Settlement of class actions in Ontario
Over 25 class action settlements were approved by the Ontario Superior Court in 2016. Ontario is increasingly becoming a preferred jurisdiction for class actions in Canada, which has consequently led to an increased number of certification motions, class action hearing and settlements motions.
In order to settle a class action, court approval is required. Section 29(2) of the Class Proceedings Act (Ontario) provides that a settlement of a class proceeding is not binding unless approved by the court. The court's role in settlement approval is to ensure that the settlement reached between the lawyers is in the best interests of the class as a whole. However, depending on the stage in the litigation process at which a settlement is reached, the courts may not have the benefit of a complete factual record before them when assessing and approving settlements. Consequently, courts have in the past placed a high degree of trust in class counsel who assert their experience with class actions generally and affirm that they have negotiated the best possible outcome for the class at hand.
Recently, the Ontario courts have begun to shift away from a practice of blindly trusting class counsel's conclusions. Instead, courts are demanding that counsel present transparent reasoning and evidence which clearly explain the path taken by counsel towards settlement.
Established criteria for settlement approval
In order to approve a class settlement, the court must ensure that the rights of class members are properly balanced against other measures which support a settlement agreement. The basic test for court approval is that "the court must find that in all circumstances the settlement is fair, reasonable and in the best interests of those affected by it".(1) In 1998 Dabbs v Sun Life Assurance Co of Canada established a non-exhaustive list of factors for consideration when approving a class settlement. These factors have been relied on by Ontario courts since 1998 when assessing settlements. They are as follows:
- likelihood of recovery or likelihood of success at trial;
- amount and nature of discovery evidence available;
- settlement terms and conditions;
- recommendation and experience of counsel;
- future expense and likely duration of litigation;
- recommendation of neutral parties, if any;
- number of objectors and nature of objections; and
- the presence of good faith and the absence of collusion.
This is not an exhaustive list. Instead, the factors are used as a guide by courts to allow for a range of possible resolutions.
Given consideration of the above factors, settlement agreements are generally approved if the court is of the opinion that the settlement quantum falls within the range of possible outcomes at trial. The standard that the courts adopt is one of reasonableness, not perfection.(2) Any given case will require one or more of the factors to have greater significance. For instance, the likelihood of recovery will be given substantial consideration where the defendant is insolvent. Accordingly, if a settlement agreement yields an imperfect, yet reasonable, outcome for class members, Ontario courts are likely to approve it.
Recent developments and increasing threshold
With the Dabbs criteria clearly established and class action popularity on the rise in Ontario, a pattern has developed among plaintiffs' class action counsel in Ontario to commence actions in the hope of seeking a settlement and approval, which has caught the attention of the courts. Judge Belobaba (one of the leading class action judges in Ontario) noted that a counsel seeking early settlement was using boilerplate formulations and language as reasons for settlement within their facts submitted on settlement motions, which are of little to no assistance to the courts when assessing the merits of a settlement. Since early 2016, the judge has actively voiced his concerns within his decisions, stating that he finds this current standard practice wholly inadequate. On multiple occasions during 2016, the judge requested supplementary affidavits from counsel, giving them an opportunity to use available facts and further elaborate on their reasons for seeking settlement approval. In Clegg v HMQ Ontario, the judge stated:
"In the vast majority of early stage class action settlements, the court hears 'a one-sided presentation about how wonderful the settlement is and how aggressively class counsel championed the absent class's cause'. Class counsel generally set out a list of self-serving 'boiler-plate' reasons why the settlement should be approved - the litigation risks; the hard-fought negotiation; the arm's length settlement and, of course, class counsel's vast experience.
