I MARKET OVERVIEW
Third party funding (TPF) has recently attracted significant attention in Canada. Whereas Canadian law previously imposed strict limits on the opportunity to fund litigation, it has evolved to provide greater scope and flexibility for these arrangements. As discussed in greater detail below, the law has confirmed the suitability of TPF in the context of both class proceedings and single-party commercial litigation, subject to certain requirements. As a result, the opportunities in the Canadian market for TPF are increasing.
International funders have taken note. The recent case law refers to a number of international litigation funders, including an Irish funder, Claims Funding International, a British funder, Redress, and an American funder, Galactic TH Litigation Funders LC. Australian funder Bentham IMF was the first to open a Canadian office in 2016, and expanded to Quebec (Canada's only civil law jurisdiction) in 2018. To August 2019, it had received over 430 applications for funding.
The development of Canadian law and the Canadian legal market for TPF has been self-reinforcing. Increased funding opportunities have resulted in greater opportunities for the Canadian courts to scrutinise third party funding agreements (TPFAs), and in more sophisticated rules governing them. This exposure has brought the opportunity of funding to the fore. As one class actions lawyer recently noted, contingency fees are becoming increasingly insufficient to meet the costs of litigating a matter, and law firms are increasingly concerned with the risk involved in contingency fees: 'it is now beyond the capacity of most firms to self-fund . . . they have to get funding'.2 Moreover, in one judgment involving a TPFA,3 the court noted that 'anecdotal evidence suggests that indemnity agreements became more popular than resorting to the Class Proceedings Fund'.4 One reason for the popularity of TPF over the Class Proceedings Fund is that the latter does not provide compensation for legal fees and covers only limited disbursements during the proceedings.
The jurisprudence regarding TPF has been typically considered in the context of class proceedings, as courts in Canadian common law jurisdictions (all provinces aside from Quebec) must approve a funding agreement at the outset of the case for it to be binding on the class. At the same time, however, litigation funding for single-party commercial litigation is becoming more commonplace in Canada, as evidenced by cases such as Schenk v. Valeant Pharmaceuticals International Inc5 and Seedlings Life Science Ventures, LLC v. Pfizer Canada Inc.6
II LEGAL AND REGULATORY FRAMEWORK
i Maintenance and champerty
For most of the twentieth century, the legal landscape regarding TPF was overshadowed by the common law doctrines of maintenance and champerty.7 The Court of Appeal of Ontario described these concepts in McIntyre Estate v. Ontario (Attorney General) as follows:8
[m]aintenance is directed against those who, for an improper motive, often described as wanton or officious intermeddling, become involved with disputes (litigation) of others in which the maintainer has no interest whatsoever. Champerty is an egregious form of maintenance in which there is the added element that the maintainer shares in the profits of the litigation
The concept and prohibition of champerty has long been codified in the Act Respecting Champerty RSO (1897) (the Champerty Act), which states that:
1. Champertors be they that move pleas and suits, or cause to be moved, either by their own procurement, or by others, and sue them at their proper costs, for to have part of the land in variance, or part of the gains.
2. All champertous agreements are forbidden, and invalid.
As outlined in jurisprudence and the Act, the prohibition on maintenance and champerty is intended to discourage 'unnecessary' litigation9 in Canadian courts as a result of the 'officious intermeddling' of a third party. The law took a particularly dim view of an individual deriving a profit from this misconduct, so much so that champerty was criminalised in Canada until the mid-twentieth century.
Notwithstanding the prohibitions against maintenance and champerty, the concept left open the possibility of 'proper' forms of litigation support. More specifically, the courts' early analysis of the issue in Newswander v. Giegerich emphasised the concern over a maintainer (i.e., the third party that maintains the party with a direct interest in the claim) who is 'stirring up strife'.10 In other words, the motive of an alleged maintainer was particularly important to determine if the act was, in fact, maintenance.
