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When is a Settlement Not a Settlement?


Written by on June 13th, 2013

Rebecca Case

Associate 

In Kidd v. The Canada Life Assurance Company, 2013 ONSC 1868, a pension plan class action, after a settlement of the litigation was approved, it was discovered that the assumptions about the value of the pension surplus for one of four subclasses, the most populous, were incorrect. As a result, further negotiations ensued and a new settlement was reached. However, the court refused to approve the new settlement.

The parties had campaigned to secure the support of class members for the initial settlement. During this process, the affected subclass members had been told, without being given any guarantee, that they would be sharing 70% of a $55 million surplus. Once the settlement was approved (the “Approved Settlement”), it quickly became evident that this representation of what the subclass was to receive was premised on incorrect predictions and assumptions. As a result, there was a real possibility that there would be no surplus to distribute to the affected subclass members. Further, class counsel believed that the terms of the Approved Settlement were no longer workable.

The plaintiffs moved to enjoin the defendants from unilaterally implementing the Approved Settlement. Instead of the motion being argued, an amendment to the settlement was negotiated (the “Amended Settlement”). The Amended Settlement provided more compensation to the affected subclass than the Approved Settlement. At the motion to approve the Amended Settlement, numerous members of the affected subclass objected.  Five subclass members spoke and a petition signed by 90 subclass members was presented to the court.

Justice Perell agreed with the objectors that the Amended Settlement was unfair. He could not grant their request to approve an alternate form of settlement as what they were proposing was hypothetical. In reviewing a class action settlement, the court may not revise or fix it, but can only approve or not approve the settlement that is placed before it. If Justice Perell rejected the Amended Settlement, then all class members, including those in unaffected subclasses and those who did not object to the Amended Settlement, would also be affected as there would be renewed litigation. Justice Perell characterized the binary choice he faced as really “a choice between two courses where neither course is substantively, procedurally, circumstantially, or institutionally fair to the class members”.

Justice Perell rejected class counsel’s framing of the issue as a choice between the Amended Settlement, which meant that the subclass members would get something with a chance at something more if interest rates rebounded, and the Approved Settlement in which the subclass members would get nothing. Justice Perell held that it would be inconsistent with the court’s responsibilities when reviewing a settlement to approve an unfair settlement because it is the better monetary choice of two unfair choices. As a result, he dismissed the motion. In closing, Justice Perell wrote:

Some good may yet come of not approving the Amended Settlement. It is open to the parties to come back with a fair settlement. But even if they do not, it will be a good thing for others to know that under the Class Proceedings Act, 1992, the court will not approve an unfair settlement. If that has the effect of elevating the standard for other settlements, then the institutional purposes of the class proceedings legislation of achieving meaningful access to justice will be served.

Whether Justice Perell’s order will lead to “good” remains to be seen.

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