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Class members not on hook in carriage dispute

Cover Story: Case highlights problems in Canada’s class action landscape: lawyers
|Written By Alex Robinson

The Ontario Court of Appeal has ruled that class members must not be on the hook for a fee-sharing agreement that Merchant Law Group LLP sought in a settlement of a carriage dispute.

James Musgrove says a recent Ontario Court of Appeal decision will likely make resolving carriage fights more complicated.Photo: Robin Kuniski

The controversial Saskatchewan class action firm was set to receive $800,000 in fees through the agreement it had settled with class counsel in Bancroft-Snell v. Visa Canada Corporation.

The agreement had been approved in all the other provinces where the class action was launched, but the Ontario Court of Appeal largely upheld a motion judge’s decision that the agreement as it existed was not in the best interests of class members.

Lawyers say the case highlights the problems that exist in Canada’s class action landscape, where the Constitution divides power between the provinces in such a way that doesn’t easily lead to national carriage solutions.

“It would be nice if there is a solution, but there isn’t a solution, or at least there isn’t one yet,” says Daniel Bach, a partner with Siskinds LLP, who was not involved in the case. “And I don’t know if this will make it harder or if it will just be one more thing to consider.”

Bach added that the decision affirms the importance that courts continue to have “muscular oversight” over the relationship between class counsel and class.

In the decision, Court of Appeal Justice Robert Blair noted the problems with the lack of a national carriage solution.

“While it may be that in an ideal world, the tools exist to enable class counsel to avoid the necessity of multiple parallel class proceedings in different provinces, we do not live in an ideal world and we do live in a Canada where jurisdictional competence is divided between the federal, provincial and territorial governments,” Blair wrote in the decision.

“There will be carriage disputes — some justified, some perhaps not — until there is a legislative or effective solution to these problems.”

The plaintiffs, who are merchants, brought the class action against Visa and MasterCard, as well as 10 other Canadian banks and financial institutions, over the allegedly anti-competitive nature of the Visa and MasterCard networks in Canada. The action is one of a number that were filed across the country, the first of which was launched in Quebec in 2010.

MLG subsequently brought rival class actions in both Alberta and Saskatchewan. A consortium of three firms that were acting as class counsel in the other provinces — Branch MacMaster LLP, Camp Fiorante Matthews Mogerman LLP and Consumer Law Group — then launched their own actions in Alberta and Saskatchewan, leading to a carriage battle.

The sharing fee arrangement that is central to the decision was that MLG would stay its rival actions in exchange for the fee of $800,000 out of the fees recovered if the class action was successful. The agreement came out of mediation proceedings at a judicial conference in Alberta.

When ruling on a motion to approve class counsel’s fees, Ontario Superior Court Justice Paul Perell refused to approve the fee-sharing agreement, declaring it might be “possibly illegal.” He ordered class counsel not to pay MLG from “the settlement proceeds or from any other source now or in the future.”

Reidar Mogerman, of Camp Fiorante Matthews Mogerman — one of the firms that is part of the consortium — says the agreement, which was reached through mediation, was the only way to move the class forward.

He said that the consortium wanted to litigate the carriage battle, but the court declined to give a result after two days in court and sent the parties to mediation.

“In order to serve the class, we need to stay those cases and in order to stay those cases, we either have to get a court to stay the cases or have a contract to stay the cases and because the court wouldn’t do it, we don’t have any choice but to honour the contract,” he says.

The Court of Appeal upheld most of Perell’s decision, but it tweaked it to allow class counsel to pay the agreement out of its own pocket, rather than from fees recovered through the action.

James Musgrove of McMillan LLP, who is representing defendant MasterCard in the case, says the decision will likely make resolving carriage fights more complicated.

“I think there is no doubt that the original decision and the Court of Appeal decision will make it more complicated and complex to resolve carriage issues,” he says.

Brendan van Niejenhuis of Stockwoods LLP, who was asked to appear at the appeal proceedings as amicus curiae to represent class members, says the court found it particularly important to uphold the part of Perell’s order that provides protection for class members from having to fund disputes between law firms.

“It really puts the onus on class counsel to show that it’s them who are bearing the real economic burden of what the motion judge called ransom fees here and not class members doing so in an indirect way, simply by structuring their arrangements,” he says. Anthony Tibbs, who represented Merchant, did not respond to a request for comment.

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