Docket: T-119-19
Citation: 2024 FC 68
Ottawa, Ontario, January 17, 2024
PRESENT: The Honourable Madam Justice Kane
BETWEEN: |
DENNIS MANUGE, RAYMOND TOTH, BETTY BROUSSE, |
BRENTON MACDONALD, JEAN-FRANCOIS PELLETIER AND DAVID WHITE |
Representative Plaintiffs |
and |
HIS MAJESTY THE KING |
Defendant |
ORDER AND REASONS
[1] The Representative Plaintiffs and the Defendant bring this joint motion pursuant to Rule 334.29 of the Federal Courts Rules, SOR/98-106 [the Rules] seeking approval of the Final Settlement Agreement [FSA] in this Class Action. Class Counsel also seek the approval of the legal fees and disbursements of Class Counsel and an honorarium of $10,000 for each of the Representative Plaintiffs.
[2] In general, the FSA addresses an alleged miscalculation and resulting underpayment of disability pension benefits for members and veterans of the Canadian Armed Forces [CAF] and the Royal Canadian Mounted Police [RCMP] and their spouses, common-law partners, dependents, survivors, or estates. In 2018, the Minister of Veterans Affairs Canada [VAC] acknowledged a miscalculation of the provincial tax credits to the wage rate that resulted in lower payments to eligible recipients of certain pension benefits. The total amount of the underpayment was estimated at $165 million. VAC allocated $165 million to make “Corrective Payments”
; approximately half of these payments have been distributed since 2018.
[3] Other errors were subsequently discovered by Class Counsel. The settlement addresses the impact of the additional errors and the interest on the Corrective Payments.
[4] For the reasons that follow, the Court approves the FSA, the legal fees for Class Counsel and disbursements, and the honoraria for the Representative Plaintiffs.
[5] The documents attached to these Reasons and Order, including the FSA, provide more extensive details. The FSA is the result of negotiations based on the knowledge and understanding of Class Counsel and the Defendant, with the assistance of expert actuarial evidence regarding how various benefits were affected by the calculation errors. The expert report, prepared by Mr. Alexander MacLeod, explains the methodology and the formula that will be applied to calculate the amount to be paid to address the underpayments based on the identified errors.
[6] The Court’s reasons understate the complexity of the calculation of adjustments to the benefits at issue and the method to correct the miscalculations. The written and oral submissions of Class Counsel and the affidavits and exhibits of the Plaintiffs and Defendant have illuminated the issues and have been carefully considered. Both Class Counsel and the Defendant strongly support the negotiated settlement and commend the successful outcome for Class Members. The Court is more than satisfied that the FSA is fair and reasonable and in the best interest of Class Members.
[7] The Court is also satisfied that the legal fees and disbursements are fair and reasonable. At first glance, a reader may view the possible maximum amount of Class Counsel fees and disbursements, expressed as a dollar value, as a windfall. However, as explained below, Class Counsel have invested countless hours and expended significant amounts to bring this Class Action to this point without certainty of its success and their work will continue. Class Counsel will receive their fees and disbursements in accordance with the Retainer Agreement executed with the Representative Plaintiffs, which provide for a percentage of the settlement amount. Class Counsel do not seek their fees with respect to the amount to correct the initial error acknowledged by VAC. Class Counsel’s fees relate to the additional errors discovered through their diligence. Among other things, Class Counsel will only receive their fees and disbursements as Class Members receive their payments, and on a pro rata basis.
I. Background
A. The Plaintiffs
[8] Dennis Manuge is a resident of Nova Scotia and former member of the CAF. Mr. Manuge served from August 1994 until his discharge in December 2002 due to medical conditions suffered while in the CAF. As a result, Mr. Manuge could no longer meet all the occupational requirements of universality of service. He has received a monthly disability pension since 2002. Mr. Manuge attests to his involvement in this Class Action, including sharing his records and assisting in “unpacking”
the miscalculations to be rectified.
[9] Raymond Toth is an Ontario resident. He served in the CAF until his discharge in 2007. He could no longer meet all the occupational requirements due to injuries sustained during his service in the CAF. He has received a monthly disability pension since February 2004.
[10] Betty Brousse is an Ontario resident. Ms. Brousse served in the CAF for 27 years and retired in 2001. She has received a monthly disability pension since October 2000. Ms. Brousse attested to her involvement in the Class Action, including her affidavits to support a Motion for Summary Trial (ultimately adjourned sine die) and the use of her personal information to demonstrate the miscalculations and how the FSA will address the miscalculations.
[11] Brenton MacDonald is an Ontario resident and former member of the RCMP. Mr. MacDonald retired in April 2004 after 38 years of service. His career with the RCMP included a role in the Compensation Branch, where he was engaged in pensions, benefits, and compensation issues. He has received a monthly disability pension since April 2004. Class Counsel commended Mr. MacDonald for his helpful guidance in understanding the complexity of pension benefits.
[12] Jean-Francois Pelletier is a Nova Scotia resident. He served in the CAF in the Royal Navy from 1986 to 2005. He has received a monthly disability pension since 2002.
