Canada’s Position on Third-Party Litigation Funding

Canadian courts have been reluctant to approve third-party litigation funding, which is partly due to its potentially negative implications. The doctrines of maintenance and champerty came into existence in the early 1300s in the English legal system when the royal family and officials began agreeing to join their name to certain legal claims in exchange for a share of the proceeds. While these doctrines, barring improper motives in engaging in litigation, have been largely repealed, Canadian courts still consider them relevant today. Canadian courts are beginning to carve out exceptions to actions that otherwise may have been champertous.

The litigation funding industry is even less developed in Canada than it is in the United States. However, growing support for the industry currently exists in the class action field since most firms are incapable of funding class actions and there are huge risks involved in funding class actions. To date, decisions for cases where litigation funding was involved have only been issued in seven provinces, and have primarily been seen in the class action context.

Canadian courts have frequently been requested to examine third-party litigation funding arrangements. Specifically, the courts have been asked to evaluate whether the rate of return in litigation funding agreements is reasonable. The court’s role in these scenarios is not widely opposed. Even advisors engaged in third-party litigation funding are not against courts having a supervisory role where litigation funding is involved.

In 2013, the Ontario Superior Court set forth a number of conditions for court approval in the class action context in the case Bayens v. Kinross Gold Corporation. Also, the court considered whether the agreement was privileged and whether the terms of the agreement compromised the duty owed by the attorney to its client. Further, Canadian courts have indicated that properly drafted litigation funding agreement will provide the following: 1.) the major decisions must be made by the plaintiff; 2.) the return must be reasonable and proportional to the risk undertaken; 3.) the agreement should not contain confidential or privileged information in the case that the court deems disclosure of the agreement necessary; 4.) the agreement must only require plaintiff to disclose controlled and reasonable information to funder; and, 5.) the funder should anticipate a long term financial commitment. [ii]

In 2015, the Ontario Superior Court was first asked to evaluate the role of third-party litigation funding outside the context of class actions in Schnek v. Valeant Pharmaceuticals International Inc., a case which would predict the future of litigation funding in commercial disputes. The court notably stated that there is nothing inappropriate about litigation funding in commercial litigation but the prohibitions against maintenance and champerty must not be violated; the defendant is not entitled to the production of a retainer or budget; and, the litigation funder was entitled to the information and documents disclosed by the defendant. Thus, the court’s findings essentially gave the litigation financing industry a green light in commercial litigation contexts. [iii]

What must be disclosed to a defendant has yet to be decided by Canadian courts. However, both the holdings in Schnek and Schneider v. Royal Crown Gold Reserve Inc. indicate that Canada’s trend will be to prevent disclosure to defendants in cases where litigation funding agreements are involved as who pays adverse costs has no bearing on the matter being litigated. Recent suggestions indicate that requiring a plaintiff to disclose the fact that it is funded by a third-party can have detrimental consequences because it may cause the defense to drown the plaintiff in motions.

[i] Shannon Kari, CANADIAN LAWYER MAG, Third party Litigation Funding, Jan. 3, 2017, http://www.canadianlawyermag.com/6282/Third-party-litigation-funding.html.

[ii] Howard Borlack and Ben Carino, MCCAGUE BORLACK LLP, Third-Party Litigation Funding in Canada, http://www.mondaq.com/canada/x/463462/trials+appeals+compensation/ThirdParty+Litigation+Funding+In+Canada (last updated Feb. 3, 2016).

[iii] Lincoln Caylor and Ranjan K. Agarwal, Law360, June 20, 2016, 2:24 pm, The State of Commercial Litigation Funding in Canada, http://www.law360.com/articles/808851/the-state-of-commercial-litigation-funding-in-canada.

Tagged: Litigation Funding, Third-Party Litigation Financing, Canada, Litigation Financing Agreements, Class Actions, Champerty, Disclosure of Litigation Funding Agreements

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TownCenter Partners, LLC lead Asset Manager is Mr. Roni A. Elias. From modest beginnings, and with the help of a hand-picked dream team of professionals we have built one of the most dynamic and fastest growing companies in the country. TownCenter Partners LLC(TCP) is a real estate partner and master-planner providing development, leasing, management, and third party services. The company’s demonstrated ability to apply big ideas in creative and innovative ways has played a defining role in the firm’s success. Yet, TCP's most important insight has been the core understanding that it is not sight lines or site plans, but human activity, that defines a space and creates a place.

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