower court’s decision, holding that a class action would be “pointless” because a declaration of nullity of the by-law would apply to all municipal taxpayers in Longueuil regardless of membership in the class (2007 QCCA 866 at para. 23).

Authorization of a class action in Quebec is governed by Article 1003 of the Code of Civil Procedure (R.S.Q., c. C-25), which provides:

The court authorizes the bringing of the class action and ascribes the status of representative to the member it designates if of opinion that:
(a) the recourses of the members raise identical, similar or related questions of law or fact;
(b) the facts alleged seem to justify the conclusions sought;
(c) the composition of the group makes the application of article 59 or 67 difficult or impracticable; and
(d) the member to whom the court intends to ascribe the status of representative is in a position to represent the members adequately.

This test is similar to the test for certification of a class action in all common law provinces except for one key difference. In other common law provinces, a class action must be the most appropriate or preferable procedure for resolving common issues while in Quebec, mandate or joinder of plaintiffs must be impracticable for recourse to a class action.

In upholding the Court of Appeal decision, the majority of the Supreme Court found that, although requirements under (a) and (d) were met, the plaintiffs failed to establish a prima facie case under (b), and the composition of the group was not such that a class action was required under (c).

Holding that the plaintiffs had failed to establish a prima facie case, the Court focused on the consequences of declaring a municipal tax provision null. The Court found that a declaration of nullity would not result in an immediate right to a refund of the taxes paid. Rather, a declaration of nullity would result in requiring the municipality to recalculate taxes for the fiscal years in question. Only after such a recalculation would a liquid and exigible claim arise. The Court ultimately concluded:

Under the rules applicable to the restitution of prestations, it is unlikely that the amount of their claim would correspond to the amount they are seeking. Given this legal framework and this context, the conclusion being sought does not meet the prima facie case requirement of art. 1003(b) C.C.P. (at para. 36)

The majority reasons hinted at, but did not directly rely upon, two further reasons for dismissing the class action: the fiscal chaos and fiscal inefficiency that would ensue, as well as the possibility of the judiciary overstepping its bounds by effectively issuing a writ of mandamus to a municipality. The Court was also concerned about allowing class actions as an avenue for administrative law annulments of municipal laws, which are under the statutory jurisdiction of superior courts:

Recourse to the class action in such situations could hamper the conduct of proceedings that are in principle simple and quick, and would hardly be consistent with the principle of proportionality set out in art. 4.2 C.C.P. (at para. 41)

As Justice Deschamps points out in her dissent, the majority judgment (as well as the Court of Appeal and Superior Court judgments) does not discuss “why it might be more practicable to pursue the claim for restitution by mandate or by joinder” rather than by class action (at para. 121). In dismissing the class action, the Court does not suggest an alternative that is available to the plaintiffs. No discussion is provided of the pros and cons of a class action versus a claim by mandate or by joinder.

According to the dissent, “the information they have provided is, prima facie, capable of supporting an inference that the ceiling was exceeded” (at para. 94). Justice Deschamps rejected the assertion that, since the municipality would have to recalculate the taxes owed, the complex budgetary and fiscal implications that would result from a finding of nullity would mean that a prima facie case is not made. At the authorization stage of the class action, the analysis of how to calculate the taxes owed or the exact discrepancy need not be comprehensive.

In a separate decision (Breslaw v. Montreal (City), 2009 SCC 44), the court dismissed a similar class action authorization against the City of Montreal. There, the four justices that dissented in Marcotte concurred with the majority decision in finding that Breslaw had no prima facie case against the city. In this case, the plaintiff alleged that although the tax burden appeared to fall within the 5% maximum, the City of Montreal had made adjustments which it did not have the authority to make in calculating which taxes were part of the equalization and which taxes were imposed otherwise (and thus not restricted by the 5% ceiling).

Although the Marcotte and Breslaw decisions relate to the provincial regime in Quebec for class action authorization, the decision has implications for all common law provinces (see Professor Morton’s short post on the decision). First, the requirement in common law provinces that a class action must be preferable to other actions is arguably a higher threshold than the Quebec requirement that the composition of the class group makes it difficult or impracticable to use an alternative to a class action. Second, the administrative law aspect of the Marcotte—that a class action is not an appropriate avenue to strike down municipal by-laws—has some resonance in constitutional law (see Guimond v. Quebec (Attorney General), [1996] 3 S.C.R. 347). This aspect of Marcotte would be equally applicable to common law provinces. Unfortunately, this decision may consequently “grant municipalities immunity from class actions for the recovery of wrongfully collected taxes and, in so doing, block ratepayers’ access to justice through such proceedings” (at para. 45).

Securities class actions are a relatively new development in Canada due to recent legislative changes. Amendments to the securities statutes in each province have opened doors and led to an increase in the filing of securities class actions. As of December 2005, Ontario, the first province to amend its Securities Act, imposes civil liability on the failure to give continuous disclosure. The rest of the provinces, other than PEI and the territories, have followed suit. In essence, if a director or officer fails to ensure that the company discloses adverse material information, then they will likely be faced with a class action lawsuit by shareholders who bought shares in the secondary market during the time period when the information was not disclosed.

