The recommendation of class counsel and parties for the distribution of “leftover” class action settlement funds may no longer be the golden rule. An Ontario court recently showed a willingness to use its own broad discretion to determine who should receive such funds.

As we have written previously, in cases where it is not possible or practical to give all of the money from a class action settlement directly to class members, or where funds are left unclaimed, courts may grant what is known as a cy-près award by distributing some of the settlement funds to an alternative.

There is little legislative guidance as to how settlement funds should be distributed. Indeed, cy-prèsawards are not specifically referred to in the Ontario Class Proceedings Act, 1992, but they have been approved pursuant to s. 26 of that Act which provides that money awards may be distributed whether or not all of the class members can be identified, or the exact share of each can be determined, and notwithstanding the fact that persons other than class members may incidentally benefit. Courts have often tended to follow the recommendations of parties, with funds going to charities or organizations associated with the class members or their interests.

Carom v. Bre-X Minerals Ltd.

Justice Perell of the Ontario Superior Court recently modified counsel’s recommendation for distribution of a cy-près award in favour of the proposal of a single class member, adding a secondcy-près recipient.

The decision in Carom v. Bre-X Minerals Ltd. involved settlement funds that the court determined could not be effectively distributed to the class member investors that had purchased stock in Bre-X based on its allegedly false representations it had discovered gold at a mine site in Indonesia (Justice Perell calculated that class members might only recover 0.2 cents on the dollar after the administrative costs of distribution had been subtracted).

Class counsel recommended that all of the settlement funds be awarded to the Law Foundation of Ontario’s (LFO) Access to Justice Fund, which could, in turn, accept grant requests and come to its decision regarding who would receive the funds. However, a single intervening class member, who is an alumnus of the University of Ottawa, asked that some portion of the award go to the University of Ottawa’s Telfer School of Management. Justice Perell agreed, awarding twenty percent of the funds to the Telfer School and the remaining eighty percent to the LFO Access to Justice Fund, noting that “the problem in the immediate case, is that class counsel’s recommendation was, in effect, a recommendation that LFO, which in and of itself is a worthy candidate, should decide who are the other worthy candidates”.

Ultimately, such decisions demonstrate that courts are willing to exercise their broad discretion related to the distribution of cy-près awards to give effect to what the courts believe are the best interests of the entire class.