Canadian Court Concludes That Litigation Financing Is a Private Matter

In a recent post, we discussed a Canadian case in which a plaintiff class and its litigation funder sought court approval for a particular kind of financing agreement that would fund attorneys’ fees and litigation expenses during the pendency of the case.  In a similar case, involving a single plaintiff rather than a class, another Canadian court has declined to approve a parallel agreement, but this ruling is not a defeat for litigation funding.  To the contrary, because the court ruled that funding agreements were a private matter not subject to court approval, the decision is ultimately a favorable one for litigation funding in Canada.

In Seedlings Life Science Ventures, LLC v. Pfizer Canada Inc., Seedlings asserted a claim for patent infringement. Like many commercial entities in intellectual property cases, Seedlings entered into a litigation funding agreement with a litigation finance company. Under the agreement, financing company would provide funding for Seedlings’ legal fees and other litigation costs in return for a share of the recovery in the case.  The agreement expressly provided that the financing company could terminate the agreement and stop funding the case if it was no longer satisfied that the case was commercially or legally viable.  In the event of termination, the financing company would take retain a right to a reduced share of the recovery.

The financing company and Seedlings asked the court for a declaration that the agreement did not render the action an abuse of process or demean the administration of justice,.  The motion also asked the court to declare that Pfizer could not interfere with Seedlings reliance on third-party funding.  Before this motion, a Canadian federal court had never considered the validity and enforceability of a litigation funding agreement in the context of private commercial litigation.  Those courts had only ruled on litigation funding agreements in the context of class actions.

The court dismissed the motion on the ground that it lacked the jurisdiction to make such a declaration.  According to the court’s analysis, because the litigation financing agreement was i independent from the underlying patent action, it was not within the statutorily defined jurisdiction of the federal court. For similar reasons, the Court also concluded that Pfizer had no right to challenge the validity of the litigation funding agreement because it did not affect or determine the validity of the rights asserted by Seedlings.

While Seedlings and the financing company did not obtain exactly the kind of endorsement they hoped for, they did get a favorable result.  As a result of the court’s ruling, there is now precedent that prohibits a litigant from challenging its opponent’s litigation financing agreement. In addition, the Seedlings Court’s ruling makes it clear that litigation financing agreements are completely independent of the substance of a litigation matter and, therefore, that bringing a case with the help of a litigation funder cannot be an abuse of process.

Topics: litigation finance, legal reform, third-party funding, litigation costs, alternative litigation finance, class actions, Canadian law, contingency fees, partial contingency fees

 

Works Cited:

Bennett Jones, LLP, Funding Arrangements in Private Litigation Are Private Matters—Not to Be Scrutinized by the Federal Court or the Defendant, JD Supra (Sept. 25, 2017) available at http://www.jdsupra.com/legalnews/funding-arrangements-in-private-45489/