In Breckon v. Cermaq Canada Ltd., 2024 FC 225, released on Feb. 9, Justice Denis Gascon held that the funder’s recovery under the litigation advance agreement (LAA) was significantly more than what had previously been deemed reasonable by the court and largely exceeded any acceptable rate of return.
“The contemplated $750,000 Commission for the Funder on its funding of $500,000 for disbursements would translate into a return on investment of 150% over a maximum period of about two years … This, in my view, would grant an unreasonable, exorbitant, and highly questionable rate of return to the Funder,” the judge wrote.
The plaintiffs, Gregory Sills and Irene Breckon, brought a class action alleging that the defendants conspired to increase the spot market for farmed Atlantic salmon in Oslo, Norway with the intention of increasing prices in North America and elsewhere.
The defendants were Cermaq Canada Ltd., Cermaq Group ASA, Cermaq Norway AS, Cermaq US LLC, Grieg Seafood ASA, Grieg Seafood B.C. Ltd., Lerøy Seafood Group ASA, Lerøy Seafood USA, Inc., Marine Harvest Atlantic Canada Inc., Mowi ASA, Mowi Canada West Inc., Mowi Ducktrap, LLC, Mowi USA, LLC, Nova Sea AS, Ocean Quality AS, Ocean Quality North America Incorporated, Ocean Quality Premium Brands, Inc., Ocean Quality USA Inc., and SalMar ASA.
The class action was commenced following an investigation into the pricing of farmed Atlantic salmon by the European Commission.
The antitrust division of the United States Department of Justice had also opened its own criminal investigation into allegations of collusion between the defendants.
Parallel class action proceedings were also commenced in B.C. and Quebec in relation to the same conspiracy.
Similar class actions were commenced in the U.S. which concluded in an $85 million settlement of an action brought on behalf of direct purchasers in the U.S. and a $33 million settlement of an action brought on behalf of indirect purchasers in the U.S.
In October 2023, the Federal Court certified the class action for settlement purposes only.
The parties entered into a settlement agreement which would require the payment of $5.25 million into a settlement fund.
The plaintiffs brought two separate motions seeking judicial approval of the settlement as well as approval of the payment of legal fees and disbursements sought by class counsel, Koskie Minsky LLP, Sotos LLP, and Siskinds LLP and the payment of a commission to the litigation funder under the LAA. Additionally, they requested an honorarium for each of the two representative plaintiffs.
The settlement agreement defined the class as all persons in Canada who purchased farmed Atlantic salmon and products containing or derived from farmed Atlantic salmon purchased or sold in Canada from April 10, 2013 to the date of the court’s order approving the agreement, except excluded persons and any opt-out.
The agreement proposed the distribution of the settlement fund to class members with purchases totaling at least $1 million of farmed Atlantic salmon between the start of the class period and Feb. 28, 2019, when the European Commission raided the defendants’ premises as part of its investigation.
With respect to consumers and other claims that would not qualify for the $1 million threshold, the distribution protocol proposed a cy‑près payment in the amount of $250,000 to Food Banks Canada. For the Quebec portion, the payment would be lowered by any amounts payable to the Fonds d’aide aux actions collectives.
Class counsel estimated that after deductions of $1,483,125 for class counsel fees representing 25 per cent of the settlement fund plus applicable taxes, $144,232 for disbursements, $1,000 for honorarium payments, and $1.25 million for funding fees, there would be approximately $2.36 million left for distribution.
Justice Gascon noted that consumer class members were being deprived of the settlement funds and that the agreement provided “extremely timid advantages to the Class Members as a whole — especially the indirect purchasers, compared to a potential reasonably expected result of following through with the litigation on the merits.”
The judge observed that, it was well accepted that, in some cases, receiving indirect cy‑près compensation instead of direct monetary compensation can meet the access-to-justice and behaviour modification objectives of class proceedings.
After consideration of the plaintiffs’ submissions, the court held that the cy‑près distribution was appropriate given the small magnitude of the settlement amount and the practical and economic difficulties of providing direct compensation to all class members.
The judge observed that the proposed settlement agreement was far from ideal and provided very limited benefits to the class members.
However, the judge found that several factors recognized by the courts, including the likelihood of recovery or success, the communication between class counsel and class members and future expense and likely duration of litigation militated towards approving the settlement agreement.
The court concluded that the settlement agreement ought to be approved, as it represented a fair and reasonable settlement that was, in the circumstances, in the best interests of the class as a whole.
The plaintiffs had also requested the court to approve a litigation advance agreement entered into by class counsel with the litigation funder, Claims Funding Australia Pty Ltd., and order that the amounts due to the litigation funder be paid out of the settlement amount.
