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. Cy-près awards involve distributing some of the settlement funds to an alternative recipient that has some rational connection to the subject matter of a particular case and to the interests of class members.
As we have written previously, the Ontario Superior Court of Justice has increasingly shown a willingness to use its own broad discretion to determine who should receive “leftover” class action settlement funds, as opposed to accepting without scrutiny the recommendation of class counsel or the parties.
The Slark decision
In its recent decision in Slark v. Ontario, 2017 ONSC 4178, the Ontario Superior Court made clear that funds from a cy-près distribution cannot be apportioned to benefit inidividual class members, but must instead only indirectly benefit class members and act as an approximation of remedial compensation for them by being attributed to alternative, non-class recipients.
In Slark, Justice Perell heard a motion from class counsel seeking approval of an allocation of surplus settlement funds to 37 applicants in a class action with respect to historical institutional abuse at centres for students with developmental disabilities. The Crown defendant did not agree with all of the proposed distributions and submitted that approximately $2.7 million of the surplus funds be allocated to People First of Ontario, an organization supporting individuals with developmental disabilities which was specifically identified in the settlement agreements between the parties.
If the parties negotiate a cy-près distribution, no part of it may be apportioned to directly benefit individual class members
The Crown raised a number of specific concerns with the distribution scheme proposed by class counsel, including that some of the applications contemplated the use of funds for the direct benefit of only some individual class members (such as payments for rent supplements and support services).
Justice Perell agreed with the Crown that, as commendable and as useful as this proposed allocation may be to address hardships and individual cases of genuine need, these individualized allocations could not be approved. Justice Perell noted that while he suspected that the other class members likely did not or would not object to these allocations to other individual class members, he could not order the inidividualized distributions given that cy-près awards are not meant to benefit individual class members or to treat some class members differently than others. To the contrary, Justice Perell emphasized that cy-près awards are designed for a collective purpose and to deal with a general problem that arises after the compensatory part of a class action settlement distribution scheme is dispensed.
Parties are free to negotiate “top up” payments to individuals
Justice Perell found that “if there are surplus funds that are not to be returned to the defendant, then the parties are free to negotiate top up payments to individuals or an additional compensatory allocation scheme as a part of the general distribution scheme, but if they negotiate a cy-près award, then it is a collective purpose that governs, not individualized compensation awards”. Accordingly, Justice Perell directed that the funds relating to these individulized applications instead be added to the allocation already apportioned for People First of Ontario.
The Court’s decision further develops the law of cy-près distributions and serves notice to class action parties to be clear with their intentions in settlement agreements as to whether they intend “leftover” settlement funds to be apportioned as “top up” payments to individuals, or as cy-près distributions to alternative, non-class recipients.