Uncharted Territory: Individual Settlements in Certified Class Actions

Despite the passage of more than 20 years since the enactment of Ontario's Class Proceedings Act, 1992, there is limited jurisprudence on post-certification procedures. In his recent decision in Lundy v Via Rail Canada Inc, Justice Perell addressed a series of novel issues that arise when a defendant attempts to offer individual settlements to class members of a certified class proceeding. Justice Perell ultimately held that:

1. individual settlement offers cannot be communicated to class members until after the close of the common issue stage of the proceeding, and (if there are individual issues) the issuance of an individual issues litigation plan;
2. individual settlement offers can be accepted without court approval, but should not include any allocation for costs or legal fees; and
3. costs for class counsel must be assessed at the end of the common issues stage, so as to wipe the litigation slate clean at the commencement of the individual issues stage.

The plaintiff in Lundy claimed against the defendant for negligence and breach of contract, for a train derailment. The class proceeding was certified on consent, with a class size of 45 passengers (after opt-outs). The defendant admitted most of the proposed common issues, leaving mainly individual issues of causation and damages to be determined. After negotiations with class counsel for a class-wide settlement failed, the defendant formulated individual settlement offers. However, class counsel refused to distribute these offers to the class members, because there had not yet been any judgment on the common issues. 

1. Timing of Individual Settlement Offers

Justice Perell held that, before individual settlement offers can be distributed to class members, the individual issues stage of the litigation must have been formally commenced. He held that section 25 of the Act requires the court to carry out a series of steps once the common issues have been determined, including:

1. defining the remaining individual issues;
2. deciding who will determine the individual issues (e.g., a judge or a referee);
3. giving directions for the procedure to resolve the individual issues; and
4. setting a time limit for individual claims.

Justice Perell held that these steps must be completed before a settlement offer can be distributed to class members, for two reasons. First, in order to make an informed decision, class members need to have an understanding of the alternative to accepting the settlement offer. Second, pursuant to section 31(2) of the Act, class members are only exposed to cost consequences in respect of determining their own individual claims. Since settlement offers carry cost consequences, there needs to be a clear demarcation point at which the individual issues stage commences.

2. Approval of Individual Settlement Offers

Whereas class-wide settlements require court approval, Justice Perell held this was unnecessary for individual settlements, and would be a "waste of the court's resources." Court supervision of class-wide settlements protects unrepresented class members from being prejudiced by the settlement, but this is not a concern where the class member personally accepts the settlement.

A related issue was whether contingency fees should be allocated within the individual settlement offer. While these are again subject to scrutiny within a class-wide settlement, Justice Perell held that fee allocation in an individual settlement is "not the defendant's concern". Including a fee allocation that might differ from the class member's retainer agreement would "just stir up trouble".

3. Two Rounds of Costs Awards

Justice Perell further held that class counsel are entitled to costs for "successfully stewarding the class proceeding" through the common issues stage, irrespective of potential failure at the individual issues stage. He held that the slate should be wiped clean prior to the commencement of the individual issues stage, at which the class members will not necessarily be represented by the same counsel. As Justice Perell observed, it is possible there could be duelling contingency fee agreements with common and individual issues counsel. Common issues counsel might be prevented from participating in the ultimate award of judgment, or perhaps both sets of counsel could simultaneously receive a contingency fee, leaving the class member with that much less.

In Lundy, plaintiffs' counsel sought over $632,000 in costs for the common issues trial, after having agreed to costs of only $16,950 for the certification motion. Addressing the possibility that class counsel might ultimately receive more than the class members themselves, in costs and contingency fees, Justice Perell observed that "from time to time the optics of a particular class action are not pretty but quite ugly". The issue of costs was deferred to a later date, but Justice Perell noted that the prospect for recovery is a relevant factor in determining whether a party's claim for costs is fair.

The Preferable Procedure?

Class proceedings are often touted as a flexible and cost-effective way to resolve the claims of class members. Lundy illustrates there may be several tedious and time-consuming hurdles that must be cleared, even in a relatively simple class proceeding, where certification is uncontested, and the key issues of liability are undisputed. Consider that the defendant admitted liability in 2013, and communicated individual settlement offers to class counsel in August 2014. Yet, before the class members can even receive the defendant's individual settlement offers, they must now wait for:

1. formal judgment on the common issues;
2. a formal costs assessment to the conclusion of the common issues stage of the action;
3. formulation of an individual issues litigation plan; and
4. court approval of a notice to the class members advising them of the litigation plan and offers to settle.

It is possible that the class members might have been better served pursuing individual actions, which could have been joined or consolidated under the rules of court.

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