COURT OF APPEAL FOR ONTARIO

CITATION: Bancroft-Snell v. Visa Canada Corporation, 2016
    ONCA 896

DATE: 20161128

DOCKET: C61440

Cronk, Blair and Pardu JJ.A.

BETWEEN

Jonathon Bancroft-Snell and 1739793 Ontario Inc.

Plaintiffs

(Appellants)

and

Visa Canada Corporation, MasterCard International
    Incorporated, Bank of America Corporation, Bank of Montreal, Bank of Nova
    Scotia, Canadian Imperial Bank of Commerce, Capital One Financial Corporation,
    Citigroup Inc., Federation Des Caisses Desjardins du Québec, National Bank of
    Canada Inc., Royal Bank of Canada, and Toronto Dominion Bank

Defendants

(Respondents)

Proceeding under the
Class
    Proceedings Act, 1992

Reidar Mogerman and Jennifer D. Winstanley, for the
    appellants

No one appearing for the respondent, Visa Canada
    Corporation

James Musgrove, for the respondent, MasterCard
    International Incorporated

Michael Eizenga, for the respondent Bank of America
    Corporation

Mahmud Jamal and David Rankin, for the respondent Bank
    of Montreal

Markus Kremer, for the respondent, Bank of Nova Scotia

Katherine Kay, for the respondent, Canadian Imperial
    Bank of Commerce

Daniel G. Cohen, for the respondent, Capital One
    Financial Corporation

No one appearing for the respondent, Citigroup Inc.

Vincent de l
Étoile,
    for the respondent,
Fédération Des Caisses Desjardins
    du Québec

No one appearing for the respondent, National Bank of
    Canada Inc.

Paul J. Martin, for the respondent, Royal Bank of Canada

Christine Lonsdale, for the respondent, Toronto Dominion
    Bank

Anthony Tibbs and Venessa Vuia, for the intervenor, Merchant
    Law Group LLP

Brendan van Niejenhuis and Carlo Di Carlo, appearing as
amicus
    curiae

Heard:

May 25, 2016

On appeal from the order of Justice Paul M. Perell of the
    Superior Court of Justice, dated December 8, 2015, with reasons reported at
    2015 ONSC 7275 and 2015 ONSC 7411.

R. A. Blair J.A.
:

OVERVIEW

[1]

At the heart of this appeal is a Fee Sharing Agreement entered into
    between Class Counsel and the Merchant Law Group in settlement of a carriage
    dispute involving competing multi-jurisdictional class proceedings launched across
    Canada. The Fee Sharing Agreement provided that the Merchant Law Group was to
    receive up to an $800,000 share of the fees recovered by Class Counsel from the
    proceedings, essentially in exchange for agreeing to stay its rival proceedings
    in two provinces.

[2]

Perell J. took a negative view of this arrangement when asked to approve
    Class Counsels fees in conjunction with a subsequent motion to approve a
    partial settlement of the actions in all jurisdictions. He reduced the
    requested fees of approximately $3.4 million by 10% to reflect his refusal to
    approve of the Fee Sharing Agreement. In addition, he declared it unenforceable
    and ordered that Class Counsel not pay the Merchant Law Group any sums from
    the settlement proceeds or from any other source now or in the future  on
    account of the Fee Sharing Agreement.

[3]

Not surprisingly, neither Class Counsel nor the Merchant Law Group is
    happy with this turn of events. They seek to set aside the motion judges
    disposition. The Merchant Law Group was granted intervenor status on the
    appeal. In addition, the Court appointed Mr. van Niejenhuis as
amicus
    curiae
to advance the perspective of the unrepresented class members.

[4]

For the reasons that follow, I would uphold the motion judges decision
    to reduce Class Counsels fees by 10% and that part of the order enjoining
    Class Counsel from paying any sums to the Merchant Law Group from the
    settlement funds or the fees approved in relation to the settlements. I would
    also uphold the motion judges order that the Fee Sharing Agreement is
    unenforceable to the extent it renders paragraph 6 of that Agreement
    unenforceable. On procedural fairness grounds, however, I would set aside that part
    of his order declaring the Fee Sharing Agreement otherwise unenforceable and
    enjoining Class Counsel from making payment on account of the Fee Sharing
    Agreement from any other source.

FACTUAL BACKGROUND

The Underlying Class Actions and the Chronology

[5]

The various class actions  including this one in Ontario  involve essentially
    the same defendants and the same subject matter.
[1]
They are brought on behalf of merchants who challenge the allegedly
    anti-competitive nature of the Visa and MasterCard credit card networks in
    Canada. They are brought against Visa, MasterCard and ten different Canadian
    banks and major financial institutions. In brief, the representative plaintiffs
    allege that Visa and MasterCard and the various defendant banks and financial
    institutions have conspired to fix, maintain, increase or control merchant
    discount fees, including interchange fees, paid by merchants who accepted
    payment by Visa or MasterCard credit cards.

[6]

A consortium of three law firms acts together as Class Counsel in the
    separate provincial proceedings: Branch MacMaster LLP; Camp Fiorante Matthews
    Mogerman LLP; and Consumer Law Group. Each is experienced and able in the
    conduct of class proceedings in Canada. I shall refer to the class proceedings
    brought by Class Counsel as the Consortium Credit Card Actions.

[7]

I turn here to the chronology of these claims, which is of some
    importance.

[8]

Prior to the commencement of any Canadian proceedings, beginning in
    mid-2005, more than 40 proposed class actions were filed by merchants across
    the United States making similar accusations regarding the structure of the
    Visa and MasterCard systems. These actions were ultimately consolidated and
    have proceeded through settlement.

[9]

The Canadian Consortium Credit Card Actions were commenced first in
    Quebec (December, 17, 2010) and then in British Columbia (March 28, 2011) and
    in Ontario (May 16, 2011). British Columbia has been the lead jurisdiction, and
    the action has proceeded through the certification stage in that province. In
    all three actions, the representative plaintiffs signed contingency fee
    agreements with Class Counsel (the fee agreement in the Ontario action calls
    for fees of between 25% and 33 1/3% of the amounts recovered, depending upon
    the stage of the proceedings at which a settlement might occur).

[10]

In July 2012, two events occurred. First, the U.S. proceedings were settled,
    for $7.25 billion ($US). Second, the Merchant Law Group commenced rival
    proposed class actions in Alberta and Saskatchewan (the Merchant Law Group
    Credit Card Actions). The latter turn of events prompted Class Counsel to
    commence their own class actions in those provinces in order to protect their
    interests and set up the carriage dispute that leads ultimately to this appeal.

[11]

The British Columbia action proceeded through a certification hearing before
    Chief Justice Bauman in April and May 2013. The decision was reserved for
    nearly a year awaiting certain jurisprudential developments at the Supreme
    Court of Canada in competition law and other related fields.

[12]

None of this prevented Class Counsel from engaging in negotiations with
    the defendants, however, and on August 26, 2013  while the decision of the
    trial court on certification was still under reserve  they settled with one of
    the defendants, Bank of America. Bank of America agreed to pay the sum of $7.75
    million and to cooperate with Class Counsel in the ongoing prosecution of the
    Canadian proceedings  a valuable get for Class Counsel in the continuing
    class action against the non-settling defendants  in exchange for a full
    release and the dismissal of the action against it.

[13]

In March 2014, the action was certified as a class action. That decision
    was appealed and the British Columbia Court of Appeal rendered its decision in
    August 2015, varying the certification somewhat, but in ways that are not
    material here. While the certification decision was under appeal, the British
    Columbia action was certified for purposes of partial settlement in July 2014.

[14]

Meanwhile, the carriage dispute was playing out in Alberta and
    Saskatchewan. At the suggestion of Associate Chief Justice Rooke, who was case
    managing the Alberta proceedings, Class Counsel and the Merchant Law Group
    attended a two-day Judicial Dispute Resolution Conference, presided over by a
    justice of the Alberta Court of Queens Bench. With her assistance, the
    carriage dispute was resolved by way of the Fee Sharing Agreement that is at
    the heart of this appeal.

