Date:
20130404
Docket:
T-463-07
Citation: 2013
FC 341
Ottawa, Ontario,
April 4, 2013
PRESENT: The
Honourable Mr. Justice Barnes
BETWEEN:
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DENNIS MANUGE
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Plaintiff
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and
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HER MAJESTY THE QUEEN
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Defendant
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REASONS FOR
ORDER AND ORDER
[1]
This
proceeding was initiated by Statement of Claim filed on March 15, 2007. In
mid-February 2008 a motion to certify the proceeding as a class action was
argued before me at Halifax, Nova Scotia and by a decision rendered on May 20,
2008 I certified the proceeding as a class action: see Manuge v Canada,
2008 FC 624, [2008] FCJ no 787. That decision was appealed by the Defendant and
on February 3, 2009 the Federal Court of Appeal set aside my certification
Order: see Canada v Manuge, 2009 FCA 29, [2009] FCJ no 73. That
decision was further appealed by the Plaintiff, Dennis Manuge, to the
Supreme Court of Canada and on December 23, 2010 that Court, by unanimous
decision, restored my Order thereby allowing the action to proceed as a class
action: see Manuge v Canada, 2010 SCC 67, [2010] 3 S.C.R. 672.
[2]
To
their credit the parties then jointly proposed to bring an issue of law before
the Court for summary determination. That matter was argued before me at
Halifax and by decision rendered on May 1, 2012, I determined that the
Defendant’s interpretation of the applicable Service Income Security Insurance
Plan Long Term Disability (SISIP LTD) policy and that, in particular, the
practice of deducting monthly Pension Act, RSC, 1985, c P-6, disability
benefits from the LTD income payable to disabled class members was unlawful:
see Manuge v Canada, 2012 FC 499, [2012] FCJ no 512. That determination
was not appealed and the parties undertook extensive negotiations with a view
to working out the financial implications of my judgment.
[3]
These
Reasons are issued in connection with a motion by the parties under rule 334.29
of the Federal Courts Rules, SOR/98-106 (Rules) seeking Court approval
for their negotiated settlement of this class action. Counsel for the class
also seek Court approval for their claim to legal fees under Federal Courts
Rule 334.4 payable from the proceeds of the proposed settlement. That
claim is opposed by counsel for the Defendant on the ground that the proposed
amount of legal fees is excessive.
General
Principles Applicable to Class Action Settlements
[4]
Court
approval of a class action settlement is appropriate where, in the overall
circumstances, it is deemed to be fair and reasonable and in the best interests
of the class as a whole: see Bodnar v The Cash Store Inc., 2010 BCSC
145 at para 17, [2010] BCJ no 192. In Chateauneuf v Canada, 2006 FC 286 at para 7, [2006] FCJ no 363, Justice Danièle Tremblay-Lamer, described
the general approach to the approval of a class settlement in this Court:
7 The Court with a class action settlement
before it does not expect perfection, but rather that the settlement be
reasonable, a good compromise between the two parties. The purpose of a
settlement is to avoid the risks of a trial. Even if it is not perfect, the
settlement may be in the best interests of those affected by it, particularly
when the risks and the costs of a trial are considered. It is always necessary
to consider that a proposed settlement represents the parties' desire to settle
the matter out of court without any admission by either party regarding the
facts or regarding the law.
[5]
It
is not open to the reviewing Court to rewrite the substantive terms of a
proposed settlement nor should the interests of individual class members be
assessed in isolation from the interests of the entire class: see Dabbs v
Sun Life Assurance Co. of Canada, [1998] OJ no 1598 at paras 10-11, (available
on QL).
[6]
It
will always be a particular concern of the Court that an arms-length settlement
negotiated in good faith not be too readily rejected. The parties are, after
all, best placed to assess the risks and costs (financial and human) associated
with taking complex class litigation to its conclusion. The rejection of a
multi-faceted settlement like the one negotiated here also carries the risk
that the process of negotiation will unravel and the spirit of compromise will
be lost.
The
Terms of the Proposed Settlement
[7]
The
settlement proposed by the parties includes a number of advantageous financial
and administrative terms. The value of the financial settlement has been
estimated at more than $887 million which includes the net present value
of monies payable in the future to disabled class members. The financial
effect of the settlement has also been extended voluntarily by the Defendant by
the removal of similar offsets of Pension Act benefits from a number of
other federal financial support programs.
[8]
The
central component of the proposed settlement is the full recovery by approximately
7,500 class members or their families of all amounts unlawfully deducted or
which would otherwise have been deducted in the future from their SISIP LTD income.
