As we have commented previously, substantive fairness is key in class action settlements. Two recent decisions by Justice Perell highlight the Court’s focus on whether a proposed settlement in a class action is substantively fair to the class. In one decision, the Court approved the proposed settlement (Hamilton v. Toyota Motor Sales, USA Inc.); in the other it did not (Waldman v. Thomson Reuters Canada Limited).

Test For Settlement Approval

In both cases, the Court confirmed that the test is whether, in all the circumstances, the settlement is fair, reasonable and in the best interests of the class. The factors the Court may consider are:

  1. likelihood of recovery or likelihood of success
  2. amount and nature of discovery, evidence or investigation
  3. proposed settlement terms and conditions
  4. recommendation and experience of counsel
  5. future expenses and likely duration of litigation and risk
  6. recommendation of neutral parties
  7. number of objectors and nature of objections, if any
  8. presence of good faith, arm’s length bargaining and the absence of collusion
  9. degree and nature of communications by counsel and the representative parties with class members during the litigation
  10. information conveying to the court the dynamics of and the positions taken by the parties during the negotiation

The Court commented in Waldman that: “In addition to using the various factors described above to determine the substantive fairness and the procedural fairness of the proposed settlement, the court should also examine circumstantial fairness, i.e., the fairness of the settlement to the parties and the class members in their particular circumstances, institutional fairness, and the fairness of the settlement from the perspective of a robust notion of access to justice that includes an outcome that objectively should satisfy the class members’ entitlement to justice for their grievances.”

One Approved Settlement

The Hamilton class action was one of several Canadian and U.S. class actions started after Toyota recalled and repaired certain vehicles at risk of unintentionally accelerating. The plaintiffs in the class proceedings alleged that “the problem was caused by defects in the Electronic Throttle Control System with Intelligence (“ETCS-i”) and this problem was not addressed by the recalls.” After the class actions were started, several regulatory agencies – including the NASA Engineering and Safety Centre and Transport Canada – investigated but “identified no systemic or electronic defect in the ETCS-i”.

After extensive negotiations, a Settlement Agreement was reached. It provided for (among other things):

  • Settlement of claims for economic loss but not personal injury or property damage (which claims were to proceed)
  • Installation of a free Brake Override System in certain vehicles (more than 325,000 vehicles were eligible)
  • A cash payment of $62.50 for owners of vehicles that were not eligible for the Brake Override System (more than 778,000 class members were eligible)
  • An extended warranty
  • Five scholarships (worth a total of $600,000) at Canadian engineering schools as part of an Automobile Safety and Education Program

The Court approved the proposed settlement because it “provides immediate, genuine, and substantive benefits to Class Members for what appears to be a very weak case against Toyota for economic losses. Given the very high litigation risks, the delays of what would be a difficult certification motion, and the difficult litigation that would follow, the settlement is reasonable and in the best interests of the class members.”

Class Counsel’s fees of approximately $8.4 million were approved.

One Rejected Settlement

The Waldman class action asked whether Thomson infringed the copyright of lawyers who filed original documents in court when Thomson collected those documents and made them available in a subscription internet database service. After the class action was certified, the Supreme Court of Canada released five decisions on the fair dealing defence to copyright infringement, “potentially impacting the claims made and the defences asserted in this action”. The parties entered settlement discussions.

After “adversarial, arm’s length, and intensive” negotiations, a Settlement Agreement was reached. It provided for (among other things):

  • Thomson paying $350,000 to settle a cy-près trust fund to support public interest litigation
  • Class Members granting to Thomson a non-exclusive licence in respect of their court documents and releasing their claims
  • Thomson paying Class Counsel fees of $825,000

The Court did not approve the proposed settlement because, although it was fair to the representative plaintiff, Class Counsel and the defendant, and reached after hard bargaining by competent counsel, it:

  • Brought the administration of justice and class actions into disrepute because it was more beneficial to Class Counsel than to the Class Members;
  • It expropriated the Class Members’ property rights in exchange for a charitable donation from Thomson, thereby granting Thomson a benefit that it could not have achieved even through a successful counterclaim; and
  • Had bad institutional optics by creating the appearance that the settlement was “more about the entrepreneurial interests of Class Counsel than about the Class Members”.

In short, the proposed settlement did not provide substantive access to justice for the claims of Class Members.

According to Class Counsel’s website, the plaintiff in Waldman is “considering his options”.