Refund programs not sufficient to thwart class actions: Court

If your commercial insurance clients wish to nip class action lawsuits in the bud, it’s not sufficient for them to establish voluntary refund programs for consumers — courts will want to see details of how and when the refund programs are set up, and whether they appropriately compensate customers.

“The voluntary refund program should be implemented promptly, should compensate for all (or most) losses incurred, and should be detailed in court, preferably by filing a written program as evidence,” Éric Préfontaine, Sophie Courville, and Rachelle Saint-Laurent of Oslers write in a blog published in Mondaq Thursday.

“…[W]e can conclude that implementation of a refund program can, in principle, prevent the authorization of a class action,” the authors say of the Quebec Court of Appeal’s June decision in Lachaine v. Air Transat AT inc. “However, there is often a gap between theory and practice.

“Depending on the case, defendants may find it difficult to reconcile their right to challenge a class action on its merits with the need to act promptly to implement a comprehensive, immediately executable refund program.

“Although such programs don’t have to be perfect, the scope of the refund to be awarded to group members must be rapidly and carefully estimated so that a complete proposal can be submitted to the court.”

Lachaine is a class action launched after four of Canada’s airlines — Air Transat, Air Canada, WestJet, and Sunwing — all cancelled domestic and international flights during the COVID-19 pandemic. The airlines offered travel credits to passengers whose contracts did not explicitly provide for refunds.

Two passengers filed an application to authorize a class action seeking cash refunds for all cancelled airline tickets and travel packages.

A Quebec lower court justice dismissed the class actions against three of the airlines (Air Canada, Air Transat and WestJet), finding there was no cause of action because the three airlines had previously implemented refund programs for the members of the proposed class action.

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Initially, the Quebec Superior Court allowed the class action against Sunwing to proceed. But then it quashed this ruling after Sunwing, several months later, announced a refund program for the class members who had their airline tickets and travel packages cancelled.

Quebec’s Court of Appeal allowed all class actions to proceed against airlines, finding that simply having a voluntary refund program in place is not sufficient for defeating a class action lawsuit.

First, the appellate court distinguished Lachaine from the caselaw applied in other decisions regarding refund programs. In Lachaine, “full refunds of the amounts paid by travellers were not made immediately or promptly by the defendant airlines,” as the Osler authors observe. “It took months, and in one case more than a year, to implement the refund programs.”

Second, the Quebec Appeal Court found the lower court judge “had no details about the refund programs proposed by the airlines,” the Osler counsel observe. “No written refund policy was filed in evidence.

“The Court of Appeal found that this gap in the evidence prevented the judge from identifying the contours of an enforceable, concrete contractual framework and from determining with certainty that all members would in fact be adequately reimbursed.”

And so, the authors give three recommendations to clients defending class actions involving refund programs for customers:

Implement the refund programs promptly.
Compensate for all losses incurred by the members of the proposed class action.
Submit detailed evidence about the refund program to the courts so they can fully assess the program at the authorization stage of any class action lawsuit.

Feature image courtesy of iStock.com/martin-dm