Class action proceedings often end in negotiated settlements. Those settlements (which must be approved by a court) can be significant in monetary terms. In Manuge v. Canada, the Federal Court recently approved the settlement of a class action arising from the alleged miscalculation and underpayment of disability pension benefits for members and veterans of the Canadian Armed Forces (CAF) and Royal Canadian Mounted Police (RCMP) as well as their spouses, common law partners, dependents, survivors or estates. The settlement amount approved—$817.3 million, including $124.6 million in class counsel fees and disbursements—is notable for its size and scope.
Background
In 2018, Canada's Veterans Ombudsman identified an error in the calculation of pension disability awards to CAF and RCMP members and veterans from 2003 to 2010. This accounting error resulted in an underpayment of approximately $165 million to eligible pension recipients.
The Minister of Veterans Affairs acknowledged the error and undertook to make retroactive corrective payments, excluding interest. Veterans Affairs Canada (VAC) allocated $165 million to make the corrective payments, approximately half of which was distributed since 2018.
In 2019, the plaintiffs commenced four separate but similar class proceedings, which were subsequently consolidated. After refining the common issues, the motion for certification proceeded on consent. Through the litigation process, class counsel discovered what they alleged were additional errors that caused an underpayment of the pension benefits over a longer period than initially estimated. The plaintiffs pursued these claims along with a claim for interest on the corrective payments and brought a motion for summary trial in 2022.
The Settlement
The parties engaged in settlement negotiations to address the impact of the additional errors and interest on the corrective payments.
After extensive discussions, the parties ultimately agreed on a total settlement valued at up to $817.3 million if every claimant could be located and paid. The settlement funds would be shared between approximately 333,711 class members. The parties executed a Final Settlement Agreement (FSA) in November 2023.
Pursuant to the Federal Courts Rules, a class proceeding may be settled only with the approval of a judge. The applicable test for approval is whether the settlement is fair and reasonable and in the best interests of the class as a whole. The factors considered in this assessment include the following: (a) likelihood of recovery or success; (b) the amount of pre-trial work including discovery, evidence or investigation; (c) settlement terms and conditions; (d) future expense and likely duration of litigation; (e) expressions of support and objections; (f) presence of good faith and the absence of collusion; (g) communications with class members during litigation; and, (h) recommendations and experience of counsel.
The parties brought a joint motion before the Federal Court seeking approval of the FSA. Both class counsel and the defendants strongly supported the negotiated settlement. After considering the relevant factors, the Court was "more than satisfied that the FSA [was] fair and reasonable and in the best interest of class members." In particular, the Court noted that the majority of amounts to be paid to individual class members fell below $5,000 and that the average amount payable would be about $2,400. Given that individual claims would likely have to be pursued in Small Claims Court, the Court found that the additional costs and delay could dissuade individual class members from pursuing their own claims.
Class Counsel Fees
The Court also approved legal fees and disbursements sought by class counsel.
The Court observed, "Fees for Class Counsel are the reward for taking on risk (as measured at the outset of the case) and pursuing the litigation with skill and diligence." In awarding such fees, a court will consider whether the fees are "fair and reasonable" in the circumstances, including with reference to the risks taken, the time expended, the complexity of the issues, the importance of the litigation or issue to the plaintiff, the degree of responsibility assumed by counsel, the quality and skill of counsel, the ability of class members to pay for the litigation, the expectations of the class, and fees in similar cases.
Class counsel sought fees of up to $124.6 million, inclusive of tax and disbursements, if all eligible payments were made. The defendant did not take any position on the fees sought. The Court considered a recent decision which found that percentage-based class counsel fees in "mega fund" cases (i.e., cases where the amount of recovery exceeds $100 million) could generate an unfair windfall for class counsel that would be out of step with the relevant factors. In such "mega fund" cases, the court should focus on the actual dollar amount of the approved counsel fee, rather than a percentage of the recovery. Here, the Court found that, while the amount was very large, the proposed class counsel fee was fair and reasonable in light of the relevant factors.
In addition to approving the FSA and counsel fees, the Court also approved honoraria of $10,000 for each of the representative plaintiffs.
Key Takeaways
This case—which comes at the end of a piece of complex litigation—serves as an important reminder of the potential size, scope and complexity of employment and pension class action claims. These types of cases demand careful strategic and legal analysis by employers and their counsel. Accordingly, employers should seek experienced class action counsel to mitigate and manage such risk.
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