This boiler-plate, as I concluded in two recent settlement approval decisions, reduced to its essence is this: 'We're experienced class counsel; we negotiated the best possible deal for the class members; trust us'."(3)
The judge has expressed further scepticism about early-stage settlements and stated that they ought to be evaluated particularly critically, as parties have limited evidence available to determine the merits of the action going forward.(4) Most plaintiffs' class counsel are retained on a contingency basis and are therefore interested in securing a guaranteed contingency through early settlement. The judge stated:
"In early stage settlements, judges must continue to encourage class counsel to actually explain why the settlement falls within a zone of reasonableness and is in the best interests of the class. It is no longer correct or appropriate for judges to succumb to the aforementioned 'boiler-plate' or blithely assume in the class action context that there is a 'strong initial presumption of fairness' when the settlement is negotiated at arm's length and is recommended by experienced class counsel. That may work for conventional two-party settlements but it is an unwarranted assumption in the class action context."(5)
On the other hand, in Ramdath v George Brown College, where the case had advanced beyond certification, the judge approved the settlement and commended counsel who were able to fully support their settlement decision with evidence. the judge stated:
"At the time of settlement, class counsel's knowledge base about the ongoing risks and rewards was at its highest possible point. In other words, this was not an early stage settlement where the court is understandably 'suspicious'. Here the settlement was negotiated and achieved after the completion of discovery, two trials and numerous appeals. Class counsel's recommendations were thus less likely to be tainted with self-interest and more likely to be in the best interests of the class."(6)
Similarly, in Rosen v BMO Nesbitt Burns Inc,(7) the judge once again approved the settlement of a significant employment misclassification class action after six-and-a-half years of litigation. He reiterated that he was more inclined to rely on class counsel's assessment of the risks of a class action in a "late stage settlement", particularly after class counsel has conducted significant investigation and discovery of the merits of the case. In this case, counsel submitted evidence from comparable US settlements (since Canadian data was not available) to prove the reasonableness of the settlement. The judge found that this hard evidence established that the quantum of the settlement fell squarely within the zone of reasonableness.
In the coming years, Ontario courts are expected to take a more active approach towards assessing evidence on the reasonableness of settlements. Counsel should be prepared for rigorous questioning and be able to substantively prove that the settlement is in the best interests of the class. In order to maintain objectivity in the settlement process, some have suggested that judges should perhaps appoint independent counsel that can review and oppose the settlement if it is not in the best interests of the class. The concerns on a settlement motion and the trend going forward were succinctly summarised by the judge in Leslie v Agnico-Eagle Mines:
"The shared concern is obvious: class action judges must do more than acquiesce to the self-serving submissions of class counsel that often amount to nothing more than – 'we're experienced class counsel – we know what we're doing – trust us'.
I don't know what the future holds. Perhaps the time has indeed come for judges in appropriate cases to appoint independent counsel (with his or her legal fees paid by the parties) in order to add a much-needed adversarial dimension to the settlement approval hearing. One thing, however, is clear: class counsel can no longer rely on boiler-plate 'reasons' that do nothing more than describe generic litigation risks or class counsel's so-called 'experience'– class counsel must at the very least provide the Court with information why the settlement amount falls within a range or zone of reasonableness."(8)
Therefore, when seeking approval of class action settlements in Ontario, in the words of Alexander Graham Bell, "before anything else, preparation is the key to success".
For further information on this topic please contact Deepshikha Dutt at Dentons by telephone (+1 416 863 4511) or email ([email protected]). The Dentons website can be accessed at www.dentons.com.
Endnotes
(1) Dabbs v Sun Life Assurance Co of Canada, [1998] OJ 2811, 40 OR (3d) 429.
(3) Clegg v HMQ Ontario, 2016 ONSC 2662.
(4) See Middlemiss v Penn West Petroleum, 2016 ONSC 3537, paragraph 12.
(5) Clegg v HMQ Ontario, 2016 ONSC 2662 at para 31.
(6) Ramdath v George Brown College, 2016 ONSC 3536, paragraph 8.
(7) Rosen v BMO Nesbitt Burns Inc, 2016 ONSC 4752.
(8) Leslie v Agnico-Eagle Mines, 2016 ONSC 532, paragraphs 17 and 18.
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