Parkin v. The Toronto-Dominion Bank: Carriage Considerations under the Amended Class Proceedings Act, 1992

There are only a handful of decisions that interpret the new statutory carriage test under the Class Proceedings Act, 1992 (“CPA”).[1] In the recent case Parkin v. The Toronto-Dominion Bank, 2025 ONSC 1201, the Ontario Superior Court of Justice granted carriage of a proposed securities class action against TD Bank to Parkin et al v. Toronto-Dominion Bank et al (the “Parkin Action”). No prior carriage decisions under the amended CPA have considered fee-splitting arrangements between Canadian and US counsel.

Justice Leiper determined that the Parkin Action was superior as it avoided two impediments to leave and/or certification that were present in one or both of the two competing actions. The Parkin Action avoided potential concerns relating to contingency fee-splitting with a US firm that the court found may be contrary to the Rules of Professional Conduct (the “Rules”), and unlike a competing action, Gazarek et al v. Toronto-Dominion Bank et al (the “Gazarek Action”) the Parkin Action did not plead fraudulent concealment, which Justice Leiper determined would be a novel attempt to toll the three-year limitation period applicable to class members’ statutory claims.  

The decision in Parkin underscores the importance of ensuring that any contingency-fee splitting agreements entered into by Plaintiffs’ counsel comply with the Rules. While fees and funding arrangements are subject to court approval, the Parkin decision is a reminder that such agreements may also be considered by the court on a carriage motion.

BACKGROUND

In October 2024, TD pled guilty to multiple charges in the US including conspiracy to violate the Bank Secrecy Act[2] and to commit money laundering. TD was ordered to pay a total of $3.09 billion US in fines after its guilty plea. In May of 2024, FINTRAC, Canada’s financial intelligence agency, imposed an administrative penalty of $9.19 million CAD on TD Bank for its anti-money laundering failings.

The decision in Parkin concerns a carriage motion, under the amended CPA, between three rival proposed class actions: the Parkin Action, the Gazarek Action and Nam et al v. Toronto-Dominion Bank et al (the “Nam Action”). All three actions were proposed securities class actions concerning TD’s alleged misrepresentations with respect to its systemically deficient anti-money laundering (“AML”) controls. All three competing actions alleged that shareholders suffered significant damage when TD’s alleged misrepresentations were corrected by a series of partial corrective disclosures.

Prior to 2020, the court considered a non-exhaustive list of common law factors on carriage motions.

However, in 2020, the CPA was amended and a new test for carriage (section 13.1) was added. Section 13.1(4), lists the four specific factors the court shall consider on a carriage motion in determining which proceeding would best advance the claims of the class members in an efficient and cost-effective manner: 

(a) each representative plaintiff’s theory of its case, including the amount of work performed to date to develop and support the theory;

(b) the relative likelihood of success in each proceeding, both on the motion for certification and as a class proceeding;

(c) the expertise and experience of, and results previously achieved by, each solicitor in class proceedings litigation or in the substantive areas of law at issue; and

(d) the funding of each proceeding, including the resources of the solicitor and any applicable third-party funding agreements as defined in section 33.1, and the sufficiency of such funding in the circumstances.[3]

In Blackford-Hall, the first case interpreting the new statutory carriage test, Justice Perell found that s. 13.1 was a “significant and substantial” change in the law.[4] He noted that the provision’s focus on efficiency and on the chances of success of the theory of the case at certification at the common issues trial heralds a “culture change” of the introduction of proportionality as a factor on a carriage motion in the evaluation of rival proposed class actions.[5]

THE MOTION JUDGE’S DECISION 

Justice Leiper awarded carriage to the Parkin Action, concluding that it was best suited to advance class members’ claims in an efficient and cost-effective manner based on the carriage considerations set out in section 13.1 of the CPA.[6]

The court found that the Parkin Action was either “in first place or tied for first place” as compared to the two competing actions with respect to its theory of the case, work done to date, choice of defendants, and experience in securities “mega fund” class actions.[7]

The court ultimately determined that the Parkin Action was more likely to succeed under s. 13.1(1)(4)(b) of the carriage test (the “relative likelihood of success” criteria) as it avoided the potential fee-splitting and limitation period issues that were present in the Gazarek Action.

FACTORS THAT SET THE PARKIN ACTION APART

A. The Parkin Action Avoided Contingency Fee Splitting Concerns

Rule 3.6-7 of the Rules prohibits Ontario lawyers from fee-splitting with non-lawyers. 

