**This blog post was first published on November 20, 2023. It was updated January 15, 2024 to incorporate a recent decision by the Federal Court of Canada on the fees to be paid to class counsel in Moushoom v. Canada, the on-reserve child welfare and Jordan’s Principle class action (decision available here)
In recent years, there have been an increasing number of class action lawsuits alleging systemic discrimination against Indigenous peoples resulting in large financial settlements – and large payments for plaintiffs’ counsel in the millions of dollars. The receipt of such large fees for class counsel raises important questions about the role of class actions in redressing systemic injustices faced by Indigenous peoples and the challenges associated with calculating “fair” fees for lawyers on these cases. While class actions can be a useful tool for access to justice and systemic change, creating ethical relations of care for the vulnerabilities that Indigenous peoples also experience is a necessary consideration by lawyers, judges, and legal professionals who are tasked with managing these complex cases.
In the legal community, we are in an era of healing after the litigation and settlement of Indian Residential School claims, as described succinctly by the Executive Summary of the Truth and Reconciliation Commission report:
The criminal prosecution of abusers in residential schools and the subsequent civil lawsuits were a difficult experience for Survivors. The courtroom experience was made worse by the fact that many lawyers did not have adequate cultural, historical, or psychological knowledge to deal with the painful memories that the Survivors were forced to reveal. The lack of sensitivity that lawyers often demonstrated in dealing with residential school Survivors resulted, in some cases, in the Survivors’ [sic] not receiving appropriate legal service. These experiences prove the need for lawyers to develop a greater understanding of Aboriginal history and culture as well as the multi-faceted legacy of residential schools.
As a legal community, we could have strong ethical guidance from the Indigenous Nations themselves as we are joining them on their journey to justice and reconciliation. We offer this blog post as a way of addressing some of the opportunities and challenges of class actions, and ethical ways forward.
Class Actions Can Allow for a More Efficient Resolution of Matters
Class action lawsuits enable Indigenous individuals, and more recently Indigenous communities, to address a wide range of issues, including federal and provincial discriminatory practices, Charter violations, residential school abuses, and environmental damage. These cases often involve collective harm and require significant resources to pursue. Class actions allow many plaintiffs to join forces, pooling their claims and resources.
Most recently, the Federal Court has approved a $23 billion settlement agreement for First Nations children and their families who have experienced racial discrimination through Canada’s underfunding of on-reserve family services. Although particular compensation eligibility criteria has not yet been made available to potential claimants and the public, it is the largest settlement agreement in Canadian history. This settlement is the result of a decades long fight by the First Nation Caring Society against Canada at the Canadian Human Rights Tribunal. In 2016, the First Nations Caring Society successfully proved that First Nations children and families experienced racial discrimination. This was done through the formulas that supported under-funding of on-reserve children in the child welfare system. In cases such as this one, the principle of equality is at issue. This is true of many class actions that involve Indigenous people because they often involve claims of discrimination.
Another recent example is the 2021 settlement between Canada and certain First Nations whose members were subject to drinking water advisories. The settlement included compensation and commitments by Canada to fund infrastructure and provide access to safe drinking water to First Nations. Discussions regarding safe drinking water for First Nations is an ongoing pressing concern; the class action was one step to working towards ensuring that this basic human right is met.
One of the largest class actions regarding Indigenous people was with respect to Residential Schools. In 2006, courts in nine provinces and territories issued reasons approving a national settlement for Residential Schools in Canada The courts of each province and territory ordered that the actions be terminated by the Settlement Agreement into a single nationwide action. The action and subsequent negotiation of this Settlement Agreement required Canada to acknowledge and make amends for its participation in Residential Schools and the vitiation of human rights and genocide which it perpetuated. The Settlement Agreement included a Common Experience Payment and Independent Assessment as well as the Truth and Reconciliation Commission.
Challenges with Class Action Lawsuits
While class actions have many benefits, they are not without their challenges. There is a built-in opportunity for unscrupulous lawyers to take advantage of the complexity of class actions to secure exorbitant fees, leaving Indigenous plaintiffs with inadequate compensation (where legal fees are paid from the overall settlement or award). This exploitation can hinder efforts of reconciliation and self-determination and may exacerbate existing power imbalances between the Indigenous people and law firms. There is also the problem of agency and not having enough client direction on some of these class action litigation matters, leaving lawyers with increased responsibility to find ways to ascertain if solutions are truly workable as they are implementing policy reform in Indigenous communities.
Contingency Fees Explained
Due to their complexities, class action lawsuits are generally costly to pursue. Law firms can either bill clients hourly or through contingency fees, and usually use the latter in class action lawsuits. A contingency fee is one that is only charged if the lawsuit is successful and usually represents a percentage of the total settlement or amount awarded. The benefit of a contingency fee agreement to clients is clear: no up-front fees, which allows individuals or communities with limited financial resources to bring these large, significant cases forward. The risk is 100% borne by the lawyer or firm conducting the work; they only get paid if a settlement is successfully negotiated or there is a successful outcome in court.
