Cy-prés Distributions ' Honouring "As Close As Possible"

• Published date: 13 April 2021
• Subject Matter: Finance and Banking, Litigation, Mediation & Arbitration, Financial Services, Class Actions
• Law Firm: Siskinds LLP
• Author: Ms Gigi Pao

In a previous blog post we had discussed the origin of cy-près distributions and their benefits. In sum, cy-près distributions help to enforce one of the public policy rationales behind class actions: behaviour modification by holding wrongdoers accountable for their actions. Where it is no longer economically feasible to distribute an award to individual class members, cy-près distributions provide a solution in supporting charitable groups that could indirectly help in the area harmed by the defendant.

Where cy-près distributions are beneficial

One of the common circumstances by which cy-près distributions arise is where money remains in a settlement fund even after all the class members have been paid.

In settlement distribution, it would be unfair if legitimate class members were to come forward only for their claim to be unpayable due to a lack of available funds. Even if it means there will be funds leftover, it is better for the award to be distributed in a manner that leaves some small amount at the end. This also takes into consideration the need to pay administrative costs, such as tax filing, which are paid out of the settlement fund. The goal of a well administered distribution is to bring the leftover amount as close to zero as possible without leaving any class members out.

A similar principle to the above applies when a settlement fund is too small to justify a distribution directly to class members. For example, where the class action was intended to stop a defendant's illegal behaviour, but the amount each class member would receive would make sending cheques even costlier than the award each class member might receive. The payment may number in the millions of dollars, but so too does the class size.

However, this should not be treated as encouragement for class counsel to avoid the rigour and responsibility that accompanies settlement administration by filing weakened cases with undefinably large class sizes or to settle quickly for their own benefit.

Where cy-près distributions should be avoided

In Sorenson v. easyhome Ltd, ("Sorenson")¹, Perell J. provided guidance on when cy-près distributions may be inappropriate. He found that however well meaning, "[t]o maintain the integrity of the class action regime, the indirect benefits of the class action should be exclusively for the class members." The benefits should not be for class counsel, defense counsel, the defendant or even a judge to favour charities they may have an association...