The agreed retroactive recovery of benefits dates back to June 1, 1976, that
being the date the Pension Act offset began. This part of the
settlement resulted from a concession by the Defendant to abandon its
limitations defences and to expand the class to include disabled Canadian
Forces (CF) members who would otherwise have been left out. The agreement also
provides for the recovery of offsets by the spouses and minor children of
deceased members in lieu of the cumbersome and complex process of recognizing
estate claims.
[9]
In
addition, the parties have negotiated reasonable rates for pre and post-judgment
interest dating back to 1992 totalling more than $80 million as of February 14,
2013. Interest continues to accrue at $1.3 million per month.
[10]
It
is acknowledged by the parties that the payment of LTD benefits to members of
the class will attract income tax. Because SISIP LTD benefits constitute
taxable income, the payment of income tax is essentially unavoidable. In order
to mitigate the impact of tax on lump sum recoveries, disabled recipients will
be permitted to spread their retroactive refunds over the years it would have
been payable if that option reduces their tax exposure. Further tax mitigation
measures include a cash top up of 3.27% on retroactive LTD benefits payable to
members and the right to deduct legal fees as an expense incurred in the
recovery of taxable income.
[11]
In
recognition of the hardships experienced by some members of the class, the
parties have agreed to establish a $10 million bursary fund to be administered
over a period of 15 years by the Association of Universities and Colleges of
Canada. This fund can be accessed by class members and their families for
part-time or full-time study and is expected to generate bursaries of up to $1,300.00
for each eligible applicant.
[12]
The
parties have also negotiated a streamlined process for administrating the
payment of refunds and for resolving future claim disagreements. Specifically,
a number of members of the class were subjected to Pension Act offsets
that exceeded the value of their SISIP LTD benefits. These members came to be
identified as “zero sum” members. Because the SISIP administrator had not
maintained medical and financial information for zero sum members, it was not
possible to readily determine their ongoing eligibility for LTD benefits. This
barrier to recovery was resolved, in part, by allowing the SISIP administrator
to access medical data from other government sources and by establishing proxy
indicators for determining a person’s ongoing level of disability. A proxy
would include the recognition of “total disability” under other disability programs
such as the Canada Pension Plan. For members released after November 30, 1989,
the Defendant has agreed unconditionally to treat all zero sum members as
disabled during the initial 24 month own-occupation disability period.
[13]
For
class members who disagree with the Defendant’s assessment of disability or with
the amount payable a simple and binding appeal process has been established.
Class counsel have undertaken to represent those members on any appeal brought
before an agreed and experienced arbitrator who will be paid by the Defendant.
[14]
The
proposed settlement also provides for the appointment of a Monitor who will be
responsible for assessing the Defendant’s compliance with its terms. The
Monitor will report quarterly and will be paid by the Defendant.
[15]
Finally,
save for a remaining issue between the parties concerning the calculation of Consumer
Price Index (CPI) benefits payable under the SISIP policy (to be resolved later
by the Court), the settlement provides for a release of the Defendant from
further liability in connection with claims arising, or which could have been
raised, in this litigation.
The
Views of Class Members
[16]
The
Preliminary Notice of Settlement invited class members to write to counsel
either supporting or opposing the terms of settlement. Two hundred and
sixty-nine responses were received by counsel and submitted by affidavit to the
Court. A small number of class members wrote directly to the Court. At the
hearing of the motion to approve the proposed settlement, a number of class
members appeared and, of those, several addressed the Court. The vast majority
of those submissions expressed strong approval of the terms of settlement
including the claim to legal costs. Only 15 of the written submissions
expressed general disagreement with the settlement and another 18 opposed only
the claim to legal fees. A further 30 class members advocated for the Defendant
to satisfy the claim to legal fees advanced by class counsel.
[17]
The
overwhelming tone of the submissions to the Court was complimentary to
Mr. Manuge and to his legal team and strongly supportive of the
settlement. A few examples will be sufficient to illustrate this general
view. George Hrynewich wrote the following:
As for the settlement, I will get back what was
clawed back by SISIP. The interest amounts are fine as far as I am concerned,
because honestly, I probably would have spent the money and not made any
interest on it. Lawyer fees—of course everyone would like to see things like
this lower, but I was expecting them to be higher, so I feel that they are
fair. They did a lot of work for us and put up with a lot. It would be nice to
see them give Mr. Manuge a little bit more for his work in starting the suit
and carrying on with it. We cannot escape income tax, and I would rather see
them hold back too much now and have the Canada Revenue Agency (CRA) give me a
refund later, than have to scramble to pay money back to CRA next year. In
summary, I have to say that I am satisfied that we accomplished the main goals
that I wanted to see accomplished when I joined this lawsuit. I did not join
this expecting to get rich and I think the settlement is reasonable and fair.