[13] David White is a Nova Scotia resident. He was a member of the RCMP from 1973 to 2002. He retired due to a medical disability resulting from an injury sustained while on duty. Mr. White has received a monthly disability pension since August 2002. Mr. White, whose late father served in the Royal Canadian Navy and was also a Class Member, provided insight regarding how simplified the FSA process is for Class Members’ estates to receive their settlement payment compared to the process that VAC established for estates to claim the Corrective Payment for the initial miscalculation. Mr. White’s personal information was also used to demonstrate the miscalculations and the impact of the settlement agreement, including a comparison between the settlement agreement and successful litigation.
[14] All of the Representative Plaintiffs described how they became aware of the error in the calculation of the wage rate and its impact on their benefits, how they contacted counsel to pursue a remedy for the underpayment and subsequently engaged with Class Counsel, and provided information and documents to pursue this action. In addition, the Representative Plaintiffs provided information to other Class Members regarding the issues in this action and the status of the proceedings. All explained that they only became aware that Class Counsel would seek an honorarium for them after the proposed settlement had been negotiated.
B. The Proceedings to Date
[15] In early 2019, the Plaintiffs, individually through their respective counsel, commenced four separate but similar class proceedings. The proceedings all alleged that their annual disability pension had been miscalculated and sought damages and/or restitution. Counsel acting for the Plaintiffs entered into an agreement to work together, which has since been referred to as a “Consortium”
. The Court ordered that the four claims be consolidated, and stayed a fifth competing claim.
[16] On October 30, 2019, Class Counsel filed their Consolidated Statement of Claim, which included allegations regarding the initial error, and errors subsequently discovered, which are described below (the Territorial Tax error and Canada Employment Amount error).
[17] On December 23, 2020, the Court certified the Class Action. The Plaintiff’s motion for certification, which was initially contested, was adjourned due to the impact of the early days of the COVID-19 pandemic. As a result of negotiations between the parties, the common questions were refined and the motion for certification then proceeded on consent.
[18] In the Order for Certification the Class is defined as:
All members and former members of the Canadian Armed Forces and Royal Canadian Mounted Police, and their spouses, common law partners, dependants, survivors, orphans, and any other individuals, including eligible estates of all such persons, who received, at any time between 2002 and the present, disability pensions, disability awards and other benefits from the Defendant that were affected by the annual adjustment of the basic pension under section 75 of the Pension Act including, but not limited to, the awards and benefits listed [in the Schedule to that Order].
[19] The Court certified the following common issue for the purposes of this Class Proceeding:
-
Did the Defendant owe a duty of care to the Class when calculating: (a) the annual adjustment of the basic pension under section 75 of the Pension Act; and (b) the disability pensions, disability awards, and other benefits that were affected by the annual adjustment of the basic pension?
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If the Defendant owed the Class a duty of care, did the Defendant breach the standard of care?
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If the Defendant breached the standard of care, did the Class suffer damage as a result?
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Was the Defendant enriched by its calculation of the annual adjustment of the basic pension under section 75 of the Pension Act, and the disability pensions, disability awards, and other benefits that were affected by the annual adjustment of the basic pension?
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If the Defendant was enriched, did the Class suffer a corresponding deprivation?
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If the Defendant was enriched and the Class suffered a corresponding deprivation, was there a juristic reason therefor?
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Is the Class entitled to an award for interest and/or "equitable compensation" or "equitable damages”?
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Can damages for the Class be assessed in the aggregate pursuant to Federal Courts Rule 334.28?
[20] Class Counsel developed and administered a bilingual website, which has been operating since February 2021, to inform Class Members of the issues and the status of the Class Action and to permit Class Members to register and express their interest in the Class Action.
[21] On July 30, 2021, the Defendant filed their Statement of Defence, acknowledging the initial error and denying the two subsequent errors.
[22] An extensive discovery period ensued.
[23] On July 30, 2021, the Notice of Certification was widely published, including in major newspapers, via the VAC website, and more directly to Class Members “My VAC accounts”
. The opt-out period expired on March 30, 2022. Only one opt-out form was received by Class Counsel.
[24] In early 2022, the Plaintiffs advised of their intention to bring a motion for summary trial. In July 2022, the Plaintiffs filed an extensive motion record. The Court scheduled the hearing for January 2023. The Court later adjourned the hearing of the motion sine die on the request of the parties, and their negotiations to resolve the Class Action continued.
[25] On November 8, 2023 the parties executed the FSA.
[26] As noted, the settlement arises out of and resolves a miscalculation of disability pension benefits for members and veterans of the CAF and the RCMP and their spouses, common-law partners, dependents, survivors, orphans, or estates.
C. The Initial Error and Additional Errors
[27] Under subsection 75(1) of the Pension Act, RSC 1985, c P-6 [Pension Act], monthly disability pensions and allowances are adjusted annually to account for annual increases to the Canadian Consumer Price Index [CPI] and a “wage rate”
calculation (average wages of certain categories of federal public sector employees minus income tax, calculated using the province with the lowest combined provincial and federal income tax rate). The disability pensions and related benefits include those payable under the Pension Act; section 32 of the Royal Canadian Mounted Police Superannuation Act, RSC 1985, c R-11; section 3 of the Flying Accidents Compensation Regulations, CRC, c 10; and section 2(2) of the Civilian War-related Benefits Act, RSC 1985, c C-31.
[28] In November 2018, Canada’s Veterans Ombudsman identified an error in the calculation of disability awards from 2003-2010; an accounting error that amounted to approximately $165,000,000 [the Initial Error]. The Minister responsible for VAC acknowledged the error and VAC undertook to make retroactive Corrective Payments, as mentioned above. The Corrective Payments did not include interest.
