In a creative approach to class actions, the parties in Fulawka v The Bank of Nova Scotiaasked a recently retired Court of Appeal judge to arbitrate class counsel fees after the parties settled the main issue (see our earlier post ). The arbitrator awarded fees of $10.45 million to class counsel.

Background

This class action was commenced in December 2007. The action claimed compensation for class members for unpaid overtime. The class consists of approximately 14,000 people. The action was certified in February 2010, following a contested hearing. The defendant Bank of Nova Scotia (”BNS”) sought and obtained leave to appeal to the Divisional Court. That appeal was dismissed. BNS further sought and obtained leave to appeal to the Ontario Court of Appeal. That appeal was dismissed, except for a discrete issue. BNS’ motion for leave to appeal to the Supreme Court of Canada was dismissed in March 2013.

After all of BNS’ appeals had been exhausted, the parties entered into an agreement in principal to settle the class action, subject to two outstanding issues:

  1. Whether prejudgment interest applies to the damages; and
  2. The amount of class counsels’ fees, disbursements and taxes.

The parties agreed to seek the assistance of a third party adjudicator in resolving the two outstanding issues. While mediation resolved the question of prejudgment interest, the class counsel fees issue could not be settled and required binding arbitration.

The Arbitral Award

As there was no issue between the parties regarding the payment of applicable taxes on the fees or the payment of the disbursements by BNS, the sole issue facing the Arbitrator was the amount of fees owed to class counsel. The parties even agreed that the multiplier mechanism set out in theClass Proceedings Act, 1992 should be used to determine the fees, and as such, the arbitration centered on the reasonableness of the base fee and the appropriate multiplier.

Reasonableness of the Base Fee

Class counsel argued that a base fee of $3.91 million was reasonable for a case of this complexity, particularly given the value of the result to the client. BNS argued that the base fee should be reduced by a third to reflect duplication in effort because the class was represented by three separate law firms.

The Arbitrator found that “this case presented considerable and novel complexity and the results achieved are significant”. Moreover, though there may have been some duplication in work given that multiple firms were involved, it was not “desirable or even possible to precisely quantify this.”

As a result of a few docketed tasks that the client – and therefore BNS – ought not have been charged, the Arbitrator ordered a 3% reduction of the base fee. He therefore set the base fee at $3.8 million.

Appropriate Multiplier

Class counsel argued that the appropriate multiplier should be 3.75, BNS proposed 1.38. The Arbitrator held that the appropriate multiplier was 2.75.

In doing so, the Arbitrator focussed on the two considerations set out in Gagne v Silcorp Ltd.:

  1. The risk incurred by class counsel in undertaking and continuing the class action under a contingency agreement; and
  2. The degree of success achieved.

Regarding the risk, the Arbitrator found that class counsel undertook considerable risk given that there were few precedents for large scale employment class actions, and prospects for certification were uncertain at the time. The Arbitrator also noted that this risk diminished when the avenues of appeal were exhausted by BNS.

Furthermore, the nature of the success achieved for the class – including the binding procedure agreed upon to evaluate and pay individual claims for overtime and the payment of class counsels’ fees without any reduction in payment to the class – meant that the class enjoyed a significant degree of success.

As such, the appropriate multiplier was determined to be 2.75, resulting in class counsel fees of $10.45 million.

Key Take Aways

Notwithstanding that several aspects of the dispute were – in the words of the Arbitrator – “relatively unique in the world of class actions” – such as the agreement that class counsels’ fees be determined before the total recovery for the class was known – four general points can be distilled from the Arbitral Award which may impact costs awards in class actions going forward:

  • Having multiple firms representing the class may not necessarily warrant a reduction in the base fee;
  • Duplication of work is to some degree inevitable and impossible to quantify, and as such may not form the basis for reducing class counsel fees;
  • Success for the class need not be absolute, only significant, to warrant payment of class counsel fees; and most importantly
  • Mediation and arbitration can be effective tools to resolve disputes in class actions, particularly if the parties focus on discrete issues.