Perhaps most of all I would like to see this end,
and end while we are ahead. If someone could promise me that I would definitely
get more money, but that it would take several more years and might cause us to
lose some of the other things we have gained, I would say no thanks. You would
have to be able to guarantee that I would get hundreds of thousands of dollars,
if not a million, before I would say that I would even think about it. But this
is just my opinion and I will respect the opinion of the majority of the suit
members, as well as the judgment and decisions of the court.
Marcel Pellerin wrote:
Hello my name is Marcel Pellerin and I vote YES to
accept this settlement proposal.
I would have liked more tax relief, however I am
very pleased that this whole thing is almost over.
The stress anxiety and physical illness that this
has caused me over the last 10 years is more than I could continue to bare.
Thank you so very much to our legal team and Mr.
Manuge. You have achieved a wonderful thing for the class [i]ncluding me and my
teenage daughter.
Dana Morris wrote:
I would like to thank you and your staff for the
work you have done on our behalf with this Class Action. This was a monumental
task that clearly was not for the weak. Your diligence and professionalism
should set a standard for all to emulate.
I still find it difficult, no, impossible to
guess-estimate the amount that would come our way however at this point it is a
mute point! Had it not been for the courage of Dennis Manuge and Peter Driscoll,
as well as their determination to see it through, we (the class members) would
have absolutely nothing to look forward or dream about.
I, as a class member and disabled Veteran, with my
family, support the Agreement and the proposed legal fee percentage as outlined
by McInnes Cooper in the email dated 9 January 2013 sent to all Class Members.
I can’t say this enough, “THANK YOU so very much”
for giving us hope and “a little piece of ourselves back”.
[18]
Given
the strong support for the settlement expressed by the vast majority of class
members who made submissions and the general notoriety of this case and its
outcome within the community of disabled veterans, I am satisfied that the
settlement is viewed very favourably by almost all class beneficiaries.
Certainly, if there was general dissatisfaction with the settlement, I would
have expected that more than a few members of the class would have expressed
their concerns to the Court.
[19]
It
is apparent from the submissions received from class members that some of the
opponents to the proposed settlement mistakenly believe that the Court has the
authority to unilaterally amend its terms. With the exception of the approval
of legal fees under Federal Courts Rule 334.4, the Court has no authority to
alter a settlement reached by the parties or to impose its own terms upon
them. The Court is limited to either approving or rejecting a settlement in
its entirety.
[20]
Three
recurring issues of concern to some class members had to do with the payment of
income tax on retroactive payments of LTD income, the unwillingness of the
government to contribute to the legal costs incurred by the class and the
absence of an award for general or punitive damages. A few individuals had
specific concerns including the mother of a deceased veteran who objected to
the exclusion of extended family from the class.
[21]
The
concern expressed by a few members of the class about the failure to
incorporate a recovery for general damages is not persuasive. This was a
breach of contract claim where such recoveries are infrequently recognized and
certainly not in substantial amounts. Counsel also point out with some
justification that the agreed $10 million bursary fund represents a form of
surrogate recovery for the personal hardships experienced by some members of
the class over the years. Protecting claims to general damages would also have
required class members to produce individual medical evidence and presumably to
testify about the hardships they had experienced. In my view such an approach
would have been more time-consuming, expensive and complex than warranted by
the benefits that would likely have been generated.
[22]
The
criticism that the settlement ought to have imposed upon the government an
indemnity obligation for legal costs fails to recognize that in this Court legal
costs are not, except in exceptional circumstances, payable by either party to
a class proceeding regardless of the outcome: see Federal Courts Rule 334.39.
This provision was adopted to eliminate a practical barrier to the commencement
of a class proceeding by a representative plaintiff who might otherwise be
exposed to a substantial costs award if the case was ultimately unsuccessful.
In the absence of any provision in our Rules for the separate payment of costs,
it was not unreasonable for the parties to negotiate a settlement that provided
for legal costs to be borne out of the settlement proceeds.
[23]
A
few members of the class complain that income tax will be payable on their
retroactive LTD payments. Taxes are, however, the inevitable consequence of
the application of the Income Tax Act, RSC, 1985, c 1 (5th
Supp.), and the manner in which SISIP LTD premiums were paid over the years.
Under the proposed settlement, class members are entitled to a 3.27% gross up
for taxes and will be able to elect to receive benefits over time if that
creates a more favourable tax outcome. These measures will mitigate the impact
of income tax on taxable recoveries. It must also be kept in mind that had
class members received their full LTD benefits in accordance with the SISIP
policy that income would have been taxable at the time of receipt.
[24]
No
class action settlement will ever be perfect. Recovery is always limited to
those who meet the definition of a class member under the terms of
certification. In cases like this involving thousands of unique individual
claims, it is impossible and undesirable to treat every beneficiary equally in
either financial or administrative terms. It is inevitable that a settlement
like this one will leave a few people behind or benefit some ahead of others.
