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Class Proceedings Fund gets cy près award in securities class action

4 minute read

Who can be the recipient of a cyprès award in a class action? In the recent decision, Cappelli v. Nobilis Health Corp. 2019 ONSC 4521, the court approved a novel recipient of the award: the Class Proceedings Fund.

The Class Proceedings Fund was created to provide financial support to plaintiffs in a class action for legal disbursements and indemnifies them against adverse cost awards. It provides a means of funding a class action for a plaintiff who may otherwise be financially unable to do so.

What is a cy près award?

A cy près award, in the context of a class action, is one where funds are not directed to class members but rather to an alternate recipient that “approaches as nearly as possible some form of compensation for class members.” The intention behind the award is that while class members will not directly receive the benefit of the funds, class members will indirectly be benefited.

When will court approve a cy près award?

There is no specific reference to cy près awards in the Class Proceedings Act, 1992. However, the court has recognized cy près awards and approved them pursuant to s. 26 of the Act. The courts have typically approved the award where payment to individual class members would be difficult or meagre, among other reasons. They should not be approved when direct compensation to class members is feasible. In Sorensen v. Easyhome Ltd. 2013 ONSC 4017, at paragraph 29, Justice Paul Perell noted that access to justice for class members and behaviour modification on the part of the defendants are factors to be considered when deciding whether or not to approve a particular cy près award.

Who can be a recipient in a class action?

The court will be reluctant to approve a cy près award where the recipient has a connection to class counsel. As noted by Justice Perell at paragraph 30 in Sorensen: “Cy près relief should attempt to serve the objectives of the particular case and the interests of the class members. It should not be forgotten that the class action was brought on behalf of the class members and a cy près distribution is meant to be an indirect benefit for the class members and an approximation of remedial compensation for them. However well meaning, the prospect of a cy près distribution should not be used by Class Counsel, defence counsel, the defendant, or a judge as an opportunity to benefit charities with which they may be associated or which they may favour. To maintain the integrity of the class action regime, the indirect benefits of the class action should be exclusively for the class members.”

In the recent decision in Cappelli v. Nobilis Health Corp., as part of settlement of the class action, the representative plaintiff sought approval of a cy près award to be paid to the Class Proceedings Fund.

In this case, the cy près award consisted of the sum of $258,000, which after notice and distribution would reduce recovery to $0.01 per class member, an amount Perell considered “not economically viable.” In approving the cy près award, Perell noted at paragraphs 43-45 of the decision:

“A cy-près distribution should be justified within the context of the particular class action for which settlement approval is being sought, and there should be some rational connection between the subject matter of a particular case, the interests of class members, and the recipient or recipients of the cy-près distribution.

“Where the expense of any distribution among the class members individually would be prohibitive in view of the limited funds available and the problems of identifying them and verifying their status as members, a cy près distribution of the settlement proceeds is appropriate. Where in all the circumstances an aggregate settlement recovery cannot be economically distributed to individual class members the court will approve a cy près distribution to recognized organizations or institutions that will benefit class members.”

Ultimately, Perell found that the Class Proceedings Fund accepted the risk of the class action, and without the Class Proceedings Fund’s support, the class action would not have been viable. These circumstances justified approval of the cy près award.

Whether the Class Proceedings Fund will remain a novel recipient of a cy près award or whether other class actions will consider the fund as a recipient will be something members of the class actions bar will certainly watch for.

This article originally appeared on The Lawyer's Daily website published by LexisNexis Canada Inc.

Jacqueline M. Palef

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