Law Times

Page 10 September 2, 2013 Law Times • Focus On Class Actions Kidd v. Canada Life Case sends message about judicial discretion BY Julius Melnitzer For Law Times W hat happens when basic assumptions underlying a class action settlement turn out to be incorrect following settlement approval? That's the question that confronted Ontario Superior Court Justice Paul Perell in the recent case of Kidd v. The Canada Life Assurance Co. Kidd was a dispute about a pension surplus. After the parties reached a settlement, they sought the support of class members. In doing so, they advised one subclass that members would be sharing 70 per cent of a $55-million surplus. The court approved the settlement. But soon after, it became evident that the actuarial value of the surplus had declined. The decline occurred for two reasons: An interest rate decline had increased the plan's notional liabilities as calculated by actuarial principles and fewer members of the affected subclass cashed out their benefits, a development that further boosted the liabilities. "There was a real possibility that there would be no surplus to distribute to the affected subclass members," says Brian Radnoff of Lerners LLP. To make matters worse, the marketplace for annuities collapsed, making it impossible for Canada Life, the plan's sponsor, to purchase annuities for the members of the subclass who had chosen to Kidd represents the highremain with its pension water mark for judicial plan. Consequently, Candiscretion in approving ada Life proposed to class action settlements, implement the settlesays Brian Radnoff. ment without purchasing annuities. Instead, the company sought to Court (and now Ontario Court unilaterally transfer the assets and liabilities of the sub- of Appeal) Justice George Straclass from the old pension plan thy acting as a mediator, negotiinto a new one established as ated an amended settlement that provided more compensation part of the overall settlement. The subclass moved to enjoin for the subclass than under the unilateral implementation of the original deal with the possibility settlement. Before the hearing of of even greater compensation if the application, the parties, with interest rates recovered. "What counsel tried to do the assistance of then-Superior Absolute professionalism and respect for you and your client relationships, and the tenacity required to go the distance in pursuit of the best possible outcome. For proven experience in class actions, count on Lerners. Contact our London or Toronto office today and turn our experience to your advantage London: 519 672 4510 Toronto: 416 867 3076 www.lerners.ca Untitled-3 1 www.lawtimesnews.com8:47 AM 13-08-27 was to give the deprived group something instead of nothing," says Radnoff. Still, on the motion to approve the amended settlement, some 90 subclass members objected on the basis that the new deal was unfair. Five of them appeared at the hearing. Perell refused to approve the amended settlement. In his view, the 70-30 division of the surplus in favour of the class members was no longer fair when the amount was so much smaller than anticipated. "A 70:30 split was fair in dividing up an estimated surplus of $64 million," wrote Perell. "A 70:30 split is not fair in dividing up a surplus of $14 million, particularly when only Canada Life is in a position to weather the economic storm and where Canada Life achieves significant benefits under the [amended settlement] (from a new trust arrangement that indisputably allows it to charge for services) and where its own right to claim 100% of any future surplus is unaffected. "If there was some component of behaviour modification in conceding 70% of an estimated surplus of $64 million, there is very little in conceding 70% of a surplus of $14 million, especially when Canada Life is left in a position to economically recover all of what it gives away once the economic conditions right themselves." Nor was the counsel fee of $4.6 million under the amended settlement fair, according to Perell. "In hindsight, knowing what I know now and did not know then, I would not have approved the counsel fee [originally $5 million] because in the disappointing circumstances of this case, it would be disproportionate (35%) to the value to the class of the settlement," he wrote. In other words, the new deal didn't fairly allocate the hardship caused by the mistaken surplus estimates. "The apparent purpose of the amended settlement is to lessen the pain of the disappearance of the surplus that was to be shared by the [affected subclass] and Canada Life," wrote Perell. "However, under the amended settlement, class counsel and Canada Life, the proponents for the amended settlement, do very little to share the pain of the [affected subclass]." The difficulty facing Perell, however, was that the court had no power to revise a settlement placed before it but only to approve or reject it. "The circumstances of the case at bar are such that the court is being asked to make a choice between two courses where neither course is substantively, procedurally, circumstantially, or institutionally fair to the class members," he noted. In this case, the court's limited powers created a conundrum. "The double bind for the court, however, is that approving the unfair amended settlement is monetarily better than the alternative of not approving the amended settlement," Perell acknowledged. "Approving the unfair amended settlement also avoids renewed litigation and the collateral damage to the current employees of Canada Life and the Pelican, Indago, and Adason Groups, who are indifferent to the unfair amended settlement and who just want to have this litigation at an end and certainly not resumed." As Radnoff sees it, Kidd is the high-water mark of judicial discretion in approving class action settlements. "What Perell is saying is that he has absolute discretion to say yay or nay and that he wasn't going to approve what had been put before him even if it represented a better outcome than what might happen if he rejected the settlement," Radnoff says. LT

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