In this case those distinctions are of insufficient weight to reject the
proposed settlement.
[25]
Notwithstanding
the concerns expressed by a few members of the class, I have no hesitation in
approving the proposed settlement of this action. It is a generous, complete
and thoughtful resolution of the issues that were raised in the litigation and
it will provide substantial financial assistance to thousands of disabled CF
veterans and their families. The terms of settlement are also the product of
extensive negotiations between the parties. It would not serve the interests
of the vast majority of class members – many of who are suffering financially –
to send the parties back into further discussions to address the concerns of a
handful of those who oppose the arrangement. It is also a settlement that is
supported by the vast majority of class members who took the opportunity to
make their views known to the Court. In short, it represents a fair and
reasonable compromise that is in the best interests of the class as a whole and
it is, accordingly, approved.
[26]
I
would be remiss if I failed to recognize legal counsel, Mr. Manuge and the
Government of Canada for the generosity of spirit and compromise that so
obviously motivated their negotiations and which led to the resolution of the
long-standing grievance that was at the heart of this case. Without the
tenacity of Mr. Manuge, the essential goodwill of the parties and the hard
work of all legal counsel involved, this settlement would not have been
possible.
[27]
The
claim by class counsel to legal costs is a different matter. The parties do
not agree on that issue and, in any event, it is left to the Court under Rule
334.4 to determine the appropriate amount for those costs.
[28]
At
the heart of the application of Rule 334.4 is the requirement that legal fees
payable to class counsel be fair and reasonable: see Parsons et al v
Canadian Red Cross Society et al, 49 OR (3d) 281, [2000] OJ no 2374 [Parsons
et al]. In determining what is fair and reasonable the Court must look at
a number of factors including the results achieved, the extent of the risk
assumed by class counsel, the amount of professional time actually incurred,
the causal link between the legal effort and the results obtained, the quality
of the representation, the complexity of the issues raised by the litigation,
the character and importance of the litigation, the likelihood that individual
claims would have been litigated in any event, the views expressed by the class,
the existence of a fee agreement and the fees approved in comparable cases. Some
authorities have also recognized a broader public interest in controlling the
fees payable to the legal profession: see Endean v Canadian Red Cross
Society, 2000 BCSC 971, at para 73, 2000 BCJ no 1254 [Endean].
The Quality
of Legal Representation and the Results Achieved
[29]
The
certification and liability determinations that provided the impetus for this settlement
resulted from the skillful and tenacious advocacy of class counsel in the
context of an adversarial contest involving equally skilled and tenacious
opposing counsel. The issues were thoroughly briefed and persuasively argued
and there is no question that the high quality of the legal work performed by
class counsel led to the favourable liability outcome.
[30]
The
terms of settlement are equally impressive. Every dollar deducted will be
returned to class members or their families with appropriate interest.
Notwithstanding the impact of legal fees, the amounts recovered by class
members will provide meaningful and, in many cases, badly needed compensation.
The Defendant’s withdrawal of its limitation defences will add many more
claimants to the class and will allow for recoveries dating back to 1976. A
$10 million bursary program will be put in place as a surrogate for potential
claims to general damages. As discussed above, general damages are notoriously
difficult to prove in breach of contract cases. That is particularly true for
cases where claimants are medically disabled and the psychological impacts
arising from financial deprivation are often hard to isolate from other
underlying conditions. The solution adopted by the parties to resolve this
issue was novel and creative. The same can be said for the inclusion of
surviving spouses and dependant children in lieu of the immense difficulties
that would arise from involving the estates of deceased members. Simple and
cost effective measures have been put in place to resolve any ongoing disputes
about entitlements and it is anticipated that the take-up rate for
beneficiaries will approach 100%. These are results that would not have been reasonably
contemplated by anyone at the outset of this litigation. Indeed, if settlement
negotiations had been undertaken before my judgment was rendered, a reasonable
outcome would have been substantially less favourable to the class than this
one. The excellence of the legal representation provided by class counsel and
the success that was achieved in the settlement negotiations are factors that
favour a significant premium in the assessment of costs.
Litigation
Risk
[31]
There
can be no doubt that legal counsel for the class exposed themselves to a
significant level of risk in taking on this case. Once the case was finally
certified as a class action, counsel were committed to bringing it to a final
conclusion on behalf of all of the members of the class: see Slater Vecchio
LLP v Cashman, 2013 BCSC 134, [2013] BCJ no 151.
