Cy-près distributions in class actions

Cy-près trust distributions have become a common feature of class action settlements. As originally conceived the cy-près doctrine empowered a court of equity to amend the terms of a trust where the original objective of the settlor or testator became impossible, impracticable or illegal. The term translates to “as near as possible” which reflects the nature of the court’s remedial equitable role.

In the context of class actions the doctrine has commonly been applied where the class members cannot be readily identified or where there is difficulty in economically distributing settlement proceeds. However, the most common use of a cy-près distribution is for the purpose of ensuring that a minimum amount of settlement funds payable by a defendant are actually distributed either to the class or sub-classes or to a charitable undertaking that has some relevance to the cause of action.

This latter use of the cy-près distribution arises largely from the fact that no matter how simple counsel attempt to make the ability to claim as a member of a settling class, the take-up rate, being the number of class members who submit a claim remains very low. This has been the case even in situations where the individual is entitled to a significant cash payout. Thus, in the absence of a cy-près distribution a substantial portion of a settlement fund would find its way back to the defendant.

In the recent Access Toyota settlement, we negotiated a settlement that had a high/low provision. Toyota Canada Inc. (“TCI”) agreed to pay as much as $4.9 million dollars to provide each class member with a voucher for $125 that could be redeemed for any product or service offered by the Toyota dealers and to cover class counsel fees and disbursements. If however, payment of all claims to class members plus fees, costs and administrative expenses did not total a minimum of $2.9 million then the defendant would pay the difference between that amount and what was actually paid to an agreed charity. In this case the parties agreed that the cy-près distribution would go to The Law Foundation for the purpose of funding Access Pro Bono, an organization where lawyers working without pay assist in providing access to justice for those least able to afford such access. Ultimately, in excess of $500,000 was distributed.

The legal framework and theoretical justification for class actions in Canada is to promote access to justice by permitting the aggregation of claims (and where appropriate, damages) so that wrongdoers can be held accountable in circumstances where it would be impossible or impracticable for an individual to advance his or her own claim. Deterrence and behaviour modification are two of the objectives of actions brought under the Class Proceedings Act. We see the cy-près distribution as an important tool in achieving these objectives.

There has been some commentary that the purpose of class actions is defeated where a non-party is the only entity to gain substantially from the settlement of a class proceeding. In my view, in an economic climate where existing laws and regulations are complex and resources for regulators to oversee business conduct are scarce, the ability to exact an award that serves to benefit the administration of justice generally or to tailor the award to address a problem with conduct underlying that proceeding should be seen as a pro-social and desirable result.