Class action
Settlement agreement
Court approval of settlement agreement
Objections to settlement
Comment
In the recent decision of McLean v Cathay Pacific Airways Limited,(1) the Supreme Court of British Columbia approved a settlement of a class action brought against Cathay Pacific Airways Limited for a data breach that occurred in 2018.
On 24 October 2018, Cathay Pacific announced that it had experienced a data breach exposing the names, passport numbers, credit card numbers and other private information of up to 9.4 million passengers worldwide.
On 16 August 2019, James Rodney McLean commenced a Canada-wide class action against Cathay Pacific in the Supreme Court of British Columbia on behalf of approximately 230,000 Canadian residents affected by the data breach.
The parties entered into a written settlement agreement on 12 January 2021. The main terms of the settlement agreement are summarised below:
- Without admitting liability, Cathay Pacific will pay C$1,550,000 (the "settlement funds").
- Using the settlement funds, class counsel will establish a compensation fund to pay provable loss claims submitted by class members.
- Any settlement funds remaining after payment of class members' loss claims, class counsel fees, disbursements, taxes and honorarium to the representative plaintiff McLean will be donated to the Law Foundation of British Columbia.
The settlement agreement was contingent on the certification of the action as a class action and court approval of the settlement. Under section 35 of the British Columbia Class Proceedings Act (CPA), RSBC 1996, c 50, a class action can be settled only with the approval of a judge.
The action was certified as a class action for settlement purposes on 12 February 2021. The parties subsequently sought judicial approval of the settlement agreement.
Court approval of settlement agreement
In British Columbia, the test for approving a class action settlement is whether the settlement is "fair and reasonable and in the best interests of the class as a whole".(2) The court can only approve or reject a settlement. It cannot modify the settlement's specific terms.
Justice Kent of the Supreme Court of British Columbia identified 10 factors by which to assess the reasonableness of a settlement:
- the likelihood of recovery, or the likelihood of success;
- the amount and nature of discovery evidence;
- settlement terms and conditions;
- the recommendations and experience of counsel;
- future expense and the likely duration of litigation;
- the recommendations of neutral parties, if any;
- the number of objectors and the nature of the objections;
- the presence of good faith and the absence of collusion;
- the degree and nature of communications by counsel and the representative plaintiffs with class members during litigation; and
- information conveying to the court the dynamics of, and the positions taken by, the parties during the negotiation.
Justice Kent highlighted the following factors favouring court approval of the settlement agreement:
- The settlement agreement was negotiated at arm's length (the parties were acting independently from one another) with the help of an experienced mediator and experienced counsel.
- Given recent Canadian court decisions dismissing data breach class actions, there was a risk that class members could go through years of litigation only to have their case against Cathay Pacific dismissed. By contrast, an early out-of-court settlement would allow class members to recoup at least some of their losses.
- The covid-19 pandemic has substantially changed the litigation landscape for matters involving the travel industry. Cathay Pacific's passenger business had depleted approximately 99% over the past year due to the covid-19 pandemic. Without a voluntary settlement, class members might not be able to enforce any judgment that they might obtain against the air carrier.
Only five class members raised objections to the settlement agreement.
Three of those objections were to the term of the settlement agreement that leftover settlement funds would be donated to the Law Foundation of British Columbia. Justice Kent disagreed with this objection, noting that, in any event, sections 36(1) and 36(2) of the CPA require 50% of remaining settlement funds to be donated to the Law Foundation of British Columbia. The objecting class members had provided no sound reason why the parties should be put to the expense of choosing another charity to donate the other 50% of the remaining settlement funds when the Law Foundation already had the necessary expertise, experience and mandate to use any donated funds in the public interest.
Justice Kent found that the objections raised by the other two objecting class members were based on misconceptions of the British Columbia class actions regime. He rejected arguments that:
- class counsel was required to obtain approval of legal fees and disbursements from each class member;
- the class was underinclusive because it included only Canadian residents; and
- counsel for the parties were in a conflict of interest because of their volunteer work or previous employment.
Concluding that it was fair, reasonable and in the best interests of the class members, Justice Kent granted an order approving the settlement agreement.
This decision bodes well for air carriers looking to resolve ongoing class actions or privacy litigation in Canada.
As Justice Kent's commentary demonstrates, Canadian courts are aware of the severe impact that covid-19 has had on air carriers over the past 18 months. Citing factors in support of the settlement agreement, Justice Kent observed that the pandemic has substantially affected, and will continue to affect, air carriers' business into the foreseeable future. As noted above, Cathay Pacific's passenger business depleted 99% over the past year.
This new reality may make it more difficult for plaintiffs to enforce large judgments (such as class action judgments) against air carriers, incentivising them to negotiate out-of-court settlements instead. Air carriers may therefore expect to settle matters earlier on in the litigation process, particularly where the case is complex, and the plaintiff is represented by counsel.
Air carriers might also rely on this decision to defend data breach claims or to encourage reasonable settlement discussions about those claims. Justice Kent cited recent Canadian case law dismissing data breach class actions in the absence of evidence of actual harm or damage to the plaintiffs. In light of this legal development, passengers may wish to avoid expending time and legal fees to pursue privacy claims to trial and may be more open to an early resolution of their data breach complaints.
For further information on this topic please contact Carlos P Martins or Agatha Wong at WeirFoulds LLP by telephone (+1 416 365 1110) or email ([email protected] or [email protected]). The WeirFoulds LLP website can be accessed at www.weirfoulds.com.
Endnotes