[29] Class Counsel subsequently discovered additional errors that were caused by undervaluing the wage rate over a longer period than initially estimated. The additional errors include the Defendant’s failure to consider Nunavut as the province or territory with the lowest applicable tax rate [Territorial Tax Error] and the failure to account for the Canada Employment Amount, a tax credit [CEA Tax Error].
D. Included and Excluded Benefits
[30] The FSA includes a definition of the terms used, including “Affected Benefits”
. The list of Affected Benefits includes Pension Act benefits (e.g. disability, death, attendance allowance, Civilian War-related Benefits Act war pensions, Flying Accidents Compensation Regulations benefits and RCMP Disability Benefits awarded pursuant to the Pension Act.
[31] Through the process of document disclosure and negotiations, Class Counsel became aware that the alleged calculation errors did not affect some benefits:
-
Disability awards under the Veterans Well-being Act, SC 2005, c 21 (retroactive payments exceeded the value of the alleged underpayments);
-
Escort and treatment allowances under the Veterans Well-being Regulations, SOR/2006-50 and the Veterans Health Care Regulations, SOR/90-594 (underpayments were not on a class-wide basis); and/or
-
Education allowances under the Children of Deceased Veterans Education Assistance Act, RSC 1985, c C-28 (historical overpayments were several times greater than the alleged underpayment amounts).
[32] Class Counsel also discovered that compassionate awards, previously listed as a separate Affected Benefit in the Certification Order, were paid as disability pensions under the Pension Act and had already been included as Affected Benefits.
[33] Class Counsel explain that recipients of the above noted excluded benefits were not disadvantaged at all by the calculation errors addressed in the FSA.
E. The Settlement Agreement
[34] The Parties engaged in extensive negotiations to reach the FSA. The FSA is based on the calculation of five components: the Territorial Tax Error, the CEA Tax Error, Interest on the Territorial Tax Error and CEA Tax Error, and Interest on the Corrective Payments paid to date and Interest on the Corrective Payments yet to be paid. The following Chart provides a summary of the proposed recovery under the FSA:
Alleged Error
|
Recovery Amount
|
Territorial Tax Error
|
Paid at 100% of the alleged underpayment |
CEA Tax Error
|
Paid at 25% of the alleged underpayment |
Applicable interest on the Territorial Tax Error and the CEA Tax Error
|
2.9% simple interest |
Applicable interest on the Corrective Payments paid based on the Initial Error
|
2.9% simple interest |
Applicable interest on the Corrective Payment not yet paid based on the Initial Error
|
2.9% simple interest |
[35] The affidavit of Mr. MacLeod, Manager in the Valuations and Dispute Advisory Group, KPMG LLP, explains his role in assisting Class Counsel to identify the miscalculation of the benefits and determine the additional amounts that should have been paid along with the Corrective Payments. His detailed report illustrates how the formula to be applied in the settlement was arrived at and how it will be implemented, using real-life examples. Mr. MacLeod also explains how the Court approved legal fees and disbursements, in accordance with the retainer agreement, have been incorporated into the formula and the final settlement agreement.
[36] Among other information included in Mr. MacLeod’s Report, Table 3 sets out the value of the various components of the Total Settlement Value. Table 3 provides the following amounts:
● Territorial Tax Error - $528.5 million
● CEA Tax Error - $31.7 million
● Interest on the Territorial Tax Error and CEA Tax Error - $194.9 million
● Interest on the Corrective Payments (i.e. the amount paid out by VAC after 2018) - $26.7 million
● Interest on the Corrective Payments not yet paid - $39.4 million
The Total Settlement Value calculated by Mr. MacLeod is $821.2 million. The settlement amount is $817.3 million. The difference of $3.9 million arises from the negotiations between the parties. For example, Class Counsel explain that the Administrator’s Costs will be paid by the Defendant and not from amounts to be paid to Class Members, which is a benefit to Class Members that has been taken into account to arrive at the final settlement amount.
[37] Mr. MacLeod also explains that because the Relevant Period (January 1, 2003 to December 31, 2023) had not yet concluded at the time of his report, the precise amount of the Affected Benefits paid to the Class over the relevant period (as defined in the FSA and as used in the formula) cannot yet be determined.
[38] Class Members fall into one of two groups. The “VAC Payment Group”
includes Class Members with an existing payment relationship with VAC. Class Members that do not have an existing payment relationship with VAC fall into the “Claims Based Payment Group”
; this group will be required to submit a simple claim form and the Administrator will assess their claims.
[39] As noted, the settlement has a total value of up to $817,300,000. The VAC Payment Group will receive their share of a total of $435,500,000. The Claims Based Payment Group will receive their share of up to $381,800,000. The approximate class size is 333,711.
[40] The Affidavit of the Defendant’s affiant, Rory Beck, Manager of Litigation Coordination at VAC, describes the FSA and its impact.
[41] Mr. Beck explains that, but for this settlement agreement, the precise calculation of the total adjustments to the benefits paid to Class Members, during the relevant period (January 1, 2003–December 31, 2023) would be a complex and long process. Mr. Beck explains that the settlement is “based on the estimated shortfall between the total benefits paid to the Class during the relevant period, and the total that allegedly should have been paid, plus an amount for interest. In addition, an amount has been added to the settlement in respect of interest on the Disability Pension Corrective Payments”
.
