We had previously reported on the recent trend of Québec courts reducing class counsel fees when approving class action settlements. In recent months, Québec courts have demonstrated a more rigorous approach to the approval of class action settlements. These judgments underscore the judiciary's commitment to protecting class members' rights and ensuring that settlements are fair, reasonable and in the best interests of the class. The refusal to approve certain class action settlements sends a clear message to litigants and practitioners alike: settlements must withstand meticulous scrutiny to gain judicial endorsement.
Legal framework for class action settlements in Québec
Class actions in Québec are governed by the Code of Civil Procedure (CCP), which sets forth the legal requirements for the authorization, conduct and settlement of class actions. Under Articles 590 and following of the CCP, a class action settlement must be approved by the court to be binding on the class members. The court's role is to ensure that the settlement is fair, reasonable and in the best interests of the class, considering numerous factors including the strength of the case, the risks of litigation and the benefits to the class members.
Recent judgments refusing approval
Recent judgments in Québec have refused to approve class action settlements for various reasons. These decisions highlight the courts' vigilance in safeguarding the interests of class members. The common threads in these refusals include insufficient compensation to class members and disproportionate class counsel fees.
Insufficient compensation
Settlements that provide inadequate compensation are likely to be rejected. The court scrutinizes the settlement amount to ensure it is commensurate with the class's claims. In Ohayon v. Dollarama,1 a class action relating to Dollarama's pricing practices, the Court analyzed the overall value of the settlement, the mechanism for distribution to class members and the notification process used to inform potential claimants.
The proposed settlement was in the amount of $2.5 million and was described as providing eligible class members a transferable gift card with a maximum value of $15. The distribution of these gift cards was to be facilitated through the Dollarama app. To ensure widespread awareness, the parties implemented a comprehensive notification campaign.
The per-capita distribution would fall below $15 if the aggregate claims exceeded 89,756, which the Court held would likely be the case, as 1,282,052 individuals had pre-registered with the claims administrator. The Court highlighted that preregistration before settlement approval could skew the parties' estimates. While some decisions have approved pre-registration in appropriate contexts, the Court found no reason to deviate from the "opt-out" regime applicable in Québec. Despite the suggestion of the Fonds d'aide aux actions collectives to extend the registration period, these measures were refused by the Court as they unduly complicated the settlement notice structure and were not originally contemplated. The Court reiterated its lack of ability to modify the settlement agreement, which it can only approve or dismiss.
Interestingly, the Court expressed concerns regarding the fate of the class members' data collected by Dollarama in the process of settlement implementation, including through the use of its app, given the data's potential value to Dollarama's business.
Disproportionate distribution
A settlement that disproportionately favours certain class members over others or provides excessive fees to class counsel at the expense of the class may be deemed unfair. The court examines the distribution plan to ensure equitable treatment. In Walid v. Compagnie Nationale Royal Air Maroc,2 the Court refused to approve a settlement providing for a $800-per-class-member compensation mainly because the class counsel fees were likely to exceed the amount that would ultimately be distributed to class members. The Court also referenced the recent amendments to the Ontario Solicitors Act,3 which provide that a solicitor is not entitled to a higher amount than its client in the context of a settlement. In this case, the parties provided that the settlement approval was conditional upon the approval of the class counsel fees. In refusing to approve the class counsel fees, the Court was unable to approve the settlement which it deemed otherwise acceptable and fair.
The Court also offered interesting insight on the timing of payment of class counsel fees, often being made before any payment is made to class members. Ensuring the continued participation of class counsel in the settlement steps would be greatly enhanced if such fees were paid out later in the settlement process.
Courts may refuse to approve a class action for other reasons. These can include inadequate representation or negotiation process, lack of transparency or failure to clearly communicate the terms of the settlement to the class members. If there is insufficient information to assess the settlement's fairness, the court may decline approval.
Implications for future settlements
The recent judgments refusing to approve class action settlements in Québec have significant implications for future settlements. Parties must be diligent in crafting settlements that are fair and reasonable. Class counsel must ensure that they engage in a robust negotiation process, provide adequate representation, maintain transparency with the class members and seek reasonable class counsel fees that do not jeopardize the fairness of the settlement.
Key takeaways
The refusal of Québec courts to approve certain class action settlements is a reminder of the rigorous standards that such settlements must meet. It is incumbent upon practitioners to heed these judgments and strive for settlements that withstand judicial scrutiny. By doing so, they will not only fulfill their professional obligations, but also uphold the integrity of the class action mechanism as a tool for access to justice.
Footnotes
1. Ohayon c. Dollarama, 2024 QCCS 1363.
2. Walid v. Compagnie Nationale Royal Air Maroc, 2024 QCCS 2674.
3. Contingency Fee Agreements, O Reg 563/20, enacted under the Solicitors Act, R.S.O. 1990, c. S.15.
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