QUEEN MARY

DEPARTMENT OF LAW

Class Actions and Collective Redress

UNDISTRIBUTED RESIDUES OF DAMAGES

Prescribed reading:

Mulheron, The Class Action in Common Law Legal Systems: A Comparative Perspective (Hart Publishing,
2004) 423–434

Mulheron, ‘Cy-Près Damages Distributions in England: A New Era for Consumer Redress’ (2009) 20
European Business Law Review 307

and also covered, in more detail, in: Mulheron, The Modern Cy-Près Doctrine: Applications and Implications
(Cavendish Routledge, 1996), chh 7 and 8 (not prescribed reading)

A. INTRODUCTION

‘ why the distributions of residues matter

! the ‘take-up rate’

! the reality of settlements

‘ there are many options!!! See overpage ...

© Rachael Mulheron 2022 1

 Six (6) options for undistributed residues, in a nutshell:

reversion to D

escheat to the government

the unclaimed monies

may be distributed by ... pro rata distribution to claiming class members

a statutorily-designated beneficiary

the costs of the collective proceedings

cy-près distributions

B. REVERSION TO THE DEFENDANT

‘ mandated
permitted by the CAT Rules, r 94(9)(g)

‘ also statutorily mandated by some Canadian legislatures, e.g., Ontario’s Class Proceedings Act 1992,
s 26(10):

Any part of an award for division among individual class members that remains unclaimed or otherwise
undistributed after a time set by the court shall be returned to the party against whom the award was
made, without further order of the court.

© Rachael Mulheron 2022 2

 ‘ endorsed judicially in the US under FRCP 23, e.g.: Van Gemert v Boeing Co, 739 F 2d 730, 736–37
(2d Cir 1984)
‘ if a cy-près beneficiary is not contemplated, then often it becomes a battle between two only ...
o finding of malice, but in competition infringements, there’s conscpiracy ≠ reason against reversion
D’s argue that it is not a matter for
them to decide, it is a matter for
the administrators, he court, how
they advise the notice plan to be
carried out
© Rachael Mulheron 2022
we parties are thinking of what to do with the money
The pro’s
! suitable for where compensation was
the underlying purpose of any statute
sued upon – and the rest of the class
doesn’t come forth to be
compensated
! appropriate where D has not acted
with malice or bad faith
! D has as much legal right as claiming
class members who are over-
compensated by a pro rata
distribution (i.e., neither has any
express legal right to the unclaimed
residue)
! non-claimers are ‘waivers’
didn’t take the chance to come forward, didn’t get it
! any other solution means an
undeserved windfall to someone
D is of clean hands, inadmission of liability
! where there is no admission of
liability in the settlement, there is, to
some extent, ‘clean hands’
! unclaimed residues can depend upon
how effective the notice plan to class
members was – a matter entirely out
of the hands of D
! where insurance money or public
money pays for the settlement, it is
appropriate to return the unclaimed
residue to those parties to benefit
wider sectors of society, rather than
concentrate the money in the hands
of a few
! more suitable where the case was
weak or very risky on liability and
damages
arguments typically brought by D and rebutted by C as to why it should not go into reversion
Merricks case, enormous amount of money, might go back to Mastercard if reversion is accepted; if it’s not a follow-on action, it might have a stronger claim
The con’s
! it rewards the wrongdoing D, which
is contrary to the ethos of why the
class action was brought in the first
place, i.e., to redress a widespread
grievance
! it not suitable where deterrence or
punishment of D’s behaviour, both to
D and to the wider industry, is
particularly appropriate any follow-on action is
nt going to like reversion
because defendat won’t
! D does not have ‘clean hands’ e a defendat with clean
hands; wuld preclude
(recalling the equitable defence, reversion
where an equitable cause of action or
trust device is relied upon) take-up is a notice
plan was poor or
because defendant
! reversion deprives wider sectors of was uncooperative
and didn’t want to let
society from benefiting from the details of residence,
etc. of tthe Cs
distribution of damages sums (via cy-
près distributions, or distributions to
statutory entities, particularly)
! almost anyone who could be a cy-
près beneficiary has a more
deserving claim on the unclaimed
residue than the wrongdoing D
! less suitable where the case was
strong on liability and damages
! inappropriate where the main, or
sole, reason for a low take-up is that
D was guilty of very poor record-
keeping (of who purchased its
products or used its services, e.g.)
! not suitable where there is a strong
element of public interest involved in
the pursuit of the litigation
! impracticable, of course, if D is no
longer in business
3
 when tenant died, and didn’t leave a successer, when the land
lapsed,it went back to the king, king was the owner of the land
in the first place; here, the king is the crown, the government
C. ESCHEAT TO THE GOVERNMENT

