Ottawa wants to pay class action lawyers roughly half the amount they're requesting in legal fees for a multi-billion dollar First Nations child welfare compensation case — the largest settlement agreement in Canadian history.

The federal government argued before Federal Court this past week that it should pay the class action lawyers between $40 million and $50 million, rather than the $80 million they've requested.

Federal Court Justice Mandy Aylen, who reserved her decision on Thursday, said the court must take into consideration the size of the settlement agreement and the fact that the case was based on more than 10 years of litigation at the Canadian Human Rights Tribunal (CHRT).

"This motion arises in what I would say are very unique circumstances," Aylen said.

"One is that this settlement of this type has been characterized as what we call a mega settlement ... Second, and importantly, this settlement piggybacks on the tribunal proceeding."

Paul Vickery, senior general counsel for the federal Department of Justice, called the $80 million sum unreasonable. He said there is strong public interest in cutting the bill down.

"Counsel fees are going to be closely scrutinized here, both by the claimant community and the broader Canadian public," Vickery said.

But class action lawyers said they're justified in asking for $80 million because the deal they helped to negotiate is unprecedented, and they took it on with the understanding that they would be paid only if they succeeded.

Ottawa agreed to pay legal fees for the five law firms that launched the class action lawsuits that led to the $23 billion-plus settlement agreement approved last Tuesday by the Federal Court.

The compensation will be distributed among more than 300,000 First Nations children and families who experienced discrimination because the government underfunded on-reserve child welfare systems and other family services. 

The CHRT said the government's actions created an incentive for foster care systems to remove children from their homes. Dubbed the "millennium scoop," the practice meant more Indigenous children ended up in foster care than were sent to residential schools at the height of the residential school system.

The legal bill will not be paid out from the $23 billion in federal cash set aside for compensation. It also won't come from the other $20 billion earmarked by Ottawa for long-term reform of First Nations child and family services. Class action lawyers will be paid through additional public funds.

The fees will go to five firms: Sotos LLP, Kugler Kandestin LLP, Miller Titerle + Co., Nahwegahbow, Corbiere and Fasken Martineau Dumoulin.

Judge questions risk taken in case

The government said it takes issue with some lawyers billing at the upper end of their hourly rate scales.

The government argues that if the $80 million legal bill is approved, it would result in some lawyers being compensated at $4,580 per hour.

Ottawa says a legal bill of $40 million to $50 million is more consistent with other recent, large settlements, according to court filings.

Vickery said the government acknowledges a premium should be paid to class action lawyers as an incentive for picking up such cases.

But he argued these lawyers took only a moderate risk by pursuing this case because the federal government already had stated publicly that it would compensate First Nations people affected by its discrimination.

"We say that the amount awarded should recognize that," Vickery said.

Federal Court Justice Mandy Aylen approved more than $23 billion in compensation on Oct. 24, 2023 for First Nations children and families who experienced racial discrimination through federal funding for child welfare. (Sean Kilpatrick/Canadian Press)

Aylen also questioned the amount of risk the settlement lawyers took on, pointing out that it was distributed across multiple firms and none of them submitted evidence to suggest they were hurting financially.

"I'm struggling with the suggestion of risk," Aylen said.

Aylen also said the settlement piggybacked on more than 10 years of proceedings before the CHRT.

The case stems from a 2016 tribunal ruling that found Canada engaged in wilful and reckless discrimination against First Nations children and families by failing to provide them with the same level of child welfare and other family services provided elsewhere.

The class actions also came on the heels of the tribunal's 2019 ruling, which ordered Canada to pay the maximum human rights penalty of $40,000 per First Nations child and family member.

"There is at least a portion of this proceeding that is a deliberate duplicate of the pre-existing proceedings before the tribunal," Aylen said.

Fasken lawyer Geoffrey Cowper acknowledged the tribunal laid the foundation for the class actions, but argued that the settlement agreement reached with Canada made the tribunal's orders enforceable.

Cowper also said the settlement agreement went beyond the tribunal's orders.

Indigenous Services Minister Patty Hajdu said legal fees must be kept within a reasonable space. (Adrian Wyld/Canadian Press)

The settlement covers children and families on-reserve or in the Yukon who were discriminated against from 1991 on — a period 15 years longer than the one covered by the tribunal.

Under the agreement, every First Nations child who was forcibly removed from their home and put into the on-reserve child welfare system would get a minimum of $40,000 — or more, depending on the severity of harms they experienced.

Class action lawyers agreed to cap their fees at $80 million — a move they said was highly unusual — because the Assembly of First Nations raised concerns about lawyers in previous class actions taking advantage of Indigenous Peoples.

The lawyers also said the capped fee is much lower than what they could have sought under contingency fee retainer agreements, which could have resulted in a $2.35 billion bill.

"We say it's fair and reasonable," Cowper said.

Indigenous Services Minister Patty Hajdu made the case for lowering the legal bill at a press conference on Thursday in Ottawa. 

"This has been an astronomical legal effort, and we acknowledge that and respect that, while also having a responsibility to keep fees in a reasonable space," she said.