[15]

In essence, the Fee Sharing Agreement provided that the Merchant Law
    Group would agree to stay its rival class actions in Alberta and Saskatchewan
    in exchange for receiving up to $800,000 out of the fees recovered by Class
    Counsel in the Consortium Credit Card Actions, plus disbursements. As a result,
    the consortium of Class Counsel obtained carriage of the credit card class
    actions on a national basis.

[16]

The specifics of the fee sharing arrangement are set out in paragraph 6
    of the Fee Sharing Agreement:

[Class Counsel will] make the following payments to [the Merchant
    Law Group]
from amounts [Class Counsel] recover on
    account of fees in connection with the prosecution of the Consortium Credit
    Card Actions
:

a.

The sum of $400,000 will be paid upon  approval of fees in connection
    with the BofA Settlement

(the
    First Installment);

b.

The sum of
    $300,000 will be paid at such time when a cumulative total of $8 million or
    more (including fees from the BofA Settlement) have been approved on account
    of legal fees in connection with future settlements or liability disposition in
    the Consortium Credit Card Actions; and

c.

The sum of
    $100,000 will be paid at such time when a cumulative total of $14 million or
    more (including fees from the BofA Settlement) have been approved on account
    of legal fees in connection with future settlements or liability disposition in
    the Consortium Credit Card Actions.

d.

On each of the same sums, applicable taxes will also be paid to [the Merchant
    Law Group]. [Emphasis added].

[17]

In September and October 2014, Class Counsel obtained consent orders for
    certification of the class actions for the purpose of the Bank of America
    settlement in Saskatchewan, Alberta, Ontario and Quebec.

[18]

Negotiations continued while the certification appeal in the main
    British Columbia action was pending and the appeal decision was under reserve. In
    April 2015, Class Counsel entered into further settlements with the defendants
    Capital One and Citigroup. These settlements were made on substantially the
    same bases as the Bank of America settlement: Capital One and Citigroup agreed
    to pay certain amounts and to cooperate in the ongoing litigation against the
    non-settling defendants, in return for releases and a dismissal of the action against
    them. At this point, Class Counsel had achieved settlements on behalf of the
    class members in the following amounts:

Defendant

Amount of Settlement

Bank of
            America

$7,750,000

Citigroup

$1,630,000

Capital
            One

$4,250,000

Total

$13,630,000

[19]

To complete the chronology, the class actions in all five provinces were
    certified for purposes of the Capital One and Citigroup settlements in August
    2015. Class Counsel proceeded to move for approval of the settlements and for
    approval of their fees and disbursements in all provinces. Approval was granted
    by the courts in British Columbia, Quebec, Alberta and Saskatchewan. On
    November 19, the approval motion in this Ontario action was argued. The motion
    judge approved the settlement. He also approved Class Counsels fees and
    disbursements, but subject to a deduction of 10% to take into account the Fee
    Sharing Agreement, which he considered to be unfair and unreasonable from the
    perspective of the best interests of the class members.

[20]

This appeal followed.

The Decision Below

[21]

Viewing the Fee Sharing Agreement in the overall context of whether it
    formed a fair and reasonable component of Class Counsels legal fees and
    disbursements, the motion judge gave three principal reasons for his conclusion
    that it did not.

[22]

First, he held that the Fee Sharing Agreement required the courts
    approval under s. 32 of the
Class Proceedings Act, 1992
, S.O. 1992, c.
    6 (the
CPA
), but as approval had not been sought, it was unapproved
    and unenforceable. He added, as well, that in his view it was possibly illegal
    and unenforceable on champerty and maintenance grounds, although he made no finding
    to this effect.

[23]

Secondly, he concluded that Class Counsel did not serve the best
    interests of the class members when they failed to disclose the details of the
    Fee Sharing Agreement to the court and by participating in an unauthorized and
    possibly illegal agreement that ironically (given that this is a class action
    about anti-competitive conduct) tends to overprice the cost of legal services
    that the Class Members would have to pay and, further, that, in any event,
    undermines the integrity of the class action regime. I note here for clarity
    that, in so doing, the motion judge did not attribute any bad faith to Class
    Counsel and was at pains to point out that they genuinely and sincerely
    thought that it was both necessary and in the best interests of the Class
    Members to sign the Fee Sharing Agreement and take the steps they took; he was
    not persuaded, however, that it was in the best interests of the Class Members
    to do so.

[24]

Thirdly, he rejected the notion that the Canadian constitutional
    landscape, with its federal and provincial jurisdictions, provided an excuse
    for the so-called jurisdictional problems of national class actions.  In his
    view, there are already in place the legal tools necessary to stop the
    multi-jurisdictional tactics of law firms that get in the way of access to
    justice, behaviour modification, and judicial economy for Canadian citizens. As
    a result, the proceedings in multiple provinces  and, in particular, the
    carriage dispute that arose from the multiple proceedings in Alberta and
    Saskatchewan  provided no added value for the class members (whose interests
    could have been protected in the lead action in British Columbia) and they
    should not be required to bear the costs of that dispute.

[25]

As a result, the motion judge decreased Class Counsels legal fees by
    10%, from $3,407,500 to $3,066,750 plus disbursements of $384,571.95 and
    applicable taxes. In addition, he ordered that Class Counsel were not to pay
    any sums from the settlement proceeds or from any other source now or in the
    future on account of the unauthorized and possibly illegal Fee Sharing
    Agreement.

The Positions of the Participants

[26]

The issues raised by Class Counsel on appeal, and supported by the
    Merchant Law Group, may be summarized as follows. Did the motion judge err:

(a)

in finding that the Fee Sharing
    Agreement was subject to court approval under s. 32 of the
CPA
and was
    therefore unenforceable in the absence of such approval?

(b)

in finding that the Fee Sharing Agreement
    was possibly illegal and therefore unenforceable under the common law doctrines
    of champerty and maintenance?

(c)

in deciding that Class Counsel had
    not acted in the best interests of the class members by entering into the carriage
    settlement and the Fee Sharing Agreement?

(d)

by acting on his own motion, and
    without notice to the Merchant Law Group, in making findings as to the legality
    of the Fee Sharing Agreement and, in particular, in holding that Class Counsel
    were enjoined from making any payments to the Merchant Law Group from any
    source and at any time in relation to the Fee Sharing Agreement without notice
    to the Merchant Law Group of his intention to do so?

[27]

As noted above, this Court appointed
amicus curiae
to advance
    the perspective of the unrepresented class members. In helpful and thoughtful
    submissions in that capacity, Mr. van Niejenhuis argued in response to the
    foregoing submissions that:

(a)

the Fee Sharing Agreement was
    subject to approval under s. 32 of the
CPA
but, in any event, the
    motion judge had the jurisdiction to deal with it and to refuse to approve it
    under s. 12 of the
CPA
or pursuant to the courts inherent
    jurisdiction;

(b)

the motion judges comments with
    respect to the possible illegality of the Fee Sharing Agreement on champerty
    and maintenance grounds were simply a reflection of his broader underlying
    concern for the interests of the class members and his need to address whether
    it was fair and reasonable for the class members to bear the cost of the carriage
    settlement in the circumstances of this case;

(c)

the motion judges view that the
    best interests of the class members were not served by the Fee Sharing Agreement
    was similarly driven by his substantive concern about whether it was fair and
    reasonable for the class members to absorb that cost in the circumstances;

(d)

there is no basis for the
    procedural fairness argument  because the Merchant Law Group knew that court
    approval of any settlement and fees would be necessary, but chose to leave it
    to Class Counsel to act as its agent in that respect in order to avoid incurring
    any expenses; the motion judge could not be expected to give notice on a matter
    on which he had not received full and frank disclosure (the details of the Fee
    Sharing Agreement were not disclosed to him until he requested them); and, in
    any event, there was no indication that there was anything in the way of
    evidence or arguments that the Merchant Law Group would have added had it
    received notice.

[28]

Amicus
added two other submissions.