‘ also called ‘forfeit distributions’ money goes to government; now encompassed in statutes; law applied in 2022 had its origins in feudal times
talking about a lot of money that might go into the government

‘ technically, the suitable home for ‘money with no owner’ is that of consolidated revenue – as various
statutes of general application across the common law world provide, e.g., Unclaimed Money Act
1995 (NSW); Escheats Act, RSO 1990
when there isnot an owner to claim it, the government has statutry pwer to claim; Supply and Appropration Acts in the UK CFER

‘ some statutes explicitly contemplate forfeit to the government, e..g., Manitoba’s Class Proceedings
Act 2002, s 34(5)(b); Saskatchewan’s Class Actions Act 2001, s 37(5)(b)

‘ permissible under the US regime, FRCP 23, as a ‘context-specific, discretionary determination’:

Jones v National Distillers, 56 F Supp 2d 355, 358 (SDNY 1999)
representatve claimants won’t like this, but there might be an objective class member who opposes this

The pro’s The con’s

! non-claiming class members will ! very unfocussed as a means of
will indirectly benefits the
class because class will be benefit indirectly from such a distributing aggregate damages for
people who will benefi from
government’s use of that distribution (as part of the class of ‘all the class
money (e.g. build
infraestructures, school, etc.),
citizens’) – more so than if the money
not reverting reverts to D or is distributed pro rata, ! often little overlap with the class
as then, the non-claimant class members in the original suit
members will receive nothing
! funds easily ‘absorbed’ into general
! especially supports the goals of consolidated revenue
deterrence, punishment, and
enforcement of the substantive ! often difficult to verify how the the very
distribution to
legislative law money was spent government might
have counter-
productivity for
some members of
! government may be uniquely ! may encourage government to society
positioned to distribute the unclaimed decrease spending in a particular
monies for the benefit of the class area of public need
members (whether claiming or non-
claiming) ! equates to a civil fine, and no more

! useful where there is a very close

overlap between the class and the
general public

! often a very cheap form of distribution

D. PRO RATA DISTRIBUTION

‘ also called, ‘claimant fund-sharing’ when people who come active, they get significant amounts of award of damages; issue: OVERCOMPENSATION

‘ not statutorily endorsed, but judicially contemplated in the US, e.g.: Boeing co v Van Gemert,
444 US 472 (1980); Powell v Goergia-Pacific Corp, 119 f 3D 703 (8th Cir 1997)
not authorised tho; not popular because… (above, look at the cons = conflict of interests)

© Rachael Mulheron 2022 4

 The pro’s
! serves the tripartite goals of
compensation, disgorgement and
deterrence
at least money does not go back to D
! the class members are the ‘equitable
owners’ of the damages, and have a
better entitlement than anyone else
! settlements usually undercompensate
class members in any event, so this
redresses that inevitability
! rewards the proactive amongst the
class, for whom redress for the
grievance and compensation were
important
! avoids the prospect of indirect benefits
via cy-près distributions or forfeit
distributions which may poorly map
onto the class
The con’s
! the eventual recovery may bear no
relationship to the class members’
actual damages, and indeed, may
lead to significant overcompensation
or windfalls
! rewards class members where the
notice plan was poor
! may give rise to conflicts of interest
between representative claimants
and those in their clique, and
everyone else in the class
could they let their favourite know and the let the rest in ingorance?
! may encourage the bringing of class
actions that are likely to result in
large unclaimed residues
! non-claiming class members receive
no benefit at all via this method (no
indirect benefit, especially)

! can be administratively costly

! may benefit the higher socio-

demographic sector of the class
Law Commission does not like this!
this could set them up for life, said the non-claiming class is like a non-reversion

