It’s Complicated: Access to Justice & Cost Shifting in Class Actions

The release of five class action decisions penned by Ontario Superior Court Justice Belobaba earlier this month has garnered significant attention in the press and in the profession, and has reignited a debate about cost shifting in class actions. In virtually identical language in Brown v. Canada (Attorney General), Sankar v. Bell Mobility, Crisante v. DePuy Orthopaedics, Dugal v. Manulife and Rosen v. BMO Nesbitt Burns, Justice Belobaba excoriated class action lawyers for over-lawyering certification motions, unnecessarily lengthening the proceedings and generating hundreds of thousands of dollars in fees and disbursements. The result, he bemoans, is that “[a]ccess to justice, even in the very area that was specifically designed to achieve this goal, is becoming too expensive.”

Justice Belobaba then makes a startling admission. He states that he was wrong as a member of the 1990 Attorney General’s Advisory Committee to recommend keeping a two-way costs regime in class actions (contrary to the recommendations of the Ontario Law Reform Commission almost a decade earlier), and notes his hope that the current Law Commission of Ontario Class Actions Project corrects the error.[1] After setting out his new approach to assessing costs and acknowledging that it will likely yield lower costs orders, Justice Belobaba concludes that more modest orders may result “in leaner and more focused certification motions, a greater measure of predictability for the participants, and in the overall, the continuing viability of the class action vehicle.”

The argument that adverse costs awards constitute a barrier to justice in ordinary litigation is a familiar one; it is easy to envision how the prospect of liability for such costs would deter a litigant from pursuing an action. As Justice Belobaba himself confirms, however, class actions are a “very different world” than ordinary litigation. For a prospective representative plaintiff, the usual barrier of the cost of one’s own legal representation is not an issue; universally, class counsel act on a contingency fee basis. Almost always, the risk of paying the other party’s costs is also assuaged, not by statute (because the Class Proceedings Act creates a presumption of costs against the unsuccessful party), but by the evolution of class action practice. As Justice Perell has noted, the idea that most class representatives are on the hook for adverse costs is a “fiction”; indemnities against such costs orders are routinely provided by class counsel or a third party funder.[2]

The theory that large costs orders impose a barrier to justice in class actions is, therefore, more complicated than might be evident at first blush. If access to justice “is becoming too expensive”, it is not too expensive for plaintiffs, but for the lawyers prosecuting their actions. Nevertheless, it may be that the prospect of adverse costs deters lawyers from bringing a class action when the lawyers indemnify their clients; if this is the case, then one would expect to see a marked difference in the number of class actions brought in Ontario compared to a jurisdiction with no cost shifting (such as British Columbia). There is no evidence, however, that Ontario’s class action regime is any less robust or thriving than those of other provinces.

Moreover, the elimination of costs orders could, in some instances, compound access to justice problems. Note that in Rosen, Justice Belobaba ordered $290,000 in costs, about half of what class counsel requested, and less than the sum submitted by the defendants as reasonable. Class counsel’s actual costs were almost $700,000. Unspoken in the five decisions was a matter of first principle. Two-way costs regimes have a two-fold function: compensate the successful party, and deter unnecessary litigation. To eliminate cost shifting is to deny access to at least modest compensation for actual costs. That successful representative plaintiffs (or more accurately, their lawyers) should not recoup the significant expenses of certification is not an obvious boon for access to justice, especially when one considers that such payments are often used to help fund the prosecution of the action going forward.

Moreover, it is not clear that the unavailability of costs will discipline counsel to curb the amount of time and resources expended on certification, as Justice Belobaba hopes. Although class actions do much to help level the playing field between well-resourced defendants and class members, it is still the case that corporate and government defendants have superior economic leverage and can afford to leave no stone unturned in battling certification. Put differently, it is not clear that the unavailability of costs awards to a wealthy defendant will do much to change the war of attrition that the certification motion has become.

Many lawyers, I among them, share Justice Belobaba’s concern that class actions have become too expensive, too lengthy and too unwieldy. Eliminating cost shifting, however, may not be the best cure for this ailment. At the very least, we should approach such a significant change with caution. Indeed, access to justice may be better served by a recalibration of the test for certification or more intensive case management of class actions, then by radically altering cost rules.

[1] I am a member of the Project’s Advisory Committee. The views expressed in this blog post are my own.

[2] Commercial litigation funders have entered the field in the last three years; see for e.g. Dugal v. Manulife Financial Corporation, 2011 ONSC 1785 (CanLII). The Class Proceedings Fund, a public litigation funding entity, will indemnify successful applicants against any adverse costs. The Fund was created in part to reduce barriers to class actions created by a cost shifting regime.

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