Law Times

Page 4 NOVeMBeR 16, 2015 • LaW TIMeS www.lawtimesnews.com Judge softens line against cy-près payments to class counsel's client BY NEIL ETIENNE Law Times Superior Court judge has brought a different take to cy-près awards after consid- ering a 2013 decision that turned down a proposed payment over concerns about class counsel's links to the recipient. In considering a motion for an order approving a cy-près payment, Justice Helen Rady veered somewhat from Justice Paul Perell's 2013 ruling in Sorenson v. easyhome Ltd. and ap- proved the distribution of more than $12,000 to the Canadian Foundation for Advancement of Investor Rights (FAIR). Rady ruled the payment to the non-profit advocacy group wouldn't have a direct benefit to class counsel, including those at Siskinds LLP, who had done pro bono work for the organization in the past. "I respectfully disagree that it is undesirable to deter- mine whether a connection rises to any particular level," Rady wrote in her Oct. 28 ruling in O'Neil v. Sunopta. "In my view, the test should be whether a reasonable person in possession of the facts, rather than the cyni- cally minded, would conclude that any real benefit is conferred." Cy-près payments offer a way of dealing with unre- covered money from a class action damages award fol- lowing distribution of the funds to class members. The idea is to provide the money to organizations whose work will also benefit the class members. While class ac- tion lawyer Kirk Baert of Koskie Minsky LLP welcomes Rady's ruling, he says it doesn't diverge enough from So- renson in establishing a suitability test for a cy-près pay- ment. "I wasn't keen on the first ruling in the first place," he says of Sorenson. According to Baert, the appropri- ate test should weigh the organization's worthiness based on how long it has been around, whether it has proper controls in place for the use of the money, and whether it can provide a proposal with evidence that a cy-près donation would benefit people in a similar position to the class members. "Why would we want to exclude organizations that class counsel have personal knowledge of?" asks Baert. "I don't quite understand the logic of that. It would eliminate a lot of worthy organizations that might be the best possible organization to receive the money." Rady ruled the evidence in the case showed Siskinds wouldn't obtain any direct or indirect benefit from the cy- près payment to FAIR. She also found there was no "business development synergy in class counsel supporting FAIR Canada's mis- sion" and noted there had never been a referral of an ac- tual or potential client by the organization to class coun- sel nor was there any understanding or expectation that that would ever occur. It was a different take from Perell's ruling in Sorenson in which he denied a cy-près payment to FAIR because Siskinds had previously worked for the organization on a pro bono basis. In considering the issue, Perell agreed with the defendants who argued that a different recipi- ent should get the money because Siskinds had prior links to FAIR Canada. "In my opinion, however well meaning, it is inappro- priate for class counsel to indirectly benefit from a cy- près distribution and it is inappropriate for class counsel to have any direct connection with a recipient of a cy- près distribution," wrote Perell. "I think that it is undesirable for courts to have to de- termine whether the connection rises to any particular level. Given that there are many other worthy recipients of cy-près distributions, in my opinion, in the circum- stances of the case at bar, it is not in the best interests of class members to have a cy-près distribution to FAIR Canada, and I do not approve this aspect of the proposed settlement." Margaret Waddell of Paliare Roland Rosenberg Roth- stein LLP applauds Rady's ruling, saying it "puts to rest the concerns that were f lowing from the Sorenson decision." Waddell notes Perell's ruling started from the posi- tion class counsel would gain favour from the organiza- tion if it successfully secured the cy-près award and re- ferred to how cynical members of the public might view the situation. Rady, she suggests, looked at the issue from the position of a reasonably minded person in determin- ing that organizations like FAIR that act as an advocate for investor rights and often as a friend of the court will often require legal representation, especially on a pro bono basis as a non-profit group. "These advocacy groups are the obvious place to put the money. There really isn't any other obvious place," says Waddell. "If they are advocacy groups in one form or another, they necessarily need to retain counsel from time to time to intervene in cases or participate in cases and they necessarily need to look to the same group of lawyers to represent them in those interventions." In Waddell's view, the fact that class counsel may or may not eventually represent an advocacy group shouldn't be the ultimate determinant of a cy-près award. Baert says that in situations where class counsel has created an organization or will personally benefit di- rectly from a cy-près payment, it's quite appropriate for the court to disallow the request. "So long as the proposal meets the threshold of legiti- macy, I think that's the end of it," he says. "Do we really need judges getting into this issue in a big way? I'd be more interested in seeing more focus on what