[29]

First, with respect to the standard of review  an issue not addressed
    squarely by Class Counsel or the intervenor
amicus
emphasized the
    discretionary and highly contextual nature of decisions relating to settlements
    and the approval of fees in class action proceedings, and the high degree of
    deference to which such decisions are therefore entitled: see,
Smith Estate
    v. National Money Mart Co.
, 2011 ONCA 233, 331 D.L.R. (4th) 208, at paras.
    101-102. He noted  as this Court observed in
Sutts, Strosberg LLP v. Atlas
    Cold Storage Holdings Inc.
, 2009 ONCA 690, 311 D.L.R. (4th) 323, at para.
    18  that the reasonableness of a counsel fee was [the motion judges] call to
    make, absent palpable and overriding error on the part of the motion judge.

[30]

Secondly,
amicus
noted the unique context of settlement and fee
    approval hearings. Class counsel may find themselves in a conflict with their
    clients in seeking to uphold the settlement. Counsel for settling defendants
    have an equal interest in seeing the settlement approved. Thus, there is often
    no effective adversary to assist the court on this issue:
Smith Estate
,
    at para. 24. In this unique situation, the presiding judge is required to adopt
    a more protective role towards class members. An imperfect response to this
    difficulty is to recognize a duty of full and frank disclosure lying upon
    class counsel in unopposed approval motions:
McCarthy v. Canadian Red Cross
    Society
(2001)
, 8 C.P.C.
    (5th) 349 (Ont. S.C.), at paras. 19-21.

DISCUSSION AND ANALYSIS

Overview

[31]

No one disputes the motion judges decision to approve the contingency
    fee agreements at issue. The sole debate is over whether  and, if so, the
    extent to which  he was entitled to take into account and otherwise deal with
    the Fee Sharing Agreement in the course of determining the quantum of fees that
    it was fair and reasonable for the class members to pay and Class Counsel to
    receive as a result of the settlements. For the reasons that follow, I resolve
    the debate with the following general conclusions.

[32]

First, the court does have authority pursuant to s. 32 of the
CPA
to review the Fee Sharing Agreement and its effect, and to grant relief
    accordingly.  Alternatively, it has the authority to do so pursuant to s. 12.

[33]

Secondly, whether or not to give effect to the Fee Sharing Agreement in
    the context of the fee approval process, and in conjunction with the settlement
    approval process, and if so on what terms, is a matter of discretion. The
    motion judge is entitled to considerable deference in the exercise of that
    discretion.

[34]

In the circumstances here, the motion judge did not err in exercising
    his discretion to reduce Class Counsels fees and order that no payments be
    made to the Merchant Law Group out of the fees approved or the settlement
    funds. Nor did he err in holding that the Fee Sharing Agreement is
    unenforceable insofar as it relates to paragraph 6 thereof (the provision that
    obliges Class Counsel to make the shared fee payment out of the fees recovered
    by Class Counsel in the class proceedings).

[35]

However, the motion judge went too far in ordering that the Fee Sharing
    Agreement was otherwise unenforceable as between Class Counsel and the Merchant
    Law Group and in prohibiting Class Counsel from making any payments pursuant to
    it from any other source whatsoever, without giving notice to the Merchant Law
    Group that he was considering doing so and without giving them the opportunity
    to make submissions on the issue.

Jurisdiction: Sections 12 and 32

[36]

Class Counsel and the Merchant Law Group contend that the Fee Sharing
    Agreement is a separate contractual arrangement between them and is therefore
    beyond the purview of the fee approval process under s. 32 of the
CPA
.

[37]

Mr. Mogerman acknowledged that the motion judge could have dealt with
    the Fee Sharing Agreement under s. 12 of the
CPA
, but argued that, in
    either event, the motion judge erred in rejecting the Fee Sharing Agreement for
    reasons that I will address later. On behalf of the Merchant Law Group, Mr.
    Tibbs did not concede that s. 12 applied, although he agreed it opened the door
    widely. His primary argument appeared to be that there is a line-drawing problem
    if courts start assessing every agreement Class Counsel has entered into. Thus,
    the court should not have assessed the Fee Sharing Agreement. At one point, he
    argued that fee sharing arrangements made between competing counsel in
    settlement of carriage disputes are not reviewable by the courts in any
    circumstances. I do not accept this argument.

[38]

Sections 12 and 32 of the
CPA
state:

Court
    may determine conduct of proceeding

12. The court, on the motion of a party or class member,
    may make any order it considers appropriate respecting the conduct of a class
    proceeding to ensure its fair and expeditious determination and, for the
    purpose, may impose such terms on the parties as it considers appropriate.

Fees and disbursements

32. (1) An agreement respecting fees and
    disbursements between a solicitor and a representative party shall be in
    writing and shall,

(a) state the terms under which fees and disbursements shall be
    paid;

(b) give an estimate of the expected fee, whether contingent on
    success in the class proceeding or not; and

(c) state the method by which payment is to be made, whether by
    lump sum, salary or otherwise.

Court to approve agreements

(2) An agreement respecting fees and disbursements between
    a solicitor and a representative party is not enforceable unless approved by
    the court, on the motion of the solicitor.

Priority of amounts owed under approved agreement

(3) Amounts owing under an enforceable agreement are a
    first charge on any settlement funds or monetary award.

Determination of fees where agreement not approved

(4) If an agreement is not approved by the court, the
    court may,

(a) determine the amount owing to the solicitor in respect of
    fees and disbursements;

(b) direct a reference under the rules of court to determine
    the amount owing; or

(c) direct that the amount owing be determined in any other
    manner.

[39]

The fundamental principle of statutory interpretation today is that the
    words of an Act are to be read in their entire context and in their grammatical
    and ordinary sense harmoniously with the scheme of the Act, the object of the
    Act, and the intention of the legislature: see
Rizzo & Rizzo Shoes Ltd.
    (Re)
, [1998] 1 S.C.R. 27, at para. 21;
R v. Gladue
, [1999] 1
    S.C.R. 688, at para. 25;
Bell ExpressVu Limited Partnership v. Rex
, 2002
    SCC 42, [2002] 2 S.C.R. 559, at para. 26;
ATCO Gas and Pipelines Ltd. v.
    Alberta (Utilities Commission)
, 2015
    SCC 45, [2015] 3 S.C.R. 219, at para. 34
.

[40]

It is well-accepted that courts are charged with a broad supervisory
    role over the conduct of class proceedings, including the approval of
    settlements and the approval of fees and disbursements to be paid to class
    counsel. It is also well-accepted that the potential reward for class counsel
    must be sufficiently attractive to provide an incentive for counsel to take on
    such challenging cases, with their attendant risks. However, underpinning the
    courts broad supervisory mandate is the need to ensure that the members of the
    class are protected and that outcomes are fair and reasonable and in their best
    interests in circumstances where the interests of class counsel and defendants
    may conflict with those of the class and there is no one to speak for the
    interests of the class. As this Court noted in
Fantl v. Transamerica Life
    Canada
, 2009 ONCA 377, 95 O.R. (3d) 767, at paras. 39-40 (
Fantl
ONCA):

The existence of the absent class members, among other factors,
    is the reason that the courts supervisory jurisdiction is engaged from the
    inception of an intended class proceeding. It continues throughout the stages
    of the proceeding until a final disposition, including the implementation of
    the administration of a settlement or, where applicable, a resolution of all
    individual issues.  The parties acknowledge that the court has supervisory
    jurisdiction throughout the proceeding.

[41]

Viewed through the lens of those governing principles, I interpret s. 32
    to grant the motion judge authority to review fee arrangements like the Fee
    Sharing Agreement, and their effect, and to determine what terms and
    conditions, if any, should be imposed in relation to them in the fee approval
    process. In any event, if I am wrong in that interpretation, s. 12, alone or in
    combination with s. 32, provides the motion judge with that authority.

[42]

Jurisprudentially, the broad approach courts have taken to the
    importance of their supervisory role in class proceedings  as reflected in
    this Courts decision in
Fantl
ONCA  supports a wide and liberal
    interpretation of s. 32.

