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Legal community watching class action

Focus on: Litigation
|Written By Shannon Kari
Legal community watching class action
Lauren Tomasich says recent decisions from the Divisional Court and Court of Appeal ‘focused on the language of the fee agreements.’

A proposed class action against a Toronto personal injury firm has been closely watched by the legal community because of the dispute over whether costs can be part of a retainer agreement in addition to amounts paid out as a result of a contingency fee.

The decision by the Ontario Court of Appeal this summer in Hodge v. Neinstein also resulted in very different conclusions about the validity of the proposed “common issues” from that of the judge who presided over the original hearing.

The motions judge, Justice Paul Perell, declined to certify a class action on behalf of about 6,000 past contingency fee clients of Neinstein & Associates.

The Superior Court judge concluded that the action did not meet what he described as the “low bar” for certification under the “common issues” criterion.

“The fatal flaw of Ms. Hodge’s attempt to obtain access to justice is that while an identifiable group may have been victimized by the Respondents — which remains to be proven — the clients would have been victimized as individuals,” wrote Perell in his July 2014 decision.

“Very little, if anything, would be carried forward from a common issues trial to advance the Class Member’s individual claims,” he added.  

More than three years later and after another two court hearings, the Divisional Court and Court of Appeal fundamentally disagreed with Perell on the common issues analysis.

They both certified the proceeding as a class action. The Divisional Court accepted 19 of the 37 common issues pleaded by the plaintiffs.

The Court of Appeal, in its ruling this summer, certified 20 common issues.

The contrast between the conclusions of Perell, a senior judge in the area of class actions, and the appellate level courts does not necessarily mean a change in the test for certifying common issues, say lawyers who practise in this area.

“I don’t think it is a loosening of the common issues threshold per se,” says Lauren Tomasich, a partner in the litigation group at Osler Hoskin & Harcourt LLP in Toronto.

“If you can advance common issues that address each client, it can be certified even if there are individual damages,” she says.

Jacqueline Horvat, a partner at Spark LLP in Toronto, notes that the provincial Class Proceedings Act does not bar the certification of class actions when there are individual damages.

“The line between proposed class actions that are too individualistic by their very nature and proposed class actions with overarching issues common to a class is very fine,” says Horvat, a commercial litigator with significant class action experience.

One of the central issues at each level of court in the long-running litigation has been the interpretation of sections of the provincial Solicitors Act.

Sections 23 to 25 deal with the right of a client to bring an application in Superior Court to have legal fees in any agreement reviewed and possibly assessed.

Section 28 states that contingency fee agreements do not permit additional compensation for the lawyer from any costs award, unless both the client and lawyer apply to the Superior Court for approval.

The courts heard that Hodge, who was injured in an automobile accident, signed a standard form retainer agreement with Neinstein’s firm.

The agreement stated that Neinstein would receive 25 per cent of any damages recovered, a portion of costs obtained and disbursement expenses.

Hodge ultimately received $42,000 from a $150,000 costs award, the courts heard. In its decision, the Divisional Court panel stated that this type of retainer agreement was standard at the firm and there were 42 of these documents filed as part of the motion record.

The Court of Appeal decision also focused on the common wording of the agreements and the firm’s admission that it was not aware of any contingency fee retainers that did not include  costs as well as a percentage fee of any award or settlement.

The different conclusions by the Divisional Court and the Court of Appeal from that of Perell appear to be focused on his Solicitors Act analysis, suggests Horvat.

“What seemed to happen in this instance was that Justice Perell accepted the limits of individualistic assessment inherent in ss. 23 to 25 in the Solicitors Act without giving full consideration to the implications of s. 28.1 of the Solicitors Act. This is the impetus that ultimately set aside his decision,” she says.

The Divisional Court and Court of Appeal “focused on the language of the fee agreements,” says Tomasich.

There are some lessons for lawyers defending against class actions from these rulings, she says.

“It is important to be vigilant in the way we argue these motions, how commonality is defined and how to poke holes in commonality,” says Tomasich.  

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