Rule 3.6-7 provides that: “[a] lawyer shall not directly or indirectly share, split, or divide their fees with any person who is not a lawyer or paralegal”, subject to certain exceptions set out in Rule 3.6-8 that did not apply in this case. The definition of “lawyer” in r. 1 is: “a person licensed by the Law Society to practice law as a barrister and solicitor in Ontario.”[8]

Counsel in the Gazarek Action entered into an agreement with Cohen Milstein, experienced securities class action counsel in the US. The agreement between counsel in the Gazarek Action and the US firm contemplated a 40:60 fee split. Fees for the US firm were to come from the total fees approved for counsel in Ontario. Under the terms of that agreement, counsel in Ontario was to maintain control of the litigation, the US firm would not practice law in Ontario, and the US firm would obtain foreign legal consultant permits to give advice on US law. The US firm had agreed to fund disbursements in the Ontario action and would be paid a 100% premium on those disbursements. The US firm also had to approve any disbursements over $5,000 incurred by Ontario counsel.[9]

Counsel in the Parkin Action argued that the agreement between Ontario and US counsel in the Gazarek Action may present obstacles at leave and certification as the fee-splitting agreement between Ontario counsel and US counsel was potentially contrary to Rule 3.6-7 of the Rules, which prohibits Ontario lawyers from fee-splitting with non-lawyers.[10]  

While counsel in the Parkin Action acknowledged that US firms are routinely paid for services rendered with those fees treated as a justifiable cost or disbursement, they argued that it was the contingency fee nature of the arrangement in the Gazarek Action that may be contrary to the Rules.[11]

In support of their position, counsel in the Parkin Action filed an expert report from former Senior Counsel and Discipline and Treasurer of the Law Society of Ontario. The expert opined that the proposed fee arrangement in the Gazarek Action may be contrary to the Rules in Ontario. Justice Leiper admitted that expert evidence, determining that it was admissible and that the standards of practice of Ontario lawyer licensees was an area of expertise outside the regular knowledge of the court.[12]

Counsel in the competing Gazarek Action relied on several cases to support their position that their agreement with the US counsel complied with the Rules. They relied on two cases where fees to US counsel (costs or disbursements in relation to services rendered) were approved on motions for approval of class counsel fees, as well as two cases from provinces other than Ontario where contingency fee arrangements between Canadian and US counsel were approved by the court. They also cited several cases where counsel fees for Canadian firms practicing in national consortiums were approved to highlight that courts have previously approved fees that are to be split among firms including those outside Ontario who practice in national consortiums.[13]

However, Justice Leiper noted that while Class Counsel routinely retain US law firms, those fees are generally treated as justifiable costs and disbursements.[14]  While contingency fee arrangements between Canadian and US counsel have been approved in other provinces, Justice Leiper also noted that the rules around fee-splitting are different in Ontario as compared to other provinces.[15]

Justice Leiper also distinguished the cases relied on by Gazarek where fees were approved for Canadian firms practicing in national consortiums, noting that those cases concerned interprovincial firms working jointly on Canadian class actions in Ontario and did not assist with the question of allowable fee-splitting with US counsel.[16] Further, Justice Leiper noted that Canadian lawyers enjoy inter-provincial mobility which may permit them to practice in other provinces which distinguished the fee-splitting arrangements in those cases.[17]  US lawyers, however, do not have the same privilege.

Justice Leiper ultimately determined that there was admissible expert evidence that the proposed fee arrangements in the Gazarek Action may be contrary to the Rules.

While Justice Leiper did not conclusively determine that the Gazarek Action violated the Rules, she emphasized the potential for the fee arrangements in the Gazarek Action to create problems down the road. Specifically, she noted that since the proposed fee arrangement in the Gazarek Action may be vulnerable to challenge and could potentially be a “live issue” on certification to the detriment of the class, the Parkin Action was preferable.[18]

B. The Parkin Action Avoided Limitation Period Issues

The Parkin Action pled a class period that was three years after the date of the first alleged misrepresentation.[19] Conversely, the Gazarek Action pled a much longer class period that extended well beyond the three-year limitation period set out ss. 138 and 138.14 of the Ontario Securities Act (“OSA”).[20] Counsel in the Gazarek Action argued that the Gazarek Action would benefit the largest class of people as that action had the longest Class Period.[21]

Section 138.14 of the OSA requires that an action be commenced no later than three years after the first release of a document containing the actionable misrepresentation. As a result, to pre-emptively address the inevitable statutory limitation period defence, the Gazarek Action pled that the equitable doctrine of fraudulent concealment tolled the three-year limitation period applicable to the class members’ statutory claims.[22]

In the Parkin decision, however, Justice Leiper determined that the pleading of fraudulent concealment in the Gazarek Action was a “novel” attempt to extend fraudulent concealment to secondary market claims of misrepresentation under Part XXIII.I of the OSA with broad implications, and as a result, it could reasonably be predicted to complicate and lengthen the issues on leave and certification. Justice Leiper determined this would not be in the best interests of the class.[23] 

KEY TAKEAWAYS

Plaintiffs’ counsel anticipating a carriage motion should consider the rules against fee-splitting in the Rules of Professional Conduct (Rule 3.6-7) when entering into agreements that involve contingency-fee splitting with lawyers that are not licensed to practice law in Ontario as the court may consider these agreements at carriage.

The decision in Parkin also suggests that a longer class period is not necessarily better, and that complications associated with pleading the doctrine of fraudulent concealment in a novel situation to address potential limitation period issues may outweigh the access to justice benefits of a longer class period in the context of a carriage battle.