[43]

For example, fee arrangements between class counsel and outside counsel are
    routinely considered on fee approval motions, often in the context of
    determining whether they are to be treated as a disbursement or a component of
    class counsels fees and, if the latter, as a factor in the overall fair and
    reasonable analysis: see
Wilson v. Servier Canada Inc.
(2005), 252
    D.L.R. (4th) 742 (Ont. S.C.);
Pro-Sys Consultants Ltd. v. Infineon
    Technologies AG
, 2016 BCSC 964;
Ford v. F. Hoffmann-LaRoche Ltd.
(2005),
    12 C.P.C. (6th) 226 (Ont. S.C.);
Stewart v. General Motors of Canada Ltd.
(2008),
    72 C.P.C. (6th) 361 (Ont. S.C.);
Bilodeau v. Maple Leaf Foods Inc.
, 2009
    CanLII 10392 (Ont. S.C.);
Fantl v. Transamerica Life Canada
(2009), 83
    C.P.C. (6th)  265 (Ont. S.C.) (
Fantl
ONSC). This in spite of the
    fact that agreements between class counsel and outside counsel are no more
    agreements between class counsel and a representative party than is the Fee
    Sharing Agreement.

[44]

In other circumstances, courts have reviewed the fee payment portion of
    class action settlement agreements in which defendants have agreed to pay the
    fee of class counsel, albeit that such agreements are not, strictly speaking,
    agreements between class counsel and a representative party. See, for example,
McCarthy
    v. Canadian Red Cross Society
, 2007 CanLII 21606 (Ont. S.C.), at para. 21
    (
McCarthy
2007);
Quatell v. Canada (Attorney General)
, 2006
    BCSC 1840, at para. 17;
Fantl
ONSC;
Guilbert c. Sony BMG Musique
    (Canada) Inc.
, 2007 QCCS 432, [2007] R.J.Q. 983, affd 2009 QCCA 231; but
    see
Killough v. Canadian Red Cross Society,
2007 BCSC 941, 74 B.C.L.R.
    (4th) 295;
Northwest v. Canada (Attorney General)
, 2006 ABQB 902, 45
    C.P.C. (6th) 171.

[45]

The appellants place particular reliance on the decision in
Killough
.
    There, the British Columbia Supreme Court held that the provision in a
    settlement agreement whereby the defendant agreed to pay class counsels fees
    was not caught by the British Columbia counterpart to s. 32
[2]
because the court only has authority to review fee agreements made directly
    between class counsel and a representative plaintiff.

[46]

I do not think that case assists the appellants, for at least two
    reasons.  First, it is noteworthy that even in declining to review the relevant
    portion of the settlement agreement
,
Pitfield J. made it clear that
    other considerations would apply if there was collusion between the parties for
    the purpose of reducing class benefits and increasing counsel fees or if approval
    of the settlement was made conditional on the approval of fees (paras. 9, 12-13).
    Secondly, the decision is inconsistent with the jurisprudence referred to
    above, particularly
McCarthy
2007,
Fantl
ONSC, and the
    somewhat analogous
Stewart
. Indeed, in
McCarthy
2007  the
    Ontario counterpart to
Killough
in the national class action
    settlements involving HIV claims against the Canadian Red Cross  Winkler J.
    stated:

The global fees being sought are subject to an agreement
    between class counsel and [the defendant].
However, such
    agreements do not eliminate the requirement of court approval
. The main
    concern of the court in settlements in complex cases such as this is
to ensure that claimants are able to access, in total, the
    benefits promised
. [Emphasis added.]

[47]

In
Northwest
, although the court noted that all parties agreed
    the Alberta counterpart of s. 32
[3]
was not engaged, it nonetheless conducted a review of the fees when approval
    was sought by the parties because a review was necessary in order to preserve
    the integrity of class proceedings and guard against abuse.

[48]

The primary effect of a side agreement such as the Fee Sharing Agreement
    between two sets of counsel fighting it out for the right to retain or obtain
    the brief to represent class members in a national class proceeding is that
    putative class counsel are bought off in the carriage settlement in exchange
    for their agreement to stay their competitive class proceeding in favour of
    successful class counsels class proceeding. Where the price of that exchange
    is to be paid out of the proceeds of settlement and as part of the counsel fee
    provided for under the contingency fee agreement between class counsel and the
    representative party, I see no valid reason why the shared fee payment, and
    the value, if any, flowing from the services it is said to represent, cannot be
    reviewed as a component of the fees encompassed by the contingency agreement
    and subject to court approval under s. 32.

[49]

There is a further factual and contextual basis for this interpretation
    of s. 32 as well.

[50]

In his very helpful and able oral argument, Mr. Mogerman readily
    acknowledged that the percentage contingency fee sought from class members
    generally incorporates a risk factor to account for potential carriage fights
    and that if there were no carriage risk the ask in the contingency fee
    agreement would be less. The ask bakes in carriage risk, as he put it. He
    submits, however, that in the real world of national class actions in Canada
    there are carriage risks and that such a component of the fee is justifiable. A
    carriage settlement buys certainty that the class action will be able to
    proceed without the further complication of competing provincial proceedings.

[51]

I will return to this submission in more detail later. For the purpose
    of interpreting s. 32, the important point is that the contingency fee
    agreement between class counsel and the representative party has as one of its
    risk components the potential for carriage disputes, including the potential
    for payment to competing class counsel in order to buy the certainty referred
    to above.

[52]

Certainty in this context has more than one dimension, however. Under
    the Fee Sharing Agreement, the Merchant Law Group was entitled to receive
up
    to $800,000 out of the fees to be paid by the class members
to Class
    Counsel. While the certainty purchased through the carriage settlement and
    the Fee Sharing Agreement may have provided some benefit to the class, it is
    not insignificant that both Class Counsel and the Merchant Law Group stood to
    profit substantially by it as well. The Merchant Law Group because of the
    significant payment it became entitled to receive essentially for doing little
    except disappearing from the particular class proceeding landscape. Class
    Counsel because, as Winkler J. noted in
Setterington v. Merck Frosst Canada
    Ltd.
(2006), 26 C.P.C. (6th) 173 (Ont. S.C.), at para. 26, [i]t would be
    to ignore the reality of class proceedings to disregard the fact that counsel
    granted carriage of a class proceeding stand to reap a substantial fee if
    successful. It is these additional dimensions of certainty that bring the
    Fee Sharing Agreement within the courts supervisory jurisdiction under s. 32.

[53]

Moreover  at least anecdotally, if the reaction of the Bar and others
    to the motion judges decision below is any indication  there appears to be
    some recognition that fee-sharing agreements between competing law firms to
    avoid litigation over who has carriage of a class action are becoming more
    common in the industry. See Jared Biden & Jason Mohrbutter, An
    Inter-Provincial Schism Over Class Counsel Fee Sharing Arrangements (13
    January 2016), online: MLT <www.mlt.com>; Shannon Kari, Case to Target
    Judges Limit on Fee-sharing Deal (16 May 2016), online: Law Times <www.lawtimesnews.com>;
    Brian N. Radnoff, Fee Sharing Agreements in Trouble? (25 February 2016),
    online: Lerners <www.lerners.ca>; Markus F. Kremer, Ontario Court of
    Appeal Considers Fee-Sharing Agreement in Class Action (26 May 2016), online:
    BLG <blog.blg.com>. I take that as some indication that class members are
    being exposed increasingly to accepting the baked-in ask that is designed to
    protect class counsel from incurring any costs in fighting for the right to
    represent them, as opposed to costs for providing legal services that are a
    benefit to the class.

[54]

All of these factors support a contextual and purposive interpretation
    of s. 32 that brings the Fee Sharing Agreement within its reach.

[55]

The appellants rely on the decisions of the Quebec Superior Court (
9085-4886
    Quebec Inc. c. Visa Canada Corporation
, 2015 QCCS 5921) and the
    Saskatchewan Court of Queens Bench (
Hello Baby Equipment Inc. v. B of A
    Canada Bank
, 2015 SKQB 410) approving Class Counsels fees and the Fee
    Sharing Agreement in the counterparts to these proceedings in those provinces.

[56]

Even in approving the fees in the Quebec proceedings, however, Corriveau,
    J.S.C.  after taking cognizance of the motion judges decision here
    expressed her disapproval of agreements such as the Fee Sharing Agreement.  At
    para. 32, she said:

The Court does not approve of agreements reached between
    competing groups of plaintiffs counsel that are intended to disinterest some
    of them.

