One of the few Ontario class actions to proceed through trial to judgment and subsequent appeals, the case of Trillium Motor World Ltd. (“Trillium”) v. General Motors of Canada Company (“GM”) and Cassels Brock & Blackwell LLP (“CBB”), which concerned the winddown of GM dealerships during the 2009 financial crisis has spanned nearly a decade. The final skirmish in this case involved a priority dispute between class counsel and GM in which GM sought to claim approximately $3 million in costs awards that CBB had been ordered to pay to Trillium at trial and on CBB’s unsuccessful appeal.
In this decision the trial judge, Justice Thomas McEwen, found that class counsel’s interest in the costs award had priority over GM’s interest as a secured creditor of Trillium and directed that the costs award be applied to class counsel’s fees and disbursements as per the court’s prior approval of class counsel’s retainer agreement.
Background
In a motion originally returnable in July 2018, class counsel sought court approval of their retainer agreement and payment of their fees and disbursements under section 32(2) of the Class Proceedings Act, 1992 (“CPA”). The retainer agreement provided for the assignment of the costs award from Trillium to class counsel. Section 32(3) of the CPA states that amounts owing under a retainer agreement approved by the court are a first charge on any settlement funds or monetary award.
Prior to the return of class counsel’s motion, GM brought an application for orders: (i) adjudging Trillium bankrupt; (ii) that the costs award be deemed the property of Trillium; and (iii) declaring that GM as secured creditor of Trillium had a first-ranking security interest over the costs award, and specifically ranked in priority to class counsel.
Having succeeded in defending the case at trial and on appeal, GM had received substantial costs awards of its own and, as such, was an unsecured creditor of Trillium. GM was not, however, a secured creditor of Trillium until it took steps to acquire a $2.7-million secured debt that the Business Development Bank of Canada (“BDC”) held with respect to Trillium.
Class counsel’s retainer and fee approval motion was ultimately heard together with GM’s application in September 2018. GM’s position was supported by submissions from FTI Consulting Canada Inc. (“FTI”), who GM had proposed be appointed as Trillium’s trustee in bankruptcy. In an endorsement dated December 5, 2018 (2018 ONSC 6818), Justice McEwen approved class counsel’s retainer agreement and the assignment of the costs award from Trillium to class counsel, without prejudice to GM’s outstanding application that was to be the subject of a subsequent decision.
The Decision
After (i) adjudging Trillium bankrupt; (ii) declining to appoint FTI as Trillium’s trustee in bankruptcy given the “partiality in favour of GM” that FTI had displayed on the application; (iii) finding that there was no constitutional paramountcy issue between the CPA and the Bankruptcy and Insolvency Act; and (iv) determining that the costs award was the property of Trillium and, therefore, formed part of its estate in bankruptcy, Justice McEwen turned to resolving the priority contest between GM and class counsel. He framed the contest as one between the security granted under the Personal Property Security Act (Ontario) (“PPSA”) and the security granted under the CPA, and noted the absence of any cases directly on point.
Justice McEwen determined the priority contest in class counsel’s favour on the basis that the PPSA has no application to a first charge obtained under the CPA. He concluded that the CPA first charge “should be treated as effectively a solicitor’s lien.” The effect of this finding was to bring the CPA first charge within section 4(1)(a) of the PPSA, “… a lien given by statute or rule of law … ,” to which the PPSA does not apply.
Consequently, the CPA first charge that became operative on the court’s approval of the retainer agreement took priority over the prior perfected security interest that GM had acquired from BDC. The PPSA’s “first in time” rules had no application in the circumstances.
The decision affirms the rationale underlying the CPA first charge is substantially the same rationale that underlies solicitor’s liens at common law, i.e., that the work of class counsel, and the property recovered or preserved for the class’s benefit through that work, is to be protected in view of the access to justice objectives and overarching purposes of the CPA. Permitting a secured creditor to scoop the proceeds arising from class counsel’s efforts would bear on counsel’s willingness to take on some cases.
Marie-Andrée Vermette and Michael Statham of WeirFoulds LLP and David Sterns, Allan Dick and Andy Seretis of Sotos LLP represented Trillium Motor World Ltd.
Sean Campbell, Natasha MacParland and Natalie Renner of Davies Ward Phillips & Vineberg LLP acted for General Motors of Canada Company.
Robert Thornton and Rachel Bengino of Thornton Grout Finnigan LLP represented FTI Consulting Canada Inc.