[32]
In
the ordinary course of this type of litigation, counsel could expect to be
engaged for many years. In this case tens of thousands of pages of documents
were expected to be discoverable and extensive witness examinations and other
pre-trial work was contemplated. When class counsel accepted the retainer
there was no expectation that the determinative legal issue would be resolved
in a summary way and that no appeal would be taken from that decision. Given
the Defendant’s adversarial approach to the motion to certify, counsel would
have assumed that they were exposing themselves to a financial risk measured in
the potential loss of professional time and disbursements of probably tens of
millions of dollars. This was also not a case where the Defendant’s liability
approached a level of certainty. The claim to Charter relief was doubtful at
best and the point of contractual interpretation that ultimately drove the
settlement was neither a sure thing nor invulnerable to appeal. While there
was likely a political dimension to the ultimate settlement, it is doubtful
that much, if anything, would have been recovered if my liability ruling had
been unfavourable to the class and had then withstood an appeal.
[33]
Even
the motion to certify this action exposed counsel to considerable risk.
Although my decision to certify was reinstated by the Supreme Court of Canada,
the likelihood of obtaining leave to that Court was only about one in ten.
Furthermore, that decision turned on a contentious issue of jurisdictional law
that had long been unresolved in the national jurisprudence. Counsel for
Mr. Manuge undertook a three-year process to achieve certification. They
also assumed tens of thousands of dollars of out-of-pocket expenses and agreed
to indemnify Mr. Manuge for his potential exposure to legal costs before
the Supreme Court of Canada.
[34]
The
litigation risk that class counsel assumed is also illustrated by the fact that
the grievance that was at the centre of the case had been well-known for more
than 30 years and had attracted no litigation either individually or as a class
proceeding until Mr. Manuge’s claim was taken up by Mr. Peter Driscoll
in 2007.
[35]
Counsel
for the Defendant point out that the litigation risk decreased significantly
once a decision was taken not to appeal my judgment. In the result, it is
argued that the value of professional time incurred by class counsel after that
point ought to be discounted.
[36]
Counsel
for the class argues that the Defendant’s initial opposition to the proceeding
was the cause of much of the legal work that was incurred. According to this
view, the Defendant’s initial conduct in the defence of the claim diminishes
the weight of its current argument that the claim to legal fees is excessive.
[37]
At
this stage, I am not particularly concerned about the positions taken by the
parties before the settlement was achieved. It is sufficient to observe that
the litigation risk assumed by class counsel is primarily measured by the risk
they assumed at the outset of the case. This point was made by Justice Warren Winkler
in Parsons et al, above, in the following passages:
[29] Moreover, class action litigation
introduces additional complications. Complex class actions subsume the
productive time of counsel. The risk undertaken by counsel is not merely a
function of the probability of winning or losing. Some consideration must also
be given to the commitment of resources made by the class counsel and the
impact that this will have in the event the litigation is unsuccessful. Winning
one of two class actions may be a reasonable hallmark of success. However, for
the lawyer who's first action turns out to be a loser, the complete exhaustion
of resources may leave him or her unable to conduct another action. Thus the
real risk undertaken by class counsel is not merely a simple reciprocal of the
"judgmental probability of success" in the action, even if that
calculation could be made with any degree of certitude. There is a point in
complex class action litigation where, degree of risk notwithstanding, class
counsel may truly be, as Mr. Strosberg put it in his submissions, "betting
his or her law firm". This must be considered in assessing the
"risk" factor in regard of the appropriate fee for counsel.
…
[36] It is apparent from the record that even
though this litigation was conducted from the middle of 1998 forward as a
negotiation toward a settlement, the risks assumed by class counsel were no
less real at any point than if that time had been devoted to a disposition
through a trial process.
[37] In addition, the legislation enabling
class proceedings introduces several features that distinguish these actions
from ordinary litigation. One aspect that bears on the risk inherent in class
actions is the requirement of court approval of any settlement reached.
Protracted negotiations involve a commitment of the time and resources of
counsel and the litigants. However, in a class proceeding, a court will not
approve a settlement that it does not regard as being in the best interests of
the class, regardless of whether class counsel take a different view. Thus,
class counsel may find themselves in the position of having committed time and
resources to the negotiation of a settlement, that they believe is in the best
interests of the class, only to find that the court will not approve the
settlement achieved. While this creates a risk simpliciter, it also creates an
advantage for a defendant who can successfully extend the negotiations to the
point that class counsel's resources are exhausted before making a "final
settlement offer" that may not ultimately receive court approval. In those
cases, class counsel may have exhausted their resources attempting to obtain a
reasonable settlement only to find themselves, as a consequence, unable to
pursue the litigation. Accordingly, the risk in a class proceeding is not
merely a function of whether or not litigation is anticipated and whether or
not that litigation will be successful. Rather, there are risks inherent in the
adoption of, and commitment to, any particular strategy for achieving a resolution.
