Cy-près Distributions: Uses and Controversies
Cy-près distributions disburse settlement funds or damages awards to charities or other public interest organizations in circumstances where it is impractical to distribute the funds to class members. While frequently useful and authorized by provincial class action statutes for damages awards, cy-près distributions can be controversial when some or all class members receive no part of the settlement or award.
Cy-près distributions frequently deal with settlement funds that go unclaimed by class members as compensation for individual claims. For example, the recent settlement in Pro-Sys Consultants Ltd. v. Microsoft Corporation, 2018 BCSC 2091 allows class members to make claims on a settlement fund within 10 months of the settlement. Thereafter, a portion of the unclaimed amount (if any) will be distributed via vouchers to Canadian schools. In approving the settlement, the court held that the distribution to schools was “well thought and laudable” (para. 39).
Cy-près distributions for unclaimed settlement funds are generally consistent with class actions legislation, which typically allow for cy-près distributions of damages awards. For example, BC’s statute allows a court to apply an unclaimed damages award “in any manner that may reasonably be expected to benefit class or subclass members, even though the order does not provide for monetary relief to individual class or subclass members” (s. 34). Other provincial statutes contain similar provisions.
Cy-près distributions can be controversial when class members receive no part of the settlement or damages award. For example, the U.S. Supreme Court is currently considering the validity of the cy-près only distribution in Frank v. Gaos, a class action brought against Google for violating privacy laws on behalf of over 100 million class members. The parties agreed to a settlement. After counsel fees and payments to named plaintiffs, dividing the balance of the settlement evenly among class members would have resulted in payments to each class member of about four cents. Instead, the remaining settlement funds were paid to organizations that supported online privacy using a cy-près distribution. Lower courts approved the settlement, but the case remains on reserve in the Supreme Court.
In other circumstances, cy-près only distributions of settlement funds can be less controversial; one was recently approved in Ali Holdco Inc. v. Archer Daniels Midland Company, 2019 ONSC 131. After settling with one of several defendants, the plaintiffs sought to discontinue the action. Rather than distributing the settlement funds to class members or paying legal fees, the plaintiffs proposed a cy-près distribution to a relevant charity. The court approved the cy-près distribution because the cost of administering a distribution to class members “would constitute an unreasonable drain” on the funds (para. 52). The link between the charity and the claims was also significant.
In sum, cy-près distributions are a useful tool, but must be tailored to the specific circumstances of each case. Ali Holdco Inc. contains a useful summary of the principles relevant to cy-près distributions (para. 47, citing Slark v. Ontario, 2017 ONSC 4178).