Private lawyers set to receive $1.74 billion from provinces for tobacco settlement

Among the many secrets which surround the proposed tobacco settlement is how much the legal teams representing the provincial governments will receive. 

Only two provinces have made public the terms of their contracts with the 3 teams of private law firms which have managed the suits. Using these disclosures as the basis of assumptions of the fee rate in other provinces, the total payment to these firms is likely to exceed $1.7 billion. 

The calculations behind this estimate are detailed below and on a downloadable fact sheet.

11 of Canada's 13 jurisdictions have hired lawyers on a contingency fee basis

Ontario and Quebec are the only two Canadian jurisdictions which have used in-house staff to manage their lawsuits against tobacco companies. 

Each of the other 11 jurisdictions is working on a contingency fee basis with private law firms. They have agreed to pay these firms a percentage of any payments that are provided to them as a result of their lawsuits. British Columbia originally engaged a local firm on a fee-for-service basis, but a decade later shifted legal teams. In 2009, after about a decade of effort, B.C.'s payments to outside counsel were reported as being $12 million. 

Three sets of law firms are primarily involved, with additional support during the insolvency process:

• A consortium of three firms represents British Columbia, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island, Saskatchewan, Northwest Territories, Nunavut and Yukon. 
• Newfoundland and Labrador is represented by a U.S. firm working with a Canadian partner.
• Alberta is represented by a firm based in that province. (Alberta and Newfoundland-Labrador are represented by the same counsel in the CCAA mediation. 

The contracts with private law firms have mostly been kept a secret. 

Only two provinces - New Brunswick and Newfoundland and Labrador - have provided information on the terms of their contracts with these private law firms.  

Details on the New Brunswick arrangement were made public after tobacco companies challenged the contingency fee arrangement in court. The ruling which upheld the arrangement provided information on the percentage that would be paid: 12% after a statement of claim was filed but before trial began; 18% after trial proceedings had begun but before they were concluded; 20% if the trial had been completed and 22% if an appeal stage was involved. 

Details on the Newfoundland contract were made public when the lawsuit was announced, and further details were released as part of a freedom of information (FOI) request. In the first case, the amount was cited as 30%, but was shown in the FOI request as being 25%. 

No other province has pro-actively disclosed the fee, and several have refused to do so when asked under FOI requests. FOI authorities in British Columbia, Alberta, and Saskatchewan have reviewed these refusals, but even when they have directed officials to make the information public, no release has been made.

Applying estimates of contingency fee rates

An estimate of the legal fees in provinces where the contingency agreement has not been made public is only possible if assumptions are made about the rate that will be applied. 

By applying the fee schedule agreed to in New Brunswick the following percentages are derived:

• 18% in New Brunswick, British Columbia,  Saskatchewan, Manitoba, Nova Scotia, Prince Edward Island (where the statements of claim had been filed, but the trial had not been completed, putting the proceedings at stage 2)
•  12% in Nunavut, Northwest Territories and Yukon (where a Statement of Claim was not filed and the lawsuits were at stage 1.)

For one of the two other jurisdictions (Newfoundland), the lowest reported percentage was 25%. There is no information on the Alberta fee schedule, other than it being reported as the "lowest" of the amounts bid.  For the purposes of this estimate, a 10% rate is assumed.

Applying these percentages to each applicable jurisdiction's share of the payments produces a total estimate of $1.74 billion for the 11 provinces and territories. The largest amount would be in British Columbia - $644 million.  

This money will not all be paid at once. The proposed settlement anticipates paying the provinces $6.282 billion upfront with $18.4 billion to be paid over the next decades. As a result, the contingency fees paid to external counsel are likely to be made in stages, with $442 million paid upfront, and $1.3 billion paid in annual installments.