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Executive Summaries May 10, 2021

Is a Cultural Shift Needed in the Area of Class Actions?

In an article published by Thomson Reuters[1], Partner Shaun E. Finn reviews an interesting new book by Professor Pierre-Claude Lafond, Ad. E., entitled Libres propos sur la pratique de l'action collective (Free Thoughts on Class Action Practice)(“Free Thoughts”), which argues that a cultural shift is needed in the area of class actions.

Free Thoughts recognizes that over the past 20 years, a “class action market” has emerged. This market is both lucrative for lawyers and highly competitive. It is this new reality - in which law and entrepreneurship intersect- that Professor Lafond identifies certain issues with respect to ethics, practice and theory.

While recognizing that most practitioners behave as good officers of the court (plaintiff as well as defence counsel), certain problematic situations do arise that require jurisprudential, if not legislative, intervention in order to avoid further slippage.

7 Possible Solutions

Litigation Financing by a Third Party

A new phenomenon in class actions, both in Québec and throughout the Western world, is third party financing of litigation. Third party funding of litigation allows the claimant to mitigate costs but introduces a new actor – the funder itself - that the courts must now consider. While third party funding may be questionable due to the doctrines of champerty or maintenance and the ethical rule that the practice of law should not give the profession a “lucrative character” the Supreme Court of Canada appears to recognize its legitimacy in 9354-9186 Québec inc. v. Callidus Capital Corp.

Nevertheless, Professor Lafond raises an objection to this emerging practice: “[i]n an insidious way, external financing has the effect of undervaluing the role of public financing, which was instituted at the time of the adoption of class actions in Québec and which constitutes a cornerstone of the Québec model (our translation).” Moreover, “[i]t contributes to the privatization of the financing of justice and constitutes an implicit invitation to the State to disengage in this regard (our translation).”

Rather than encouraging the involvement of the free market, the goal should rather be to “strengthen the assistance offered [to applicants] by the Class Action Assistance Fund (the “Fund”) (our translation).” Professor Lafond also suggests that “the legislator should take an interest in this issue in the near future and regulate or even prohibit the practice in order to protect litigants (our translation).” This position could signal a major change of direction if the legislator or the Québec courts were to adopt it.

The Recruitment of a Class Representative

Another highly debated topic in the field of class action lawsuits is the proactive, often catalytic, role of the applicant's lawyer. Without questioning the sui generis role of class counsel, Professor Lafond is surprised that “unlike the situation in several US states, Québec courts are not concerned with the method of recruiting the representative and do not monitor this process (our translation).” He believes that the issue of the conduct of the applicant's counsel requires a flexible but serious jurisprudential approach since “the authorization judge has a vested interest in ensuring that the proposed action is based on a foundation that respects the ethical obligations of the lawyer” (all citations of the book have been translated by BCF).

While it is true that Professor Lafond refers to the possibility of a conflict tarnishing the lawyer rather than the proposed representative, if a possible conflict of interest on the part of a lawyer can defeat a class action at the authorization stage, it could necessarily defeat a class action when the possible conflict in issue directly involves the proposed representative himself.

Increasing the Importance of the Authorization Criteria and Applying Them More Judiciously

In Charles v. Boiron Canada Inc., Justice Bich of the Court of Appeal of Québec wrote a powerful obiter dictum - with which Justices Levesque and Savard (now Chief Justice of Québec) concurred – on which she suggested bypassing the authorization stage altogether: “[t]he class action (now governed by arts. 574 et seq. of the new Code of Civil Procedure) is no longer a new procedural institution; it has earned its stripes, it is well known and well integrated into the judicial process: is there still a need for the front door to be locked and to be unlocked on a case-by-case basis in this way?”. This question remains unanswered, although there is nothing to suggest that the legislator would be prepared permanently to bar the "front door" to class action lawsuits that is authorization.

On this point, Professor Lafond is on the more traditional side of the debate. In his view, “[n]o matter what solution is chosen and what form it takes, there will always be a need for a preliminary assessment process, both to screen out flawed proceedings and to establish the parameters of the action, as well as to protect the rights of the class members and the defendant” He adds that “[t]hese considerations reinforce the view that abolishing the requirement for authorization does not seem to be the preferred solution. It is better to try to modify the current procedure to improve it.”

With respect to the nature of this improvement, Professor Lafond proposes that the authorization criteria of article 575 C.C.P. be given “more value and be applied with discernment (our translation)” rather than a major change in the jurisprudence or legislation. He also emphasises "sound judicial management" and endorses the creation of what has now come to be known as the Class Actions Chamber. The solution would thus, according to him, be institutional reform, not radical change.