Champerty in Canada is a 'subspecies' of maintenance, as there cannot be champerty without maintenance.11 Accordingly, the concept of champerty in Canadian law similarly invokes the concept of proper and improper motives underpinning litigation funding. In Goodman v. R,12 Goodman was charged with champerty after agreeing to assist an improvident claimant injured by a streetcar in exchange for a share of any proceeds. Among the key facts in that case were that (1) Goodman's assistance consisted of locating witnesses to the event and (2) the plaintiff had consulted a lawyer before Goodman became involved. In this regard, the facts of the case reflected those of Newswander: the plaintiff had already considered litigation and the contribution by Goodman was required to enable the litigation to proceed given the plaintiff's financial circumstances. The Supreme Court of Canada (SCC) quashed Goodman's conviction and held that his conduct did not amount to officious intermeddling as he had not stirred up strife.13 The relevance of motive in an assessment of maintenance and champerty was reaffirmed in the 1993 decision of Buday v. Locator of Missing Heirs Inc (1993).14
Following Newswander and Goodman, maintenance and champerty were removed from the Criminal Code in 1953.15 However, under the Champerty Act, champerty remained a tort in common law jurisdictions and has typically had the effect of acting as a shield against the enforcement of champertous agreements (rather than serving as the basis of an action for damages, as in Newswander).
The prospect of TPF in Canada was significantly enhanced in the early 2000s when helpful jurisprudence developed in the context of contingency fee arrangements and class proceedings. Most notably, in 2002, the Ontario Court of Appeal found that the interests of justice can, in fact, be served by allowing third parties to fund litigation. In McIntyre Estate v. Ontario (Attorney General),16 a plaintiff who intended to commence an action against Imperial Tobacco and Venturi Inc for wrongful death of her husband first sought a declaration from the Court that the contingency fee arrangement with her lawyers was not prohibited by the Champerty Act.
The Ontario Court of Appeal found that a determination of the proposed agreement as champertous depended on the outcome of the litigation. In making this finding, the Court of Appeal made the following observations:
- a person's motive is a proper consideration and, indeed, determinative of the question of whether conduct or an arrangement constitutes maintenance or champerty;17
- the courts have shaped the rules relating to champerty and maintenance to accommodate changing circumstances and the current requirements for the proper administration of justice;18
- whether a particular agreement is champertous is a fact-dependent determination, requiring the court to inquire into the circumstances and the terms of the agreement;19 and
- this fact-based inquiring depends in part on the 'reasonableness and fairness' of the agreement.20
In making these findings, it was clear that the Court was aware of increasing concerns over access to justice and the potentially beneficial role of contingency fee agreements in this regard. This evolution in the priorities of the Canadian justice system necessitated a more flexible understanding of champerty and applicability of the Champerty Act.
Shortly after McIntyre Estate, in 2004, Ontario passed Regulation 195/04 – Contingency Fee Agreements,21 setting out requirements of valid contingency fee arrangements between lawyers and their clients. While contingency fee agreements received specific attention in the early 2000s, no similar regulation or guideline was developed in respect of TPFAs. In this regard, the rules on TPFAs have had to rely on developments in the common law for further development and articulation.
ii Class action funding
Class proceedings have provided a fruitful area for the development of Canadian jurisprudence regarding TPFAs. In the class action context, typically neither the representative plaintiff nor class counsel is prepared pay the disbursements or risk liability for an adverse costs order if the case is unsuccessful, making a costs indemnity and disbursement funding from a third party a potentially attractive funding arrangement.22 Much of the law has developed around this model in the class proceedings context, as TPFAs concluded between a representative plaintiff and a TPF are subject to the requirements of judicial review and approval.23
In 2009, the courts considered the legality of TPFAs in Metzler Investments GMBH v. Gildan Activewear Inc in detail.24 In Metzler, a representative plaintiff moved for the approval of a costs indemnification agreement entered into with an Irish company whose main business is litigation funding in Europe. Relying upon the analysis of McIntyre, the court applied the existing law on contingency fee arrangements to third party involvement in litigation. It found that case law pointed to 'two crucial elements' that constitute a champertous agreement:25
- the involvement must be spurred by some improper motive; and
- the result of that involvement must enable the third party to possibly acquire some gain following the disposition of the litigation.