E. A STATUTORILY-DESIGNATED BENEFICIARY
for judgements where judgements is made under the class members

‘ see the scenario under s 47C(5) – the Access to Justice Foundation potential to be swelling with
money and there are other
government was the one who set up this foundation, statute beneficiary foundations which need this
money so much; kept under
close review by the CAT and
We are solely focused on funding and supporting access to justice. government
We believe everyone should have access to justice, yet two thirds of the UK population don’t know
how to get legal advice and there are 14 million people living in poverty who can’t afford it.
A lack of access to justice leads to issues of poverty, homelessness, ill health, unemployment, broken
households, and many other social and personal difficulties.

‘ hence, the benefit of the recipient is statutorily-endorsed, and often charitable in nature Law Foundation
of Canada, they
more than half thought it was inappropriate for the justice foundation this has been a precedent; in 2015, British Columbia stated in had already been
to get these funds because it is not sure tht they will save against statutes that unclaimed residue 50% hasto go to Law the beneficiary of
poverty; consultees critical of this, quite interesting Foundation of British Columbia cy-pres prior to
this legislation;
| F. TOWARDS THE COSTS OF THE COLLECTIVE PROCEEDINGS

‘ see the impact of CA 1998, s 47C(6) costs and expenses can be claimed
top-up costs if the claimants are successful, they can only claim 50%-60%

‘ the settlement agreement will undoubtedly provide for the payment of legal fees, costs and
disbursements of the representative claimant

© Rachael Mulheron 2022 5

 G. CY-PRES DISTRIBUTIONS

‘ meaning: the application of an aggregate award or settlement in a way which may reasonably be
expected to compensate or benefit class members, where actual distribution of the award among
the class members is impossible or impracticable charitable; equity, wills and trusts, not as much inter vivos trusts

‘ derived from: ‘cy pres comme possible’ — ‘as near as possible’

‘ originally a concept in the law of charitable trusts, which has been transposed to the class actions
arena

‘ there are two types of cy-près distributions:

! organisational cy-près — a distribution of the unclaimed residue to a third party for the
indirect benefit of the injured class

! price roll-back cy-près — a distribution directed to class members who are repeat
purchasers of D’s products or services, in order to reduce the price of that product or
service for the time that it takes to consume the unclaimed residue (e.g., Daar v Yellow
Cab Co, 67 Cal 2d 695 (1967) money being subsidised to pay back future transportation, for example;
instead of paying 2 pounds, they pay 50p

‘ a mixed reception in class actions jurisdictions — no explicit mention under the UK Competition
Law Class Action — as there was not in Australia’s regime

‘ however, cy-près distributions were statutorily permitted in Ontario, per s 26(4) and (6):

(4) The court may order that all or a part of an award under section 24 that has not been distributed
within a time set by the court be applied in any manner that may reasonably be expected to benefit class
members, even though the order does not provide for monetary relief to individual class members, if the
court is satisfied that a reasonable number of class members who would not otherwise receive monetary
relief would benefit from the order.
...
(6)The court may make an order under subsection (4) even if the order would benefit,
(a) persons who are not class members; or
(b) persons who may otherwise receive monetary relief as a result of the class proceeding.

‘ judicially endorsed, although not often in practice, in the US under FRCP 23, e.g., Powell v
Georgia-Pacific Corp, above, Jones v National Distillers, above
cy-près is undesirable for issues in desinging a suitable candidate, lobbing of judges (Canada and United States received candidates
letters saying they are suitable, distasteful), bypassing of lawyers and judges don’t like it

