This page sets out the Canadian case law regarding third-party funding. To date, the only reported case where a professional funder entered into an arrangement with a client to pay its legal fees and disbursements, in exchange for a portion of the proceeds of the litigation (as Bentham does) is Schenk v. Valeant Pharmaceuticals International Inc.

The remainder of the cases are in the class action context, where the courts have approved arrangements where counsel has acted on a contingency fee basis and the funder generally has paid for some disbursements and agrees to cover any adverse costs awards. The details of each arrangement is set out in the summary, and each of the full cases is linked below.


Single plaintiff of modest means wished to pursue contract claim against well-funded defendant. British funder to cover legal fees and disbursements in exchange for escalating return.

First time Court considered funding in a single-party commercial action: “I see no reason why such funding would be inappropriate in the field of commercial litigation” (para. 8).

Up to 50% return for the funder was acceptable: “In my view, it would be reasonable to allow a funder a recovery of approximately 50 percent in certain circumstances. This case would, to my mind, fit within that category, since it involves a plaintiff of modest means seeking to pursue significant litigation against corporate defendants involving complicated subject matter and very significant damages being claimed” (para. 17).

Court was concerned about open-ended nature of funder’s recovery, which allowed an additional 5% of the litigation proceeds for every 10% that counsel exceeded the litigation budget: “I cannot, however, countenance the terms of the LFA that provide for a significant recovery for Redress, with an open-ended exposure to Schenk that could result in Redress retaining the lion’s share of any proceeds” (para. 17).

Court concluded that this agreement constituted maintenance and champerty, but it was without prejudice to plaintiff’s ability to renegotiate the terms and return for approval. Funder and plaintiff revised the agreement, and it was subsequently approved.

The representative plaintiff in a class action sought approval of a third-party funding agreement on an ex parte basis.  Chief Justice Popescul first noted that because in May 2015, Saskatchewan changed from a "no costs regime", to a "costs regime" for class actions, third-party funding agreements "are often a necessity" to enable class actions to advance (para. 5).
 
As there were no Saskatchewan precedents on point, Justice Popescul reviewed the law from other provinces.  He found that it was appropriate to proceed on an ex parte basis, as "the existence of the LFA has no bearing, substantively or procedurally on the defendants or the third parties. From whose pocket an adverse cost award is paid is of no consequence to the defendants and the third parties" (para. 11).
 
Justice Popescul reviewed the criteria set out in Hayes v Saint John, and held that the agreement satisfied those conditions.  He therefore approved the funding agreement.  In addition, Justice Popescul ordered that the defendants be notified that an agreement had been approved, but held that the agreement would be subject to a confidentiality order.  He explained:  

 

"The LFA, and the terms contained therein, if not subject to a Confidentiality Order would result in the disclosure of confidential and sensitive information that relate to the legal services and advice given by counsel and form a part of the plaintiff’s litigation strategy. The LFA contains insight into the strategic consideration inherent in the representative plaintiff’s strategy in these proceedings. It contains precise limits of disbursement funding and adverse cost award protection offered by the funder, the funder’s implied valuation of the claim for the purposes of setting the funding rate, and the termination provisions governing the availability of funding. Knowledge of this information on the part of the defendants or third parties would allow them to gain an unfair glimpse into the litigation psyche of the plaintiff, which is neither desirable nor fair." (para. 10).

The plaintiff sought approval of a litigation funding agreement for a class action.  The motion was initially filed on an ex parte basis, but the Court ordered that it proceed with notice to the defendants.  The plaintiff was not required, however, to give the defendants copies of the LFA, as the Court held it should be sealed.  The defendants thus made submission about the principles to be applied when deciding whether to approve an LFA, but did not apply those principles to the LFA at issue.

Justice Grant relied upon the criteria outlined in the Ontario jurisprudence, particularlyBayens and Dugal, and found that those criteria were satisfied here.  He therefore approved the LFA.

The defendants also requested that the funder post security for costs with the Court.  Justice Grant held that in light of his conclusion that the LFA meets all of the requirements and is not an example of the torts of champerty or maintenance, there was no principled reason to require that the third party funder provide security for costs outside the usual process for such an order. He therefore denied the request. 

A proposed representative plaintiff brought motion without notice for approval of a litigation funding agreement between the class, proposed class counsel and third-party litigation funder.  The moving parties also sought an order sealing the court file. 

