In a previous post, we discussed Justice Perell’s decision in Welsh v Ontario ordering class counsel to make a sizeable charitable donation as a condition of approving their fees. In a recent decision, the Court of Appeal for Ontario allowed an appeal from that order and found that Justice Perell went too far by imposing the donation term because it altered the parties’ agreement. The Court ordered a new hearing to evaluate class counsel’s fees.

Background

The plaintiff’s class action alleged sexual, physical, and mental abuse over decades at four provincially run schools for the deaf. After a consent certification and mediation, the parties entered into a settlement and then moved for approval of the settlement, including the quantum of class counsel’s fees.

Justice Perell heard the settlement approval motion and, although he expressed significant reservations, ultimately approved the settlement because he found it was better than the alternative of proceeding to trial. However, he found the fees sought by class counsel – $3.75 million plus HST – were not fair and reasonable given that the majority of class members would receive no benefits from the settlement. To remedy that shortcoming, he approved the fees subject to two conditions. First, he ordered that the fees should be reduced proportionately to the amount of any settlement funds that reverted to the defendant Province of Ontario (it was a condition of the settlement agreement that any unclaimed settlement funds would go back to the province). Second, he ordered class counsel to donate $1.5 million of the fees to a charity or charities for the deaf.

Court of Appeal decision

Class counsel appealed Justice Perell’s order imposing the two conditions. The Court of Appeal agreed that Justice Perell erred in imposing the charitable donation condition, particularly in the absence of submissions from the parties. According to the Court of Appeal, it was acceptable for Justice Perell to express concerns about the amount of class counsel’s fees and to reduce the amount of fees to make them proportionate to the result. However, it was an error to impose the charitable donation condition because it altered the parties’ settlement, specifically the provision that surplus settlement funds would revert to Ontario. The Court provided guidance on what a judge should do in these circumstances:

Given the motion judge’s concerns, the appropriate course of action would have been for him to allow the parties an opportunity to make submissions and, if they desired to do so, agree to change the terms of the settlement in order to address those concerns and obtain approval of class counsel’s fees. However, he was not permitted to modify unilaterally the terms of a negotiated settlement without the consent of the parties.

Conclusion

As we noted in our earlier post, Ontario courts have repeatedly asserted their jurisdiction to scrutinize class counsel’s fees. This reflects the courts’ broad supervisory mandate in class actions to ensure that the interests of absent class members are protected, especially when the interests of class counsel and defendants may conflict with those of the class. The Court of Appeal’s decision in Welsh reaffirms that important role, but also demonstrates that the supervisory jurisdiction is subject to limits and does not permit unilateral amendments to parties’ settlements.