The contingency fee charged is usually agreed to in the retainer agreement. The contingency fee is usually a percentage of the final settlement or award and is often (but not always) deducted from the settlement or award, in which case it directly impacts (by lowering) the final amount the clients receive. Different jurisdictions regulate contingency fee agreements differently. For example, in Ontario, the Solicitors Act, RSO 1990, c S.15 and its regulations impose certain rules that lawyers must follow if they are using a contingency fee arrangement.
Contingency fees and the risk-reward payoff for the plaintiffs’ counsel may make most sense where each individual class member suffered minimal damages, since this can make individual action representation prohibitively expensive but collective action legal representation feasible. However, sometimes contingency fee arrangements amount to a windfall for plaintiffs’ counsel. This is especially so in lawsuits intended to provide restitution for historical injustices and harms or where the work entailed was not of the same amount or complexity originally contemplated.
Revisiting Contingency Fees
In the recent $23 billion settlement regarding on-reserve child welfare and Jordan’s Principle approved by the Federal Court, the class action lawyers (“class counsel”) agreed to cap their fees at $80 million. Many, including the federal government, questioned the reasonableness of this amount. They pointed to the moderate risk in pursuing the case (the federal government had already stated publicly that it would compensate First Nations people affected by the discrimination), the fact that the class action built on the success of a different legal proceeding – a hard-fought victory at the Canadian Human Rights Tribunal where an order for compensation was obtained – and the inequitably large amount going to class counsel as compared to the compensation received by the claimants.
Courts generally do not review agreements for fairness or adequacy of the consideration, or the value given by one party in return for goods, services, or other promise. However, the courts are willing to review lawyer’s retainer agreements, including contingency fee agreements, to determine whether they are reasonable. This is because there is an inherent conflict – the client is negotiating an agreement with a party from whom they would normally seek advice – and there is a power imbalance of information and knowledge. In the context of class actions, legislation in different jurisdiction requires courts to review legal counsel fees. For example, Rule 334.4 of the Federal Courts Rules, SOR/98-106, requires that court approval be obtained prior to any payment being made to class counsel.
In the recent $23 billion settlement at the Federal Court, the class action lawyers and the lawyers for Canada eventually reached an agreement that class counsel should be paid $50 million for the work done up to the time of the settlement approval. They submitted this agreement to the Federal Court for approval. On December 21, 2023, Justice Aylen released her decision finding this amount to be “excessive” and lowering it to $40 million. She considered the non-exhaustive list of 10 factors articulated in earlier Federal Court decisions, noting that while the weight that the Court should give to each factor will be case-specific, the two that are generally the most important are (i) risk undertaken by class counsel, and (ii) results achieved.
Justice Aylen emphasized the important role of the Court in ensuring that class counsel fees do not result in windfalls.
She determined that in the context of a “mega-fund settlement” such as the one before here, the focus of the Court’s analysis in determining what is fair and reasonable should be on the actual dollar amount of the fee. She considered the evidence provided by class counsel about the number of hours billed (24,000) and the hourly rates (from $1480-$975), resulting in a total of $17.591 million as the billable total. While she had some concern with the lack of detail about how the 24,000 hours were spent, the minimal evidence justifying the hourly rates, and “the lack of rigour applied by Canada to these issues”, she nonetheless accepted $17.591 million as the actual fees. She provided the following guidance for the future:
Counsel are cautioned, however, that the Court expects a greater rigour to be applied by Class Counsel in justifying the reasonableness of their actual fees and where a party opposes the reasonableness of the requested fee, a similarly greater rigour is required to explain the basis for the opposition. Class actions cannot be an open-ended invitation for class counsel to docket their time without regard to productivity, knowing that there is no client who will scrutinize their dockets in the same manner that a traditional paying client would do. Moreover, the use of inflated hourly rates, which has the effect of artificially increasing the amount of actual fees, is a further mischief to which this Court is alert and it will not be tolerated.
Justice Aylen then considered the non-exhaustive list of 10 factors, focusing primarily on the risk undertaken by class counsel and the results achieved. She found that the risk incurred by class counsel was at the low end of the spectrum for a number of reasons, including that the class actions built on results obtained in a separate proceeding at the Canadian Human Rights Tribunal and class counsel “sought to financially benefit from those efforts.” In considering the historic quantum of the settlement, the size of the class, and the inclusion of non-financial benefits in the settlement, Justice Aylen concluded that the result achieved was “very significant.” She ultimately decided that $40 million plus disbursement and applicable taxes was a fair and reasonable amount. The amount of counsel fees for work completed as the settlement is implemented, is capped at a maximum of $5 million.
This is not the only case where supervising courts have found contingency fees proposed by class counsel to be unreasonable. In 2022, the Alberta Court of Appeal decided that a contingency fee agreement that was entered into with the Tallcree First Nation was unreasonable at the time it was entered into, not just in hindsight. The Nation was awarded $57.6 million based on a formula that took into account the number of band members in a specific claim regarding agricultural benefits under Treaty 8. According to the contingency fee agreement, the law firm should have received $11.5 million, representing 20% of the claim. However, based on the anticipated amount of the claim and the anticipated amount of work at the time the agreement was entered into, the Court decided that a 20% contingency fee represented an unreasonably rate and agreed with the lower court’s reduction of the fee to $3 million.