[42] Mr. Beck further explains how the settlement will be shared:
The comprehensive settlement amount will be pro-rated among Class Members based on the proportion that each individual’s sum total of affected benefits, as defined in the FSA, paid during the relevant period represents in relation to the sum of all Affected Benefits paid to the entire class during the Relevant Period, as defined in the FSA. If every claimant could be located and paid, the total payment under the settlement would be approximately $817,300,000.
[43] Mr. Beck states that there are approximately 330,711 Class Members who are entitled to 332,840 payments. Mr. Beck explains that 2,129 Class Members are eligible for two separate payments, one as a Veteran and the other as a survivor or dependant of the Veteran, hence the different numbers.
[44] Mr. Beck notes that the VAC Payment Group is comprised of Class Members entitled to 117,697 payments. The Claims Based Payment Group is comprised of Class Members entitled to 215,143 eligible payments.
[45] Mr. Beck explains the breakdown of possible eligible payments. The median Class Member would receive approximately $1,258.75 less the court approved costs. The mean Class Member would receive approximately $2,455.53 less court approved costs. Mr. Beck further explains that the majority of the eligible payments are less than $5,000. Only 40 eligible payments exceed $35,000.
[46] As noted by Mr. Beck, the VAC Payment Group is a smaller group, but the total amount of their payments will be greater. The Claims Based Payment Group is larger, and Class Counsel and VAC will make efforts to reach out to and notify these Class Members of the process to make their claims. As explained below, Class Counsel’s fees are contingent on payments made to Class Members, and Class Counsel cannot obtain fees if a Claims Based Class Member does not make a claim.
[47] The FSA requires the Defendant to make automatic settlement payments to the VAC Payment Group within nine months of this Court’s Order approving the FSA. Members of the Claims Based Payment Group will be required to submit a claim form to the Administrator within twelve months of this Order approving the FSA. The Defendant, Administrator, and Class Counsel undertake to work cooperatively to notify potential Claims Based Payment Group Members. All payments will be tax-exempt.
[48] Class Counsel note that they will also continue to assist Class Members who have not yet received their Corrective Payment, and do not seek legal fees for this work.
[49] The Defendant has agreed to pay the ongoing costs of the Administrator of the agreement; these costs will not be deducted from the total settlement amount (i.e. there will be no pro rata deduction from individual payments). The parties note that this is of significant benefit to Class Members.
[50] Class Counsel note that only one objection was received in response to the Notice of Settlement. The objector disputes the deduction of legal fees from the payments to Class Members. As Class Counsel explain, the deduction of legal fees was a factor in the negotiation of the agreement. Moreover, the Rules do not permit the Court to order costs in a Class Action.
[51] In addition, another Class Member’s correspondence to the Court was relayed to Class Counsel and Counsel for the Defendant. Class Counsel confirmed that the concerns noted by the Class Member related to benefits that were found to be unaffected by the calculation errors and, therefore, were not covered by the settlement. Class Counsel confirmed that the Class Member has not been disadvantaged.
II. The Issues
[52] The issues to address are:
Whether the Court should approve the Settlement Agreement, which requires considering whether the agreement is fair, reasonable, and in the best interests of the class.
Whether the Court should approve an honorarium of $10,000 to each of the Representative Plaintiffs.
Whether the Fee Agreement for Class Counsel should be approved, which entails consideration of whether the amount of the legal fees and disbursements is fair and reasonable.
III. The Statutory Provisions
[53] The Rules state that:
334.29 (1) A class proceeding may be settled only with the approval of a judge.
|
334.29 (1) Le règlement d’un recours collectif ne prend effet que s’il est approuvé par un juge.
|
(2) On approval, a settlement binds every class or subclass member who has not opted out of or been excluded from the class proceeding.
|
(2) Il lie alors tous les membres du groupe ou du sous-groupe, selon le cas, à l’exception de ceux exclus du recours collectif
|
…
|
…
|
334.32 (1) Notice that a proceeding has been certified as a class proceeding shall be given by the representative plaintiff or applicant to the class members.
|
334.32 (1) Lorsqu’une instance est autorisée comme recours collectif, le représentant demandeur en avise les membres du groupe.
|
IV. Should the Court Approve the Settlement Agreement?
A. The Guiding Principles from the Jurisprudence
[54] In Tk'emlúps te Secwépemc First Nation v Canada, 2023 FC 327, Justice McDonald summarized the guiding principles at paras 47-50:
[47] Rule 334.29(1) of the Federal Courts Rules, SOR/98-106 provides that class proceedings may only be settled with the approval of a judge. The applicable test is “whether the settlement is fair and reasonable and in the best interests of the class as a whole” (Merlo v Canada, 2017 FC 533 at para 16 [Merlo]).
[48] The Court considers whether the settlement is reasonable, not whether it is perfect (Châteauneuf v Canada, 2006 FC 286 at para 7; Merlo at para 18). Likewise, the Court only has the power to approve or to reject the settlement; it cannot modify or alter the settlement (Merlo at para 17; Manuge v Canada, 2013 FC 341 at para 5).