[38] In view of the foregoing, I am unable to
accept the contention that there was less risk in this proceeding merely
because the parties chose to proceed down a negotiation route. Moreover,
contrary to the submissions made by certain of the intervenors, it is apparent
that the time and resources committed to the negotiations by the class counsel
meant that the risk was increasing rather than decreasing as the negotiations
continued. As the parties moved toward a settlement, the negotiations became
more difficult as the issues narrowed with the result that the risk of an
insurmountable impasse increased rather than diminished. This made the
negotiations more perilous as they progressed…
…
[42] … The expenditures of class counsel in
terms of time and money were at risk of loss if any politician in authority
decided as a matter of expediency or policy not to settle the class proceedings
or decided to unilaterally institute a no-fault compensation program and
thereby bypass class counsel and the litigation. There was always the inherent
danger that the pan-Canadian settlement would be impossible to achieve, either
because of a reluctance on the part of a particular government or a class in a
particular action to approve an agreement.
[38]
In
my view the litigation risk assumed by class counsel was substantial and almost
certainly exceeded the tolerance level of others. This is a factor favouring a
premium costs recovery, in part, to motivate counsel to take on difficult class
litigation involving potentially deserving claims that might not otherwise be
pursued.
Time
and Effort Expended
[39]
The
affidavit of lead counsel, Mr. Driscoll, discloses that the two firms
retained on behalf of the class worked for more than 6 years (involving 20
legal professionals) and amassed more than 8500 hours of unbilled time.
Considerable further work remains including the direct supervision of the
refund process and monitoring and assisting with individual appeals. The
efforts undertaken to date to respond to enquiries from hundreds of highly
engaged class members have been considerable and will undoubtedly continue.
Out-of-pocket expenses are now approaching $200,000.00 and are estimated to
exceed $260,000.00 before the case is concluded. All of the file expenses have
been borne by counsel and were, in considerable measure, at risk. Class
counsel value their current unbilled time at more than $3.2 million. This
seems to me to be a reasonably fair valuation. However, it is important to
recognize that much of the billable time expended and all of the file
disbursements have been carried by these law firms for several years and that
considerable work remains to monitor and manage the individual claims of class
members.
The
Importance of the Litigation to the Class
[40]
This
was important litigation dealing with a long-standing, contractual grievance
involving thousands of disabled CF veterans. Since 1976 the practice of
deducting Pension Act disability payments from SISIP LTD benefits had
been the source of hardship drawing considerable third-party criticism. Until
my liability judgment was delivered, the Government of Canada forcefully
defended its position. The settlement of this class action will provide
meaningful compensation for several thousand deserving CF veterans and will
likely represent the fourth highest financial payout in Canadian class action
history. These are factors that favour the award of a costs premium to class
counsel.
The
Public Interest
[41]
If
there is a public interest that pertains to matters such as this, it is more
properly situate around the interests of the class than the supposed interest
of the general public in controlling compensation for lawyers engaged in class
litigation. In my view it is relevant in assessing the reasonableness and
fairness of class action legal fees to consider the impact of those fees on the
individual recoveries of class members. This, I think, is what was of concern
in Killough v Canadian Red Cross Society, 2007 BCSC 941, [2007] BCJ no
1486 [Killough], where at para 8 the Court referred to the impact of the
agreed fee on the fund that would otherwise be available to the class.
[42]
For
someone like Mr. Manuge whose claim to retroactive LTD benefits is
estimated at less than $10,000.00, the deduction of legal fees of about
$1,500.00 could not be considered to be unfair or unreasonable. However, for a
CF veteran suffering from a major, work-limiting disability, the deduction of
more than $37,000.00 from an award of $250,000.00 will result in a meaningful
financial deprivation. In short, those who are arguably the most in need of
their retroactive recoveries are the ones carrying most of the burden of legal
costs. This is a factor that supports a reduction in the award of costs to
class counsel.
The Contingency Fee Agreement,
the Claim to a Percentage Recovery and the Use of a Multiplier
[43]
I
accept that a contingency fee agreement entered into between legal counsel and
a representative plaintiff in a proposed class proceeding may be a relevant
and, sometimes, a compelling consideration in the final assessment of legal
fees. It strikes me, nonetheless, that such a fee agreement will not necessarily
be a primary consideration because it is most often executed at an early point
in time when very little is known about how the litigation will unfold. I made
essentially
the same point in my decision to
certify this proceeding in Manuge v Canada, 2008 FC 624 at para 34, [2008]
FCJ no 787:
[34] One other concern raised by the Crown
involves the magnitude of the contingency fee that would be payable under the
terms of the Retainer Agreement entered into between Mr. Manuge and his legal
counsel. That Agreement provides for a fee of 30% of any favourable financial
judgment plus disbursements. The Agreement also duly notes that the fee
payable “shall be subject to approval by the Court”. There is certainly
nothing inappropriate about a contingency fee arrangement in a case like this
one where the outcome is unpredictable and where the amounts individually in
issue appear insufficient to support litigation. The amount of fee payable at
the end of a class proceeding is, of course, subject to assessment by the trial
court and must bear some reasonable relationship to the effort actually
expended and to the degree of risk assumed by counsel. I have no reservations
about the ability of the Court to deal with this issue, if necessary, in the
exercise of its supervisory jurisdiction.