Justice Perell first confirmed that third-party funding agreements are no longer prohibited.  However, if they are unfair to the client, interfere with a lawyer’s professional responsibilities to the client or the court, or potentially could interfere with the administration of justice, then such an agreement would be illegal (para. 5). 

Justice Perell noted that the funding agreement in this case was "extraordinarily complicated", and he was concerned that the representative plaintiff needed independent legal advice about agreement, and also about the interrelationship of the contingency fee agreement with counsel and the third party funding agreement with the funder. Neither the Court nor class counsel could be relied upon to provide that advice (para. 15-18).   

The defendants' view on the agreement would also not be sufficient, as "defendants cannot and should not be relied on to ferret out the problems with a third party funding agreement, because once their own interests are protected, such as ensuring that they have access to the funds for a costs awards favourable to them, they might be content with the knowledge that the plaintiff was not judgment proof for costs, and thus defendants might rather like the existence of a third party funding agreement" (para. 19). 

Justice Perell therefore determined that the circumstances required a sequential approach. The representative plaintiff must first retain, at the expense of class counsel, a lawyer to provide independent legal advice about the legality of the proposed third party funding agreement, as well as a recommendation as to whether or not the representative plaintiff should agree to the funding agreement. The written opinion must then be provided to the Court.  

The motion for approval of the agreement was adjourned until that opinion was obtained, and provided to the Court. Justice Perell confirmed that there was no basis to involve the defendants at the outset, and but they may be involved depending on how the request for court approval progressed. That is, if it was determined that the third party funding agreement should not be approved because it was illegal or unfair and not in the interests of the putative Class Members, then there would no need to have the agreements and the other sensitive material disclosed to the Defendants.  

To date, there has been no reported decision on the adjourned motion.  

Stanway v. Wyeth Canada Inc. (British Columbia, 2014)

In a 2013 decision in the same matter (2013 BSCS 1585), the Court considered whether LFAs can be approved in the class action context, and concluded:

  • LFAs may be approved in B.C., but the Court must hear the defendants’ submissions on it, even in no-costs regime.
  • “I must consider whether the funding agreement appropriately manages the risks to the plaintiff’s control of the litigation, the independent professional judgment of counsel and disclosure of sensitive information” (para. 42).
  • The LFA is subject to privilege in respect of specific aspects: litigation strategy, litigation budget and other “highly sensitive” aspects (para. 43).

In this 2014 decision, the Court considered a specific agreement for approval. It cited extensively from Bayens and Kinross from Ontario, and found that under the Ontario jurisprudence, “the LFA must be fair and reasonable and provide the representative plaintiffs with access to judgment, without compromising the principles of independence of counsel, confidentiality agreements between the parties be observed and, not to the disadvantage of the representative plaintiffs” (para. 17).

Court found that the LFA, which guaranteed the funder a minimum of 150% return on its investment and has no cap on potential recovery, was reasonable and fair. The funder may receive a “windfall”, but there “is every probability of a protracted litigation and the result is speculative” (para. 18).

Court did not find the counsel’s independence was compromised by the funder’s right to terminate if the representative plaintiff changes counsel or altered the strategic course of litigation, or by the funder’s right to provide strategic advice (para. 19).

The Court rejected the argument that the representative plaintiff should be required to obtain independent legal advice; since Court approval is being obtained, such legal advice adds little benefit (para. 20).

British funder to give costs indemnity up to $1M before certification, and $5M after certification.

Recovery of 7.5% if recovery before certification, 10% after certification (after fees and disbursements).

Plaintiffs not prepared to proceed without a contingency fee agreement and protection from a costs award. Counsel would not indemnify for costs, and Class Proceedings Fund turned them down.

Defendants did not oppose as long as funder posted security for costs.

Need for indemnity arose because of Ontario’s decision not to adopt a no-costs regime: “against the recommendation of the Commission. . . the Legislature rejected a no-costs regime for Ontario.” (para. 23). Instead created the Class Proceedings Fund.

“Indeed, it became the conventional wisdom that Class Counsel, who have far more to gain from a class action than the individual class members or the representative plaintiff, would be negligent or unethical if they allowed their client, the representative plaintiff, to assume a potentially catastrophic financial risk.” (para. 30)

“The new alternative is funding from a third party funder, and the current state of affairs in that courts in Ontario have come to accept and have approved the use of third party funders. Third party funding of class proceedings is permitted in Ontario as an appropriate manner of allowing plaintiffs and class counsel to mitigate the substantial litigation risks in class proceedings.” (para. 34)

Court approved agreement and set out number of principles governing LFAs. Court did not specify if they were intended to apply outside class action proceeding.

