Court wrestling with cy-près principles

Court wrestling with cy-près principles
Last month, Ontario Superior Court Justice Paul Perell varied class counsel’s recommendation to distribute a cy-près award in its entirety to the Access to Justice Fund operated by the Law Foundation of Ontario. Instead, as a result of a University of Ottawa faculty member’s request to the court, 20 per cent of this award was donated to the Telfer School of Management at the University of Ottawa.

Class counsel was surely surprised as at least in five other cases, cy-près payment to the fund has been approved in its entirety.

In Carom v. Bre-X Minerals Ltd., the plaintiffs brought a motion for, among other things, court approval of a cy-près payment of approximately $4.2 million to the Access to Justice Fund of the Law Foundation of Ontario.

To say these proceedings were protracted, expensive, and tortured is an understatement. On April 3, 1997, proposed class actions were commenced in Ontario and the United States on behalf of Bre-X shareholders. Bre-X made an assignment into bankruptcy shortly thereafter, leaving the plaintiffs in the class action and Bre-X’s trustee in bankruptcy to pursue compensation for Bre-X’s securityholders.

Between 2002 and 2005, the plaintiffs in the class action and the trustee in bankruptcy entered into a settlement that made $3.5 million available for Canadian class action claimants. Fourteen years after the class actions were commenced, the plaintiffs were now before the court to determine the distribution of these funds.

The plaintiffs requested a cy-près award rather than a distribution process. The cost of distribution in this case was estimated at $1 million or more and would result in a recovery for class members of about 0.2 cents on the dollar. Based on this information, class counsel recommended it would be most cost effective to distribute these funds cy-près to the Access to Justice Fund. Class counsel envisioned a process whereby the Law Foundation would receive grant proposals for the use of these funds by institutions across Canada.

The Class Proceedings Act, 1992 expressly permits cy-près distributions; s. 24 permits the court to assess aggregate damages as against a defendant, and to award individual shares of such damages to class members on an average or proportional basis. Subsection 24(3) expressly requires the court to consider whether it would be “impractical or inefficient to identify the class members entitled to share in the award or to determine the exact shares that should be allocated to individual class members.” Section 26(1) grants the court very broad discretion to direct distribution of awards; it is expressly authorized to direct “any means of distribution . . . that it considers appropriate.”

Subsection 26(4), which grants the court the authority to make cy-près distributions “in any manner that may reasonably be expected to benefit class members,” provides the only statutory guidance on who should be permitted to receive a cy-près award.

Although no class member objected to the distribution of the funds by way of cy-près, one class member who was on the faculty of the University of Ottawa asked the funds be paid cy-près to Telfer.

The judge acknowledged it was class counsel’s ultimate responsibility of identifying a worthy recipient of a cy-près award, and the ultimate decision for choosing the recipient of a cy-près award remains with counsel. He also acknowledged courts are not in the business of being a grant-approving institution.

However, instead of following class counsel’s recommendation, it was Perell’s opinion the cy-près award should be made 80 per cent to the Access to Justice Fund and 20 per cent to Telfer.

In varying the recommendation of class counsel, the court became exactly what it was striving to avoid: a grant approving institution. Even more striking was the court’s decision to distribute money to the business school at the request of a faculty member of that university.

In an earlier decision by the same judge, Sorenson v. easyhome Ltd., Perell held it was inappropriate to distribute funds cy-près to the Foundation for Advancement of Investor Rights, a pro bono client of class counsel, because class counsel would get “an indirect benefit because they can take credit for the class members’ contribution” to the foundation.

The court’s approach demonstrated an increasingly interventionist trend in the approval of cy-près awards. However, the jurisprudence surrounding cy-près awards in Ontario is still immature. That will surely change as class counsel continue to use this valuable tool for deterrence and behaviour modification in the future.

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