Ontario Court introduces cy-près requirement as condition of class fee approval

In Welsh v Ontario, Justice Perell asserted the court’s role in ensuring that class counsel’s fees are fair and reasonable in light of the results obtained for class members. He found that the settlement before him did not justify the fees sought by class counsel. Therefore, he approved them subject to conditions, including that class counsel donate $1.5 million of their fees to charity. This order in effect introduced a cy-près element that, according to Justice Perell, mitigated the shortcomings of the settlement and better served the goals of class proceedings.

Background

The plaintiff commenced a class action against Ontario alleging sexual, physical, and mental abuse over the course of decades at four provincially run schools for the deaf. The plaintiff claimed $325 million in damages for the former students (the “Student Class”) as well as damages for their family members (the “Family Class”). 

After a consent certification and mediation, the parties entered into a settlement agreement that covered three of the four schools. The parties then moved for approval of the settlement, including the issue of the quantum of class counsel’s fees.

Proposed settlement: poor but within range of reasonableness  

Justice Perell was highly critical of the proposed settlement and was initially inclined to reject it. Among other reasons for his disapproval, he highlighted the fact that “90% of the Student Class and 100% of the Family Class would get no compensation, no apology, nor anything at all even indirectly for releasing their claims against Ontario.”

However, Justice Perell ultimately concluded that the settlement should be approved. In light of the challenges and risks faced by the class members if the claim went to trial, he found that it was “preferable to approve the settlement than to give the class as a whole the false hope that continuing litigation would produce a more favourable outcome.”

Class counsel’s fees: approved but subject to conditions

Justice Perell then turned to class counsel’s proposed fees. He noted that the fairness and reasonableness of fees is determined in light of the risk undertaken by class counsel and the result achieved.

In the case before him, Justice Perell acknowledged that class counsel had undertaken significant risk. However, he added that they should not be rewarded simply for taking on risk divorced from what they actually achieved. In particular, he found that the fees sought by class counsel – $3.75 million plus HST – were not fair and reasonable given that the majority of class members would receive no benefits from the settlement.

Instead of rejecting the fees outright, Justice Perell approved them subject to two conditions. First, he ordered that the fees should be reduced proportionately to the amount of the settlement funds, if any, that reverted to Ontario (it was a condition of the settlement agreement that any unclaimed settlement funds would go back to the province). Second, he ordered class counsel to donate $1.5 million of the fees to a charity or charities for the deaf as designated by further order of the court.

According to Justice Perell, this approach ameliorated many of the shortcomings of the settlement:

Fortuitously this approach … has the added benefit of ameliorating the Class Members’ disappointment and in effect, introduces a cy-près element to the overall settlement that better achieves the substantive access to justice and behaviour modification goals of a class proceeding and that also addresses some of [the] objections to the Settlement Agreement. Indeed, this approach brings dignity and respect to the majority of the Class Membership who will now actually achieve a substantial benefit from not opting out and from participating in the class action. 

Conclusion

We have previously discussed a number of cases where Ontario courts have asserted their role in scrutinizing class counsel’s fees. For example, in Bancroft-Snell v Visa Canada Corporation, the Court of Appeal for Ontario upheld a decision prohibiting class counsel from paying a “a ransom fee in order to stay late-arriving rival class action in Alberta and Saskatchewan” from settlement funds. More recently, in Brown v Canada (Attorney General), the Ontario Superior Court rejected a proposed national settlement agreement that had already been approved by the Federal Court because the $75 million proposed fee for class counsel was not “anywhere close to reasonable.”

The decision in Welsh continues this trend of courts closely scrutinizing class counsel’s fees and ensuring that their rewards are commensurate to the benefits obtained for class members. Significantly, Welsh also demonstrates that a court may go beyond simply approving or rejecting a proposed settlement or fee award, and may in fact introduce amendments to better achieve the goals of class actions.