Canadian Class Action Defence Blog

Avoiding Settlement Stumbling Blocks: Boilerplate Language Not Sufficient

Feb 24, 2016 3 MIN READ
Karin Sachar

Partner, Disputes, Toronto

The latest class action settlement approval in Leslie v Agnico-Eagle Mines warns that courts may be willing to intervene to ensure a more adversarial process at future settlement approval motions. Both plaintiffs and defendants should be aware that judges are demanding more robust information as a prerequisite to approving settlements, especially in the context of securities class actions.

Class Action Settlement Approval

Section 29(2) of Ontario’s Class Proceedings Act requires that all settlements of class proceedings be approved by the Court as fair and reasonable and in the best interests of the class. Similar provisions are found in other class action legislation across Canada. As Justice Belobaba noted in Leslie, requiring court approval combats the possibility of “sweetheart” settlements, in which class members’ interests are compromised to those of class counsel, as well as “blackmail” or strike suit settlements.

Concern about strike suit settlements in the securities class action context is lessened because of the statutory leave requirement in s. 138.8 of the OSA (which sets out a preliminary merits test). However, almost all securities class actions settle before trial, prompting Justice Belobaba’s concern that increased rigour in the settlement approval process is required to avoid “sweetheart” settlements.

Boilerplate Language Not Sufficient

While Justice Belobaba noted that it is not the court’s place to second guess the quantum of settlement, the court can and should demand sufficient information to ensure that the quantum of settlement falls within the “zone of reasonableness.” It was not sufficient for class counsel to provide “an unhelpful catalogue of self-serving (almost generic) reasons why the settlement should be approved: the many litigation risks; the hard-fought negotiation; the arm’s-length settlement; and class counsel’s impressive credentials and litigation experience.”

Justice Belobaba demanded that the plaintiffs provide additional information to demonstrate that the settlement was reasonable. Counsel was reluctant to disclose the requested confidential mediation briefs. Instead, they filed a supplementary affidavit that described in more detail the litigation risks and the range of possible damage recoveries. The supplementary affidavit explained how the “high end” of the damages range had dropped from some $300 million to only $30 million and why the $17 million settlement was therefore within the range of reasonableness. This additional information convinced the Court that the settlement was in the best interest of class members.

Amping Up the Adversarial Process

In addition to requiring counsel to file additional evidence, Justice Belobaba raised the possibility of settlement approval judges appointing independent counsel (with his or her legal fees paid by the parties) to review and oppose the settlement if it is not in the best interests of the class. This would “add a much-needed adversarial dimension to the settlement approval hearing.”

Implications for Settling Parties

To ensure a smooth process during settlement approval motions, and to avoid the potential appointment of independent counsel, parties should provide concrete details to support why a settlement falls within the “range of reasonableness.” When a settlement approval judge can understand how and why the parties reached a particular settlement amount, he or she will be more likely to approve it.