[49] The factors to be considered in assessing the overall reasonableness of the proposed settlement are outlined in a number of cases (see Condon v Canada, 2018 FC 522 at para 19; Lin v Airbnb Inc, 2021 FC 1260 at para 22) and include the following:
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Likelihood of recovery or success;
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The amount of pre-trial work including discovery, evidence or investigation;
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Settlement terms and conditions;
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Future expense and likely duration of litigation;
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Expressions of support and objections;
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Presence of good faith and the absence of collusion;
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Communications with class members during litigation; and,
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Recommendations and experience of counsel.
[50] As noted in McLean v Canada, 2019 FC 1075 [McLean] at paragraph 68, in addition to the above considerations, the proposed settlement must be considered as a whole and it is not open to the Court to rewrite the substantive terms of the settlement or assess the interests of individual class members in isolation from the whole class.
[55] In Condon v Canada, 2018 FC 522 at para 20 [Condon], Justice Gagné noted that these factors are guidelines; some may not be relevant at all and some may carry more weight than others.
B. Class Counsel’s Submissions
[56] Class Counsel submit that all relevant factors support the approval of the settlement agreement. They submit that the settlement is in the best interest of the class as a whole.
[57] Class Counsel note, among other advantages, that the settlement will fairly compensate Class Members, including their survivors and estates, and will result in payments to aging Class Members in a straight-forward process within the foreseeable future, avoiding the delay and other challenges of ongoing litigation. Class Counsel add that the settlement provides results comparable – and likely more generous – than what could be achieved through litigation. Class Counsel also note that successful litigation is never guaranteed.
[58] Class Counsel explain that the settlement fully compensates Class Members for the miscalculations arising from the Territorial Tax Error. In addition, it provides an interest rate of 2.9% for the Initial Error and the additional errors. The recovery for the CEA Tax Error, described as a more speculative claim, reflects a compromise achieved through negotiations.
[59] Class Counsel highlight several features that reflect the fairness and reasonableness of the Settlement:
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The Territorial Tax Error amount will be paid at 100%;
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The pre-judgment interest rate will be 2.9%;
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Interest will be applied on all amounts payable;
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The relevant period spans 21 years, which far exceeds the limitation period which could have applied to recovery if the action proceeded to litigation;
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Automatic payments will be made where possible (e.g. to the VAC Payment Group);
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The amounts payable are not taxable;
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An experienced Administrator will administer the agreement and their costs will be paid by the Defendant;
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Robust information sharing mechanisms will continue in order to locate and notify eligible Class Members and to ensure they can pursue their entitlements;
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A simple claim form will be used; and
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Class Counsel will continue to assist Class Members to recover the amounts they are entitled to, including to assist in recovery of the Corrective Amount (for the Initial Error).
[60] Class Counsel note other factors that could impede success, including the possibility of legislative or policy changes to affect benefit schemes.
[61] Class Counsel have described their efforts over the past five years in identifying the errors, seeking disclosure, reviewing thousands of pages of documents, engaging experts, and assessing the extent of the alleged miscalculations and their impact.
[62] Class Counsel note that they engaged in active and challenging negotiations, which were brought to a head by their motion for summary judgment (ultimately adjourned sine die).
[63] Class Counsel also note that they engaged in regular communication with Class Members through several means, including a bilingual website, to provide information to Class Members. These communication mechanisms will continue as the settlement is administered.
C. The Attorney General of Canada’s Position
[64] The Defendant, the Attorney General on behalf of Canada [AGC], agrees that the Settlement Agreement is fair and reasonable and is in the best interests of Class Members. The AGC commended Class Counsel on their diligence and professionalism throughout the negotiations in advocating for an excellent outcome for Class Members. The AGC noted that while the Settlement Agreement reflects compromises by both parties, it will ensure that payments are made to Class Members in a more expeditious and simpler manner than if individual claims and calculations were required. The AGC also relayed Canada’s appreciation of the role and commitment of members of the CAF and RCMP and Canada’s strong support for the Settlement Agreement, which will benefit Class Members.
D. The Settlement Agreement is Fair, Reasonable and in the Best Interests of the Class
[65] The Court has considered all the relevant factors, including the complexity of calculations; the defences that could have been raised if the litigation continued; the potential for further changes to be made in the benefits at issue; the overall benefits of the settlement as described above, which resulted from concessions and compromises on both sides; the views of experienced Class Counsel; the support of the Class Members; and the Defendant’s support for the FSA and acknowledgement of the successful outcome for Class Members.
[66] The likelihood of recovery or success is a relevant factor in determining whether to approve a Settlement Agreement. As Class Counsel noted, despite VAC’s acknowledgement of the Initial Error, the subsequent errors discovered required careful assessment and negotiations to address. The allegations of miscalculation of benefits, in particular the Territorial Tax Error and CEA Tax Error, would have been contested by the Defendant and would have required dissection of complicated and intersecting benefits and statutory provisions. As Class Counsel also noted, the success of the claim of unjust enrichment was questionable given the existing jurisprudence.
[67] As in other class proceedings involving large classes where a significant proportion may be older and where every benefit (even of a modest amount) is important, the prospect of pursuing individual claims and awaiting an outcome must be balanced against the benefit of the settlement amount and the clear process for its distribution. As noted in the Beck affidavit, the majority of the individual amounts to be paid out falls below $5,000 and the average amount payable will be $2,455.53. Claims by individual Class Members, which would be most likely pursued in Small Claims Court, would have entailed a more formal process, additional costs, and delay. The cost vs. benefit would likely discourage many from pursuing their own individual claims.
