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Class action conundrum

A growing chorus of concerned lawyers say that class action lawsuits rarely lead to big payouts for consumers

By Luis Millan

April 23 2010 issue


Class action take-up rates are low because settlements are overly-complicated and lead to confusion for consumers, say lawyers. [Koun / iStockphoto.com]
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Nearly three decades after class actions made their first appearance in the Canadian legal landscape, little light has been shed over the proportion of class members who make a claim, which hasnít stopped some from speculating that the numbers are so low that they call into question the need for class proceedings.

"Where there is money set aside for individual plaintiffs and they have to apply for the funds, anybody who did the research would find that thereís very little uptake and the funds that are unapplied for are given to charitable organizations," asserts William Vanveen, a former assistant law professor at the University of Windsorís faculty of law, now a partner with Gowling Lafleur Henderson LLP in Ottawa. "The lack of application for relief to the funds by directly affected plaintiffs indicates to me that there isnít a great social need for these actions."

While that is a position that resonates with many class practitioners, including even at times lawyers representing non-profit consumer organizations frustrated sometimes by the few number of claimants who step forward to claim their share of the pie, it is largely speculative, said Pierre-Claude Lafond, a law professor at the Universitť de Montrťal and the author of a book on class actions. In fact, Lafond points out that the issue has never been studied, at least not in Canada.

Mystery still swirls around the so-called take-up rates because parties are not legally obliged to produce such figures following a settlement. Not that they want to. Indeed, class practitioners habitually are reluctant to hand over such revealing details, particularly in cases where defendants retain a revisionary right to the sums not claimed by class members, which in Canada amounts to at least half of the class action settlements.

About the only certainty surrounding take-up rates is that claimants will not bother doing the necessary paperwork for a paltry amount, added Lafond. "But that is not a demonstration that class actions are unnecessary but rather that the means by which the judgement was executed was unfitting," said Lafond. "Why ask people to fill out a claim for five dollars when we know full well that people wonít do it because itís not worth it?"

Other alternatives exist. Coupons and discounts are another form of relief that have surfaced. But according to a recent report by a Quebec consumer group, Option Consommateurs, coupons tend to favour defendants as it gives them an opportunity to "reconquer" clients they potentially had lost. Echoing reservations expressed south of the border, particularly by the Class Action Fairness Act (CAFA), the non-profit organization found that coupons are far from being the ideal way of reaching a settlement. Besides linking the indemnification to another purchase, often laden with a slew of formidable conditions, consumers and class members generally make little use of coupons, with redemption rates ranging from 3-to-13 per cent.

In Quebec, as elsewhere in Canada, there is yet another option when relief is miserly, noted Jean Saint-Onge, a class action expert with Lavery of Montreal. In a word, cy-pres. That form of relief takes place when a settlement cannot practically be distributed to the actual class members, in whole or in part. Judges tend to lend an ear calling for cy-pres distribution when the class size and the size of the claims makes it uneconomical to compensate individual class members, such was the case in Sutherland v. Boots Pharmaceutical PLC. In another case, Ford v. Hoffman-Larouche (2005), 74 O.R., cy-pres was applied when the class size included virtually every Canadian who bought a consumer product subject to widespread price fixing, and it was virtually impossible to determine how much of the overcharge was passed through to the consumer as opposed to being absorbed by the direct and ó or ó indirect purchasers.

Take-up rates, though, hinge on other elements besides the amount of relief provided in the settlement. The importance of a simple-to-understand notice cannot be underestimated, said Ward Branch, of Branch MacMaster of Vancouver and author of the widely respected book Class Actions in Canada.

"Something that sounds so dull as a notice actually makes the difference between whether class actions are a good thing or a useless thing," said Branch, a class action expert. "So many class lawyers and judges donít even think about that but at the end of the day thatís the document that the class sees, and that decides whether people decide to claim or not."

While the notice should provide sufficient information to allow claimants to determine whether or not they are entitled to make a claim, it should also be written plainly, without legalese, advises Branch. So too should the claim form, adds Branch. According to a 2003 International Adult Literacy and Skills Survey, more than 40 per cent of Canadians aged between 16 and 65 struggle with low literacy, a figure that jumps to 48 per cent when taking into account those over the age of 65.

"We really need a judge to come out with a judgment that says ĎIím not approving the settlement unless the notice and claim form stops being so complicatedí ó thatíll give me leverage for the next settlement," said Branch. "The problem is that to this point judges have been looking at whether the judgement has been fair from a legal perspective, and not really focusing on whether it is fair from a procedural perspective. Admittedly they have no experience in this whatsoever."

The legal profession could also do a better job to reach people, remarked Stephanie Poulin, the head of legal services with Option Consommateurs. While advances in technology provide innovative and potentially effective means of notice, be it through the Web, e-mail, and text messages to cell phones, the profession has generally been slow to react ó and still resorts to publishing dull, illegible notices published in the back pages of the business or classified section in major newspapers.

"Publishing notices in newspapers in simply insufficient," said Poulin, who is in the midst of putting together a report addressed to the legal community to help them write claim forms in simple language. "Often the notices are indecipherable, replete with legalese, written by lawyers who write to the public as they write to each other. To the extent that we are seeking to mobilize a group of people to defend their rights, it is illusory to persist to use notices in newspapers located in the classified section. Weíve got to begin using marketing methods to communicate with class members."


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