Canada Post has agreed to pay more than $5 million to settle a class-action lawsuit filed by Lee Valley Tools on behalf of large businesses who contend they were overcharged for parcel shipping.

The $5.05 million settlement will be split among commercial customers of Canada Post who had agreements to ship items within Canada during the period 2003 and 2007. In addition, Canada Post has agreed to pay $1.3 million toward legal costs incurred by the plaintiffs. The class action could potentially involve as many as 54,000 Canada Post customers.

However, Canada Post says it does not acknowledge any liability in the matter. The proposed settlement still needs approval from a judge who will consider the matter in October.

For Canada Post, parcel shipping is the only part of its business that is experiencing significant growth as consumers choose to buy more items online and have them shipped directly to their homes.

The lawsuit was driven by Leonard Lee, founder of Lee Valley Tools, a large mail-order business that ships everything from woodworking tools to gardening supplies.

For years, Lee complained directly to Canada Post executives as well as politicians and even took out newspaper ads and started a website to air his grievances.

Eventually, in 2006 he filed the class-action lawsuit. The complaint centered on two issues: how Canada Post calculated weight and volume to set prices, and when customers made a mistake in calculating the weight, Canada Post would not correct it, if it favoured the post office.

Canada Post has since ceased the practice of keeping overpayments from customers’ errors, and credits are now estimated at $1 million a year.

It also promises that no later than two years from the date of the tentative settlement, being approved by a court, it will end the practice of charging based on volumetric weights.

That refers to a complicated formula, taking into account both volume and weight, to charge for shipping parcels. Delivery companies have complained that shipping a box of feathers still takes up as much space as a box of books on a truck, but the price difference can be substantial if they charge only by weight.

But Lee Valley argued that Canada Post’s method, measuring three sides, can greatly overstate the volume of parcel when it is irregularly shaped such as a triangular box – doubling the price in some cases because it assumes it is a long rectangular box.

“The litigation was motivated by principle. It was primarily directed at changing two practices at Canada Post,” said Rod Winsor, partner at Blaney McMurtry, who was the lead counsel for the plaintiffs.

Since the lawsuit was filed in 2006, Canada Post has ended its previous practice where if a shipper under-calculated the weight, it was corrected, but if the shipper over-calculated the weight, it was not corrected.

“They have already changed one practice, and as part of the proposed settlement, they will change the second one within two years,” Winsor said.

The class-action only applies to large commercial shippers so the potential impact on ordinary consumers is unclear.

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“My belief is that Canada Post will want to have uniform practices, and therefore, all customers will benefit from this. But I don’t know,” Winsor said.

Canada Post spokesman Jon Hamilton said officials decided a settlement was the best approach in this case. “We evaluated our options and felt a settlement was the best option,” he added.

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