2011 QCCA 767, 2011 QCCA 767

Unofficial English Translation Skarstedt c. Corporation Nortel Networks 2011 QCCA 767 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No.: 500-09-019795-095 (500-06-000277-059) DATE: April 6, 2011 CORAM: THE HONOURABLE LOUIS ROCHETTE, J.A. JACQUES A. LÉGER, J. A. JACQUES VIENS, J.A. (AD HOC) CLIFFORD W. SKARSTEDT APPELLANT - Representative and TRUDEL & JOHNSTON, GENERAL PARTNERSHIP APPELLANTS - Attorneys - Petitioners v.

CORPORATION NORTEL NETWORKS RESPONDENT – Defendant and ONTARIO TEACHERS' PENSION PLAN BOARD and DEPARTMENT OF THE TREASURY OF THE STATE OF NEW JERSEY AND ITS DIVISION OF INVESTMENT RESPONDENTS – Interveners and FONDS D'AIDE AUX RECOURS COLLECTIFS Impleaded party JUDGMENT [ 1 ] THE COURT ; - On the appeal from a judgment rendered on May 28, 2009, by the Superior Court, District of Montreal (the Honourable Madam Justice Michèle Monast), which set at $1,250,000 the amount of extrajudicial fees due to the appellants Trudel & Johnston, General Partnership, following the out-of-court settlement reached in the class action (Nortel II), for which they acted as counsel; [ 2 ] Having examined the file, heard the parties, and on the whole deliberated; [ 3 ] The appellants argue that the amount of their extrajudicial fees should be $3,207,886.55, and that by setting them at $1,250,000, the trial judge erred (1) in the application of the legal rules governing the approval of extrajudicial fees for counsel in class action suits; (2) in setting aside evidence of the hours worked; and (3) in not exercising her judicial discretion reasonably.

Background [ 4 ] On February 15, 2001, Nortel was forced to decrease its projected results for the current year. The security plummeted in the stock market and several class actions (Nortel

I) were filed in Canada and in the United States on behalf of investors. [ 5 ] In the spring of 2004, Nortel once again had to revise downwards the previously announced results for the 2003 fiscal year. The value of the security once again fell significantly, instigating a new wave of class action suits (Nortel II) in North America. [ 6 ] In Quebec, in February of 2005, the appellants Trudel & Johnston, General Partnership, sought authorization from the Superior Court to institute a class action against Nortel on behalf of Clifford Skarstedt, as representative.

[ 7 ] In February of 2006, an agreement in principle purposing to settle all the suits brought against Nortel following the events of 2001 and 2004 was announced. The appellants, with the authorization of the representative Skarstedt, agreed to limit their claim for extrajudicial fees to 0.45% of the Nortel II gross settlement fund. [ 8 ] The settlement agreements were approved on January 31, 2007, while the appellants' extrajudicial fees gave rise to several interlocutory decisions and were finally determined by the judgment under appeal.

Application of the legal rules governing the approval of extrajudicial fees in a class action [ 9 ] The appellants argue that, though the trial judge stated the rules relevant to such circumstances, she failed to apply them in determining their extrajudicial fees.

The judge summarized the approach that should be followed: [translation] [156] To determine whether the fees claimed by the attorneys-petitioners are reasonable, the Court must consider their experience, the number of hours they devoted to the cases, the difficulty of the issues submitted to them, the significance of each case, the level of responsibility they assumed in managing these cases, the unusual or exceptional nature of the services rendered, and the results obtained. [157] The purpose of the class action and the level of risk taken by counsel in agreeing to take on these cases must not be ignored. [ 10 ] The appellants fault the judge for assigning too much weight to the number of hours devoted to the case, whereas the actual criterion should be the work accomplished.

She then incorrectly stated that the case had not gotten very far when the agreement in principle was announced in February of 2006. They also criticize the premise according to which the risks incurred were mitigated by the fact that other similar proceedings had already been brought elsewhere.

