Date: 20130404
Citation: 2013 FC 341
Ottawa, Ontario, April 4, 2013
PRESENT: The Honourable Mr. Justice Barnes
BETWEEN:
DENNIS MANUGE
Plaintiff
and
HER MAJESTY THE QUEEN
Defendant
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,
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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 SCR 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
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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
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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
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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 ownoccupation
disability period.
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[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
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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.
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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
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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
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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
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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.
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[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.
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[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
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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
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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
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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.
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[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
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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 thirdparty
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
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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
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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.
1
[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
Also see Parsons et al v Canadian Red Cross Society et al, 49 OR (3d) 281 at para 58, [2000] OJ no 2374.
Page: 21
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 undercompensate
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:
Page: 22
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
Page: 23
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
Page: 24
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.2 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
In Baxter, above, a costs award representing 4.87% of a projected payout of almost $2 billion was approved. This
resulted in legal fees of between $85 and $100 million. In
Endean, above, legal fees of $52,500,000 were approved
representing 4.26% of the total amount recovered. In
Killough, above, legal fees of $37,290,000 were agreed between
the parties and were not to be deducted from the settlement proceeds. This figure was approved by the Court – albeit
with reservations - and it represented 3.64% of the total award.
Page: 25
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.
Page: 26
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"
Judge
FEDERAL COURT
SOLICITORS OF RECORD
DOCKET:
T-463-07
STYLE OF CAUSE:
MANUGE v HMTQ
PLACE OF HEARING:
HALIFAX, NS
DATE OF HEARING:
February 14, 2013
REASONS FOR JUDGMENT:
BARNES J.
DATED:
April 4, 2013
APPEARANCES:
Peter J. Driscoll
Dan Wallace and
Ward K. Branch
FOR THE PLAINTIFF
Paul B. Vickery
Lori Rasmussen and
Travis Henderson
FOR THE DEFENDANT
SOLICITORS OF RECORD:
McInnes Cooper
Barristers and Solicitors
Halifax, NS
Branch MacMaster
Barristers and Solicitors
Vancouver, BC
FOR THE PLAINTIFF
William F. Pentney
Deputy Attorney General of Canada
Ottawa, ON
FOR THE DEFENDANT