© Rachael Mulheron 2022 6

 overlap between the original cy-près and
The pro’s
! useful where class members are
difficult to identify, or where the
class members changed constantly
! also useful where the claims per class
member are so small that it would not
be economically feasible to claim
and/or distribute to the class
members
! a feasible solution where there is a
considerable overlap between injured
class and cy-près class
! a preferable solution to reversion to
D, to ensure that D did not profit
from its own wrongdoing from the
inertia of class members not claiming
! also a preferable solution to windfalls
accruing to claiming class members
! it provides a means of financially
tangible solution to benefit third parties
supporting entities which are closely
which have close grievance to the cause related to the litigation, or causes of
action, and which could assist to
redress the sense of grievance which
the injured class members have felt
! it provides a means of managing
huge cases, without an intolerable
burden on the courts in ordering
damages assessment and distribution
! it may be indirect, but it is more
direct than escheat or forfeit to
consolidated revenue
! price roll-back cy-près distributions
tend to work best where (1) D is a
monopolistic provider of the product
or service, (2) the wrongdoing was an
overcharge, and (3) the class using
the product or service in the future is
closely matched to the class who
used it in the past and who were the
subject of the class action
widely applied in Canada and US but frowned upon in Australia
© Rachael Mulheron 2022
The con’s
! the cy-près class and the original
class may not be the same at all,
there may be little overlap
! the distribution could lead to a
windfall to people who were never
injured at all
! any cy-près distribution is far too
indirect for the benefit of the non-
claiming class members
! its effect is punitive, which is
inappropriate for class actions, and
contrary to the compensatory
objective of class actions
money never goes back to D
! a cy-près distribution can lead to
double-recovery for the claiming
class members
! cy-près distributions are a
mechanism for damages distribution
which has nothing to do with
enhancing access to the courts,
which is the primary purpose of a courts are
authorising and
class actions regime approving
distribution of
money which has
! in the view, it amounts to a form of no connection t
the class action
‘social engineering’, whereby it
serves as a vehicle to punish D in
the name of social policy, simply
because no better recipient can be
found
! price roll-back cy-près is they could gt an
particularly inappropriate where D advantage over
the competitors
operates in a highly-competitive
market, as a court-mandated price
roll-back may have the paradoxical
and counter-productive effect of
helping D by gaining for it a greater
market share at the expense of its
competitors
7
 ‘ what about trying to ensure a suitable overlap between the injured class and the cy-près class?

The relevant factor

1. That the cy-près recipient promoted the types of activities, hobbies or interests that the
class members were pursuing, and which linked the class members in bringing the
action

Currie v McDonald’s Restaurants of Canada Ltd (2006), 27 CPC (6th) 286 (Ont SCJ)

• embezzlement of prizes won by McDonalds customers no money to satisfy the prizes

• two recipients: the Canadian Association of Food Banks; and the Ronald
in Canada, there was a large left-over, class members claimed residues;
McDonald House Charities Foundation general public is who goes to McDonald’s
• how cy-près was reconciled

2. That the cy-près recipient promotes improvement in the type of poor health, or legal
wrongdoing, or anti-competitive practices, that the class members suffered from, and
which provided the common link between the class members in bringing the litigation

Masters v Wilhelmina Model Agency Inc, 473 F 3d 423 (2nd Cir 2007)

• price-fixing of models’ commissions among leading New York modelling

agencies 20% commission, models paying more, large money unclaimed so they put the money in
programmes; that was all aporpriate because it had to do with health etc.
• recipients: a cardiac care centre; an eating disorders programme at a local
hospital; the NYU Medical Centre; the Legal Aid Society; and a heart health
education programme
• how cy-près was reconciled

3. That the cy-près recipient sought to care for the same type of class member, but those
who were financially worse off, less privileged than the actual class members, who
dispute between the next-best
and the ; a number of disabled’s suffered the overcharge or other wrongdoing
homes are going to be closed
down due to lack of funding but
maybe Mr Merricks’ money could
save them, but it’s got nothing to Garland v Enbridge Gas Distribution Inc (SCJ, 25 Sep 2006)
do with the class/interchanging
fees; doesn’t employ cy-près, it
employs social-engeneering;
tension of what to do with money
• overcharge of gas prices on a widespread scale
to benefit the class vs to benefit • recipient: to a non-profit entity’s Winter Warmth Program
society, tricky territory for court
• in principle, acceptable

4. That the cy-près recipient services the same geographical community as where the
original class members lived or worked

In re Compact Disc Antitrust Litigation, 2005 US Dist Lexis 16468 (D Maine 2005)

• price-fixing of music CDs

• recipients: Columbia University’s radio station; Music for Youth; and Jazz at
Lincoln Centre
• the latter two not acceptable

© Rachael Mulheron 2022 in the US, there was the holocaust victims foundation 8