Canada: Theme # 5: Settlement

While it is unusual for Canadian courts to reject settlement agreements, parties are still required to propose settlements in keeping with the purpose of class actions. Some decisions in 2015 serve as a reminder to both plaintiffs and defendants that settlement approval is not simply a rubber stamp process.

Defendants must also be careful to negotiate at the appropriate time and with the appropriate party in order to avoid exposure and unforeseen liability. Courts have continued to flag their reluctance to approve settlements which trigger concerns of fairness or lack of transparency. Courts may also allow summary proceedings at the individual stage of class actions proceedings in the name proportionality and access to justice.

Eidoo:

In Eidoo v Infineon Technologies AG, a distribution protocol was underway following a national settlement approval by courts in BC, Ontario and Quebec. Counsel for five class members advised class counsel that he would be seeking an amendment to the distribution plan, alleging that it breached the Ontario Human Rights Code. While Justice Perell ordered class counsel to proceed by motion for directions, the parties instead negotiated a letter agreement settlement which purported to remedy the alleged contravention of the Code, and potentially paid class member counsel some costs.

Justice Perell refused to authorize the agreement without making a ruling on the merits of the underlying dispute. He also cast serious doubt on the appropriateness of costs compensation to counsel for the five class members absent an actual ruling on the merits. Turning to the merits, Justice Perell determined that the Code did not apply to distribution protocols, which fell outside the definition of "services, goods, or facilities" as well as contracting processes. Full analysis here.

Lundy:

In Lundy v Via Rail, the defendants sought to make individual offers to settle to individual class members. Class counsel refused to present the offers as the case had not yet reached the individual issues stage under the Ontario Class Proceedings Act. Justice Perell agreed with Class counsel, and determined that the individual issues stage had not been triggered. A class action suit has only entered the individual issues stage where:

  1. The common issues stage (trial) is formally completed and judgment rendered;
  2. An "Individual Issues Litigation Plan" is negotiated and settled by the court;
  3. Offers to settle are amended to be undifferentiated lump sum offers; and
  4. Class Members are appropriately notified under section 18 the Act about the outcome of the common issues of the litigation.

Justice Perell further determined that a rejected offer could have costs or awards implications where the offer is higher than the ultimate recovery amount. Moreover, costs are properly awarded to successful plaintiff's counsel at the end of the common issues stage, regardless of the outcome of any individual issues.

Justice Perell referred to the need for proportionality and access to justice in the individual issues stage. This suggests, depending on the nature of the individual issues to be decided, that the court may consider summary procedures rather than extensive discovery and trial for individual issues. The argument for greater rights of discovery and cross-examination may be stronger where important issues of the defendant's liability have yet to be determined. Full analysis here.

AMT:

The issue of what to do with unclaimed settlement funds were addressed by the Quebec Superior Court's approval of a settlement between commuters and Montreal's commuter rail service, AMT. While more than 19,000 commuters were eligible to claim a portion of the $997,000 settlement funds for poor service, only about 1,000 applied for a share. Despite an extension of the claims period, and distribution of claims forms on the affected commuter lines, response rates remained low.

Unclaimed funds from class action settlements call into question the merits and necessity of the class action in question. Instead of applying the Cy-près doctrine, the court awarded the unclaimed settlement amount to two non-profit organizations devoted to public transit who were named beneficiaries of the settlement. Full analysis here.

Brunet:

The pitfalls of pre-certification negotiation were highlighted in Brunet c Zimmer. The defendants entered into settlement negotiations with Merchant LLP, counsel for a proposed class action regarding allegedly defective hip implants (the "Wainberg Class Action"). Merchant LLP had won the carriage battle against Kugler Kandestin LLP in 2012. Kugler began a separate class action against the defendant with respect to the same implant (the "Brunet Group Action").

The defendant sought to stay the Brunet Group Action, arguing that plaintiffs in that group were obliged to opt-out of the prospective Wainberg Class Action. The Court denied the stay, on the basis that the Wainberg Class Action had not yet been authorized. The Court held that the Brunet Group Action should not be dependent on the outcome of negotiations of the yet to be authorized Wainberg Class Action.

Entering into negotiations before authorization or certification, even where counsel has been awarded carriage of a potential class action, does not provide defendants with a guarantee that they are negotiating a settlement of all potential class member claims. Full analysis here.

McCallum-Boxe:

In McCallum-Boxe v Sony, Justice Belobaba considered the reasonable scope of legal fees to be paid by a Sony to Merchant LLP under a settlement agreement.

Sony had agreed to disburse $8000 to 400 class members. Merchant LLP claimed at highest $225,000 in legal fees owed to it by Sony under the settlement agreement. Justice Belobaba disagreed, and noted that Merchant LLP had intentionally approached the litigation without a written retainer agreement or contingency fee provision in an attempt to recover legal fees directly from Sony.

Justice Belobaba describe this legal fee tactic as "the very antithesis of what is in the best interests of the class," as it created a conflict of interest which encourages low and easy settlement by class counsel. While Merchant LLP was entitled reasonable fees, those fees were reduced to $30,000 given the low risk of the litigation and the modest result achieved for the class.

Bancroft-Snell:

Justice Perell also took issue with Merchant LLP's approach to fees in Bancroft-Snell v Visa Canada Corporation. In that case, the settlement, contingency fee agreement, and class counsel fee of $3,384,571 had all been approved. Justice Perell then rejected a fee sharing agreement between Merchant LLP and Camp Fiorante Matthews Morgerman LLP as unenforceable and "possibly illegal", and so ordered Camp not to pay any sums to Merchant.

Merchant had agreed, in a judicial dispute resolution conference with Camp, to stay their rival proposed class action which had created an impasse for carriage in Alberta and Saskatchewan. As part of that agreement, Camp agreed to indemnify Merchant for any cost claims in the stayed Alberta and Saskatchewan actions.

Justice Perell refused to endorse the fee-sharing portion of the agreement as it would have force class members in Ontario to "pay a ransom fee in order to stay late-arriving rival class action in Alberta and Saskatchewan," and so could not serve the best interests of the class members at large.

Looking Ahead:

Settlement agreements which apportion legal fees are still subject to judicial approval, and will be closely scrutinized where no decision on the merits has been rendered. Eidoo and Bancroft-Snell both serve to remind counsel that the Court will consider the interests of the entire class in approving settlements. McCallum-Boxe saw counsel rebuked for attempting to structure legal fee recovery in a way the Court viewed as inappropriate, and further reinforces that fee recovery will depend on the risk of the litigation and result of the settlement.

Lundy affirms the right of defendants to offer individual settlements at the appropriate phase of proceedings, and raises the possibility of expedited proceedings at the individual issues stage. Defence counsel should ask for appropriate procedure, including discovery and cross-examination, where individual issues may center on defendant liability or present wider reaching implications.

Brunet emphasizes the need for defendants to be patient in responding to class actions, and to only negotiate with the right party, at the right phase of litigation. It may be prudent for defendants to wait until certification of one particular group, and to use that opportunity to negotiate and apply for a court approved settlement in order to head off other actions at the pass.

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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