Getting in the Zone – The court’s new approach to the settlement approval process

In a duo of decisions released this month, Justice Belobaba of the Ontario Superior Court of Justice has called on judges and counsel alike to change the way they approach court approval of class action settlements.

In Ontario, all class action settlements must receive approval from the court under section 29(2) of the Class Proceedings Act. This requirement recognizes that, due to the interests and incentives of the parties at the negotiating table (class counsel and the defendants), there is a risk that the settlement of a class action will result in either a ‘sweetheart’ settlement (whereby class counsel agrees to settle for less than the case is worth) or a blackmail settlement (whereby the defendants are coerced into settling cases for more than they are worth).

In Sheridan Chevrolet v. Furakawa Electric et al., 2016 ONSC 729 and Leslie v. Agnico-Eagle Mines, 2016 ONSC 532 Justice Belobaba expressed concern that, aside from scrutinizing settlement agreements for indicators of actual collusion or conflict, the courts are typically not furnished with sufficient information to assess whether the amount of the settlement falls within the “zone of reasonableness”.

In particular, Justice Belobaba took issue with the “boiler plate” reasons for court approval put forward by some plaintiffs’ counsel. In his view, the generic and somewhat self-serving statements amount to “we’re experienced class counsel – we know what we’re doing – trust us”, which is of little assistance to the judge.

Justice Belobaba therefore required the plaintiffs in both actions to provide supplementary affidavits outlining how the settlement amount was arrived at, including details of the range of possible damages awards and specifics of the litigation risks relied upon for the reasonableness of the settlement.

While the Court fell short of endorsing a fiduciary role for the class actions judge in the approval process or appointing independent counsel to play an adversarial role in the process, the clear takeaway from these decisions is that parties and counsel can expect a more rigorous examination of the reasonableness of any settlement amount in the future.



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