Costs Protection Options for Representative Plaintiffs in Class Actions
When it comes to civil litigation, Ontario and other provinces have a “loser pays” rule. That means that the party who succeeds in court will typically have a portion of their legal costs paid by the opposing side. This may be daunting to some prospective representative plaintiffs in class actions.
HOWEVER: there are a number of options that will protect those representative plaintiffs from liability for costs awards in unsuccessful class action proceedings. This article reviews four of these options.
If the plaintiff starts a legal action and loses after going all the way through trial, there is generally a cost order against the plaintiff. In single tort litigation, the cost of a typical personal injury case from the start of the case to the conclusion of trial can easily reach $400,000 in legal fees and up to $100,000 in disbursements, or more. That is a steep price to pay.
With class actions, the consequences of the loser pays rule are magnified because the costs involved are far greater. The costs of a contested certification motion may be upwards of $1M, and the costs at the end of a trial will be in the millions of dollars.
Class actions are high stakes complex litigation, because there may be hundreds or thousands of class members and each one of their claims is subsumed in the class action from the defendant's perspective. Because of that aggregation of claims, the case takes on oversized importance due to its size and the preclusive effect of a judgment.
Certification is expensive
The certification stage in a class action is an extremely determinative part of the proceedings, which is why the parties spend inordinately large amounts of time and resources in this phase.
If the action is certified, the defendant will likely appeal. If not, the plaintiff may appeal. That is why, at the end of the day, cost awards for certification motions can be in excess of $1M.
For that reason alone, there could be enormous exposure for the representative plaintiff in a class action. In a single tort case, after considering the amounts in issue and risks involved, plaintiffs may be willing to take on the risk of adverse costs liability provided that the potential damages awards are sufficiently high. Typically, they have signed a contingency fee agreement, which means their lawyer is not charging them upfront and is often paying the disbursements. So it is much easier to risk cost exposure in a single tort case.
But in a class action, the representative plaintiff has little “skin in the game”. In a large commercial or consumer class action, the amount at issue for an individual class members may only be $200 each. In those circumstances, why would anyone want to take on the role of being a representative plaintiff? While the representative plaintiff may be motivated by such goals as advancing social justice or protecting the public, in a loser-pays cost regime, it is important to provide the representative plaintiff with protection against large adverse cost awards in class actions.
Four forms of cost protection
There are a variety of ways to provide cost protection to representative plaintiffs. Deciding which one is best often will turn on the circumstances of the case.
Class Proceedings Fund
One option is an application to the Class Proceedings Fund. Administered by the Law Foundation of Ontario, the Fund provides financial support to approved class action representative plaintiffs for legal disbursements and indemnity for costs.
The social policy objective of the Fund is to encourage certain class action litigation because it is often of public importance to advance social justice and ensure access to justice. If funding is granted to a class proceeding and the action is successful in recovering a financial award, the Fund will recover not only what it has funded in disbursement but also 10 percent of the award.
At Gluckstein Lawyers we believe the Class Proceedings Fund serves an important role to our clients and the industry, so this option is quite naturally our first choice.
Third-party funders are private insurers which provide After the Event (referred to as “ATE”) cost protection insurance. They offer an alternative to the Fund. While the industry is not as well developed in Canada as it is in England or Australia, it does provide a viable alternative recourse for indemnities.
Essentially, this is the private sector attempting to replicate the Class Proceedings Fund. The third-party funding industry is growing and there were amendments to the Class Proceedings Act in 2020 that specifically addressed that industry’s role. Keep in mind that, after the 2020 amendments to the Class Proceedings Act in Ontario, if a class action is funded by a third-party, that arrangement must receive court approval at the outset.
The interesting aspect about private litigation funding is that it reflects the recognition that law firms may not be financially structured to be the appropriate funder of very large or significant class actions.
Set up a B.C. partnership
The cost exposure for representative plaintiffs is significant in Ontario and most other jurisdictions. However, British Columbia has ameliorated the harsh impact of loser pay adverse cost exposure in class action, by not awarding costs in class proceedings, at least to the time the action has been certified. This has made BC an extremely attractive jurisdiction for plaintiff class action law firms, and the increasing trend in class actions with national scope is to seek a BC law firm to partner with and prosecute the class action in BC.
Indemnification by the Law Firm
Depending on the size and complexity of the class action, a law firm may provide indemnity to the representative plaintiff or some sort of funding arrangement that includes a cost indemnity.
There is a provision in the Class Proceedings Act that gives judges a very broad discretion to not order costs, despite a plaintiff’s lack of success, on the basis that the action was a test case or was otherwise of public importance. In the right case, this provision helps mitigate against the risk of a high adverse cost award, but does not eliminate it. For example, in a recent Ontario Court of Appeal decision in a class action, Taylor v. Canada (Attorney General), 2022 ONCA 892 (CanLII), the Court of Appeal upheld the Trial Judge’s order of costs against the representative plaintiff of only $385,000, despite the successful defendant seeking trial costs of over $6.5M. This was done in large part on the basis that the class action was grounded in a matter of public importance.
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