Canadian Class Action Defence Blog

Court Reiterates Threshold for Settlement Approval: Class Counsel Must Lead Substantive Evidence on the Reasonableness of the Settlement

Aug 19, 2016 3 MIN READ
Christopher Naudie

Partner, Disputes, Toronto

In a recent decision by the Ontario Superior Court of Justice, Justice Belobaba reiterated the need for parties seeking court approval of a settlement in a class proceeding to provide concrete details and substantive evidence that demonstrates that a settlement in a class proceeding falls within a reasonable range and is in the best interests of the class.

Approval of Settlement under Class Proceedings Act in Ontario

In Ontario, a class plaintiff must seek judicial approval for any settlement under the Class Proceedings Act, and the Court must be satisfied that the settlement is fair and reasonable and in the best interests of the class. Similar provisions are found in other class action legislation across Canada. In the past, many plaintiff’s counsel have sought and have obtained settlement approval of class settlements by adducing evidence that is focused on the process of settlement – namely, the settlement was reached by experienced counsel negotiating at arm’s length in an environment of mutual risk, and that the settlement should be considered reasonable in light of the outcome of a fair bargaining process. 

But as we have previously posted, a number of class action judges have recently indicated that they are no longer willing to rely on such procedural evidence alone, particularly in a non-adversarial forum where both the plaintiff and defence counsel are seeking settlement approval. Rather, these judges have indicated that they will expect concrete details and substantive evidence to be filed on the approval motion relating to the reasonableness of the settlement. While the courts have underscored that it is not the place of the Court 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.”

Rosen v BMO Nesbitt Burns

In Rosen v BMO Nesbitt Burns Inc., 2016 ONSC 4752, Justice Belobaba approved the settlement of a significant employment misclassification class action – namely a class action against an investment firm for unpaid overtime obligations in respect of its investment advisors. The case was the first misclassification class action that was certified on a contested basis in Ontario, and after six and a half years of litigation, the investment firm settled the case for a settlement payment of $12 million.

Justice Belobaba approved the settlement, but he reiterated that class counsel are expected to adduce substantive evidence of the reasonableness of the settlement at the settlement approval motion. In this case, the evidence submitted included data from comparable US settlements (since Canadian data was not available). Justice Belobaba found that this hard evidence established that the quantum of the settlement fell squarely within the zone of reasonableness. Justice Belobaba also indicated 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.

Take Away

This decision serves as a reminder to counsel that a motion to approve settlement requires concrete details of substantive evidence to demonstrate not only that the settlement was to the benefit of the parties, but also to demonstrate that the quantum of the settlement falls within the zone of reasonable amounts. While the burden of seeking settlement approval falls on class counsel, this emerging line of authority may create challenges for defence counsel in disclosing settlement details in court, particularly where the defendant is facing litigation in multiple forums in Canada or around the world. In the absence of such details, there may be a significant risk that the Court will withhold settlement approval.