Finally, they fault the judge for not taking into account past results obtained that benefited Quebec members. [ 11 ] By faulting the trial judge for assigning too much weight to some factors, such as the number of hours worked, and too little weight to others, the appellants impugn the balancing exercise she performed without questioning the legal principles on which she based herself to do so. [ 12 ] As Iacobucci J. points out in Southam , it is extremely difficult to detect such an error in the context of a balancing test, and it is rarely appropriate for an appellate court to substitute its assessment for that of the judge below: [43] The suggestion remains, however, that the Tribunal might have erred in law by failing to accord adequate weight to certain factors.

The problem with this suggestion is that it is inimical to the very notion of a balancing test. A balancing test is a legal rule whose application should be subtle and flexible, but not mechanical. It would be dangerous in the extreme to accord certain kinds of evidence decisive weight as, for example, by saying that evidence of inter-industry competition should always be sufficient to prove that two companies are operating in the same market.

A test would be stilted and impossible of application if it purported to assign fixed weights to certain factors as, for example, by saying that evidence of inter-industry competition should weigh 10 times as heavily in the Tribunal’s deliberations as does evidence of physical similarities between the products in question. These sorts of things are not readily quantifiable. They should not be considered as matters of law but should be left initially at least to determination by the Tribunal.

The most that can be said, as a matter of law, is that the Tribunal should consider each factor; but the according of weight to the factors should be left to the Tribunal. [44] It seems, then, that if the Tribunal erred, it was in applying the law to the facts; and that is a matter of mixed law and fact. This is especially so if, as here, the legal principle being applied involves a balancing test, because with a typical multi-factored balancing test so many factors weigh in the balance that a duplication of any one set of relevant circumstances in the future is unlikely.

At the outside, the decision of the Tribunal in this case stands for the proposition that a large daily newspaper does not compete for retail advertising business with small community newspapers though probably it does not stand even for so general a proposition as that, because the Tribunal’s decision rested in part on its assessment of the behaviour of these parties.

Depending as it does so fully on the facts and circumstances of the case, the decision is too particular to have any great value as a general precedent. [1] [Emphasis added] [ 13 ] As for the procedural history of the case, it is undeniable that the appellants did not have to argue the merits or even the authorization to bring the class action, although they were prepared to do so.

The purpose of the trial judge’s analysis was the determination of what fees would be reasonable for the work that was actually accomplished by the appellants, not for the work that could have been accomplished. [ 14 ] The trial judge also assessed the scope of the task performed by the Quebec attorneys and the degree of risk that differed whether it was assessed before or after the settlement agreement occurred.

These determinations are not questioned by the appellants. [ 15 ] Moreover, there is no doubt that the catalytic role played by similar proceedings brought before other jurisdictions could have been considered by the trial judge under the particular circumstances of the case in order to determine whether the burden or risks assumed by the appellants had been lessened. [ 16 ] Thus, the judgment under appeal observes the principle whereby risk assessment should involve a consideration of the situation prevailing at the time the risks were incurred. [2] [ 17 ] As for the criticism that the trial judge did not consider the outcome of the lawsuit, we need only to quote the following paragraph of her reasons:

[translation] [195] We must also consider the results obtained. The approximate value of the Nortel I and Nortel II settlement fund was placed at $2.3 billion. As for the Quebec claimants, it has been estimated that they will receive indemnities totalling approximately $101,000,000. [ 18 ] Evidently, the trial judge took this factor into account, and it was up to her to determine the weight that she should assign to it. [ 19 ] Therefore, this ground of appeal is without merit and must be rejected.

Assessment of the number of hours devoted to the case [ 20 ] The appellants also fault the trial judge for setting aside the number of hours they devoted to the case according to the sworn statement of Mtre Trudel, even though there was no evidence to the contrary.

She also erred in taking for granted that the fees claimed included certain tasks performed in the context of ancillary debates that did not benefit the members of the group (opposition to the respondents' intervention and objection based on solicitor-client privilege, amongst others). [ 21 ] The absence of evidence to the contrary does not deprive a judge of his or her power to assess the credibility and probative value of a deposition or sworn statement.

