The Court of Appeal for Ontario recently set aside a decision approving the legal fees of class counsel on the condition that counsel would donate 40% of the approved fees to charity.
The appeal provides useful guidance for practitioners on fee approval motions in class actions.
The Settlement Agreement
Welsh v. Ontario, 2019 ONCA 41 involved a class action commenced in August 2015 under the Class Proceedings Act, 1992, S.O. 1992, c. 6 alleging that the province of Ontario had, for decades, negligently operated schools for the deaf and had breached its fiduciary duty and duty of care to students.
The action was certified on consent in August 2016. Through mediation, the parties achieved a settlement in November 2017.
Under the settlement agreement, Ontario was to establish a $15 million settlement fund. It was agreed that class counsel’s fees could be up to 25% of the settlement funds in an amount to be approved by the Court. The settlement agreement expressly provided that if any amounts remained after payment for all fees, claims, and costs, they were to revert to Ontario.
The Motion Judge’s Decision
At the motion to approve the settlement, class counsel requested that the motion judge approve fees of $3.75 million, which represented 25% of the $15 million settlement fund.
The motion judge found that a counsel fee of $3.75 million was not fair and reasonable to all the class members because “the results achieved for the whole of the Class [were] disappointing” in that only about 10% of the class would benefit from the settlement. As a result, the motion judge approved class counsel’s fees of $3.75 million on the condition that counsel would donate $1.5 million of its fees to a charity for the deaf.
The motion judge also determined that the $2.25 million balance of class counsel’s fees would be subject to a proportionate reduction depending on the reversion to Ontario of the settlement funds not taken up by the class claimants.
Error to Impose a Charitable Donation
On appeal, a panel of Justices Sharpe, Juriansz, and Roberts, unanimously held in reasons by ‘the Court’ that the motion judge had erred.
It was an error of law to impose a charitable donation condition, particularly in the absence of submissions from the parties. By requiring class counsel, without the parties’ input or consent, to donate part of its fees to a designated charity, the motion judge inserted into the settlement agreement a material condition not agreed to by the parties.
The Court of Appeal noted that the appropriate way to address the Court’s concerns with class counsel’s fees is to allow the parties to make submissions with respect to those concerns and, if the parties wish, to agree to change the terms of the settlement. The Court is not permitted to unilaterally modify the terms of a negotiated settlement – including provisions on legal fees – without the consent of the parties.
The Court of Appeal declined to determine and approve class counsel’s fees, and remitted the matter to be heard afresh by a different judge on the class action list of the Superior Court of Justice.
The decision clarifies the limits of first instance decision-makers on fee approval motions and is a useful precedent for class counsel.
The author would like to thank Elana Friedman, Articling Student, for her contribution to this article.