The First-to-File Rule

While parallel class actions in other North American jurisdictions, such as Ontario, can give rise to costly and protracted carriage motions, the jurisprudential approach adopted by Québec courts is the "first to file" rule. In other words, “in class actions, the first application for authorization filed with the clerk's office takes precedence over any other application to represent the same class or a class that includes the one described in the first application.”

Based the reasoning of the Court of Appeal in Schmidt v. Johnson & Johnson Inc. and the provisions of the new Code of Civil Procedure, Professor Lafond considers that “[w]here there are several applications for authorization, one of which contains significant deficiencies and another of which is more complete, the judge has sufficient discretionary powers, in particular in articles 49 and 158 C.C.P., to set aside the first application and to give preference to another that is in the best interests of the members of the class.” If this approach were ever to be adopted by the judges of the Class Actions Chamber, it would have a concrete and major impact on certain questionable practices, including the (all too frequent) use of the application for authorization as a mere “placeholder”.

Class Actions Change the Rules of Substantive Law

As the Supreme Court of Canada stated in Bisaillon v. Concordia University, “The class action is nevertheless a procedural vehicle whose use neither modifies nor creates substantive rights”. However, in addition to the very specific provisions of the Code of Civil Procedure that apply, the class action significantly modifies the applicable law in terms of suspension, lis pendens, res judicata and legal relationships.

Professor Lafond recognizes this reality and asks all legal stakeholders to "show intellectual honesty from now on:

Class actions modify, directly or indirectly, the rules of substantive law. This is an inescapable fact.

Intellectual honesty such as this would enable the legal world to conclude that, while deserving of a flexible but principled interpretation, class actions none the less remain a powerful, transformative procedure whose significance should not be understated.

Multidistrict Class Actions

Unlike the United States, where there is a procedural mechanism for consolidating different parallel class actions at the federal level and assigning them to a single district court - the Judicial Panel on Multidistrict Litigation - class actions in Canada have, until recently, been essentially a provincial phenomenon that do not lend themselves to a similar solution. Because "property and civil rights" come within the jurisdiction of the Crown in right of a province, there is s nothing to prevent a class action from proposing a provincial, multi-jurisdictional or national class, or substantially similar provincial, multi-jurisdictional or national class actions from being commenced before the superior courts of different provinces at the same time.

The question is a difficult: how do we deal with the complex issue of multi-jurisdictional actions in the Canadian context? According to Professor Lafond, the real solution is not to tame the beast, but to put it to put the dear creature out of its misery once and for all. Drawing on the majority reasoning (and obiter dictum) of Justice Bich in Hocking v. Haziza, he writes that “[i]n the name of respect for parliamentary and judicial competence, we argue for the pure and simple abolition of this type of action on the grounds that its constitutionality is questionable and that the procedural and substantive rights of Québec citizens should not be determined by a foreign court, as is currently the case.” If adopted by the legislator or the courts, such an approach would have a profound effect on current class action practice.

Approval of Settlements and Class Counsel Fees

According to the Fund, 46% of class actions that were decided between April 1, 2019, and March 31, 2020 resulted in a settlement agreement. While out-of-court settlements are encouraged, courts want to ensure that they are fair, reasonable, equitable, and in the best interests of class members. In this regard, Professor Lafond argues for “a stricter framework for approving out-of-court settlements and a refusal to rely on any presumption of fairness in judging them.” In addition to the nine jurisprudential criteria developed by Ontario and Québec case law to approve a settlement, he would add “the criteria of (1) the actual value of the settlement as compared to the rights released, (2) the amount at stake for the defendant, and (3) the proportion of the injury allegedly caused by the defendant (since it has not yet been proven).” According to Professor Lafond, “[t]hese are evaluative elements would make it possible to better gauge the fairness and reasonableness of the settlement submitted for approval and, if necessary, to put it into perspective.”

As for the class counsel fees, since they are negotiated with the defendant's lawyer "at the same time as the other terms of the settlement," the plaintiff's lawyer “is necessarily in a conflict of interest because he is dealing with both his client's interests and his own, even though this arrangement is not necessarily collusive”. To avoid any appearance of conflict, "[t]his negotiating practice could be prohibited and split into two independent steps." Although "currently and generally separate as to judicial approval, the suggestion would be to act at the negotiation stage to avoid having fees included in the settlement agreement."

Again, these findings, thoughts and possible solutions are not a complete recap of Free Thoughts, but simply a selection of some of the opinions and proposals that emerge, among many others, from this thoughtful, noteworthy book.

[1] Shaun FINN, "Chronique – Revue d'un nouveau livre sur l'action collective : Libres propos sur la pratique de l'action collective de Pierre-Claude Lafond", in Repères, April 2021, La référence, EYB2021REP3270.

Read the full article published in Repères
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