[68] The Representative Plaintiffs attest to their support for the settlement and their belief that it is fair and reasonable and avoids protracted and costly litigation. They also note the benefits of the proposed payment regime and claims process.
[69] No objections to the FSA itself have been received. The only objection suggested that the Defendant should bear the burden of Class Counsel fees and disbursements.
[70] The consortium of Class Counsel combined their expertise and cumulative decades of experience in litigating class actions to achieve the settlement for Class Members. The recommendation of Class Counsel that Class Members support the agreement and that the Court approve the FSA carries significant weight.
[71] All these factors lead to finding that the FSA is fair, reasonable, and in the best interests of the Class Members.
V. Should an Honorarium be paid to the Representative Plaintiffs?
[72] Class Counsel requests that the Court approve an award of $10,000 as an honorarium for each of the Representative Plaintiffs, to be paid out of the amount approved for Class Counsel’s fees and disbursements. The honorarium does not reduce the amounts payable to Class Members.
[73] As noted in Toth v Canada, 2019 FC 125, the Court has the discretion to award such an honorarium and has done so in several class actions. An honorarium is a recognition that the Representative Plaintiffs made a meaningful contribution to the class action, without which it would not have been pursued.
[74] In Robinson v Rochester Financial, 2012 ONSC 911 at para 43, the Court identified several factors to consider when deciding whether to award compensation to a representative plaintiff, including their active involvement in the litigation, significant personal hardship or inconvenience in connection with the prosecution of the litigation, time spent in advancing the litigation, communication with other class members, and participation in the litigation.
[75] In Tk'emlúps te Secwépemc First Nation v Canada, 2023 FC 357 [Tk'emlúps te Secwépemc], Justice MacDonald noted the relevant factors guiding the approval of honoraria at para 52:
[52] The list of factors relevant for consideration on whether the individual Representative Plaintiffs should receive honoraria includes: significant personal hardship; active involvement in the initiation of the litigation and retainer of counsel; time spent and activities undertaken in the litigation; communications and interactions with other class members; and participation at various stages of the litigation (Merlo at para 72; Toth v Canada, 2019 FC 125 at para 96).
[53] The litigation required exceptional efforts on the part of the individual Representative Plaintiffs, who spent 11 years shouldering the burden of this difficult and psychologically taxing litigation. Former Chief Shane Gottfriedson and former Chief Garry Feschuk continued their active involvement in this litigation for years after their terms as elected Chiefs of their respective Nations ended.
[76] As noted above, the Representative Plaintiffs pursued their own litigation upon learning of the Ombudsman’s discovery of the initial error. They have subsequently pursued this action over the last five years. Among other things, they provided Class Counsel with personal examples of the impact of the miscalculation, have liaised with Class Members, gathered and disseminated information, and provided affidavits and exhibits to permit this action to progress.
[77] Taking into account the relevant considerations, the Court agrees that the efforts of the Representative Plaintiffs warrant their receipt of the proposed honorarium.
VI. Should the Fee Agreement be Approved?
A. The Fees and Disbursements of Class Counsel
[78] In accordance with Rule 334.4 of the Rules, Class Counsel seek approval of their fees and disbursements. Class Counsel submit that the fees and disbursements reflect the Class Action Retainer Agreement [Retainer Agreement] executed between the Representative Plaintiffs and the Consortium (Gowling WLG (Canada) LLP, McInnes Cooper, Michel Drapeau Law Office, Koskie Minsky LLP and Murphy Battista LLP). The Consortium acts on behalf of the approximately 333,711 Class Members, comprised of veterans and their families and estates.
[79] Class Counsel explain that the corrective payments allocated by VAC to address the Initial Error ($165 million) are not subject to any Class Counsel fees. The approved fees and disbursements for Class Counsel relate only to the amounts in excess that address the additional errors and interest, as described above (Territorial Tax Error amount, CEA Tax Error amount, and interest on these amounts).
[80] Class Counsel note the extensive amount of time and effort expended to litigate and settle this action, noting that $580,000 in disbursements have been paid to date, and additional disbursements of $420,000 are anticipated. Class Counsel estimate that approximately $8 million in billable time has been docketed to date, and an additional 10,000 hours of work remains to be done.
[81] The Retainer Agreement provides for payment of Class Counsel’s fees on a percentage‑based contingency basis (i.e. to be paid only in the event of success). Class Counsel took carriage of this class action on a contingency basis; if the action was not successful, Class Counsel would not receive any fees and disbursements. Class Counsel have assumed this risk and financed the litigation to date without any reimbursement. The terms were set out in the certification motion, the Notice of Certification, and in the November 2023 Notice of the Proposed Settlement. The Notice of Certification and Notice of the Proposed Settlement were both published in national newspapers, online, and made available to Class Members via their “My VAC accounts”.
[82] The FSA contemplates that the recovery amount available and paid to each Class Member will deduct the Court approved legal fees and disbursements [Court-approved costs] on a pro rata basis. Class Counsel propose a “blended costs rate”
for Counsel fees, which includes HST and disbursements. Class Counsel note that a more detailed calculation of costs was set out in the Notice to Class Members. The Class Members support the fee agreement.
[83] The affidavit of Mr. MacLeod explains how the percentage-based deduction from each settlement payment, amounting to a blended amount of 17.46% reflects the Retainer Agreement to provide fees and disbursements to Class Counsel. Mr. MacLeod’s Report provides details about how the blended amount as a percentage (17.46%) was calculated, noting that this includes HST and the estimated disbursements.
