Rethinking the Approval of Class Counsel's Fees in Ontario Class Actions
| Author | Benjamin Alarie |
| Pages | 15-46 |
15
RETHINKING THE APPROVAL
OF CLASS COUNSEL’S FEES IN
ONTARIO CLASS ACTIONS
Benjamin Alarie1
Effective market mechanisms are hard to detect in the class action con-
text ... opportunism reigns.2
Anyone who reads even a few fee award cases will quickly form the
impression that the judges shoot from the hip. They indulge in casual
speculation about the reasonableness of hours and the value of lawyers’
time ... They offer paper-thin rationales for decisions on which, in a dif-
ferent mood or moment, they would have gone the other way.3
A. INTRODUCTION
Class action legislation is a relatively new phenomenon in several
Canadian provinces. The state of the law, particularly in Ontario, is at
a pivotal stage. We have a sufficient number of decided cases to draw
some conclusions about how well the Class Proceedings Act, 19924 as it
is currently being interpreted and applied is meeting its goals, but not
so many decided cases that a settled approach has emerged to its appli-
cation in the courts. In this article, I analyze a sample of twenty-seven
reported Ontario class action decisions, focusing in particular on what
the courts have done with respect to the approval of class counsel fees.
I find that courts have by and large tended to use an enhanced “lodestar
method” for compensating class counsel, whereby class counsel’s base fee
1 Benjamin Alarie, Assistant Professor, Faculty of Law, University of Toronto;
Senior Fellow, Taxation Law and Policy Research Institute, Monash University.
2 John C. Coffee Jr., “Conflicts, Consent, and Allocation after Amchem Products
— or, Why Attorneys Still Need Consent to Give Away Their Clients’
Money” (1998) 84 Va. L. Rev. 1541 at 1544 [Coffee, “Conflicts, Consent, and
Allocation”].
3 Charles Silver, “Unloading the Lodestar: Toward a New Few Award Procedure”
(1992) 70 Tex. L. Rev. 865 at 950 [Silver, “Unloading the Lodestar”].
16 THE CANADIAN CLASS ACTION REVIEW
is adjusted with a multiplier to reflect the riskiness of the litigation. In
the twenty-seven class actions I analyze, the average fee award per case is
approximately $3 million, representing approximately 15 percent of the
average settlement. The average multiplier is about 2.5. Under the cur-
rent provisions of the CPA I argue that, given the incentives facing class
counsel, a percentage contingency fee would be superior to the lodestar
method, could more easily be monitored for abuses by judges, and would
increase access to justice for potential claimants with independently non-
viable claims.
B. CLASS COUNSEL FEES IN CLASS ACTIONS
IN ONTARIO
As a procedural innovation of the English Court of Chancery,5 class
actions6 were originally used (much as they are today) as a device to
extend the court’s reach to govern the affairs of absent individuals — that
is, those who were not immediately before the court and hence not within
its obvious jurisdictional ambit.7 The rules of practice in Ontario since
at least the nineteenth century have permitted class actions,8 though the
early guidance provided by the rules facilitating such actions was sparse.
For example, Rule 75 of the Ontario Rules of Practice, first introduced
5 For a detailed treatment, see Joseph Stor y, Commentaries on Equity
Jurisprudence, as Administered in England and America, 8th ed. (Boston: Little
Brown, 1861); Samuel Stoljar, “The Representative Action: An Equitable Post
Mortem” (1956) 3 U.W.A. L. Rev. 479.
6 I will use the terms “class actions,” “representative actions,” “class proceed-
ings,” and “representative proceedings” interchangeably throughout the article.
7 Lord Macnaughton remarked in a 1901 speech at the House of Lords that his-
torically the representative action was “a simple rule resting merely upon con-
venience.” See Duke of Bedford v. Ellis, [1901] A.C. 1 at 10 (H.L.).
8 For a lengthy discussion of the history of the class action, see John A.
Kazanjian, “Class Actions in Canada” (1973) 11 Osgoode Hall L.J. 397; and
Stephen C. Yeazell, From Medieval Group Litigation to the Modern Class Action
(New Haven: Yale University Press, 1987). Kazanjian explains that represen-
tative proceedings can be traced back to at least the practices of the Courts
of Chancery in England in the seventeenth century. The Supreme Court of
Canada in General Motors of Canada Ltd. v. Naken, [1983] 1 S.C.R. 72 [Naken],
outlined briefly the history of class actions in Anglo-Canadian law, explaining
that procedural rules facilitating representative actions in Ontario (and several
other provinces) were based on Order XVI, Rule 9 of the Supreme Court of the
United Kingdom. More specifically, in 1881, Rule 98 of the Court of Chancer y
in Ontario was introduced to facilitate class actions.
VOL UME 4, No 1, JUlY 2007 17
in 1913 and consisting of a single sentence of thirty words,9 remained
unchanged and relatively unused for several decades following its intro-
duction. As a simple rule that was drafted in simple terms, there was
originally no manifest expression of the specific benefits expected to be
realized by Rule 75. It was not until the Ontario Law Reform Commission
took a close and insightful look at class actions in the early 1980s that
it became part of the conventional wisdom that class proceedings are
beneficial specifically because they can promote (1) judicial economy, (2)
access to justice (that is, compensation), and (3) behaviour modification
(that is, deterrence).10
Following the lead of the United States’ amendment of Rule 23 of
the Federal Rules of Civil Procedure in 1966,11 a move which had dra-
matically expanded the reach of class proceedings south of the border,
the early equitable rules allowing representative proceedings have now
yielded to detailed legislation in several Canadian provinces. Quebec
acted first in 1978,12 followed by Ontario in 1992 with the passage of the
CPA, and by British Columbia in 1995 with legislation of the same name
(and much the same content).13 Alberta, Manitoba, Saskatchewan, and
Newfoundland and Labrador have now also enacted similar legislation
enabling class actions.14
Ontario’s CPA essentially adopted the draft legislation recommended
in the 1990 Report of the Attorney General’s Advisory Committee on Class
9 Rule 75 read: “Where there are numerous persons having the same interest,
one or more may sue or be sued or may be authorized by the court to defend
on behalf of, or for the benefit of, all.” See Naken, ibid.
10 These three ends were identified and described at length in the report of the
Ontario Law Reform Commission (OLRC) on class actions: Ontario Law
Reform Commission, Report on Class Actions (Toronto: Ministry of the Attorney
General, 1982). These ends were approved by the Supreme Court of Canada in
Hollick v. Toronto (City), [2001] 3 S.C.R. 158, 2001 SCC 68 at para. 15. It might
be questioned whether class actions are truly consistent with a limited notion
of judicial economy to the extent that class proceedings also promote access
to justice, since while non-viable claims may be made viable and therefore be
brought as class proceedings, they also constitute an additional demand on
scarce judicial resources that would not be made if class proceedings were not
permitted.
11 See Kenneth W. Dam, “Class Actions: Efficiency, Compensation, Deterrence,
and Conflict of Interest” (1975) J. Legal Stud. 47 at 47.
12 An Act Respecting the Class Action, R.S.Q. c. R-2.1.
13 Class Proceedings Act, R.S.B.C. 1996, c. 50.
Act, C.C.S.M. c. C130; Newfoundland and Labrador, Class Actions Act, S.N.L.
2001, c. C-18.1; and Saskatchewan, Class Actions Act, S.S. 2001, c. C-12.01.
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