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CIVIL PROCEDURE - Parties – Class or representative actions - Settlements

Monday, June 19, 2017 @ 11:40 AM  


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Appeal by the Merchant Law Group (Merchant) from a decision finding that a client’s instruction to pay certain legal fees allegedly owing to Merchant from settlement funds it was holding in trust for the client was invalid, as it constituted an assignment under the Settlement Agreement. The client was represented by the appellant in the Indian Residential School Independent Assessment Process (IAP) and was awarded a settlement. After the appellant received the settlement funds, the client directed the appellant to apply a portion of the funds to outstanding accounts incurred for unrelated legal matters. The judge determined that the client’s direction was an assignment prohibited by the Settlement Agreement which provided that no amount payable under the Agreement could be assigned. The judge interpreted the provision to require, as a rule, that an award granted pursuant to the Settlement Agreement be put in the hands of a successful claimant before being applied to purposes other than to cover reasonable IAP-related legal fees. Although the judge considered the\ recipient of funds in trust as the legal owner of the funds, she observed that the client remained in a position of vulnerability vis-à-vis the holder of the trust account. The appellant argued that the Rules of the Law Society made it clear that funds received in trust for a client by a lawyer were the client’s property and the client could deal with the proceeds in an unrestricted manner. The appellant relied on this principle for the proposition that the client’s instructions with respect to her own funds could not be an assignment since an assignment was given before the assignor had control of her funds.

HELD: Appeal dismissed. The prohibition against assignments of awards payable under the Settlement Agreement was intended in its very widest sense and would therefore include any transfer of funds. By agreeing to act for the client in the Independent Assessment Process, the appellant must be taken to have been aware that it was subject to the terms of the Settlement Agreement, and that it would not be operating under the usual rules generally applicable to lawyers in the relevant province. Interpreting the provision of the Settlement Agreement in a contextual manner consistent with the purpose of the scheme, the prohibition against assignment caught the client’s direction and any transfer of funds from the account held in equity for her. This result was dictated by the particular vulnerability of the plaintiff class members which the supervising courts had recognized in this unique situation.

Fontaine v. Canada (Attorney General), [2017] B.C.J. No. 983, British Columbia Court of Appeal, M.V. Newbury, S. Stromberg-Stein and G.J. Fitch JJ.A., May 24, 2017. Digest No. TLD-June192017001