[84] The Retainer Agreement – which describes the regressive scale contingency fee arrangement (with a lower percentage of fees applicable to increasing ranges of total amounts to be paid) – leads to a blended amount of legal fees of 15.24%. The addition of disbursements and HST results in the blended amount of 17.46%, which will be deducted from the amount to be paid to each Class Members as the amounts are paid.
[85] Class Counsel note that although the VAC Payment Group is smaller in size, the anticipated total amount to be paid to this group is $435.4 million.
[86] Class Counsel fees with respect to the VAC Payment Group are estimated to be up to approximately $66.4 million after HST and disbursements. Class Counsel note that Class Members in the VAC Payment Group will automatically receive their eligible amounts within nine months. Class Counsel’s fees will be deducted on a pro rata basis from each amount paid. Although the payments will be automatic to these Class Members, there remains some uncertainty in the precise number of claims to be paid.
[87] Class Counsel fees with respect to the Claims Based Payment Group, which will require ongoing efforts by Class Counsel to locate and assist claimants, could be up to approximately $58.2 million after HST and disbursements.
[88] The Class Members in the Claims Based Payment Group must be notified of their eligibility (if they are not already aware) and must proactively make a claim, to be assessed by the Administrator. The legal fees and disbursements will also be deducted on a pro rata basis. However, there is considerable uncertainty regarding how many members of the Claims Based Payment Group will submit claims. There is also considerable uncertainty with respect to the total amount of fees and disbursements to be paid to Class Counsel, as this is contingent on their and others’ ongoing efforts to reach out to eligible Class Members and assist them to make their claims.
[89] Class Counsel submit that the risks taken and the results achieved, coupled with the time and effort expended, among other relevant considerations, support their request that the Court approve the fees and disbursements.
B. The Principles from the Jurisprudence
[90] The factors to be considered in assessing the reasonableness of Class Counsel’s fees have been established in the jurisprudence (e.g. Manuge v Canada, 2013 FC 341 at para 28 [Manuge 2013]; Condon at paras 81-83; Merlo v Canada, 2020 FC 1005 at paras 78-98;). They include the results achieved, the risks taken, the time expended, the complexity of the issues, the importance of the litigation or issue to the plaintiff, the degree of responsibility assumed by counsel, the quality and skill of counsel, the ability of Class Members to pay for the litigation, the expectations of the class, and fees in similar cases.
[91] The two key factors are usually the risks taken and the results achieved (Condon at para 83; Mancinelli v Royal Bank of Canada, 2018 ONSC 4206 at para 2 [Mancinelli]; Brown v Canada (Attorney General), 2018 ONSC 3429 at para 41 [Brown]). The jurisprudence has acknowledged that the fees for Class Counsel are the reward for taking on risk (as measured at the outset of the case) and pursuing litigation with skill and diligence (Condon at paras 90-91; Mancinelli at para 4; Brown at para 50; Manuge 2013 at para 37).
[92] In Tk'emlúps te Secwépemc, Justice MacDonald noted that the Court should consider whether the legal fees are “fair and reasonable”
in the circumstances (citing McLean v Canada, 2019 FC 1077 at para 2). Justice MacDonald canvassed the established principles and captured these at para 15:
[15] The “fair and reasonable” considerations were outlined at paragraph 25 of McLean as follows:
The Federal Court has an established body of non-exhaustive factors in determining what is “fair and reasonable”. In Condon v Canada, 2018 FC 522 at para 82, 293 ACWS (3d) 697 [Condon]; Merlo v Canada, 2017 FC 533 at paras 78-98, 281 ACWS (3d) 702 [Merlo]; and Manuge at para 28, the factors included: results achieved, risk undertaken, time expended, complexity of the issue, importance of the litigation to the plaintiffs, the degree of responsibility assumed by counsel, the quality and skill of counsel, the ability of the class to pay, the expectation of the class, and fees in similar cases. The Court’s comments follow but it should be borne in mind that the factors weigh differently in different cases and that risk and result remain the critical factors (Condon at para 83).
[93] Most recently, and subsequent to the hearing of this motion, in Moushoom v Canada (Attorney General) 2023 FC 1739 [Moushoom], Justice Aylen addressed the issue of class counsel fees in “mega-fund”
cases. A “mega-fund”
generally refers to an amount of recovery exceeding $100 million. In Moushoom, Justice Aylen approved the largest settlement in Canadian history; an amount of over $23 billion. Class Counsel fees were the subject of some negotiation and the Court ultimately reduced the amount of the fees.
[94] Justice Aylen noted that in mega-fund cases, generally, a percentage based class counsel fee generates a windfall exceeding a fair and reasonable amount that would be out of step with the relevant factors, including the risk taken by counsel. Justice Aylen concluded that in mega-fund cases, when considering the reasonableness of the fees and the relevant factors, the Court should focus on the dollar amount of the fees. Justice Aylen noted at paras 108-111:
[108] The determination of the premium should be based on all of the circumstances of the case, including the predominant considerations of the risk undertaken by class counsel and the results achieved, followed by the additional considerations noted above (the time and effort expended by class counsel, the complexity and difficulty of the matter, the degree of responsibility assumed by class counsel, fees in similar cases, expectations of the class, experience and expertise of class counsel, the ability of the class to pay and the importance of the litigation to the plaintiff). While fees in similar cases have been recognized as a relevant consideration, I find that their utility is limited in mega-fund settlements (for the reasons noted above), but I see no reason to remove it completely from the list of factors. Rather, I anticipate that the weight this Court gives to fee comparisons in mega-fund settlements such as this will be minimal.
