Beyond Four Corners: Settlement Agreements as Contracts in Class Actions

By Karly Lyons

In a representative action where those affected (class members) have little to no practical say in the crafting and execution of a settlement, should the settlement document be treated as a contract between parties? In a split decision, the Supreme Court of Canada provides some guidance – and leaves many unanswered questions – regarding the nature of a class action settlement document post-settlement in its 2019 decision, JW v Canada (AG).

JW had brought a claim for compensation under the Independent Assessment Process (IAP) of the Indian Residential Schools Settlement Agreement (IRSSA). He based his claim on sexual abuse he had suffered while at Residential School. The claim adjudicator denied the claim as JW could not prove the “sexual intent” of the nun who abused him.

Upon Request for Direction, the Court of Queens Bench of Manitoba found three errors had been made including importing a requirement of sexual intent in order to be eligible. The Manitoba Court of Appeal came to a different conclusion and held as long as an IAP adjudicator refers to relevant sections of the settlement agreement, there is no basis for a judge to intervene regardless of how the sections are interpreted or applied.

At the Supreme Court of Canada, three sets of reasons were provided—two concurring and one dissent.

Justice Abella, writing for the majority with Wagner CJ and Karakatsanis J, held judicial intervention was necessary for JW as the adjudicator failed to implement the settlement agreement. At para 16, Justice Abella quoted Justice Winkler, who approved the settlement agreement, that, “as in all class actions, the courts must strive to protect the class members and ensure that the benefits they agreed to are actually delivered”. The protocol implemented in Manitoba gave courts “broad supervisory and administrative authority in overseeing the application and implementation of the Agreement” and the authority given was necessary to address “the serious harms caused by Residential Schools and was a fundamental precondition of judicial endorsement”. Abella J noted there was a “foundational link” contemplated between the agreement and judicial supervision, and while the parties do not have a broad right to intervention by the bench, they do “have a right to the implementation of the terms of the settlement they bargained for”. Overall, Abella J held the court has a duty to ensure the agreement is implemented “in accordance with the intentions of the parties” as reflected in the terms.

Cote J (Moldaver J concurring) agreed on the outcome but not in the role and scope of judicial intervention. Cote J held a judge cannot take on a role envisioned for an expert adjudicator within the terms of the settlement. Administrative law remedies are not available because the settlement is a contract and the adjudicators are not state actors. Any recourse of a supervising court is bound by Implementation Orders and class action legislation in each province. Cote J held that with a class action settlement, “the terms of the agreement are determinative” and the authority and supervisory jurisdiction is “limited and shaped by the terms of the agreement, once it is approved and determined to be fair, reasonable, and in the best interests of the class”. Any judicial review of the IAP should be narrow and only apply if the adjudicator failed to apply the terms contemplated by the parties. Claimants relinquished their rightto go to court when they entered into the IRSSA.

Cote J agreed with Abella J on the outcome, however, because the Chief Adjudicator of the Indian Residential Schools Adjudication Secretariat conceded that JW’s case was wrongly decided but  concluded that there was no mechanism for him to reopen the case. Cote J held that the lack of a mechanism constituted a procedural gap in the agreement which allowed for court intervention and review—on a case by case basis.

In their dissenting opinion, Justices Rowe and Brown agreed with Cote J’s statement of the law about the supervisory jurisdiction of courts in a class action settlement – but held that no “gap” in settlement terms existed on the facts before the court. Rowe J held that the settlement is a complete code which limits intervention; to hold otherwise would be to defeat the intention of the parties. Rowe J noted the Chief Adjudicator had his own remedial powers which could be employed and as such there is no “gap”.

This requirement of a “gap” for judicial intervention has been reflected in the cases post-JW. In Fontaine v Canada (AG), a Residential School survivor was sexually assaulted by a guidance counsellor working for the Department of Indian Affairs and Northern Development while being driven to a residential school. The initial adjudicator held the claimant was a “non-student” at the time of her assault and the abuser was not directly employed by the residential school. As such, the claim was denied. When it appeared before the Supreme Court of British Columbia, Brown J held the adjudicator had turned their mind to the terms contemplated in the settlement. As such, there was no “gap” and the adjudicator’s decision was upheld.

Similarly, in Pro-Sys Consultants Ltd. v Microsoft Corporation, Myers J of the Supreme Court British Columbia held the court has no jurisdiction to order a notice program for the implementation of a settlement that goes beyond the program envisioned by the parties in the settlement agreement. The plaintiffs appeared before the court and proposed an eight (8) part notice campaign including newspapers, a call centre, search engine marketing, etc. Myers J held that while it was “laudable” that the plaintiff wanted to achieve maximum recovery, all a court can do is interpret the settlement agreement and it is therefore bound by the notification plan contained in the agreement. Myers J suggested extensive notice programs should be included in the settlement agreement itself because the court is in no position to construct a notice program once the agreement is approved.

Besides the language out of the Supreme Court related to “gaps”, the exact scope and nature of a settlement agreement in a class action remains unclear, as do the implications for access to justice. The judges in three sets of reasons in JW take very different views on the law – either a “gap” in situations contemplated by the settlement must be identified, as in a contract, or the court has discretion to ensure parties received what they bargained for in a more general sense.

Despite the ambiguity of the Court in JW, lower courts have adopted a very narrow view of the court’s judgement and have generally viewed the settlement agreement as private in nature. They will only interfere with a claims adjudicator’s decision if there is a gap in the agreement; where there is no gap, the court will not overrule the adjudicator, even if the court disagrees with the decision. This approach privileges efficiency, but potentially at the cost of justice for the individual class member. When an action is representative in nature, sticking to the four corners of a contract may deny access to justice for class members who may be technically outside of those corners but were contemplated by the parties to be within them.

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