[57]

In the Saskatchewan proceedings, Ball J. directly addressed the issue
    whether the Fee Sharing Agreement was subject to approval under the Saskatchewan
    counterpart to s. 32.
[4]
He concluded it was not.  At paras. 21-23, he said:

Even so, if a 25% contingency fee on the settlements would have
    been approved as fair and reasonable in the absence of the Fee Sharing
    Agreement, and if the Fee Sharing Agreement imposes no additional costs on the
    class, my view is that the 25% contingency fee requested by Class Counsel
    should be approved. Neither the fact of the Fee Sharing Agreement, nor Class
    Counsels failure to disclose it, transformed a fee that was otherwise fair,
    reasonable and in the best interests of the class into one that is not.

There is a cogent argument to be made that the purpose and
    intent of the Fee Sharing Agreement was to provide for the payment of fees to
    lawyers acting for representative plaintiffs out of funds recovered for the
    benefit of class members and, as such, both parties to the agreement must apply
    for approval of the amounts pursuant to [the Saskatchewan equivalent of s. 32].
    However, the Fee Sharing Agreement is not an agreement between a lawyer and a
    representative plaintiff; it is an agreement between lawyers. Accordingly, it
    is not subject to approval pursuant to [the Saskatchewan equivalent of s. 32]. If
    one party to the Fee Sharing Agreement does not adhere to it, the other party
    may take steps to enforce it.

I will not look behind Class Counsels decision to enter into
    the Fee Sharing Agreement with [the Merchant Law Group] in order to resolve the
    carriage disputes.  Class Counsel are knowledgeable and experienced, they made
    their decision knowing the circumstances, and they resolved their dispute with
    judicial oversight. I accept that they did so because they believed it to be in
    the best interests of the class. If there is to be a determination that [the Merchant
    Law Group] acted unlawfully, it should be made in a proceeding in which [the Merchant
    Law Group] is before the court and has an opportunity to address the issue.

[58]

Respectfully, I disagree.

[59]

It may be, taking the language of s. 32 literally, that the Fee Sharing
    Agreement is not an agreement with respect to fees and disbursements between a
    solicitor and a representative party. Strictly speaking, it is an agreement
    between that solicitor and another solicitor. In my view, however, such a
    literal interpretation of the section is too narrow and fails to give effect to
    the purpose and context of the
CPA
and s. 32. More specifically, it
    fails to give sufficient recognition to the important supervisory role of the
    court in ensuring that the fees and disbursements paid by class members are
    fair and reasonable and that they reflect payments made for legal services that
    benefit the class members.

[60]

I prefer the reasoning of the motion judge, at para. 56 of his reasons:

The Fee Sharing Agreement is an agreement respecting fees and
    disbursements between a solicitor and a representative party under s. 32 of the
Act
, because it is
an agreement about how the
    fees paid to Class Counsel by the Class Members are to be paid and then shared
.
    [Emphasis added.]

[61]

In short, the payments to be made under the Fee Sharing Agreement are
    properly considered as a component of the fee package for which Class Counsel
    is seeking approval under their contingency agreement with the representative party,
    because they are to be paid out of those fees. To the extent the fee sharing
    payment reduces the amount to be received by the class from the settlement, it
    becomes subject to the courts supervisory review in order to ensure that the
    shared fee and the legal services it purports to represent are fair and
    reasonable
and in the best interests of the class
.

[62]

Because counsels fee is ultimately borne by the class members, this
    Court has recently confirmed that courts have an interest in knowing how the work
    and fees are divided and accounted for: see
Mancinelli v. Barrick Gold
    Corporation
, 2016 ONCA 571, 400 D.L.R. (4th) 550, at para. 71. This
    comment was made in the context of a carriage motion competition between
    prospective class counsel arguing about who should be entitled to institute a
    proposed securities class action and in relation to the division of work and
    fees as between a group of counsel forming a consortium of class counsel.
    However, it arises out of the courts concern to be assured that work done by
    counsel, and paid for by the class, will be beneficial to the class. In my
    opinion, the same concern arises  and triggers the courts supervisory role
    where fees are being shared between the class counsel consortium, on the one
    hand, and lawyers they have paid not to interfere in an already instituted (and
    certified) class proceeding, and whose services were of little value to the class
    proceeding, on the other hand.

[63]

I do not think it is an answer to dismiss the impact of the Fee Sharing
    Agreement simply on the basis that it does not [transform] a fee that was
    otherwise fair, reasonable and in the best interests of the class into one that
    is not. To do so simply begs the question: how is it fair and reasonable, and
    in the best interests of the class, to require class members to pay a potential
    $800,000 out of their settlement funds to lawyers whose services, in the motion
    judges view, made no contribution to the settlement and provided no benefit to
    their class proceeding?

[64]

Nor do I accept the view that the court ought not to look behind Class
    Counsels decision to enter into the Fee Sharing Agreement in order to resolve
    the carriage dispute. The court is not entitled to delegate its responsibility
    to ensure that the best interests of the class are protected to what class
    counsel  even experienced class counsel  believe to be in the best interests
    of the class. To put it another way, the fact that class counsel genuinely
    believe they are acting in the best interests of the class does not transform a
    fee sharing agreement that is in reality one that is not in those best
    interests into one that is. That class counsel are in an inherently conflicting
    position in such circumstances cannot be ignored.

[65]

I pause here to repeat that the motion judge deliberately emphasized
    that he was not suggesting Class Counsel were acting in bad faith or did not
    genuinely believe they were acting in the best interests of the class. That
    said, Class Counsel may be forgiven if they perceived some of his comments as
    being unduly critical of them and unnecessarily inattentive to the judicial and
    judicially-assisted processes in Alberta and Saskatchewan. While I do not read
    the motion judges comments as intending to go that far, I agree that a
    criticism of that nature would not be warranted in the circumstances. Nor do I
    accept that class counsel are obliged to fight the good fight and see a
    carriage dispute through to the end without settlement in order to justify their
    fees. As I shall explain, however, I do not think the class members should be
    obliged to pay for the good fight or the carriage settlement. That is the
    responsibility of the duelling lawyers.

[66]

For all the foregoing reasons, I conclude that the Fee Sharing Agreement
    is subject to approval under s. 32 of the
CPA.

[67]

As I have said, though, even if I am wrong in this conclusion, s. 12
    provides the motion judge with the authority to review the Fee Sharing
    Agreement. To repeat, s. 12 permits the court to make any order it considers
    appropriate respecting the conduct of the class proceeding to ensure its fair
    and expeditious determination and, for that purpose, to impose such terms on
    the parties as it considers appropriate. This broad general power is designed
    to buttress the courts wide-ranging supervisory role in ensuring the interests
    of class members are protected, as this Court noted in
Fantl
ONCA
,
at para. 39, from the inception of an intended class proceeding
    throughout the stages of the proceeding until a final disposition. To the
    extent that any gaps may exist in the courts authority to review the Fee
    Sharing Agreement under s. 32, those gaps are more than adequately traversed by
    the broad authority provided in s. 12.

[68]

It follows from the foregoing that the motion judge had the authority to
    consider the Fee Sharing Agreement, to determine in the exercise of his
    supervisory discretion whether to approve or not to approve it, and  having
    determined that he would not approve it  to consider whether to declare that
    it was unenforceable. I turn now to the manner in which the motion judge
    exercised that authority.

Decision to Reduce Class Counsels Fees and
    Prohibit Class Counsel from Making Any Payments under the Fee Sharing Agreement
    from Class Counsels Fees or the Settlement Funds

[69]

The motion judges role was to review and approve or disapprove of the
    fees claimed by Class Counsel arising out of the partial settlements they had
    negotiated on behalf of the class members, and to do so in the context of the
    Ontario class proceedings. In the course of this highly contextual
    discretionary exercise, it was open to him to reduce those fees by an amount
    that he considered judicious to reflect his disapproval of a fee sharing
    arrangement that in his view amounted to a ransom fee to stay late-arriving
    class actions in Alberta and Saskatchewan brought by counsel who in his
    judgment did not make any contribution to the settlement, whose work was
    redundant and useless to the class members, who should not share in the fees
    generated by the settlements, and whose fees should not be borne by the class
    members.