Another example comes from an Ontario ruling regarding a “sixties scoop” settlement. The Court there approved a massive settlement minus the $75 million legal fees. The court called the fees “excessive and unreasonable” and warned about simply relying on a percentage without also considering the total amount claimed and the work performed.
Creating Equitable and Reasonable Contingency Fee Agreements
Balancing the need for accessible legal representation with the principles of supporting reconciliation and self-determination is essential in Indigenous class actions. And with the federal government indicating that it will not regulate lawyers’ fees, it is left to the legal profession to ensure its fees are fair. Several steps can help achieve this balance:
- Ethical Standards: Lawyers and law firms involved in Indigenous class actions must adhere to strict ethical standards, ensuring that their own financial interests do not compromise the pursuit of reconciliation and justice on behalf of their clients.
- Transparent and Reasonable Fee Agreements: Transparent and reasonable fee agreements should be established, with a clear mechanism for oversight to prevent exploitation. Reliance on percentages of a total award or settlement may not be appropriate in all circumstances, so some flexibility and creativity, including a reconsideration of what is considered “reasonable” may be needed to achieve this goal.
- Collaboration: Legal representatives should work collaboratively with Indigenous communities, respecting their goals and timelines, and involving them in decision-making processes. Collaboration is fundamental if there is policy reform in the mix. Collaboration includes ensuring the appropriate individuals or group represent the class members in instructing their legal team and that there is clear connection to Indigenous peoples’ self-determination in how the litigation goes from claim to Court and potentially into settlement negotiations.
- Legal Aid: Enhanced government support for legal aid in Indigenous class actions can reduce the reliance on contingency fees and make justice more accessible.
While class actions may be a useful tool in the pursuit of justice for Indigenous peoples, more attention and care is required for those who are considering bringing class actions because of the vulnerability of individuals involved. We have provided a few examples of equitable and reasonable contingency fees, but there is much more work and thoughtful attention needed to push these conversations forward to fully actualize principles of fairness in conjunction with equality and reconciliation in class actions.
We will leave the final word to former UN Special Rapporteur, James Anaya, this quote also appeared in the Truth and Reconciliation report (Volume 6) in relation to the Declaration being the reconciliation framework for Canada. Class Actions, in collaboration with Indigenous Nations, can meet the spirit and intent of self-determination found in the United Nations Declaration on the Rights of Indigenous Peoples.
It is perhaps best to understand the Declaration and the right of self-determination it affirms as instruments of reconciliation. Properly understood, self-determination is an animating force for efforts toward reconciliation – or perhaps, more accurately, conciliation – with peoples that have suffered oppression at the hands of others. Self-determination requires confronting and reversing the legacies of empire, discrimination, and cultural suffocation. It does not do so to condone vengefulness or spite for past evils, or to foster divisiveness but rather to build a social and political order based on relations of mutual understanding and respect. this is what the right of self-determination of indigenous peoples, and all other peoples, is about.
 Ibid., at paras 104, 107.
 Ibid., at paras 114, 119-120.
 Ibid., at para 120.
 Ibid., at para 125.
 Ibid., at paras 139-142.
 Truth and Reconciliation Commission of Canada, Honouring the truth, reconciling for the future: Summary of the final report of the Truth and Reconciliation Commission of Canada (Winnipeg: Truth and Reconciliation Commission of Canada, 2015) <https://ehprnh2mwo3.exactdn.com/wp-content/uploads/2021/01/Executive_Summary_English_Web.pdf>
 The Court also ordered $20 billion for long-term reform of that system. First Nations Child and Family Caring Society of Canada et al. v. Attorney General of Canada (for the Minister of Indian and Northern Affairs Canada), 2016 CHRT 2.
 Ibid at para 2.
 Olivia Stefanovich, “Ottawa says lawyers don’t deserve $80 million for First Nation child welfare settlement” (29 October 2023), online: CBC News https://www.cbc.ca/news/politics/first-nations-child-welfare-settlement-human-rights-tribunal-1.7010805 at para 30.
 Ibid at para 18.
 Moushoom v. Canada (Attorney General), 2023 FC 1739 (CanLII), at para 11, <https://canlii.ca/t/k1x7f#par11>, retrieved on 2024-01-03.
 Patrick White, “Ottawa wont regulate how lawyers bill First Nations clients after concerns raised over ‘unfair’ fees” (16 August 2023), online: The Globe and Mail https://www.theglobeandmail.com/canada/article-first-nations-clients-legal-fees/.
 James Anaya, “The Right of Indigenous Peoples to Self Determination in the Post Declaration Era,” in C. Charters and R Stavenhagen, Making the Declaration Work: The United Nations Declaration on the Rights of Indigenous Peoples, (Copenhagen: International Work Group for Indigenous Affairs, 2009) at 197.