Class-action plaintiffs in Ontario face a risky calculus in deciding whether to bring their lawsuits: If they lose, they have to pay their adversaries’ legal bills.
That rule should be reversed, Justice Edward Belobaba of the Ontario Superior Court of Justice wrote in a Nov. 8 decision in a class-action case, Rosen v. BMO Nesbitt Burns Inc. The plaintiff in the case alleges that BMO Nesbitt Burns failed to pay sufficient overtime to investment advisers. In August, Justice Belobaba certified that the case could proceed as a class action; the Nov. 8 decision awarded costs for the certification hearing to the plaintiffs.
“Access to justice, even in the very area that was specifically designed to achieve this goal, is becoming too expensive,” he wrote.
His comment comes amid a wider discussion about the skyrocketing costs of legal services. However, not everyone believes that the shifting of costs is at fault.
“The problem isn’t the existence of an adverse cost regime, it’s that certification motions have become runaway trains,” said Jasminka Kalajdzic, an associate professor at University of Windsor’s law school who specializes in class actions.
Experts agree that the preliminary certification stage, where litigants argue about whether plaintiffs may sue as a unified class, is where many of the bills pile up. The costs of reaching a decision in these proceedings now routinely run upward of $500,000.
“Because of the stakes, we’re extremely selective,” said Matthew Baer, a class-action lawyer at Siskinds in London, Ont. “If you pick the wrong case, you can bankrupt your firm.”
Certification costs have increased dramatically in Ontario in the past two years, as all sides wage wars of attrition, said Jonathan Ptak of Koskie Minsky in Toronto, who represents the plaintiffs in the Rosen case.
“Well-funded defence teams ratchet up the stakes with mountains of evidence,” Mr. Ptak said, while plaintiffs’ lawyers stage expensive cases in anticipation of a vigorous defence.
Class actions are meant to give broader access to the legal system to people who might not otherwise be able to afford it. By spreading fixed costs among a large group of plaintiffs, they enable lawsuits of public interest. For example, recent certification decisions cited by Justice Belobaba involved allegedly misleading statements made to a pension fund and the negligent production of artificial hips.
Class-action lawyers usually work on a contingency basis (fronting the cost of litigation in exchange for a percentage of any successful payout), so failing to get a case certified can make it financially untenable.
Mr. Ptak said that is why the battle in Ontario has shifted to the certification stage.
Glenn Zakaib, a class-action lawyer at Cassels Brock in Toronto, said that for defendants, “the view is that if your case is certified, then you have to settle … You take your best shot there.”
The rules governing class-action costs vary across Canada. British Columbia, for example, does not require an unsuccessful party to pay the other side’s legal fees. Quebec does, but the certification process is streamlined and awards are capped.
Ontario law provides for a special fund to indemnify plaintiffs against losses, but benefits can vary, and not all suits are eligible. “It was never designed to be a backstop for the class proceedings regime,” Mr. Ptak said.
Third-party investors, such as hedge funds and financiers, have also entered the game, agreeing to indemnify plaintiffs’ lawyers in exchange for a cut of a successful award.
Justice Belobaba once advocated for the loser-pays rule, when he was a member of an advisory committee to the Ontario Attorney-General, but he said in his Rosen decision that he had been wrong.
He hopes the Law Commission of Ontario, which began a review of class-action procedures last spring, will correct the error. Commission counsel Judy Mungovan said she expects the recommendations process will take three years.
Prof. Kalajdzic, a member of the law commission’s class-action advisory committee, speculated that if the rule changes, it could have a ripple effect on cost-shifting in other areas of Ontario law.
Meanwhile, Justice Belobaba said, courts should be stricter and more transparent in awarding costs. “It will likely result in lower-than-expected costs awards,” he said in his ruling. “But if it also results in leaner and more focused motions, a greater measure of predictability for the participants, and … the continuing viability of the class-action vehicle, that is all to the good.”