Tremblay, C.J.Q., for the Court, stated the following on the matter: [translation] He criticizes him for having set aside his testimony and that of Bureau, even though they were not contradicted. Yet, the courts are not compelled to believe witnesses, even if they are uncontradicted by other witnesses. Their version may be implausible as a result of circumstances revealed by the evidence or simple common sense .

The bearing and attitude of a witness are also important factors. [3] [Emphasis added.] [ 22 ] In the present case, in light of the retrospective and ballpark method used by the appellants to estimate the time spent on the case by the members of the firm, Mtre Trudel could not attest to the exact number of hours allocated to each step, but merely to his own conviction that the assessments reflected reality. [ 23 ] It was up to the trial judge to measure the probative value of each element of the evidence.

Although she was bound to take into account all of the evidence in her assessment, she was also required to note the inherent weakness of a deposition.

This is what she did when she pointed out the flaws in the evidence prepared by the appellants regarding the hours they devoted to the case. [ 24 ] Indeed, a judge supervising the unfolding of a class action from the moment it is brought, as Madam Justice Monast did in this case, is in a privileged position to assess the work that was required from counsel every step of the way: [translation] Because of the scale of class action suits, the interest that these matters draw from the public, and the great number of persons class action suits are likely to affect, this provision becomes entirely relevant.

The elements listed in

section 3.08.03 are all highly pertinent, but they have yet to be met with blanket acceptance by the courts. Some aspects may receive greater attention according to the particularities of each case. The judge who hears all of the proceedings in a class action is certainly in the best position to assess which of the elements should be considered to determine what constitutes fair and reasonable fees . [4] (Citations omitted.

Emphasis added.] [ 25 ] In fact, this Court has recognized the privileged position of the judge who has heard all of the proceedings to determine fair and reasonable fees: [7] It bears mentioning that the judge of first instance had managed the class action from the start and was familiar with all aspects of it, as well as with the degree of involvement of class counsel.

He was particularly well placed to determine the issue of fees payable to the latter and Appellants have failed to show any ground for interfering with the exercise of his discretion. [5] [ 26 ] The same considerations justify rejecting the appellants' argument that the judge wrongly faulted them for including in their claim the hours devoted to challenging the intervention of the American representatives respondents. [ 27 ] It was also within the judge’s purview to question, as she seemed to do, the submission that the hours of work required to prepare the claim for fees and the debates regarding the confidentiality of the fee statements that were brought before the Supreme Court had been excluded from the overall estimates prepared by the appellants.

In this instance as well, she had a ringside seat to assess the share of work required at every step. [ 28 ] This ground of appeal must therefore fail. The assessment of the number of hours invoiced is a question of fact regarding which the appellants were unable to show that the trial judge committed a palpable and overriding error. [6] Exercise of discretionary power [ 29 ] The appellants argue that the trial judge did not exercise her discretion judicially when she approved their extrajudicial fees. They fault her for setting aside the 0.45% enshrined in the parties’ agreement.

Moreover, the judgment under appeal does not reveal the reasons underlying the arbitrary amount awarded. Finally, the judge erred when considering the reasonableness of the alternatives suggested by the interveners, rather than limiting her examination to the reasonableness of the fees claimed by the appellants. [ 30 ] The trial judge did not set aside a percentage-based remuneration agreement. Instead, she found that there was no such agreement in this case and that the 0.45% ratio was a cap that the parties had agreed upon, and not a guaranteed percentage:

[translation] [154] In both cases, the attorneys-petitioners waived the application of these fee agreements and agreed to limit their fee claims to 0.45% of the Nortel I and Nortel II settlement fund. [ 31 ] Indeed, a judge must determine the reasonableness of the fees in each claim in order to approve them: [translation] While in most cases the courts have approved the percentages agreed upon in extrajudicial fee agreements because applying them to the amounts awarded resulted in what were deemed reasonable extrajudicial fees, we will see later that, in cases of settlements or judgments awarding significant amounts, the courts have not hesitated to ignore that percentage and consider the time actually devoted to the case .