As a TPFA has, by its very nature, the purpose of gain for the third party following the disposition of the litigation, the first consideration was most vital to the assessment of champerty in the context of TPF. Metzler, therefore, confirmed that the principles of fairness and reasonableness, the importance of the motive underpinning the funding arrangement and the increasingly relaxed application of the Champerty Act – all of which was developed in the context of the McIntyre Estate analysis of contingency fee arrangements – could apply equally in the context of TPFAs.
A further class proceeding provided the first instance of court approval of a TPFA. In Dugal v. Manulife Financial Corp,26 Strathy J approved a funding agreement, under which a third party agreed, inter alia, to indemnify the plaintiffs against their exposure to the defendants' costs, in return for a 7 per cent share of the proceeds of any recovery in the litigation.27 The court built upon the principles articulated in McIntyre Estate and Metzler,28 and recognised that funding agreements had been approved in other provinces of Canada, albeit without reasons,29 as well as in other common law jurisdictions around the world.30 In accepting the role that TPFAs can play in promoting access to justice, the court approved the funding agreement in Dugal.31
From 2009 to 2018, the judicial review of funding agreements between funders and representative plaintiffs in class proceedings has provided useful guidance on the law applicable to TPF. For example, the courts have provided useful commentary in the following cases:
- In Fehr v. Sun Life Assurance Company of Canada,32 the court discussed the law on litigation funding and reviewed the key judgments (identified as McIntyre Estate in 2002, Metzler in 2009 and Dugal in 2011).33 It concluded that TPFAs are not categorically illegal on the grounds of champerty or maintenance, but a particular TPFA might be illegal as champertous or on some other basis, and that a plaintiff must obtain court approval to enter into a TPFA.
- In Labourers' Pension Fund v. Sino-Forest,34 the representative plaintiffs moved for approval of a funding agreement that was described by the court as being nearly identical to the one approved by Justice Strathy in Dugal.35 The court nevertheless identified individual key terms of the funding agreement, including the grounds of the funder's agreement to pay the plaintiffs' adverse costs orders and the terms of recovery on a settlement or judgment in favour of the plaintiffs. Upon doing so, the court approved the funding agreement.
- In Bayens v. Kinross Gold Corporation, the court noted that the 'concept of third party funding is a work in progress' and that 'courts have been left to develop the approval criteria for third party funding largely on their own initiative, relying on common sense, knowledge of the problems of access to justice and of the administration of justice, and academic commentary'.36 While the court did not go into the same detail regarding the terms of the funding agreement, it nevertheless approved the agreement based on principles derived from the above-mentioned cases (and particularly, Fehr, Metzler and Dugal).37
- In Stanway v. Wyeth Canada Inc,38 the court found that litigation funding agreements may be approved in British Columbia and the lack of any reference thereto in the Class Proceedings Act did not make them unavailable in that province. It also determined that, in that case, the TPFA was subject to legal privilege on matters relating to litigation strategy, litigation budget and other 'highly sensitive' aspects.
- In Houle v. St Jude Medical Inc,39 the Ontario Superior Court (ONSC) provided a thorough analysis of the law regarding approval of TPFAs and specific terms contained therein. The ONSC once again confirmed that 'deciding whether to approve a [TPFA] will depend upon the particular circumstances of each case';40 however, it also opined that, based on the foregoing case law, the court must be satisfied of at least four criteria to approve a TPFA:41 (1) the agreement must be necessary to provide access to justice; (2) the access to justice facilitated by the TPFA must be substantively meaningful; (3) the agreement must be a fair and reasonable agreement and facilitate access to justice while protecting the interests of the defendants; and (4) the third party funder must not be overcompensated for assuming the risks of an adverse costs award because this would make the agreement unfair, overreaching and champertous. In this case, the Court considered fees funding and noted that 'the novelty of the hybrid retainer that combines a partial contingency fee with a fee-for-services retainer strikes me as a positive factor . . . This approach which partially protects the financial and human capital of class counsel may expand the roster of firms prepared to assume the risks of class action litigation'.