we can do to make these cases go more quickly so less money is spent on legal fees and more on benefiting the class members directly." LT NEWS 'These advocacy groups are the obvious place to put the money,' says Margaret Waddell. A Real estate lawyers welcome Tarion review BY NEIL ETIENNE AND DAVID DIAS Law Times mid transparency concerns around Tarion Warranty Corp., the Ontario government has appointed a former judge as a special adviser to conduct a review of the organization and related legislation. David Orazietti, the minister of gov- ernment and consumer services, an- nounced the appointment of justice Douglas Cunningham on Nov. 5. Cun- ningham, a former associate chief justice of the Ontario Superior Court, will re- view Tarion and the Ontario New Home Warranties Plan Act and provide recom- mendations for improving consumer pro- tection, accountability, transparency, and board governance. The move comes after years of political debate over Tarion's mandate to collect fees from purchasers and builders of new homes amid criticism that it has kept its internal workings largely secret. "Hopefully, they make a lot of changes to the extent of transparency," says An- drew Fortis, a real estate and business lawyer with Hummingbird Lawyers LLP. He says that in his dealings with Tar- ion as a lawyer and once as a homebuyer himself, "it has been unpleasant." "What I tell clients is that Tarion is not the best, but it's better than nothing be- cause in the absence of Tarion, you're left with a lawsuit against a builder who does developments through single-purpose entities," he says. "There's very little protection without Tarion." Fortis says some of his major concerns revolve around a lack of transparency and its perceived bias in supporting builders over consumers. In his view, the organization does a poor job of publicly disseminating infor- mation about investigations into builders and practices. "At least in my experience, they haven't pushed hard enough on behalf of the con- sumer, and I've always viewed Tarion as a consumer-protection tool," he says. "My experience as a lawyer and as a homeowner, you don't get a warm, fuzzy feeling Tarion is going to back you up, notwithstanding the fact you've paid a lot of money for your home enrolment." Although Tarion issues an audited annual financial statement, the adminis- trator isn't accountable to the province's auditor general or ombudsman. It also doesn't have to provide salary informa- tion for employees earning more than $100,000 for the province's sunshine list. The alleged lack of transparency has led to frequent calls for reform. Former NDP MPP Rosario Marchese tabled bills to that effect in 2010, 2011, and 2012. More recently, NDP MPP Jagmeet Singh brought forward a private member's bill that would bring Tarion under the juris- diction of the Ontario ombudsman and the auditor general and require public sal- ary disclosures. Despite having no mandate to in- vestigate Tarion, former ombudsman André Marin has reported almost 300 complaints about the administrator from 2007-13. At one point, Marin told the Toronto Star he has "long believed that Tarion lacks proper oversight." Toronto real estate lawyer Lisa Laredo shares that view. She says the fact Tarion isn't accountable to the ombudsman or the auditor general is a major concern in legal and consumer ranks. She also points to issues of insufficient public informa- tion on builder history and quality of work as areas it needs to address. "Eight out of 16 directors are from the Ontario Home Builders' Association," she says. She notes that when filing a complaint, purchasers first start with the builder and property managers in the case of build- ings such as condos. If they can't resolve it, the complaint escalates to Tarion. "But oftentimes, I find with my clients, which is very disheartening, their claims are denied for whatever reason and those reasons are generally insufficient. But you have nowhere to appeal. Even if you go to the appeal board, it's essentially the same body," says Laredo. Karen Somerville, president of the advocacy group Canadians for Properly Built Homes, which has been fighting for reform at Tarion for more than a decade, was happy to hear about the review. Somerville is hopeful the recommen- dations from the review will transform Tarion's governance. "It needs to be truly a consumer-ori- ented organization with much, much less inf luence from the Ontario Home Build- ers' Association and from builders and developers," she says. Tarion, for its part, says its model as an independent administrator has allowed it to operate quickly, efficiently, and ef- fectively and that it provides numerous disclosures to the province if not to the public directly. In a statement, Tarion said it welcomes the review. "We look forward to demonstrating how we serve Ontario's new homeown- ers. Our act has not been reviewed since it was created in 1976, and we agree that it is time to consider how effective the legis- lation is in today's new home and condo- minium industry. "This review will provide us with the opportunity to share our thoughts on how to strengthen the legislation so that we can continue to protect Ontario's new homebuyers and regulate new-home builders." LT A Homebuyers have very few options to appeal denials of their claims by Tarion Warranty Corp., says Lisa Laredo. Photo: Robin Kuniski

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