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Focus: Class action judges getting more vocal

|Written By Jim Middlemiss

In class actions, judges are often thrust into the centre of the dispute, refereeing not only warring defence and plaintiff lawyers but also overseeing unseemly fights among plaintiff counsel over who should carry a case.

Factor in the added challenge of settlement hearings — where judges are called upon to determine the fairness of an agreement — and it makes for a challenging, and no doubt frustrating, legal environment in which judges must operate, compared with traditional litigation.

It’s no surprise, then, that justices in Ontario seem to be calling out class action lawyers more and more on their strategies.

Alan D’Silva, a class action defence lawyer at Stikeman Elliott LLP in Toronto, notes, “We have very experienced class action judges.

“If they suggest to plaintiff or defence counsel to amend something, or tweak something, or narrow something down, I think it carries a lot of weight. I think it’s a good thing. Of course, judges have to be careful not to be weighing in on the merits,” he says.

D’Silva adds, “I think it’s appropriate for judges to scrutinize a settlement to make sure that it is in the best interest of a class because that is what the statute requires. It ensures the case is being settled for an amount and quantum it should be settled for.”

It is often in their role of settlement scrutineer where judges are most vulnerable and becoming increasingly vocal.

Michael Robb, a plaintiff lawyer at Siskinds LLP in London, Ont., says there’s no adversarial process in a settlement hearing.

“I understand the judge’s dilemma. They have an obligation to protect the best interest of the class,” he says.

One of the challenges lawyers face is justifying the settlement amount to the judge. Robb notes the amount is arrived at through a range of factors, everything from assessing the merits of the case — its weaknesses, strengths, and precedents — to assessing insurance policies, and engaging in tough negotiations with defence lawyers, discussions that are usually confidential.

When called on to defend the settlement, Robb says it’s “a fine line to walk in terms of what you can explain to court for a rationale for a settlement.” It can be difficult to explain to a judge how a particular figure is obtained, he says.

“You have to keep in mind that there is a risk of non-approval and you have client obligations of confidentiality and privilege,” he says.

“When a judge presses you for the rationale, if you really throw back the curtain, you expose important weaknesses in a case that might not have been apparent [to defence counsel].”

If it doesn’t settle, he says, “you go in with a significantly weaker hand.”

The subject came up recently before Justice Edward Belobaba in Leslie v. Agnico-Eagle Mines, a securities class action that settled for $17 million. Belobaba warned the bar to expect more scrutiny in settlements.

“The judicial approval of class action settlements, especially securities settlements, leaves much to be desired. Judges should do more to ensure that a proposed settlement is in the best interest of a class,” he wrote.

He said the “core problem is that the only players at the settlement table — the defendant (or their counsel) and class counsel — have interests and incentives that can be aligned against the best interests of the class.”

He noted that under legislation, it’s his job to ensure that a settlement is fair and reasonable and in the best interests of the class.

“But how does a judge do this? Judges are not in a position to second-guess the actual amount of the proposed settlement. Nor should they do so.”

The best they can do, he wrote, is look for “structural indicators that suggest collusion or conflict of interest” and “satisfy themselves that the settlement amount falls within a zone of reasonableness.”

Robb, who was counsel on the case, filed an extensive supplementary factum to address concerns Belobaba had raised at the settlement hearing and set out a list of structural indicators the court should look for that could call into question a settlement, including: a release of claims without payment; “nebulous non-monetary compensation” to which substantial value is attached to boost fees; or a reversionary interest to the defendant in settlement funds, especially when a portion goes back to class counsel. He also filed an extensive chart showing a settlement range in securities class suits.

Belobaba was satisfied with the amount and approved the settlement, but he asked whether it was time to appoint independent counsel paid for by both parties to provide a “much needed adversarial dimension to the settlement approval hearing.”

The best they can do, he wrote, is look for “structural indicators that suggest collusion or conflict of interest” and “satisfy themselves that the settlement amount falls within a zone of reasonableness.” It’s not just settlement amounts facing greater scrutiny. Justice Paul Perell used a November settlement ruling in the Visa and Mastercard merchant fees case, Bancroft-Snell v. Visa Canada Corporation, to pontificate upon the national class action conundrum.

Although the ruling dealt with the settlement of a case certified in B.C., which covered Ontario, it was as much about Perell’s criticisms of counsel’s strategy for dealing with the rival class actions and the steps they should have taken to knock out those suits that caught the bar’s attention as it was about the fact that he refused to approve a fee-sharing agreement involving Merchant Law Group.

MLG had filed rival cases in Alberta and Saskatchewan more than 15 months after the B.C. litigation, which was already moving toward certification. MLG agreed to stand down its actions in exchange for a cut of any settlement.

Perell took issue with that and prohibited the class consortium from paying MLG, finding the fee agreement was “unenforceable and may possibly be an illegal agreement.” He warned the bar that champerty and maintenance was still alive and well in Ontario and paying an “intermeddler” in a lawsuit was frowned upon.”           

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