Cy-Pres Awards: Achieving the Goals of Class Actions?

In the first set of class action decisions handed down by the Supreme Court of Canada, the Court stated that the advantages of class actions are “access to justice”, “judicial economy” and “behaviour modification”.[1]  These advantages, often described as the goals of class actions, have been used in innumerable class action decisions since 2001.  It remains difficult to say what role these advantages or goals really play in class actions.

A case in point is the phenomenon of cy-pres awards.  Cy-pres (“as near as”) awards are used when it is too costly, or impossible, to identify all members of a class or to distribute a settlement fund directly to class members.  In such a situation, settlement funds are instead paid to a third party, usually a charity or foundation, with some connection to a class.  There has been controversy in the selection of charities and how closely connected (or not) they are to the class.

If the goal of class actions, through the goal of access to justice, is to compensate plaintiffs for wrongs they have suffered, cy-pres awards make little sense.  If, on the other hand, the goal of class actions is to modify defendants’ behaviour, cy-pres awards are more rational.  The tension between these goals can be significant.

Cy-pres awards are receiving increased attention, not only from the Ontario Law Commission in the context of an upcoming review of the class actions legislation in that province, but elsewhere in Canada and the US and in the media.  See one such article HERE.

As noted in the article, there was a debate regarding a recent cy-pres award ordered by Ontario Superior Court Judge Perell in respect of the distribution of the residual Bre-X settlement fund.  After distribution of the settlement fund to wronged investors pursuant to the terms of the settlement, $3.5 million remained.  Class counsel had suggested that the access to justice fund of the Ontario Law Foundation receive the full amount of the residual.  The Law Foundation had confirmed that it would in turn distribute the residual to other deserving recipients.  The Court didn’t care for a process in which a worthy candidate for funds would decide who else should receive funds and so decided the Law Foundation would receive the bulk of the funds with a class member’s recommended recipient receiving the remainder.

The simplicity of cy-pres awards can make them appealing for both plaintiff’s counsel and defendants.  Whether they are appropriate depends on how important the compensation of class members is seen to be.  The principle deserves, and is receiving, further scrutiny.

[1] Western Canadian Shopping Centres Inc. v. Dutton, 2001 SCC 46 at paras. 27-29

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