These amendments were enforced to facilitate judicial economy, access to justice, and deterrence. However, the amendments incorporated restrictions such as a cap on damages and rules that required the losing side to pay the legal fees and expenses of the winning side, to discourage a tumultuous increase in suits similar to what has happened in the U.S.. Another amendment that facilitates access to justice is contingency fees, which are permitted in all provinces. The contingency fee agreement is required to be in writing, stating the terms as well as providing an estimate of the expected fee. Nonetheless, the agreement is not enforceable unless approved by the court. The agreements are subject to the discretion of the court. Atlas, as detailed below, shows us the courts’ practical considerations of contingency fee agreements and determining class counsel fees.

The Claim

A securities class action arising from the sale of trust units in Atlas Cold Storage Income Trust (Atlas), which began in 2004, alleged that the financial statements of Atlas were misrepresented.

Atlas, an income trust trading on the TSX, was designed to pay unit holders regular income distributions and provide them with an opportunity for capital appreciation as a result of Atlas’s ownership of Atlas Cold Storage Holdings Inc. (Atlas Holdings), operators of North America’s second largest temperature-controlled distribution network.

An investigation revealed that Atlas’s net earnings were overstated. Following the close of trading on August 29, 2003, Atlas announced that it would be restating its financial statements for fiscal years 2001 and 2002.

The plaintiffs alleged that Atlas misrepresented its prospectuses, financial statements and press releases.

The Settlement

Justice Lax of the Ontario Superior Court of Justice approved a $40 million settlement in exchange for releases and a dismissal of the class action. She fixed the class counsel’s fees at $6,300,000. The appellants argue that this amount is approximately one-half the amount agreed upon in their contingency fee agreements.

The Analysis

Section 32(2) of the Class Proceedings Act, 1992, S.O. 1992, c.6, states that an “agreement respecting fees and disbursements between a solicitor and a representative party is not enforceable unless approved by the court, on the motion of the solicitor.”

Justice Lax stated that the Class Counsel’s fees “are to be fixed and approved on the basis of whether they are fair and reasonable in all the circumstances.” What constitutes “fair and reasonable” must be determined “in light of the risk undertaken and the degree of success or result achieved.” She considered various factors in determining the reasonableness of the fee, including the time expended, factual and legal complexities, degree of responsibility, and degree of skill and competence.

She concluded that although it’s important to encourage experienced counsel to take on meritorious cases that are tough—especially because shareholder class actions are a newly developing area of law in Canada—in this case, the risks were not as great as counsel contended. The risks were spread across three firms and received support from the Class Proceedings Fund. She found class counsel to be “experienced, creative”, “thorough and diligent”, and “deserving of being fairly compensated at a level significantly above an amount that might be considered a reasonable base fee given the risks involved.” In light of the reduced risk, the result achieved was considered the best that could be achieved in the circumstances.

Justice MacFarland of the Ontario Court of Appeal, in agreement with Justice Lax, concluded that “[i]t was her call to make. Absent any palpable and overriding error, of which none have been demonstrated, it is not for this court to interfere.”

The fees, as per Justice Lax, were “$6,290,746 rounded to $6.3 million” which represented “roughly 16% of gross recovery and a more equitable sharing of net recovery as between class members and class counsel. This falls within the range of percentages of gross recovery that have been accepted in other cases.”

The Implications and Policy Considerations

Canadian courts are increasingly following the US style of litigation aimed at high risk and high reward class action suits. Although the cap on damages and the “loser pays” rule are intended to limit superfluous class actions, the sanction of contingency fees has led to an inevitable increase in class action lawsuits.

Atlas is a good example of the practical considerations that have to be kept in mind when considering contingency fees. The courts in Atlas disregarded the contingency fee agreement in favor of an amount that is “fair and reasonable”. No matter how well a contingency fee agreement is drafted, if the case does not warrant the work involved, or does not reflect the level of complexity or skill required, then the court will throw out the agreement and enforce their own “fair and reasonable” amount. Thus, a detailed analysis and investigation of the facts must be conducted before taking on any case. The question is whether contingency fee agreements hold any value in the face of court discretion.

Many criticize the court’s approach, stating that judges indulge in speculation based on the reasonableness of hours and the value of lawyers’ time, resulting in a decision that would be different depending on the mood of the lawyer. The decision to award fees is dependent on the discretion of the courts and subject to the bias of the judges.

Other than access to justice, legitimating contingency fees is intended to provide fair and reasonable compensation, and act as a real economic incentive for solicitors in the future to take on these sorts of cases and to do well. It is unclear at this point whether the sanction of contingency fees, in the face of the restrictions, will aid or hinder the ability of plaintiffs to bring securities class actions in Canada.