The ONSC then set out six factors in determining whether to approve a TPFA:42 (1) can a court scrutinise the TPFA; (2) is TPF necessary in the case; (3) will the funder make a meaningful contribution to access to justice or behaviour modification; (4) will the funder be overcompensated for its risks in the case; (5) is the lawyer–client relationship protected from interference; and (6) is the TPFA not illegal on some other grounds, independent of champerty and maintenance. On appeal, the ONSC Divisional Court seemingly confirmed the above analysis by noting that the ONSC 'applied the proper principles and provided a roadmap to the parties if they wish to proceed under the proposed type of arrangement'43 and upheld the decision of the ONSC.
- The law on TPF developed significantly in Quebec, Canada's only civil law jurisdiction, in 2014. In Marcotte v. Bank of Montreal, a class action against chartered banks was funded by two third parties. Like the analysis of funding arrangements in common law provinces, the Superior Court of Quebec determined that, without funding from third parties, the plaintiffs could not have pursued the case and been reimbursed fees that had been illegally collected by the financial institutions and that funding provided a 'path to justice'.44
For further examples of court consideration of TPFAs, see Schneider v. Royal Crown Gold Reserve Inc,45 Berg v. Canadian Hockey League,46 and, most recently, David v. Loblaw47 and JB & M Walker v. TDL Group.48
iii Single-party commercial litigation
Despite the above jurisprudence in the class proceedings context, as at 2015, the law on TPF in Canada remained relatively underdeveloped in the context of single-party commercial litigation. However, that year, the courts took a step forward in Schenk v. Valeant.49 In Schenk, the court case drew upon the jurisprudence in the class proceedings context and extended similar principles to single-party commercial litigation. Justice McEwen commented that '[t]ypically, such agreements have arisen in class proceedings. Counsel could not locate any cases in which third party funding has been extended to the context of commercial litigation. This being said, I see no reason why such funding would be inappropriate in the field of commercial litigation.'50 However, as with jurisprudence arising in the class proceedings context, McEwen J also commented that 'the statutory and common law prohibition on champerty and maintenance in the Province of Ontario must be considered'.51
In applying this law to the facts of the particular TPFA at issue in Schenk, the ONSC declined to approve the agreement as it constituted maintenance and champerty. This conclusion was based on the fact that, in the absence of a cap, the agreement could result in the funder recovering over 50 per cent of the proceeds and could be construed to allow 'open-ended exposure to Schenk that could result in the funder retaining the lion's share of any proceeds'.52 The ONSC further opined that 'such an agreement . . . does not provide access to justice to Schenk in a true sense, but rather provides an attractive business opportunity to Redress, who suffered no alleged wrong'.53
As with prior jurisprudence arising in the class proceedings context, and particularly McIntyre Estate, the ONSC in Schenk was concerned with the overarching principle of access to justice. However, the ruling does not include an express discussion of the proper or improper motive behind the funding, which has previously appeared in Canadian jurisprudence regarding champerty and maintenance. Other issues that have typically been considered in the process of judicial approval of a funding agreement, such as the termination provisions, were found to be reasonable and fair.
Ultimately, the ONSC in Schenk dismissed the motion for approval, but granted the plaintiff, Schenk, the opportunity to revise the agreement and bring a further motion for approval. In other words, there is no reason why TPF cannot exist in the single-party commercial litigation context; however, if brought before the courts for approval, the funding agreements must be based upon based reasonable and fair terms. In Schenk, the plaintiff and the funder revised the TPFA in accordance with the ONSC's directions and resubmitted it to the Court. The agreement was approved and the litigation is currently ongoing.54
There have been further decisions in the single-party commercial context. For example, in Seedlings Life Science Ventures, LLC v. Pfizer Canada Inc,55 the court considered the enforcement of the plaintiff's patent against an international pharmaceutical company. Seedlings needed financial help moving its litigation forward and Bentham IMF agreed to pay a portion of its legal fees and disbursements on a non-recourse basis. Seedlings sought approval of the agreement, but, as explained in Section IV.ii, the court ultimately concluded that it did not need to approve the funding agreement. This case demonstrates the growth of funding beyond the class action context, which, as discussed below, has contributed to an increasing divergence in the law applicable to TPFAs in the class action context and those in the context of single-party litigation.
