The latest class action settlement approval in Leslie v
Agnico-Eagle Mines warns that courts may be willing to
intervene to ensure a more adversarial process at future settlement
approval motions. Both plaintiffs and defendants should be aware
that judges are demanding more robust information as a prerequisite
to approving settlements, especially in the context of securities
Class Action Settlement Approval
Section 29(2) of Ontario's Class Proceedings Act
requires that all settlements of class proceedings be approved by
the Court as fair and reasonable and in the best interests of the
class. Similar provisions are found in other class action
legislation across Canada. As Justice Belobaba noted in
Leslie, requiring court approval combats the possibility
of "sweetheart" settlements, in which class members'
interests are compromised to those of class counsel, as well as
"blackmail" or strike suit settlements.
Concern about strike suit settlements in the securities class
action context is lessened because of the statutory leave
requirement in s. 138.8 of the OSA (which sets out a preliminary
merits test). However, almost all securities class actions settle
before trial, prompting Justice Belobaba's concern that
increased rigour in the settlement approval process is required to
avoid "sweetheart" settlements.
Boilerplate Language Not Sufficient
While Justice Belobaba noted that it is not the court's
place to second guess the quantum of settlement, the court can and
should demand sufficient information to ensure that the quantum of
settlement falls within the "zone of reasonableness." It
was not sufficient for class counsel to provide "an unhelpful
catalogue of self-serving (almost generic) reasons why the
settlement should be approved: the many litigation risks; the
hard-fought negotiation; the arm's-length settlement; and class
counsel's impressive credentials and litigation
Justice Belobaba demanded that the plaintiffs provide additional
information to demonstrate that the settlement was reasonable.
Counsel was reluctant to disclose the requested confidential
mediation briefs. Instead, they filed a supplementary affidavit
that described in more detail the litigation risks and the range of
possible damage recoveries. The supplementary affidavit explained
how the "high end" of the damages range had dropped from
some $300 million to only $30 million and why the $17 million
settlement was therefore within the range of reasonableness. This
additional information convinced the Court that the settlement was
in the best interest of class members.
Amping Up the Adversarial Process
In addition to requiring counsel to file additional evidence,
Justice Belobaba raised the possibility of settlement approval
judges appointing independent counsel (with his or her legal fees
paid by the parties) to review and oppose the settlement if it is
not in the best interests of the class. This would "add a
much-needed adversarial dimension to the settlement approval
Implications for Settling Parties
To ensure a smooth process during settlement approval motions,
and to avoid the potential appointment of independent counsel,
parties should provide concrete details to support why a settlement
falls within the "range of reasonableness." When a
settlement approval judge can understand how and why the parties
reached a particular settlement amount, he or she will be more
likely to approve it.
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