In a recent decision from the Ontario Superior Court of Justice, Di Filippo and Caron v. Bank of Nova Scotia et al, 2019 ONSC 3282 (Di Filippo), Justice Belobaba approved an “ice breaker” settlement in a price-fixing class action despite the “token” settlement amount — which represented less than 6% of the settlement paid by the same defendants in parallel proceedings in the U.S. — on the basis of the “inestimable value” of the first-settling defendants’ agreement to co-operate with class counsel.
The decision highlights some of the strategic considerations that may arise in the context of multi-party class proceedings, where defendants may be incentivized to settle early — and for a comparatively low amount — in exchange for a commitment to assist the plaintiff(s) in the litigation against the remaining defendants.
The two proposed class proceedings centered on allegations of price fixing in the international gold and silver markets. In both actions, damages in the amount of $1 billion were sought jointly and severally against all defendants.
The plaintiffs reached a settlement with one group of affiliated defendants in the amount of $5.47 million. In the parallel proceedings in the U.S., the courts had approved a settlement involving the same defendants for US$98 million. An objector opposed the settlement on the basis that $5.47 million was a “token amount.”
“Token” settlement amount deemed fair and reasonable
Justice Belobaba acknowledged that he initially shared the objector’s concern with the quantum of the proposed settlement: “How can one justify a $5.47 million settlement … when in each of the actions the damages claim against all of the defendants, jointly and severally, was $1 billion — that’s a billion with a ‘b’?”
However, Justice Belobaba ultimately accepted the two justifications proffered by the plaintiffs. Most important was the “ice breaker” nature of the proposed settlement paired with the first-settling defendants’ promise to co-operate with the plaintiffs. Justice Belobaba identified the latter commitment as having “inestimable value,” particularly in price-fixing litigation, because the co-operation of the first-settling defendants could assist in advancing the claims against the remaining defendants and encourage settlement with those defendants. In Justice Belobaba’s view, the potential benefits of this non-monetary commitment to the class outweighed the relatively low monetary value of the settlement payment.
Further, although the U.S. action against the same defendants settled for US$98 million, the typical population-based 10% comparison between U.S. and Canadian class settlements was inapplicable in the circumstances. The vast majority of trades in gold and silver instruments had taken place on foreign exchange trading hubs located outside of Canada. Accordingly, the 3.5–5% range used in other foreign exchange cases was appropriate.
Accordingly, Justice Belobaba approved the settlement as fair, reasonable and in the best interests of the class. His decision was limited to settlement approval, and he made no finding on the merits as to whether the plaintiffs had any basis to sue the remaining non-settling defendants.
Di Filippo reinforces earlier decisions indicating that, at settlement approval, courts will accord considerable weight to a first-settling defendant’s agreement to co-operate with class counsel, particularly where plaintiffs may face difficult evidentiary challenges and benefit from a single defendant’s early co-operation in the proceedings against the remaining parties: see Fanshawe v. Sony, 2018 ONSC 2629 and Park v. Nongshim Co., Ltd., 2019 ONSC 1997. Among other things, Di Filippo confirms that courts are willing to acknowledge and “value” the non-monetary benefits arising from such settlements when assessing what is fair, reasonable and in the best interests of the class. However, if a plaintiff faces so many challenges that it is prepared to enter into an initial settlement that offers little monetary value to the class, a non-settling defendant may reasonably conclude that it is better off defending the class action on the merits.