Ethical Conduct for Class Counsel in Ontario

• Author: Michael P.A. Carabash
• Pages: 617-657

617

ETHICAL CONDUCT FOR CLASS

COUNSEL IN ONTARIO

Michael P.A. Carabash1

A. INTRODUCTION

Perhaps no area of the law provokes as much litigation concerning ethi-

cal issues as class actions.2

Despite the growing frequency of class action litigation in Ontario,3

neither the class action legislation4 nor the Rules of Professional Conduct

(Rules)5 specifically address class counsel’s6 ethical conduct to any signifi-

cant extent. As it stands, the precise nature of class counsel’s obligations

to a potential representative plaintiff and the class is unclear; accordingly,

class counsel will continue to confront ethical problems daily in respect

of what course of action the Rules require. Yet recognizing class counsel’s

1 Michael P.A. Carabash (2007 LL.B./M.B.A. Candidate, Osgoode Hall Law

School/Schulich School of Business). This paper revises and expands on ideas

appearing in an earlier paper by the author entitled “Class Counsel’s Ethical

Obligations,” published in the Windsor Review of Legal and Social Issues in

November, 2004, under the name Michael P. Abdelkerim. The author is grateful

to Allan C. Hutchinson and Garry D. Watson of Osgoode Hall Law School for

their guidance and support. This paper is dedicated to Parastou Gheidarpour.

2 In re Corn Derivatives Antitrust Litig., 748 F.2d 157, 1984 U.S. App. LEXIS

16681, 1984-2 Trade Cas. (CCH) P66, 281 (3d Cir. 1984) [In re Corn

Derivatives].

3 See Garry D. Watson, “Class Actions: The Canadian Experience” (2001) 11

Duke J. Comp. & Int’l L. 269 at 278–79. The number of securities class action

lawsuits is expected to increase significantly after the passing of Bill 198, which

amends the Ontario Securities Act, R.S.O. 1990, c. S.5, by imposing civil liabil-

ity for inaccurate or incomplete corporate disclosures in the secondary market.

4 Class Proceedings Act, 1992, S.O. 1992, c. 6 [Ontario Class Proceedings Act];

the Law Society Amendment Act (Class Proceedings Fund), 1992, S.O. 1992, c. 7

[Law Society Amendment Act]; and Class Proceedings Regulation, O. Reg. 771/92

as am. O. Reg. 535/95 [Class Proceedings Regulation].

5 Law Society of Upper Canada, Rules of Professional Conduct of the Law Society

of Upper Canada [Rules], adopted by Convocation 22 June 2000, in effect 1

November 2000.

6 For the purpose of this paper, “class counsel” will refer to plaintiff class coun-

sel.

618 THE CANADIAN CLASS ACTION REVIEW

ethical conduct via new and more specific rules may not necessarily

instill moral values into our legal profession: “rules do not and cannot

relieve [class counsel] of the continuing responsibility to exercise their

own professional and moral judgment about the appropriate course to

follow.”7 While rules are only a starting point in the broader debate about

appropriate ethical behaviour, class counsel’s actual ethical obligations

lie first and foremost with themselves: they should justify their personal

sense of professional responsibility through their actions, rather than

justify their actions by reference to the jurisprudence of professional

responsibility.8

That being said, the minimal standards and exhortatory rules of pro-

fessional responsibility do have a place in any appreciation of class coun-

sel’s ethical conduct: such rules educate and discipline members of the

profession, represent the profession’s ethos, and provide a rhetorical front

to the public.9 Given the unique attributes of class action litigation and

the unclear nature of class counsel’s relationship to the class, greater rule

specificity seems warranted. For example, the cost-consequences of class

action litigation raise specific ethical issues for class counsel vis-à-vis a

potential representative plaintiff — namely, whether class counsel owes a

duty (at a minimum) to fully inform and advise a potential representative

plaintiff of their possible financial risks, of the Class Proceedings Fund,

and to seek independent legal advice. Moreover, the unclear nature of

class counsel’s relationship with the class begs the question: what, if any,

traditional and non-traditional ethical duties (at a minimum) does class

counsel owe to class members — especially those with conflicting inter-

ests vis-à-vis the representative plaintiff? Overall, examining these con-

tentious issues will help fuel the debate over what course of conduct class

counsel can, must, and should engage in ethically. As the jurisprudence

in these areas is extremely limited and undeveloped, much of the ensu-

ing analysis comprises a “best-efforts” attempt to analogize and extrapo-

late from accepted legal and ethical principles of Canadian (specifically,

Ontario) and American jurisprudence.

7 Allan C. Hutchinson, Legal Ethics and Professional Responsibility (Toronto: Irwin

Law, 1999) at 14.

8 Ibid. at 16.

9 Ibid. at 15.

VOL UME 3, No 2, July 2006 619

B. CLASS COUNSEL’S ETHICAL CONDUCT

TOWARDS A POTENTIAL REPRESENTATIVE

1) Ethical Duties Arising from the Cost-Consequences

of Class Action Litigation

The cost-consequences of class action litigation are fundamentally differ-

ent from that of conventional lawsuits: Ontario’s legislature and courts

have deliberately tipped the balance in favour of plaintiffs and against

defendants in class action litigation as compared to conventional law-

suits.10 While a losing plaintiff generally risks having to pay for some

or all of the defendant’s costs in conventional litigation (pursuant to

Ontario’s fee-shifting rule),11 a plaintiff class member has no liability for

defence costs in class action litigation — regardless of the action’s out-

come.12 At the same time, however, “defendants’ risk of loss is enhanced

many times over by virtue of the aggregation of claims permitted through

class certification.”13 Furthermore, although an unsuccessful representa-

tive plaintiff is personally liable for the defendant’s costs,14 the extent

of such liability has been significantly mitigated. For example, the leg-

islature has created exceptions to Ontario’s fee-shifting rule for (1) test

cases, (2) proceedings raising a “novel point of law,” and (3) proceedings

involving matters of “public interest.”15 In various cases, the courts have

10 McCarthy Tétrault, Defending Class Actions in Canada (Toronto: CCH Canadian

Ltd., 2002) at 170.

11 Generally, fee shifting refers to the Court’s statutory power to order the losing

party to pay some or all of the winning party’s legal fees. This power is found

under s. 131 of Ontario’s Courts of Justice Act, R.S.O. 1990, c. C.43 [Courts

of Justice Act], which provides “Subject to the provision of an Act or rules of

court, the costs of and incidental to a proceeding or a step in a proceeding are

in the discretion of the court, and the court may determine by whom and to

what extent the costs shall be paid.”

12 Ontario Class Proceedings Act, above note 4, s. 31(2): “Class members, other

than the representative party, are not liable for costs except with respect to the

determination of their own individual claims.” The court may, however, use its

discretion under s. 31(1) to dismiss the representative plaintiff’s costs where

the class proceeding was a test case, raised a novel point of law, or involved a

matter of public interest.

13 McCarthy Tétrault, Defending Class Actions in Canada, above note 10 at 171.

14 Ontario Class Proceedings Act, above note 4, s. 31(2): “Class members, other

than the representative party, are not liable for costs except with respect to the

determination of their own individual claims.”

15 Ibid., s. 31(1).