A business subject to a class action receives a "without
prejudice" letter from a potential class member offering to
settle a small personal claim for nearly a million dollars, or else
the writer will "go public" with the allegations and seek
class certification. The business does not accept the
"extortionate" offer and the writer proceeds with
certification. Can the business put this "without
prejudice" letter before the court? And does the appearance of
extortion disqualify the writer from acting as representative
The original plaintiffs in Sandhu were brothers. They
obtained a mortgage from the defendants to purchase residential
property. The defendants provided a disclosure statement to the
plaintiffs identifying $357 of the mortgage proceeds as going
toward a "Title insurance premium." The plaintiffs
subsequently alleged that of this $357, only $115 was the actual
insurance "premium", with the remainder being for
"policy insurance costs" and "additional
charges." They commenced an action in 2007 that eventually
evolved into a complaint regarding fee disclosure.
In 2011, prior to the certification application, the plaintiffs
offered "without prejudice" to settle the action for
$876,000, or $438,000 each. Such amounts represented over 3,600
times their individual claims. They threatened that unless these
disproportionate sums were paid, they would amend their claim to
allege "actual fraud, or at the very least fraudulent
misrepresentation." The plaintiffs pitched this offer as the
defendants' "one chance before it becomes publically
Defence counsel put this letter before the court on the
certification application, arguing that the plaintiffs' efforts
at personal enrichment disqualified them from acting as
The applications judge
held that the "without prejudice" letter was not
admissible on grounds of settlement privilege and faulted defence
counsel for putting it on the record. The court certified a class
action and designated the two original plaintiffs (and two others)
as representative plaintiffs.
British Columbia Court Of Appeal Decision
The B.C. Court of Appeal allowed the appeal. Justice Saunders
held, among other things, that the "without prejudice"
letter was properly before the court and that the original
plaintiffs had disqualified themselves from representing the
Justice Saunders held that the "without prejudice"
letter fell within an exception to the blanket privilege for
settlement communications because it provided a "reasonable
basis to question" the plaintiffs' fitness to represent
the class. She explained that this flows from the importance of the
representative plaintiff to the integrity of class proceedings:
"It is obvious that the confidence of the community of class
members and to a large degree the integrity of the proceeding rests
on the representative plaintiffs." Courts should not close
their eyes to evidence challenging this integrity.
Taking into account the letter, Justice Saunders held that the
application judge erred in principle by designating the original
plaintiffs as representatives of the class. In her view, "such
a demand for large scale payment on the threat of a certification
application is highly problematic." She held:
In failing to weigh the lingering effect of this combination of
menace and disproportionate recovery, the certification order does
not reflect the values inherent in the Class Proceedings Act. Above
all, no litigation should be, or reasonably be seen to be,
extortionate. This letter, when sent, bore that character and in my
view is a disqualifying event for the appointment of its authors as
The original plaintiffs sought to put a fresh affidavit before
the Court of Appeal claiming that the "without prejudice"
letter was sent fearing a potential adverse cost award and that any
surplus would have been given "to non-profit consumer advocacy
groups." Justice Saunders considered this fresh evidence but
held that it "does not lessen the appearance of large personal
gain, or the appearance of using the threat of a class proceeding
to extract a disproportionate payment."
One would hope that such a situation would not arise frequently.
Where it does, however, Sandhu permits defendants to put
evidence of the plaintiffs' "extortionate" behaviour
before the court – and challenge the fitness of
representative plaintiffs who seek to personally enrich themselves
through class actions.
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