[70]

That decision is not unreasonable on this record, and is entitled to
    considerable deference. The motion judges ruling that the Merchant Law Group
    was not to be paid any amount out of the fees generated by the settlements or
    from the settlement funds flowed naturally and correctly from this decision.

[71]

To summarize Class Counsels position, Mr. Mogerman submits that, even
    if the motion judge had the authority to review the Fee Sharing Agreement, his
    decision should be set aside because it was wrongly founded on:

(a)

a finding that the Fee Sharing Agreement
    was possibly illegal and therefore unenforceable under the common law
    doctrines of champerty and maintenance;

(b)

an incorrect view  arising from
    an improper criticism and second-guessing of counsel  that Class Counsel had
    not acted in the best interests of the class in entering into the carriage
    settlement and Fee Sharing Agreement; and, in particular

(c)

a failure to recognize that the
    carriage settlement and the Fee Sharing Agreement were beneficial to the class
    because they created certainty that the class action could proceed unhindered
    by the distractions and delays created by the co-existence of the competitive Merchant
    Law Group actions (and, the Merchant Law Group adds, by potentially protecting
    the class members in Alberta and Saskatchewan from limitation period problems);
    and

(d)

a failure to give effect to
    principles of comity by not respecting the fact that the carriage issue
    developed in Alberta and Saskatchewan (a reality of the multi-jurisdictional
    class action landscape in Canada), was fought and aggressively dealt with in
    those provinces, and finally settled with the facilitation of a judge of the
    Alberta Court of Queens Bench.

[72]

To this list of complaints, which he supports, Mr. Tibbs adds, on behalf
    of the Merchant Law Group, that the motion judge erred in reviewing and dealing
    with the Fee Sharing Agreement without giving notice to the Merchant Law Group
    of his intention to do so and without providing them with the opportunity to
    make submissions on that issue.

[73]

I agree that it may have been preferable had the motion judge focussed
    less on the possibly illegal nature of the Fee Sharing Agreement on champerty
    and maintenance grounds  particularly in view of the lack of a proper record
    on that issue before him  and less on his somewhat academic
cri de coeur
that it is time to stop blaming the Canadian Constitution for the jurisdictional
    problems of national class actions. That said, the motion judge did not make a
    finding that the Fee Sharing Agreement was illegal. He is very experienced in
    class proceedings, having supervised them for many years, and he evidently saw
    a problem in this area and a need to send a message. And, as I shall explain
    later, although he has done so previously as well, he is not the only jurist to
    have expressed concern over the potentially abusive nature of competing class
    proceedings.

[74]

In the end, I accept the submission of
amicus
that it was open
    to the motion judge, based on his experience and supervisory role, to factor
    into his fair-and-reasonable fees analysis (i) his concerns about the
    potentially unacceptable impact of the Fee Sharing Agreement, and (ii) his
    unwillingness to accept as simply an unfortunate reality of the Canadian
    national class action landscape  to be worn on the backs of class members, at
    their expense  the existence of late-arriving class actions with their
    attendant costs and delays but little corresponding advantages to the class.

[75]

In his submissions, Mr. van Niejenhuis underscored the need to view the
    motion judges reasons through the prism of the ultimate question that he was
    required to, and did, address, namely, whether the counsel fee claimed was fair
    and reasonable in all the circumstances, including the best interests of the
    class members. I agree.

[76]

The motion judge was concerned about the potential abuse and harm to the
    integrity of class action proceedings as a whole that could arise from some
    class counsel taking advantage of the multi-jurisdictional class action
    landscape in Canada by commencing competing and superfluous class action
    proceedings for the primary tactical purpose of obtaining an advantageous fee
    sharing agreement without making any real or legitimate contribution to the benefits
    received by the class. He used the tools at his disposal to address this
    problem, which he saw arising from the relationship between the Fee Sharing Agreement
    and the settlements in the class proceedings.

[77]

Read as a whole, the motion judges reasons demonstrate that his primary
    and underlying concern was to ensure that the fees to be paid by the class to
    Class Counsel out of the settlement funds were fair and reasonable and in the
    best interests of the class. This approach is encapsulated in his comments at
    paras. 68-69 of his reasons:

I do not approve of [the Fee Sharing Agreement]. The Fee
    Sharing Agreement requires court approval and approval requires that the fee be
    fair and reasonable to the Class Members. The Fee Sharing Agreement is not fair
    and reasonable. It is not fair, reasonable, or just to have the Class Members
    pay the putative Class Counsel of a stayed rival class action. It is not fair
    and reasonable for a client to pay for legal services that were useless to the
    client. In the case at bar, there is nothing fair and reasonable in asking the
    Class Members in Ontario to pay a ransom fee in order to stay late-arriving
    rival class actions in Alberta and Saskatchewan.

In the case at bar, the Merchant Law Group did not make a
    contribution to the achievement of the settlement agreement and the firm should
    not share in the recovery. The alleged $1 million of work-in-progress of the
    Merchant Law Group was redundant and useless for Class Members.

[78]

These findings were open to the motion judge on the record and his
    decision falls well within the parameters of his broad discretionary authority in
    the circumstances, the exercise of which attracts considerable deference from
    an appellate court.

[79]

Apart from the arguments that the carriage settlement and Fee Sharing
    Agreement enabled Class Counsel to buy certainty and avoid delay, the
    possibility of the carriage fight highlighting potential weaknesses in the case
    that could then be addressed, and the suggestion that the Merchant Law Group
    actions in Alberta and Saskatchewan may have tolled certain limitation periods,
    neither Class Counsel nor counsel for the Merchant Law Group pointed to
    anything demonstrating that the carriage settlement and Fee Sharing Agreement
    or the Alberta and Saskatchewan proceedings themselves  benefitted the class
    members in these class proceedings in any significant way. None of these submissions
    helps.

[80]

I have already noted that, while Class Counsel may have smoothed the way
    for the class proceedings to go ahead by entering into the carriage settlement
    and Fee Sharing Agreement, they, too, along with the Merchant Law Group, stood
    to reap substantial benefits from the arrangement. The motion judge was not
    only entitled to consider this factor, he was required to do so, in my view.

[81]

Nor do I accept that it is a valid rationale for multi-jurisdictional
    class proceedings to speculate that somehow the potential weaknesses of the
    case may be exposed by the late-arriving action so that class counsel may then
    address them. One must assume that competent class counsel will independently understand
    and address the potential weaknesses of their case without the need of
    assistance from another competing class action.

[82]

In addition, courts have discouraged the practice, in the national class
    action context, of commencing actions solely for the purpose of tolling a
    limitation period: see, for example,
Turon v. Abbott Laboratories Ltd.
,
    2011 ONSC 4343, 340 D.L.R. (4th) 510, leave to appeal to Div. Ct. refused, 2011
    ONSC 4676, 340 D.L.R. (4th) 519;
Duzan v. GlaxoSmithKline Inc.
, 2011
    SKQB 118, 372 Sask. R. 108;
BCE Inc. v. Gillis
, 2015 NSCA 32, 384
    D.L.R. (4th) 111, at para. 75, leave to appeal to S.C.C. requested.

[83]

There are many cases as well where the courts have attempted to
    discourage the practice of commencing subsequent  the motion judge would call
    them late-arriving  copycat or competing class actions, or simply multiple
    class actions, for the purpose of securing carriage of the national class
    proceedings. Coincidentally, many have involved the Merchant Law Group.
    Generally, courts have resorted to the doctrine of abuse of process to sort
    these problems out. See, for example,
Boehringer Ingelheim (Canada) Ltd. v.
    Englund
, 2007 SKCA 62, 284 D.L.R. (4th) 94;
Bear v. Merck Frosst
    Canada & Co.
, 2011 SKCA 152, 345 D.L.R. (4th) 152;
Duzan
;
Turon
;
BCE Inc. v. Gillis
;
Drover v. BCE Inc.
, 2013 BCSC 1341,
    [2014] 4 W.W.R. 554;
Hafichuk-Walkin et al. v. BCE Inc. et al.
, 2016
    MBCA 32, 395 D.L.R. (4th) 734, leave to appeal to S.C.C. requested.

