Class counsel fees and other obstacles to class action settlements in Québec

In recent years, a considerable number of Québec class actions have been authorized (certified) for the sole purpose of approving a settlement. The Courts recognize that it is in the best interests of justice and that of the class that class action settlements be encouraged. However, some obstacles to the settlement of class proceedings may greatly hinder the negotiations, such as class counsel fees.

Acceptance that the plaintiffs’ contingency agreement no longer governs the payment of class counsel fees

In Québec, as in other provinces, class counsel fees must be approved by the Court. Although the approval of a class action settlement had until recently been somewhat of a sure thing, jurisprudence is now showing heightened scrutiny in the analysis of class counsel fees in the context of a settlement approval.

In the past, such as in the matter of Lavoie v Régie, Québec Courts insisted on the importance not to intervene in a freely negotiated transaction, which is reasonable and accepted by all parties. However, in a recent decision by the Superior Court of Québec in the matter of Option Consommateurs v. Amex Bank of Canada, Justice Roy refused to approve class action settlements and deemed that the class counsel fees were not fair and reasonable. Justice Roy denounces the shift from contingency agreements providing for 15% or 20% to amounts more often reaching the upper limit of accepted fees of 25%, 30% or even 33%, without considering the specific context of each case.

This position somewhat echoes Justice Bich’s comments in the widely cited Charles v. Boiron Canada Inc. Discussing the filtering role of the authorization stage of class proceedings, Justice Bich expressed her doubts as to whether the authorization process in its present form still has any real utility and invited the legislature to reconsider the usefulness of the authorization step. She wrote that although some might “benefit” from the current scheme of an often dubbed “class action industry”, it does not warrant the status quo.

While traditionally, defendants’ counsel have no standing to argue on the issue of class counsel fees, since the fees are paid out of the settlement or judgment amount, the award of class counsel fees becomes an obstacle in reaching an agreement where the total amount of the indemnity at stake does not allow to carve out acceptable compensation for class counsel. The day may come where, because of that problem, defendants will have a say in the approval of class counsel fees.

However, class counsel fees are not the only financial consideration that the parties must address in their attempts to reach a settlement. Many other elements may constitute hurdles in the road to resolution:

• Compensation to class representative for his or her time and effort. In Sonego v Danone Inc., the class representative of the yogurt-product class action was granted the amount of $5,000. This indemnity was as high as $30,000 for the class representative in Lavoie v Régie, dwarfing the amounts received by other class members. Interestingly, the Québec Code of Civil Procedure (“CCP”) does not contemplate the payment of an indemnity to class representative for time and effort. Article 593 CCP rather indicates that the court may award the representative plaintiff an indemnity for disbursements and an amount to cover legal costs and the lawyer’s professional fee. Both are payable out of the amount recovered collectively or before payment of individual claims.
• Publication fees. At any stage of class action, the court may order a notice to be published if it considers it necessary for the protection of class members’ rights. In the context of a settlement, the approval of the class action settlement cannot be granted unless notice has been given to the class members.
• Administrative costs of the settlement. Regardless of the foreseen amount payable to each class member, the costs of the administration of said claims must be considered.

As the number of class proceedings continues to grow, Québec Courts also face numerous requests for settlement approvals. These include both the “class action industry” proceedings seeking quick and effortless settlements with disproportionate counsel fees, as well as approvals of class actions brought on behalf of class members seeking access to justice and compensation for the harm truly suffered. As pointed out by Justice Roy, we can expect that Québec Courts will be vigilant in ensuring that class proceedings do not become a mere source of enrichment for class counsel and a source of funding for non-profit organizations.