Last week’s unusual Ontario Court of Appeal decision in Welsh v Ontario made headlines as the Court quashed an order that $1.5 Million dollars be paid to a charity. The facts of the case make the result a bitter pill to swallow. But despite this result, and the unusual statutory and factual matrix in which the case emerged, the decision is ultimately an example of an appellate court upholding fundamental principles of procedural law – particularly the principle of receiving parties’ submissions before departing from a proposed consent order.
Factual and Legal Matrix
Welsh emerged from a class proceeding alleging that Ontario had been negligent in administering schools for the deaf. The very serious allegations included breach of fiduciary duty, leading to physical and sexual abuse of class members. A settlement was reached, totalling $15 Million. Under the terms of the settlement, about 90% of class members would not receive any compensation. The settlement included a proposed 25% ($3.75 Million) in legal fees. Depending on how many class members took up their settlement, some settlement funds would revert to the province.
Ontario’s Class Proceedings Act, 1992 mandates that any settlement and payment of legal fees in a class proceeding be approved by a Superior Court judge. The Court can refuse to approve a settlement for, among other reasons, a concern that class counsel will be overcompensated vis-à-vis the class.
In Welsh, the Superior Court judge was understandably concerned that very few class members would actually be compensated by the proposed settlement while class counsel would receive $3.75 Million in legal fees. He nonetheless deemed the settlement to be in a reasonable range of outcomes in the best interest of the class (partially to avoid trial). However, he held that the fees sought were not reasonable given that the overall results for the class were “disappointing.” As such, he ordered that $1.5 Million of the $3.75 Million be paid to a charity for the deaf. He did this without giving the parties the opportunity to make submissions on this.
The Court of Appeal held that it was unreasonable to not allow the parties an opportunity to make submissions on this front, and overturned the condition regarding fees. Recognizing that the Superior Court judge’s concerns nonetheless could have been legitimate, it ordered the matter be remitted before a different Superior Court judge.
A Necessary Appellate Correction
One can make reasonable arguments that class action settlements can lead to unprincipled windfall for class counsel. (Though to be fair, class counsel also assume enormous risk, almost invariably working on contingency fees.) Moreover, class action judges have unique – and statutorily prescribed – roles to approve settlements as being in the best interest of a class. It is therefore wholly appropriate for class action judges to refuse to approve settlements on certain occasions.
However, this unique legal framework does not take away from the fact that there is an overarching interest in settlement, which is why courts will almost invariably enforce a private settlement. The rule of law includes respect for parties’ negotiating mutually beneficial conclusions to litigation. The unique nature of class actions requires slight modification (prescribed by statute) of this principle, but the principle still remains.
This concern is heightened with a payment to a private charity. Though such an award arguably fulfills the purpose of a class action (behaviour modification through disgorging a wrongdoer of the fruits of its wrongdoing), the beneficiary is a stranger to the litigation who did nothing to warrant the funds. This is a rule of law-related concern analogous to “cy près” distribution of funds in class proceedings. These concerns were amplified in Welsh given that the respondent was a public entity to which funds may have to be returned.
Finally, and most consequentially, the Superior Court judge did not give the parties an opportunity to comment on his contemplated departure from their proposed terms of settlement. It is a fundamental element of procedural fairness that a party be allowed to make submissions on a legal order that concerns it. When that order concerns a negotiated settlement – where the parties had a particular expectation of a result – this concern is magnified. Moreover, history is littered with examples of courts deciding matters not adequately argued before them – with significant mischief frequently following. This principle of having adversarial argument before making a decision not only reflects a wisdom of common law tradition, but modern psychology also shows it to be wise.
Whatever concerns one has about the legal and factual matrices in which it arose, therefore, Welsh is ultimately an example of the Court of Appeal fulfilling its role to ensure the consistent application of procedural law.