[84]

While these decisions did not involve the approval of fees or fee
    sharing arrangements  the actions had not reached those stages  they signal
    that courts have been grappling with the same concerns revolving around
    carriage disputes arising out of competing multi-jurisdictional class
    proceedings that underpinned the motion judges concerns here: the need to
    maintain the integrity of the adjudicative system in general and the class
    action process in particular where it appears that the competing class
    proceeding in question does not serve any useful purpose for the plaintiffs:
Duzan
,
    at para. 30. Each court in a multi-jurisdictional class proceeding retains this
    responsibility when called upon to assess the fairness and reasonableness of
    counsel fees.

[85]

This was reinforced again in this Courts recent carriage motion
    decision in
Mancinelli
, where Strathy C.J.O. made the following
    observation, at para. 72:

The court has a duty to protect class members and a broader
    duty to the administration of justice when approving counsel in a carriage
    motion. The discharge of this duty may require the exclusion of counsel due to
    prior misconduct. It may also require the exclusion of counsel with a record of
    commencing class actions, not pursuing them, and then using them to demand
    ransom from other counsel in carriage disputes.

[86]

Moreover, as some of the foregoing jurisprudence has recognized, it is
    sometimes necessary for the court to look below the surface of the proceedings
    to understand what is really going on, in order to preserve the integrity of
    the administration of justice:
Bear v. Merck Frosst
, at para. 74;
Hafichuk-Walkin
    v.  BCE Inc.
, at para. 56. That is precisely what the motion judge did
    here.

[87]

In a Report of the Rand Institute for Civil Justice, Rand analysts
    reported a wide variation in what was delivered to class members in U.S. class
    proceedings as a result of litigation and in what class counsel received in
    return. Deborah R. Hensler et al.,
Class Action Dilemmas: Pursuing Public
    Goals for Private Gain
(2000), online: Rand Corporation
    <www.rand.org>. The analysts concluded that the balance of benefits and
    costs was more salutary when judges determined fees in relation to the actual
    benefits created by the lawsuit. They observed at p. 490 that, in relation to
    fee awards:

The single most important
    action that judges can take to support the public goals of class action
    litigation is to reward class action attorneys only for lawsuits that actually
    accomplish something of value to class members and society
.

[88]

Tellingly, when this observation was put to counsel for the Merchant Law
    Group during oral argument on the appeal, he readily accepted and agreed with
    it.

[89]

I make this final observation.

[90]

While it may be that in an ideal world, the tools exist to enable class
    counsel to avoid the necessity of multiple parallel class proceedings in
    different provinces, we do not live in an ideal world and we do live in a
    Canada where jurisdictional competence is divided between the federal,
    provincial and territorial governments. There will be carriage disputes  some
    justified, some perhaps not  until there is a legislative or other effective
    solution to these problems. And, if there are carriage disputes, there will and
    should be carriage settlements such as occurred here.

[91]

The issue on a fee approval motion is not so much whether the carriage
    dispute or the carriage settlement was justified. The issue is who should bear
    the cost of that fight  the lawyer participants for whose primary benefit the
    struggle is waged, or the class members? It seems to me that it is the lawyer
    participants who should bear the costs.

[92]

If class counsel see it in their best interests to resolve carriage
    disputes by agreeing privately, amongst themselves, to remunerate one set of
    class counsel for leaving the scene, that is a matter for their private
    business determination.  But they should bear the cost of that business
    decision as well, in my view. The class members ought not to be exposed
    either directly or through some form of potential carriage dispute mark-up
    built into the contingency fee negotiated with the class members  to having to
    pay for what is essentially a general business expense of the firm associated
    with the litigation and not an expense providing any added value to the class
    action itself.

[93]

While
the risk
of a potential carriage fight may provide some
    part of the rationale for permitting class counsel to pursue a class proceeding
    on a contingency fee basis  an incentive that, in itself, provides a
    substantial reward in the event of success  it does not follow, in my view,
    that class members should bear the burden of a fee sharing agreement that
    benefits only the lawyers.

[94]

In this respect, I agree with and adopt the following observation of
    Perell J. in
Fantl
ONSC, at para. 87:

I agree with Transamericas submission that [Class Counsels]
    counsel fee should not include charges for fees associated with its carriage
    fight with [putative class counsel].
It seems to me that
    this expenditure of effort, which did little to advance the litigation for the
    Representative Plaintiff or the Class is part of the risk assumed by Class [Counsel]
    when it takes the retainer
.  This expenditure is part of what may justify
    the contingency fee or the multiplier of a base fee,
but
    it is not reasonable to charge a client for what it costs the lawyer to
    safeguard a retainer from a competitor
.  These costs are a risk that the
    lawyer assumes when he or she takes on the retainer.
Viewed
    in the context of the publics interest, it strikes me as a bad idea to
    encourage and intensify carriage fights by the prospect that the winner will
    not only get the file but be paid something by his or her client for getting
    the file
. [Emphasis added.]

[95]

This comment takes on even greater force and logic when what the class
    is being asked to absorb is not only successful class counsels costs in
    getting the file but also the costs of third-party putative counsel, whose
    services are redundant to the settlement, for agreeing to give up the file.

[96]

Class counsel and putative class counsel ought not to be able to
    immunize their side agreements from court scrutiny where the effect of those
    side agreements may be to cause the class members to pay for services that are
    of little benefit to them and  to adopt the language of the motion judge
    that simply ran up the expense of the legal services that actually had some
    utility. Not only may such agreements tend to overprice the cost of legal
    services the class members are called upon to pay, as the motion judge
    observed, they may as well undermine the integrity of the class action regime
    (para. 65).

[97]

In conclusion, I see no basis for interfering with the decision of the
    motion judge to reduce Class Counsels fee and to prohibit Class Counsel from
    making any payment to the Merchant Law Group from Class Counsels fee or the
    settlement proceeds. He made the 10% reduction not on the basis of the $400,000
    plus disbursements and taxes that had been earmarked for the Merchant Law Group
    but to reflect his view of legal services that were not earned. The 10%
    reduction was his call and well within the purview of his discretion.

[98]

If competing class counsel wish to engage in a competitive carriage
    dispute for the right to carry the class action and in the process make a side
    agreement respecting fees as a way to persuade one or the other to back away,
    they should pay the fees out of their own pockets as part of their variable
    costs of doing business and not expect that the counsel walking away will have
    direct access to payment out of the contingency fee. To hold otherwise would be
    to defeat the purpose of attempting to discourage these types of competing
    actions that provide little or no benefit to the members of the class.

The Decision to
    Declare the Fee Sharing Agreement Unenforceable In Its Entirety

[99]

Section 32(2) of the
CPA
provides that an agreement governed by
    it is not enforceable unless approved by the court. Section 32(4) provides
    that if an agreement is not approved by the court, the court may nonetheless
    determine the amount owing to the solicitor in respect of fees and
    disbursements, which is precisely what the motion judge did.

[100]

For the reasons
    outlined above, the motion judge was entitled to prohibit Class Counsel from
    making any payment to the Merchant Law Group out of Class Counsels fees, as
    approved by him, or out of the settlement funds in order to give effect to his
    determination that class members were not to bear the burden of the Fee Sharing
    Agreement. He was also entitled, in my opinion, to declare that paragraph 6 of
    the Fee Sharing Agreement was unenforceable, although he went further and ordered
    that the Agreement was unenforceable in its entirety.

[101]

Paragraph 6 obliges
    Class Counsel jointly [to] make the following payments to [the Merchant Law
    Group] from amounts they recover on account of fees in connection with the
    prosecution of the Consortium Credit Card Actions.
[5]
The obligation is the
quid pro quo
for the Merchant Law Groups
    agreement to stay its similar class proceedings (paragraph 8) and to
    discontinue the actions upon payment of the first fee instalment (paragraph 9).
    These are the central provisions of the Fee Sharing Agreement.

[102]

Class Counsel
    and the Merchant Law Group argue that the motion judge overstepped the bounds
    of procedural fairness by declaring the Fee Sharing Agreement unenforceable
    without providing any notice to the Merchant Law Group of his intention to
    consider doing so. I do not accept this argument, at least as it relates to
    paragraph 6.