Class counsel requested the court to approve a deduction of $500,000 from the settlement amount in relation to disbursements already advanced by the funder as well as an additional $750,000 for the commission payable to the funder under the LAA.
The judge cited Difederico v. Amazon.com, Inc., [2021] F.C.J. No. 332, in which the Federal Court outlined the general test for the approval of litigation funding agreements.
In Difederico, the Federal Court listed factors to be considered by the court in approving a litigation funding agreement including whether basic procedural and evidentiary requirements for the consideration of the litigation funding agreement been satisfied, whether it is fair and reasonable to class members and whether it is champertous.
The court noted that the basic procedural and evidentiary requirements for the approval of a litigation funding agreement require that plaintiffs receive independent legal advice prior to entering into the funding agreement and that the retainer and the funding agreement be disclosed to the court.
Justice Gascon observed that it was clear that the LAA was not promptly disclosed to the Court.
The court noted that class counsel had erroneously believed that since the contract was between the funder and class counsel, court approval was not required in the same way that it would not be required if class counsel obtained a bank loan or line of credit to fund the case.
The judge noted, however, that class counsel acknowledged that court approval was required as class counsel sought to deduct amounts owing pursuant to the LAA from the proposed settlement.
“[O]ne cannot help but remark that the approval of this LAA — from which Class Counsel has already drawn funds — has come to the Court at the eleventh hour. Many words could describe this timeline; however, ‘prompt’ is certainly not one of them,” the judge wrote.
The judge noted that class counsel had cited Fehr v. Sun Life Assurance Co. of Canada, [2012] O.J. No. 2029 in which the Ontario Superior Court stated that a third party funding agreement must be promptly disclosed to the court and the agreement cannot come into force without court approval.
“Here, it is undisputed that the LAA has not only come into force without the Court’s approval, but the Court’s approval is only being sought at the very last moment possible,” the judge wrote, finding that the first step of the test set out in Difederico for the approval of litigation funding agreements was clearly not met.
The judge also held that the LAA was unfair and unreasonable to class members, noting that the standard profit sharing regime in the Ontario Class Proceedings Fund capped the return on advanced funds to 10 per cent of total proceeds.
Class counsel submitted that while they may be faulted for not having sought pre-approval of the LAA, an unintended benefit was that they were able to make modifications to their fee arrangement with a view to blunting the impact of the funder’s commission on the class members.
Class counsel submitted that they had reduced their fee request by $420,000 from 33 per cent to 25 per cent and were assuming the responsibility for administering the distribution of the settlement funds rather than incurring the expense of a third-party administrator involving estimated fees of approximately $100,000.
Class counsel submitted that the total net commission to the funder was approximately $230,000 or 4.3 per cent of the settlement once these offsets were taken into account.
Justice Gascon rejected this submission, noting that the LAA had to be assessed as it read before the indirect adjustment made to it through the reduction of class counsel fees.
The judge noted that leaving aside that “offsets” referred to by class counsel, the funder stood to receive 14.3 per cent of the settlement amount for its contemplated commission of $750,000, and nearly a quarter of the settlement amount for the combination of the reimbursement of its advanced funds and its commission.
The judge noted that the Ontario CP Fund proceeds distribution matrix provided for 10 per cent of the recovery to be given to the litigation funder in most scenarios, adding that the Ontario CP Fund had been considered for benchmarking purposes by the Federal Court in previous cases.
The court also observed that jurisprudence had established a “presumptive range of validity” of 30 per cent to 35 per cent of the recovery proceeds, for a combined return to the litigation funder and class counsel.
“In the current case, at $2,062,500 (namely, $1,312,500 for the reduced Class Counsel Fees and $750,000 for the Funder’s Commission), the contemplated combined return of the Funder and Class Counsel would exceed 39% of the Settlement Amount, over the upper limit of this presumptive range of validity,” wrote Justice Gascon.
The judge also observed that the contemplated $750,000 commission for the funder on its funding of $500,000 for disbursements would translate into a return on investment of 150 per cent over a maximum period of about two years.
“This, in my view, would grant an unreasonable, exorbitant, and highly questionable rate of return to the Funder,” wrote the judge.
Justice Gason also noted that contrary to typical litigation funding agreements, the LAA did not modulate the rate of return to the funder in relation to the actual proceeds resulting from the class action and instead provided for a commission expressed as a multiplier of the amounts advanced, with the multiplier increasing with the duration of the loan.
The judge noted that if the funding arrangement had been a financing vehicle offered in the form of a bank loan with an interest equivalent to the rate of return to be received by the finder under the LAA, it could have been considered an illegal rate of interest under the Criminal Code, which prohibits annual rates of interest exceeding 60 per cent.