Irish funder to provide costs indemnity and $50K disbursements in exchange for 5% before pretrial ($5M cap) and 7% after pretrial ($10M cap).

Plaintiffs gave notice to defendants and to 20 of the largest institutional investors/ members. No opposition.

Agreement included an obligation on Class Counsel to inform funder about any significant issue in the action including prospects, strategy, quantum, proof and material changes. CFI acknowledges that the Plaintiffs provide the instruction to the lawyers and that the lawyers’ professional duties are owed to the Plaintiffs and not CFI.

“It is a fair and reasonable agreement that facilitates access to justice while protecting the interests of the Defendants. The Defendants have the comfort that money for their legal costs has been paid into court” (para. 15).

“In the circumstances of this case, the third party funding agreement is preferable to the alternative of funding from the Class Proceedings Fund. The commission is less than the 10% uncapped levy that would be extracted by the Fund.”

Plaintiffs’ firm willing to act on contingency if court approved adverse costs agreement with funder. Plaintiffs not willing to disclose details of funding agreement

“[I]n determining whether to approve a third party agreement, it will be necessary to consider the particularities of the funding agreement . . . in my opinion, disclosure of the type and details of the third party funding to the defendant is in the interests of the administration of justice and disclosure to the defendant may help fill an adversarial void in the process of approving or refusing third party funding agreements” (para. 77)

“a third party funding agreement must be promptly disclosed to the court and the agreement cannot come into force without court approval. Third party funding of a class proceeding must be transparent and it must be reviewed in order to ensure that there are no abuses or interference with the administration of justice” (para. 89).

Third party funding agreement is not privileged, or if it is, that privilege is waived. Agreement would only be approved after agreement is disclosed, and by motion on notice to the defendant.

Irish funder would indemnify against costs and pay $50,000 towards disbursements, in exchange for 7% of recovery (after deduction of fees and expenses).

$5M cap before filing pre-trial brief and $10M afterwards.

Court held it had jurisdiction to assess at this stage: Under circumstances, “[t]o postpone the decision to post-certification, when the views of class members can be sought, could very well spell the end of this proceeding, because the plaintiffs cannot withstand an adverse costs award on certification” (para. 17).

“The grim reality is that no person in their right mind would accept the role of representative plaintiff if he or she were at risk of losing everything they own. No one, no matter how altruistic, would risk such a loss over a modest claim. Indeed, no rational person would risk an adverse costs award of several million dollars to recover several thousand dollars or even several tens of thousand dollars” (para. 28).

Goal of access to justice “would be illusory if access to justice were deterred by the prospect of a crushing costs award to be borne by the representative plaintiff or counsel . . . third-party indemnity agreements can avoid the unfortunate result that individuals with potentially meritorious claims cannot bring them because they are unable to withstand the risk of loss” (para. 33).

7% is reasonable and consistent with 10% that Fund would collect; caps are reasonable and fair reflection of funder’s risk.

Before approving, CFI had to post security for costs, and parties to agree on guidelines for providing information to funder.

MacQueen v. Sydney Steel Corp. (Nova Scotia, 2010)

Court approved a funding agreement between the representative plaintiffs and funder. No reasons were given.

Hobshawn v. Atco Gas and Pipelines Ltd. (Alberta, 2009)

Court approved a funding agreement between the representative plaintiffs and a funder on an ex parte basis. No reasons were given.

 

Irish funder to give adverse costs indemnity in exchange for 7% after legal fees and disbursements.

No cap on recovery to funder.

Defendants were “affected” by the agreement, and entitled to notice of motion and to make submissions on it (para. 3).

“The ability to terminate the Agreement without cause should [] be deleted with the result that [the funder] may only terminate its obligations if the plaintiff fails to fulfil its obligations under the Agreement or appoints different lawyers to replace the present lawyers as the Agreement now provides” (para. 60).

“This plaintiff is not impecunious and may well have the means to pursue litigation. However, I do not find it improper that it seeks to reduce the risks which a class proceeding exposes them to” (para. 67).

Could not determine if the agreement was champertous at this stage, because do not yet know if the fees received will be fair and reasonable. . . funder might be “overcompensated” (para 70-72).

Because Court could not assess whether compensation was fair and reasonable, without knowing what that compensation would be, would not approve funding agreement in advance. Agreement therefore not approved.