[103]

The Fee Sharing
    Agreement provides specifically that the Merchant Law Group will not be required
    to do any further work regarding the Credit Card Litigation. I take this to
    refer to both the Consortium Credit Card Actions (including this class
    proceeding) and the Merchant Law Group Credit Card Actions. This is confirmed
    in an affidavit filed on the appeal on behalf of the Merchant Law Group, which
    stated:

As an outcome of the [judicial dispute resolution conference in
    Alberta] and pursuant to the Carriage Agreement, Class Counsel was solely
    responsible for obtaining any necessary court approvals for settlement purposes
    or otherwise, and Merchant Law Group was not obliged to do any further work in
    connection with this litigation (
including attending the
    various settlement approval hearings
). [Emphasis added.]

[104]

It is apparent
    that the interests of the Merchant Law Group were tied into any necessary
    court approvals for settlement purposes
or otherwise

    (emphasis added), that is, including any fee approval process. The staged fee
    payments under the Fee Sharing Agreement were all triggered by the approval of
    fees with respect to settlements or litigation dispositions. Indeed, the Bank
    of America Settlement, which triggered the $400,000 fee claim in question here,
    had already been entered into at the time.

[105]

In effect, then,
    the Merchant Law Group delegated Class Counsel to represent their interests in
    the settlement and fee approval processes. The extent to which that delegation
    was operative, when the Merchant Law Groups interests were affected, without
    further notice to them may be debatable, but it surely extended to the approval
    of Class Counsels fees out of which the $400,000 claimed by them was to be
    paid and to the reasonable consequences flowing from that approval process.

[106]

One of the
    reasonably foreseeable consequences of the fee approval process was that the
    payments to the Merchant Law Group under the Fee Sharing Agreement might not be
    approved and that orders might issue to give effect to such a determination. In
    an article entitled Fee Agreements and Fee Approval in Ontario Class Proceedings
    (2010) 6 Can. Class Action Rev. 355, at p. 368, Kirk M. Baert and Jonathan Bida
    noted that courts assessing fees will not always permit fees or disbursements
    relating to carriage disputes. Moreover, as mentioned above, different courts
    particularly in Ontario, including the motion judge here  have previously
    signalled their concerns over these types of side agreements or other
    agreements that do not benefit the class, and their reluctance to saddle class
    members with the responsibility to make the payments called for in such
    agreements: see
Fantl
ONSC (Perell J.);
Bilodeau
(Perell J.);
Stewart
(Cullity J.);
Pro-Sys
(B.C.S.C.).

[107]

Neither Class
    Counsel nor the Merchant Law Group are neophytes in this area; they are all very
    experienced class counsel. When class members are being asked to foot the bill
    for legal services that are of little or no benefit to the class  out of the
    settlement and the fees for which approval is sought  it should come as no
    surprise to experienced counsel that the court, once informed of the Fee
    Sharing Agreement, would insist on taking it into account and on reviewing its
    impact on the best interests of the class. Given the expert environment in
    which it practices, the Merchant Law Group must have been aware of that potential
    eventuality. By entrusting the approval process to Class Counsel, the Merchant
    Law Group took the risk that the consequences of such a review might reasonably
    affect their interests negatively.

[108]

They cannot now
    complain, in my opinion, that they have been deprived of their rights to
    procedural fairness in this respect when they have left it to Class Counsel to
    make their case and when  in spite of those efforts  the Fee Sharing
    Agreement is not approved and orders that reasonably follow from that decision
    are made to enforce the determination that Class Counsel are not to be required
    to pay the fees called for under the Fee Sharing Agreement. I note as well that
    Class Counsel did not request an adjournment so that notice could be given to
    the Merchant Law Group once it became apparent, after the details of the Fee
    Sharing Agreement had finally been disclosed to him, that the motion judge was
    going to deal with it in coming to his decision.

[109]

Accordingly, I
    would not give effect to the procedural fairness arguments as far as the
    decision to prohibit payment to the Merchant Law Group out of the settlement
    funds or out of Class Counsels fees is concerned. This includes the motion
    judges declaration that the Fee Sharing Agreement is unenforceable insofar as Class
    Counsels obligation under paragraph 6 to pay from amounts they recover on
    account of fees in connection with the prosecution of the Consortium Credit
    Card Actions is concerned.

[110]

I am less persuaded
    about the declaration of unenforceability in relation to the balance of the Fee
    Sharing Agreement, however. It is one thing for the Merchant Law Group to have
    left the issue of fee approval to Class Counsel, with the attendant risk that
    payment under the Fee Sharing Agreement from the settlement funds and Class
    Counsels fees might not be approved. It is another thing for the court to go a
    step further and declare the Fee Sharing Agreement unenforceable in its
    entirety and prohibit payment to the Merchant Law Group from any source
    whatsoever, thereby altogether depriving the Merchant Law Group of any personal
    rights that it may have had
vis-à-vis
Class Counsel.

[111]

Whether, in the
    absence of the paragraph 6 requirement to make payment out of the amounts
    recovered by Class Counsel for fees, there remains anything of substance in the
    Fee Sharing Agreement or any effective remedy as between the Merchant Law Group
    and Class Counsel is a matter for determination by another tribunal. In my
    opinion, however, the Merchant Law Group ought not to have been deprived of the
    opportunity to speak to that particular issue without notice that it was in
    play and the opportunity to make submissions. The motion judge went too far in
    that aspect of his order, but in that aspect only.

DISPOSITION

[112]

For the reasons
    set out above, I would dismiss the appeal with the exception that I would vary
    the wording of paragraphs 3 and 4 of the Order of the motion judge, dated
    December 8, 2015 to reflect the foregoing caveat with respect to the
    declaration of unenforceability of the Fee Sharing Agreement in its entirety
    and the prohibition of payment from any source whatsoever. I would do so by
    adding the words paragraph 6 of before the words the Fee Sharing Agreement
    in paragraph 3 of the Order, and by amending the wording of paragraph 4 of the
    Order by deleting the words or from any other source and, for clarity, by
    adding the words or from the legal fees and disbursements awarded in this Order
    in their place. Paragraphs 3 and 4 of the Order will therefore read as follows:

3. THIS COURT ORDERS that paragraph 6 of the Fee Sharing
    Agreement entered into between Class Counsel and the Merchant Law Group is
    unenforceable.

4. THIS COURT ORDERS that Class Counsel not pay any sums from
    the settlement proceeds or from the legal fees and disbursements awarded in
    this Order now or in the future to the Merchant Law Group on account of the Fee
    Sharing Agreement.

[113]

Otherwise, I
    would dismiss the appeal.

[114]

The Court
    appointed Mr. van Niejenhuis as
amicus curiae
to advance the
    perspective of the absent class members. The submissions of
amicus
were very helpful to us (as, indeed, were the submissions of all counsel)
    because they enabled us to approach our decision with a more balanced
    perspective on the issues than would otherwise have been the case. I would award
amicus
its costs of the appeal, and do so on a full indemnity basis. Neither
    Class Counsel nor the Merchant Law Group contended that the amount claimed by
amicus
in the Costs Outline was outside an acceptable range for the appeal. Accordingly,
    I would grant
amicus
its costs fixed in the amount of $68,640.29
    inclusive of disbursements and all applicable taxes. I would also order that
    these costs are to be paid jointly and severally by Class Counsel and the
    Merchant Law Group.

Released: November 28, 2016

R.A. Blair J.A.

I agree E.A. Cronk J.A.

I agree G. Pardu J.A.

[1]
Although some of the defendants named in a later action commenced by the
    Merchant Law Group in Saskatchewan were different, nothing seems to turn on
    this fact for purposes of the appeal.

[2]

Class Proceedings Act
, R.S.B.C. 1996, c. 50, s. 38.

[3]

Class Proceedings Act
, S.A. 2003, c. C-16.5, s. 39.

[4]

The Class Actions Act
, S.S.
    2001, c. C-12.01, s. 41.

[5]
There followed a list of staged payments of $400,000, $300,000 and $100,000
    depending on the level of fees recovered in future settlements or liability dispositions
     of which $400,000 was the subject of this approval motion.