“Put differently, the terms of the LAA, which the Plaintiffs ask the Court to approve, bear many attributes of what could otherwise be qualified as a predatory lending practice or a loan shark agreement. The Court cannot accept that,” the judge wrote.
The court also held that the LAA was champertous, noting that the fees set forth in the litigation funding agreement exceeded the outer limit of what might possibly be considered reasonable, fair, or proportionate.
The judge also held that there was no evidence that the LAA was necessary to give access to justice to the plaintiffs or that the actual settlement agreement contained any indication of a deterrent effect on the defendants.
Justice Gascon declined to approve the LAA or order that amounts owed to the funder under the agreement be paid out of the settlement amount.
With respect to class counsel fees, the court held that the results achieved by class counsel called into question whether class counsel were entitled to full recovery of their legal fees. The plaintiffs’ statement of claim alleged damages of up to $1 billion.
The judge noted that the reduced 25 per cent contingency fee seemed to fit in to the mid-to-high range of fees sought by class counsel.
“Given the quantum is so low that the majority of Class Members will not be able to access the Settlement Fund — save for the Cy‑près Payment —, it appears difficult to justify a high percentage-based contingency fee which would reside at the high end of the spectrum observed in comparable cases,” the judge wrote.
The judge further observed that based on what was presented by class counsel, once they recuperated their fees and disbursements, and the LAA funder was paid, there would be less than half of the settlement amount left for the class members.
The court also observed that there was no compelling evidence that class members were fully informed of the terms and conditions agreed to by class counsel in the LAA and underlying the payment of the funder fees.
The judge also noted that class counsel did not bear the risk of the class action fully as they relied on the LAA.
“Class Counsel took the risk of agreeing to this LAA without the Court’s approval. It was a choice made by experienced counsel, and they have to bear the burden of that risk,” the judge wrote.
However, the judge also noted that since the LAA had not been approved, class counsel would have to pay the amount of $750,000 currently owed to the funder out of their own pockets and that class counsel had incurred actual fees of nearly $1.3 million and paid substantial disbursements.
Taking these factors into consideration, the court held that class counsel fees of $1,575,000 representing 30 per cent of the settlement amount, plus applicable taxes, were a fair and reasonable amount to be awarded to class counsel in the circumstances.
The judge also agreed to add an amount of $75,000 to class counsel fees to cover in part the fees to be incurred for the distribution of the settlement funds.
The judge noted that this would leave approximately $2.74 million for distribution to class members, after deducting amounts for disbursements, which would represent a more acceptable proportion of 52.2 per cent of the settlement amount.
The court also declined to approve honorariums to the representative plaintiffs, finding that the requested honorariums wer unreasonable and unjustified in the circumstances.
The court approved the settlement agreement and fixed total class counsel fees at $1.65 million plus applicable tax with an additional amount of $644,231 for disbursements.
Justice Gascon held that any commission to be paid by class counsel to the funder pursuant to the LAA shall be made separately by class counsel.
Counsel for the parties were not available for comment.
Counsel for the plaintiffs were Jean-Marc Leclerc of Sotos LLP and Sue Tan and Judith Manger of Koskie Minsky LLP.
Counsel for the defendants, Cermaq Group ASA, Cermaq Norway AS and Cermaq Canada Ltd., were Alexandra Mitretodis and Andrew Borrell of Fasken Martineau Dumoulin LLP.
Counsel for the defendants, Grieg Seafood ASA, Grieg Seafood B.C. Ltd., Ocean Quality AS, Ocean Quality USA Inc., Ocean Quality North America and Ocean Quality Premium Brands, Inc., were Akiva Stern and Nikiforos Iatrou of McCarthy Tetrault LLP.
Counsel for the defendants Leroy Seafood Group ASA and Leroy Seafood USA, Inc. were Sandra Forbes and Alisa McMaster of Davies Ward Phillips & Vineberg LLP.
Counsel for the defendants, Mowi ASA, Mowi USA, LLC, Mowi Ducktrap, LLC and Marine Harvest Canada was Robert Kwinter of Blake, Cassels & Graydon LLP.
Counsel for the defendant, Nova Sea AS, was Caitlin Sansbury of Borden Ladner Gervais LLP.
Counsel for the defendant, Sojor AS, were Samantha Gordon and Guneev Bhinder of McMillan LLP.
Counsel for the defendants Salmar ASA and Scottish Sea Farms Ltd were Michael Eizenga and Mehak Kawatra of Bennett Jones LLP.
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