[44]
When
Mr. Manuge entered into the fee agreement with his legal counsel, no one
knew that the issue of certification would ultimately reach the Supreme Court
of Canada or that the determinative liability issue would be finally resolved
after a short hearing on agreed evidence and without extensive discovery or a
trial. Similarly, no one could have accurately predicted the outcome of the
negotiations that led to the settlement now before the Court including the
willingness of the Respondent to abandon what was likely a viable, if partial,
limitations defence.
[45]
The
contingency fee agreement that was executed by Mr. Manuge and which
purported to award legal fees of 30% of amounts recovered on behalf of members
of the class is of no particular
significance to this assessment.
That is so because Mr. Manuge and class counsel have essentially walked
away from the agreement. What they are now seeking is the approval of legal
fees representing approximately 7.5% of the gross value of the settlement
inclusive of past and future benefits. It is also proposed that the fees be
payable wholly from the past amounts due to class members which would represent
about 15.7% of the total value of the retroactive entitlements of class members.
[46]
Apart
from the obvious fact that the fees now claimed represent about one-quarter of
the amount provided for in the initial contingency fee agreement, I was not
provided with a clear explanation for how the figure of $65 million was reached
beyond the observation that the figure was set at less than the amount of
accrued interest included within the settlement. The figure claimed for legal
fees is thus not much more than a number and a very large number at that.
[47]
The
use of percentages and multipliers to assess class action legal fees is
appropriate, but mainly to test their reasonableness and not to determine
absolute entitlement. Each approach has its place. The multiplier appears to
be a tool better suited to cases where the social benefits achieved may be
greater than the amounts recovered and where a percentage approach would likely
under-compensate counsel. In the so-called common-fund cases the use of a
percentage appears to be preferred because it tends to reward success and to
promote early settlement.
[48]
In
my view there is a danger in placing undue emphasis on either a multiplier or a
percentage recovery in a case like this. My concern is the same as that
expressed by Justice Ian Pitfield in Killough, above, in the
following passages:
45 With respect, other factors do not elevate
the contribution of counsel in this action to the level of contribution of
counsel in relation to the earlier settlement. While time accumulated on the
matter and comparative multipliers are relevant and useful, caution must be
exercised when using them as benchmarks for the assessment of the
reasonableness of any fee. The principal concern is that there is no means of
assessing whether the accumulated time was necessary and represented a
reasonable and productive use of counsel's time. Class actions must not
represent an open-ended invitation to accumulate time without regard to productivity.
46 The accumulation of substantial time charges
in relation to a legal matter does not always justify compensation at base
rates or multiples thereof. Conversely, low time endeavours may justify fees
that are many multiples of the book value of accumulated time.
47 Multipliers and percentage of recovery
comparisons are completely arbitrary. The efficacy of multipliers is affected
by the reasonableness, which cannot be assessed with any confidence, of the
base of accumulated time and hourly rates from which the multiplier is derived.
The percentage of recovery comparison is reduced and therefore made to appear
more favourable by comparing the total fee to a global settlement amount that
included the benefit pool, the administration fund, goods and services tax and
provincial sales tax where applicable, and the aggregate of legal fees. Legal
fees were included notwithstanding the repeated assertion in affidavits and
submissions that legal fees were independent of any other settlement consideration.
48 In sum, while counsel must be fairly and
reasonably compensated for the risk assumed by and the work done on behalf of
any class, the assessment of fairness and reasonableness is ultimately more
subjective than it is objective.
[49]
The
Defendant places considerable emphasis on the relatively low value of
professional time expended by class counsel and then argues for the use of
typical multiplier of 1.5 to 3.5. This seems to me to be overly simplistic and
largely insensitive to the factors favouring a premium recovery. The
efficiency of counsel in getting to an excellent result is something to be
rewarded and not discouraged by the rigid application of a multiplier to the
time expended. Here I agree with the views expressed by Justice George Strathy
in Helm v Toronto Hydro-Electric System Ltd., 2012 ONSC 2602 at paras
25-27, [2012] OJ no 2081:
25 The proposed fee represents a significant
premium over what the fee would be based on time multiplied by standard hourly
rates. Is that a reason to disallow it? If the settlement had only been
achieved four years later, on the eve of trial, when over a million dollars in
time had been expended, would the fee be any more or less appropriate? Should
counsel not be rewarded for bringing this litigation to a timely and
meritorious conclusion? Should counsel not be commended for taking an
aggressive and innovative approach to summary judgment, ultimately causing the
plaintiff to enter into serious and ultimately productive settlement
discussions?
