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In her forthcoming article, The “Illusion of Compensation”: Cy près Distributions in Canadian Class Actions, class actions scholar, Professor Jasminka Kalajdzic, brings to comprehensive light the rather desultory state of cy près settlement jurisprudence in Canada.1 Professor Kalajdzic notes that, in recognition of its parallel landscape, the U.S. Supreme Court is awaiting an appropriate case in which to clarify, among other things, “what the respective roles of the judge and parties are in shaping a cy près remedy”. A recent decision of the Ontario Superior Court suggests that Ontario’s court of first-instance occasioned upon such an opportunity in the case of Carom v Bre-X Minerals Ltd, 2014 ONSC 2507.

On April 2, 2014, Justice Perell, of the Superior Court, released his decision in (presumably) the final installment in the Bre-X class action litigation. Much of the Court’s reasons were devoted to wrapping up administrative matters – i.e. dismissal orders and the payment of professional fees – but took a turn for the controversial as the Court and the Parties set upon the issue of distributing a pool of settlement funds.

Nearly 12 years ago, in June 2002, a $9 million settlement was reached with Bresea Resources Ltd (nka Sasamat Capital Corporation). $2 million was to be paid for the benefit of the bankruptcy estate, while the remaining $7 million, subject to certain deductions, was to be split on a 33:67% ratio between claimants in the American and Canadian class actions, respectively. Ultimately, just under $3.5 million became available for distribution to Canadian claimants. Recognizing that a distribution process itself would “likely” consume around $1 million of the $3.5 million sum, and by the account of the Court, thereby diminish the recovery of each class member to “about 0.2 cents on the dollar”, Class Counsel requested and the Court agreed that a cy près award would be appropriate.

Cy près settlements have now become a fixture of class actions law, permitted on the reasoning that they can further the class proceedings objectives of access to justice and behaviour modification even if direct compensation to injured class members is impractical or otherwise not possible. The benefit to the class is intended to inure through the type of organization selected to receive the damages awarded class members – “cy près relief must come as close as possible to the objective of the case and the interests of the class members”.2 For example, in Helm v Toronto Hydro-Electric System Limited, 2012 ONSC 2602, a case involving penalties assessed on overdue utilities accounts, residual settlement monies were distributed to United Way Toronto, Second Harvest, and the Red Door Family Shelter, on the reasoning that the impugned charges disproportionately impacted low-income individuals who would be more likely to use the services offered by these charities.

In Bre-X, Class Counsel put forward the Law Foundation of Ontario, and specifically its Access to Justice Fund, as the proposed cy près recipient of the Bresea settlement monies. While no objections were recorded as to the cy près award per se, one class member did retain independent counsel to make submissions on the putative cy près recipient. This class member argued that the Tefler School of Business at the University of Ottawa, on which the Court observed the class member sits as faculty, should receive the distribution.

Class Counsel agreed that the Tefler School could be a suitable recipient but argued that “there are many other such institutions in Canada which would also be worthy recipients and it would be unfair to them to make an award in this manner as part of the resolution of a class action”. Class Counsel thus asserted that the funds should be paid exclusively to the Access to Justice Fund, whereupon the Tefler School would be free to submit funding applications for eligible projects. This proposal would place the Tefler School on equal footing with other deserving recipients and enable the Access to Justice Fund, “which is institutionally equipped to address grant requests”, to allocate funding in accordance with its expertise. It is this last aspect of counsel’s proposal that appears to have secured its failure, and in the end, the Court approved the cy près settlement, but directed that 80% of the monies be awarded to the Access to Justice Fund and 20% to the Tefler School of Business.

In an earlier decision, Justice Perell declared that cy près distributions must “serve the objectives of the particular case and the interests of the class members”.3 Distributions to business schools in general have been criticized for lacking this requisite connection in securities misrepresentation cases, saying nothing of where a single class member stands to gain a greater reward than the remainder of the class.4 Nevertheless, Justice Perell in Bre-X expressed only the concern that, in allowing the Access to Justice Fund to control allocation of the settlement funds, Class Counsel was impermissibly delegating “its responsibility in identifying the ultimate recipient of the award”.

The Court observed that its jurisdiction on settlement approval is limited to approving or rejecting the agreement as proposed, but distinguished its task in this case on the grounds that the settlement had already been approved and that distribution was a matter of its administration – the settlement agreement, as previously approved, contained a provision stipulating that the monies be distributed as directed by the Ontario Superior Court.

The Court further noted that “Class Counsel should consider the views of individual class members about whom should be a recipient of the Class’s largesse”, but also directed that “[w]hen a Class Member (in this case, James F. Roache who is on the faculty of the Tefler School) asks that the funds be paid [cy près], Class Counsel will have to be satisfied that the request is not a self-serving request that does not benefit all Class Members.” In this case, the Court concluded that, given that the recommendation was made and Class Counsel acknowledged the Tefler School as a worthy recipient, this recommendation ought to have been advanced for approval. The Court was, however, careful to emphasize that in other cases, in which typical jurisdictional constraints apply, courts will be less likely to interfere with the recommendations of class counsel. Indeed, the Court remarked that had Class Counsel objected to Mr. Roache’s request on the grounds that either a) the Tefler School was not sufficiently connected to the action or b) the Access to Justice Fund was the preferable choice, it would not have exercised its jurisdiction to “second guess” their recommendation.

In sum, it appears that the Ontario Superior Court has reached a rather surprising determination on the roles of the judge and parties in shaping a cy près remedy, but were circumstances in Bre-X so unusual as to effectively confine these determinations to this case? Perhaps only time, and a multitude of (class member) voices, will tell.

1 Jasminka Kalajdzic, The “Illusion of Compensation”: Cy près Distributions in Canadian Class Actions (2014) 92:1 Can Bar Rev (Forthcoming).

2 BJ Rothstein & Thomas E Willging, Managing Class Action Litigation: A Pocket Guide for Judges, 3rd ed (Federal Judicial Center, 2010) at p 19.

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