In fall 2010, Siskinds was retained to bring a proposed class action against Toronto Hydro-Electric System Limited (Toronto Hydro) on allegations that the utility company illegally charged interest at a rate of 19.56% per year. By way of background: The Interest Act requires that where interest is “chargeable, payable or recoverable” at a rate in excess of 5% per year, the service contract must clearly state the applicable annual interest rate. The class action alleged that Toronto Hydro bills stated only the monthly interest rate (of 1.5%) that would be applied to overdue accounts, in contravention of the Interest Act.
In the spring of 2012, the parties reached an agreement to settle the action – without admission or court finding of liability on the part of Toronto Hydro – and the class received a settlement amount of $5,835,882. Much of this money was distributed to customers that paid more than $30.00 in late payment interest at a rate exceeding 5%, but some of these funds were delivered to three charities, namely United Way Toronto, Red Door Family Shelter, and Second Harvest.
While these charities may well have been Toronto Hydro customers that were affected by the alleged billing practices, they did not receive compensation in this capacity. Rather, they were specifically chosen to receive any and all of the settlement amount that remained after payment was made to class members. This type of arrangement is termed a cy pres distribution.
By way of more background: Litigation is atrociously expensive. But that, in itself, does not deter wrongdoing, particularly substantial wrongs that can be thinly spread over a large group of people. Each person suffers a small amount of damage (making it completely uneconomical to bring an individual action to recover his or her loss), but these small amounts can add up to reveal that a considerable benefit was gained by the wrongdoer.
Class actions enable injured people to come together, combine their resources, and seek redress for losses that might otherwise go unrecovered. The core objectives of class proceedings are access to justice, conserving court resources, and behaviour modification. Cy pres distributions are used to further these objectives.
“Cy pres” is an old-timey legal doctrine that means “as close as possible”. It arises in many legal contexts, but in class actions it is used to address the reality that sometimes class members suffer such minor individual losses that the process of identifying class members or the mechanics of compensating identified class members is so burdensome as to prove nonsensical or wasteful. To leave these losses unrecovered, however, would do nothing to discourage the continuation of harmful practices. In such instances, the legislature and the courts permit the class to elect charities to receive compensation on its behalf. This process both helps remind defendants that no bad deed goes unpunished and helps plaintiffs achieve justice “as close as possible”.
In our client’s case against Toronto Hydro, the parties found that close to 60% of the class paid less than $5.00 in interest assessed at the contested rate. They also found that it would cost approximately $4.00 to compensate any given class member. Therefore, the decision was made to compensate only those class members that were alleged to have suffered the greatest losses as a result of their late bill payments. As for the rest of the settlement amount, the representative plaintiff for the class (our client) worked with the defendant to select three charities that both parties believed aligned with the interests at stake in the underlying litigation. Recognizing that precarious financial circumstances often force individuals to forego bill payments in order to afford other necessaries of life and the fact that the alleged damage was confined to the Toronto region, the following organizations were chosen to receive the residual settlement funds that could not logically or logistically be paid to the class. United Way Toronto was chosen because of its dedication to community-building and poverty-relief initiatives; Red Door Family Shelter was chosen because of its efforts in assisting Toronto families in crisis and providing them with transitional housing facilities; and Second Harvest was chosen because of its work toward supplying fresh, nutritious food to low income communities in Toronto. Each charity ultimately received $340,451.86.
Earlier this year, Siskinds received this very touching letter from Second Harvest. Please allow me to share it with you.