Cy-près as a class action remedy – justly maligned or just misunderstood?

Abstract

Class actions have an established place in Canadian and Australian legal systems but still attract considerable debate in practice, politics and the academy. One debate concerns whether there is any legitimate justification for class actions beyond the procedural facilitation of grouped proceedings. ‘Access to justice’ and ‘judicial economy’ are the goals commonly said to justify class action provisions. On one view, these goals can be achieved through civil procedures that have compensation as their sole remedial goal. At the same time, many jurisdictions that have created class action regimes also provide as another justification, the promotion of behavioural modification and deterrence of wrongdoers. The principal way behaviour is modified and deterrence is achieved is by ensuring that the wrongdoer is forced to internalise all the costs of any harm that may have resulted from the wrongful act, and - depending on the particular facts of the case and whether the cause of action supports recovery of profits - to disgorge any profits earned from the wrongful conduct. Compensating victims may partially and concurrently achieve deterrence if all victims can be identified and the true nature of their loss quantified. However, in many claims where a class action may be the most advantageous mechanism to compensate victims, not all victims may be able to be identified or, because the amount of each class member’s claim is small, the cost of administering the claim may outweigh any benefit to individual class members. In these situations, one response is to restrict the ability to bring a class action. Alternatively, many jurisdictions provide for cy-pres distribution schemes, in which the class counsel and judge choose a method of distribution for the benefit of class members that involves distributing the damages paid into the class action fund by the defendant other than by direct payment to each class member. In this way a cy-pres scheme is a mechanism that may achieve compensation for members of the class indirectly, as well as the goal of deterrence and behavioural modification, by ensuring that undistributed damages are not returned to the defendant. This chapter contrasts the attitudes to cy-pres as a class action remedy in Australia and Canada. The origins and features of private law and civil proceedings in these jurisdictions have much in common. There is a distinct difference, however, in the views about behavioural modification as a goal of class action procedures and whether or not there is a role for cy-pres. Some of the concerns expressed in the Australian debate about the nature of cy-pres are based on a view of compensation that requires a defendant to pay damages only to class members who can be identified, and on the idea that to require otherwise will be in the nature of a penalty. On this view, there is said to be no justification for ensuring that a defendant pays damages assessed at the full amount of the loss they have caused. Other concerns are expressed through the references to cy-pres achieving the goals of disgorgement, punishment and deterrence and to the potential for class actions to result in profit stripping of defendants in circumstances that are not supported by the existing law. We suggest that these concerns might be attributable to a misunderstanding of the circumstances in which cy-pres is available and of the potential remedial consequences of this remedy. We take the view that while compensation is the primary goal of civil claims and class actions, other remedial goals, including behavioural modification and deterrence, co-exist as recognised and legitimate goals of private law.