Judicial consideration of class action settlements was a trend
we reported on at the end of 2013, and it proved to be a trend yet
again in 2014. This year, we saw the courts continue to engage in
considerable scrutiny of proposed class action settlements. In both
Canada and the United States, courts demonstrated that they had no
qualms about rejecting settlements that they deemed to be unfair.
The multi-faceted test for settlement approval gives the court wide
latitude to evaluate a proposed settlement. Recent decisions have also held that the court
should also examine "circumstantial fairness", which
requires consideration of the settlement in context, institutional
fairness and whether access to justice would be perceived to be
achieved on an objective basis.
This means that when negotiating a class action settlement,
counsel must think broadly about any contextual factors that will
impact the fairness and reasonableness of the settlement.
Addressing such factors may require counsel to think creatively in
structuring the settlement, and about how the class counsel fees
are factored into the equation.
The test for settlement approval is whether, in all of the
circumstances, the settlement is fair, reasonable and in the best
interests of the class. We discussed the factors that a court must
Based on the settlements that were approved and rejected in
2014, we recommend that counsel give consideration to the following
in crafting a settlement:
#1 – Settlement Structure: "Claims-Made" Versus
In a previous post, we discussed the fact that the
number of class members that actually apply to receive part of the
settlement fund (the "take-up rate") is typically
In order to limit exposure when take-up rates may be low,
defence class counsel might consider a "claims-made"
settlement, as was the structure approved by the court in Fulawka v. The Bank of Nova Scotia,
discussed here. Under this structure, only class members
that submit claims will receive payment. This is in contrast to an
"all-in" settlement, where the defendant pays a global
sum from which class members will be paid out. In the latter
scenario, when take-up rates are low, the remaining amount is
distributed to charities under the cy-pres doctrine. The
"claims-made" settlement ensures that all that will
participate in the settlement are compensated appropriately. Of
course, this strategy is best suited to situations where a
defendant can reasonably ascertain the possible scope of the class
(as would have been the case in Fulawka, as the class was
comprised of employees seeking payment for overtime work) such that
it is possible to estimate the total payout at the end of the
#2 – Class Counsel Fees: Should Bear A Relationship To
The Benefit Received By the Class
Class counsel fees are always scrutinized by the court, and
particularly how the fees relate to the benefits that will be
received by the class through the settlement. In Waldman v. Thomson Reuters Canada
Limited, Perell J. commented that it is not wrong to make
the class counsel fee part of a settlement agreement, but "how
it is done matters". Perell J. suggested providing the court
with "options" that will allow it to link the class
counsel fee to the benefit to be received by the class. For
example, the class counsel fee might be linked to the take-up rate,
such that class counsel does not receive a disproportionate benefit
to the access to justice obtained by the class. Given that take-up
rates are routinely low, this may be an option to consider when
structuring the class counsel fee arrangement.
Ultimately, class action practitioners should bear it mind that
it is not simply the substantive and procedural attributes of the
settlement that will be considered. The court will look at the
settlement, in all circumstances of the case, and determine whether
access to justice can be said to have been achieved.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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