[109] Moreover, I find that an additional factor should be added to the list – namely, whether the amount requested is on the consent of all parties.
[110] The amount of weight to be attributed to each of the factors and, in particular, the predominant factors of risk and result, will depend upon the facts of the case. That said, there will come a point where the weight attributed to the result achieved (and the resulting adjustment) must plateau no matter how high the financial settlement achieved.
[111] In determining the premium, the Court should also be guided by the principle of proportionality, which underpins the Federal Courts Rules, so that fees are not excessive in the sense of having little relation to the risk undertaken or the results achieved [see Brown, supra at para 53].
[112] Therefore, in a mega-fund settlement, rather than focusing on the percentage of recovery or the multiplier, the Court’s focus should be on the actual dollar amount of the approved counsel fee.
C. The Fee Agreement is Reasonable
[95] The maximum amount that Class Counsel could receive if all eligible payments are made is approximately $124.6 million (after accounting for HST and disbursements) on a total settlement value of $817.3 million. As mentioned above, the total includes the fees for the VAC Payment Group (approximately $66.4 million, after HST and disbursements), which will be paid to Counsel as amounts are paid to Class Members automatically and on a pro- rata basis, and the maximum amount for the Claims Based Payment Group (approximately $58.2 million, before HST and disbursements).
[96] Although this amount is very large when expressed as a total dollar value, as a percentage, this represents 15.24% (without HST and disbursements) of the total settlement value and reflects the Retainer Agreement. The fees are within the range of fees awarded in many other class proceedings, including those less complicated and benefiting far smaller classes. As Class Counsel noted, there is a ceiling on their fees and disbursements but there is no floor; the receipt of fees will depend on the take-up rate, particularly regarding the Claims Based Payment Group. As noted above, the Class is very large with over 330,000 Class Members, and Class Counsel’s work is not yet done.
[97] In the present case, Class Counsel in four separate actions took the unique approach of forming a Consortium, consolidating the actions and working together to uncover additional issues, collectively sorting out a complex benefit scheme, and advocating for a very large class. The expenditures of time and money beginning in 2018, including to engage actuarial experts to get to the bottom of the alleged additional miscalculations, entailed a financial risk. Success, despite the acknowledgement of the Initial Error, was not certain.
[98] The Defendant submits that the Fee Agreement is a matter between the Class Members and Class Counsel. The Defendant does not take any position with respect to the approval of fees.
[99] The total amount of the settlement at $817.3 million brings it well into the “mega-fund”
settlement category, and the percentage based fees requested for approval have been scrutinized. Class Counsel’s fees pursuant to the regressive scale contingency fee as described in the Retainer Agreement provides for a significant amount in real dollars. This reflects the significant risks taken, the efforts of experienced Class Counsel, and the excellent results achieved by Class Counsel for the Class. As noted, the work of Class Counsel is not over; Class Counsel will continue to devote additional hours to complete the Settlement to ensure that Class Members seek and receive the amounts they are eligible to receive.
[100] The relevant factors – many of which are the same factors that support the fairness and reasonableness of the Settlement Agreement – support finding that Class Counsel’s fees and disbursements are fair and reasonable.
[101] The Court has not overlooked the guidance provided in Moushoom regarding the assessment of the fairness and reasonableness of Class Counsel fees in large mega-fund settlements. The fees awarded in Moushoom compared to the amount of the settlement stand in stark contrast to the much smaller (yet still very large) settlement in the present case. However, there are significant differences in the two proceedings.
[102] In Moushoom, Justice Aylen noted that the claims were not novel; the Canadian Human Rights Tribunal had already concluded that Canada was liable for the same conduct alleged by Class Counsel.
[103] In the present case, Class Counsel do not seek any fees for the Corrective Payments previously acknowledged by VAC, but rather only for the amounts over and above the Corrective Payments (valued at $165 million). Class Counsel investigated and discovered additional errors in the calculation of benefits, which had not been discovered by VAC, auditors, or the Ombudsman, and calculated the impact of the errors, then pursued these claims along with the interest on the Corrective Payments. These claims were disputed by the Defendant, but ultimately negotiated in the FSA. In the present case, the Defendant does not take any position regarding the fees sought. Also, unlike Moushoom, the fees will be paid on a pro rata basis out of the payments to Class Members. As noted above, the Class consists of approximately 333,711 members and the total number of individual payments could reach 332,840.
[104] As noted above, Class Members were made aware of the Retainer Agreement on several occasions and no objections were voiced. Also as noted, Class Counsel will continue to invest significant time and effort to contact Class Members in the Claims Based Payment Group and assist them in making their claims. The payment of Counsel fees associated with this Group are contingent on claims being paid. Class Counsel will also assist Class Members who have not yet pursued their Corrective Payments.
[105] The factors noted in the previous jurisprudence and in Moushoom have been applied to the current facts. Although the total maximum dollar amount for Class Counsel fees is large, the relevant factors support the conclusion that the fees are reasonable.
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