26 Plaintiff's counsel are serious, responsible,
committed and effective class action counsel. They are entrepreneurial. They
will likely take on some cases that they will lose, with significant financial
consequences. They will take on other cases where they will not be paid for
years. To my mind, they should be generously compensated when they produce
excellent and timely results, as they have done here.
27 For those reasons, I approve the counsel fee.
Also see Vitapharm Canada Ltd. v
F. Hoffmann-La Roche Ltd., [2005] OJ no 1117 at para 107, [2005] OTC 208.
[50]
It
can be equally unhelpful to look for guidance from authorities where legal fees
have been approved as a percentage of the amounts recovered. A reasonable fee
should bear an appropriate relationship to the amount recovered: see Endean,
above, at para 80. Cases that generate a recovery of a few million dollars may
well justify a 25% to 30% costs award. It is more difficult to support such an
approach where the award is in the hundreds of millions of dollars. Presumably
that is the reason why class counsel are not relying on the initial contingency
fee allowance of 30%. That is also the reason that the three authorities that
represent the strongest comparators to this case in terms of amounts recovered
fall at the bottom of the scale of costs awarded in percentage terms: see Baxter
v Canada (Attorney General), [2006] OJ no 4968, 83 OR (3d) 481; Endean,
above, and Killough, above. These comparable decisions do not support
an award of costs in this case of approximately 7.5% or, in financial terms,
$65 million.
Conclusion
[51]
Having
regard to all of the considerations outlined above, I will approve legal fees in
an amount equal to 8% of the retroactive refunds payable to class beneficiaries
(including the cancellation of debts owing by class members to Manulife
Financial). This figure is approximately 4% of the total value of the
settlement. In addition I will approve the deduction of an amount equal to 0.079%
of refunds payable to class beneficiaries (including the cancellation of debts
by class members to Manulife Financial) as an indemnity for out-of-pocket
expenses. Class counsel are also authorized to deduct required goods and
services tax, harmonized sales tax and/or provincial sales tax from refunds
payable to class beneficiaries and to remit those amounts to the Canada Revenue
Agency or to the appropriate provincial agency.
[52]
I
am satisfied that the above recovery of legal costs is in keeping with the fees
approved in the comparable cases. More importantly it represents a sufficient
incentive to counsel to take on
high-risk class litigation without,
at the same time, unduly impacting on the much-needed recoveries of disabled CF
veterans. I am grateful to counsel for their thorough briefing of the relevant
jurisprudence and, in particular, to counsel for the Minister who brought the
required adversarial balance to the process.
Discretionary
Payments
[53]
Class
counsel have undertaken to create a fund for veterans in need of legal assistance
with the allocation of $1,003,420.00 from their costs award. In addition they
propose to pay to Mr. Manuge an honorarium of $50,000.00 in recognition of
his significant contribution to the prosecution of this action. Several
members of the class argued that Mr. Manuge ought to receive more than
$50,000.00. However, to the extent that the Court has any control over the use
of costs awarded to counsel, I do not think it appropriate that Mr. Manuge
receive more than the amount described in the Preliminary Notice of Settlement
sent to class members. That was the basis on which the proposal would have
been considered by class members and it is not desirable that a unilateral and ex
post facto alteration be made at this stage. The proposal to establish a legal
assistance fund for veterans is laudable and, if Court approval is required,
it, too, is given.
[54]
No
award of costs is made in connection with this motion.
[55]
I
will leave it to counsel to make the required changes to the proposed
settlement Order to be submitted to the Court for execution and issuance.
ORDER
THIS
COURT ORDERS that the settlement of this action is
approved on the terms proposed by the parties.
THIS
COURT FURTHER ORDERS that the legal costs payable to class
counsel are approved on the following terms:
(a) for
legal fees, by the deduction of an amount equal to 8% of the refund and the
cancellation of debts, if any, owing to Manulife Financial payable to each
eligible class beneficiary;
(b) for
disbursements, by the deduction of an amount equal to 0.079% of the refund and
the cancellation of debts, if any, owing to Manulife Financial payable to each
eligible class beneficiary; and
(c) by
the deduction from refunds payable to class beneficiaries and the remission of
all required goods and services tax, harmonized sales tax and/or provincial
sales tax.
"R.L.
Barnes"
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