Money awarded as damages in class-action lawsuits can turn into a windfall for charities when it proves difficult or impossible for the courts to pay out actual class members.

March 26, 2008, NATIONAL POST, LEGAL POST

Tyler Kekewich

"It is important that somehow the community benefits when individual consumers can't be identified," said Monica Patten, president and chief executive of Community Foundations Canada (CFC), an umbrella group that represents local community foundations in Canada.

In cases that involve hundreds of thousands of victims and involve astronomical settlement rewards, big-buck awards turn into pocket change when they are divided among too many people.

"The amounts would be fairly small per person," said Mike McGowan, a Toronto class-action lawyer, explaining the breakdown of funds among numerous class members. "It's not plausibly worth the expense and trouble to spend $5 to give someone a $5 cheque."

Some Canadian examples of giant settlements that went partly to charity because of logistical problems include a $22-million settlement with Enbridge Gas Distribution in 2006 and a $132-million settlement with manufacturers of bulk vitamins in 2005.

"It's the practicality of getting the money in the pockets of the class members," said Mr. McGowan, who was co-lead counsel in the case against Enbridge. "Even if you had the name and address, it is fairly expensive to mail the cheque out and process that."

The Supreme Court of Canada found that Enbridge was breaking the Criminal Code by charging customers 5% of their bill for late payments. Part of the settlement required the gas supplier to pay $9-million to the United Way. Mr. McGowan, a lawyer at McGowan & Associates, said the money was funnelled into the Winter Warmth Fund -- a charity that assists low-income families with paying their gas and hydro bills.

Mr. McGowan explained that through the use of a cy pres order -- a French term meaning as near as possible -- the United Way's Winter Warmth Fund was chosen because it was the next best thing to paying all the actual victims who were affected by the case. The families that benefit from the Winter Warmth Fund are most likely the same families who were strapped with Enbridge's unjust late fines, he said.

"It's an ultimate method of distributing money," Mr. McGowan said about cy pres, which is usually applied to estate law. "When you can't find the actual specific person or people entitled, you apply it to their benefit somehow."

Siskinds was the first Canadian firm to certify and settle a class-action lawsuit in 1993. That same year, Charles Wright started articling at the London law firm. Since being called to the bar in 1995, Mr. Wright has worked on numerous class actions and said there are three different ways a charity can benefit from a class-action settlement.

A charity or foundation can receive the whole settlement, a portion of the settlement or a residual of the settlement, Mr. Wright said. He explained that a residual is paid out when class members cannot be found or don't claim their rewards and there has been interest building on the remaining settlement fund over time. Whole and partial settlements are usually rewarded in cases involving medical malpractice, wrongful death and price fixing, he said.

Mr. Wright explained the theories and practices surrounding class actions in Canada are based on the U.S. model, where the settlements often reach into billions of dollars.

In 2004, Siskinds partnered with CFC to improve the distribution process and make sure the money gets into the right hands.

"One of the challenges is the classes are Canada-wide classes," Mr. Wright said. "Our view is that we can't just give money to, for example, a London hospital when the people who were harmed are all across Canada. There are a limited number of organizations that have that Canada-wide range."

CFC has more than 150 local foundations that provide assistance to sick, elderly, poor and disabled citizens in towns and communities across Canada.

"When we are asked if we can distribute the money we think we're the best people to do that," Ms. Patten said. "We have this incredible connection and knowledge about local communities."

Ms. Patten said giving charities money from class actions will give them a boost and benefit those who need it most. "It's money that is being put to good use in the community," Ms. Patten said.