Counsel acting in their first class action suit would be well advised to scrupulously record the hours spent working on that class action. [7] [Emphasis added.] [ 32 ] The trial judge had broad discretion to determine the fees to which the appellants were entitled: [translation] Finally, the most exceptional power of all, at the end of the proceedings, the judge determines the extrajudicial fees of counsel for the representative, including in out-of-court settlement agreements ...

This judicial control is exercised with the input of the Fonds d'aide, when it has supplied financial aid, whose presence is justified by the objective of recovering the sums to which it is entitled. Of course the management of an individual proceeding does not provide for such a fee-setting mechanism. As conceived, the court’s power of exception is discretionary and is not limited to approving a settlement between the parties regarding fees. Any question as to the determination of extrajudicial fees falls under its jurisdiction, including a request from one of the members to amend or contest.

The judge hearing the application for setting fees takes into account the criteria set out in the Code of ethics of advocates , which include the importance and nature of the matter, as well as the time and effort devoted to the matter, rather than simply applying a formula using a predetermined percentage of the adjudicated amount. [8] (Citations omitted. Emphasis added.] [ 33 ] She was, however, bound to exercise this discretion judicially: [translation] The discretionary power with which the legislature has invested the judge to ensure that justice is served is broad.

Granting a judge a discretionary power includes both the duty to exercise it and the duty to do so judicially. [9] [ 34 ] An appellate court must show deference toward a lower court exercising such a power: Second, Abella J.A. stated that the standard of review for an appellate court reviewing a lower court's exercise of discretion is whether the exercise of discretion is patently unreasonable.

While the latter is appropriate in review of decisions of administrative tribunals, the test for appellate review of the exercise of judicial discretion is whether the judge at first instance has given sufficient weight to all relevant considerations ... [10] [Citations omitted.] [ 35 ] The trial judge took into account all the relevant factors. Failing to apply a multiplier to the fees does not render her decision arbitrary.

Indeed, she viewed this method as simply a means of corroboration: [translation] [151] This overall approach makes it possible to assess the importance and value of the services rendered by counsel. Using a multiplier may also be useful to verify or corroborate the results obtained following an analysis of the previously identified criteria . [Emphasis added] [ 36 ] Finally, several of the parameters listed by the trial judge justify her awarding substantially lower extrajudicial fees to the appellants, acting as counsel in the Nortel II suit, compared with those awarded in the Nortel I suit.

They are, amongst others: the inherent weaknesses in the evidence adduced by the appellants with respect to the hours worked; the much shorter delay between the commencement of the proceedings and the announcement of an imminent settlement agreement, meaning that whatever the risks were, they were assumed for a shorter period of time; consequently, the period of time before receiving the fees was much shorter; and finally, the greater momentum existing because of the first wave of lawsuits brought against Nortel in 2001 and the pressure exerted by those brought in 2005. [ 37 ] The amount of extrajudicial fees awarded to the appellants cannot be characterized as being unreasonable.

This ground of appeal also must fail. [ 38 ] Overall, the trial judge directed herself correctly in law and we cannot fault her for any error in principle in her exercise of the latitude conferred upon her by the legislature pursuant to

article 1025 CCP . Moreover, she correctly assessed the evidence adduced on the questions of fact and the appellants did not show any palpable and overriding error in this respect.

FOR THESE REASONS: [ 39 ] DISMISSES the appeal, with costs against the appellants Trudel & Johnston, General Partnership. LOUIS ROCHETTE, J.A. JACQUES A. LÉGER, J.A. JACQUES VIENS, J.A. (AD HOC) Mtre André Durocher Fasken Martineau DuMoulin For the appellants Mtre Jean Bertrand (absent) Ogilvy Renault, LLP For the respondent Corporation Nortel Networks Mtre Laurent Nahmiash Fraser Milner Casgrain For the respondents Ontario Teachers' Pension Plan Board and Department of the Treasury of the State of New Jersey and its division of investment Date of hearing: February 15, 2011