The developing common law has also been reflected in Quebec civil law. In a March 2018 decision, Re 9354 9186 (formerly Bluberi Gaming Technologies Inc) and 9354 9178 (formerly Bluberi Group Inc),56 the Quebec Superior Court relied upon Kinross (cited above under class actions) and Hayes v. City of Saint John57 to find that TPFAs 'should be approved, subject to [certain] principles' that reflect the considerations addressed in common law jurisprudence. This development speaks to a consolidated national approach to TPF in Canada, notwithstanding the different legal traditions reflected in the common law provinces of Canada and the civil law province of Quebec.
Despite this potential consolidation of case law, the appeal in Bluberi demonstrates that it is important to remain mindful of the special considerations that can exist in certain types of commercial disputes. Bluberi involves bankruptcy proceedings and, on appeal, the Quebec Court of Appeal set out certain important principles applicable to the treatment of TPFAs in this setting.58 Notably, it ordered the TPFA to be submitted to the creditors for a vote as a plan of arrangement. This finding creates a divergence with single-party commercial litigation, in which there is authority to suggest that a TPFA does not require pre-approval by the courts. It also creates a divergence from prior case law on TPFAs in bankruptcy proceedings,59 where the courts approved the TPFA without a vote of creditors. The decision of the Quebec Court of Appeal in Bluberi is stayed pending an appeal to the SCC, which is expected to hear the appeal in January 2020.
III STRUCTURING THE AGREEMENT
i Class actions
Canadian case law demonstrates that parties to a TPFA must conclude an agreement that the courts will approve as being reasonable and non-champertous. In this regard, the courts have focused on the following provisions of the TPFAs at issue in recent judgments, which are typical clauses in TPFAs in the Canadian market:
- the terms on which the funder will pay legal fees, disbursements, security for costs (if ordered), costs assessed against the plaintiff and a portion of docketed time of counsel;
- clauses governing the flow of information regarding the proceedings;
- the agreement on the portion of the proceeds granted to the funder if the action is successful;
- clauses regarding the conduct of proceedings and settlement, including confirming that counsel take instructions from the clients, not from the funder;
- the representations and warranties of the claimants in respect of the claims and the pursuit thereof; and
- the termination provisions, both in terms of the right to terminate the TPFA and the consequences thereof.
In construing the above terms and determining whether they are unfair or champertous (or both), the courts will rely upon judgments regarding similar terms captured in other TPFAs. For example, as set out in Section II.ii, the ONSC recognised that the TPFA at issue in Labourers' Pension Fund was materially the same agreement as had been approved in Dugal.60 The Court approved the TPFA in both cases. However, as funding arrangements expand beyond the costs-indemnity-plus-minimal-disbursements model seen in the early class action jurisprudence, comparisons to prior agreements may be more difficult to make. For example, in JB & M Walker, the funder agreed to pay all the legal fees and disbursements, in addition to covering any costs awards, so it was difficult to draw analogies to earlier cases.
As an example of the courts' analysis of these provisions, in Stanway v. Wyeth Canada Inc,61 the British Columbia Supreme Court relied upon the Ontario jurisprudence to find that a funding agreement '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'.62 The Court analysed the fees and lack of a commission cap in the agreement and favourably compared it to other caps that had been previously approved; it analysed the terms of the termination clause and the right to terminate the agreement following a decision to change counsel. The Court also addressed the concerns of the defendant over privacy and confidentiality arising under an access order applicable to documents originating from other jurisdictions.63 In doing so, it approved the funding agreement.
ii Single-party commercial litigation
While the courts have a broad supervisory role over class actions, consistent with the responsibility to protect the interest of class members, no such mandate exists in single-party litigation. If called upon to review a funding agreement, it appears that the courts will look to the three key criteria set out in Schenk: (1) the funder did not 'stir up' the litigation; (2) the funder cannot control the litigation; and (3) the funder's return must be reasonable. In Schenk, the court drew guidance from Ontario's Contingency Fee Regulations, which allow a return of up to 50 per cent of the litigation proceeds.
Aside from these factors, Canadian courts do not appear likely to delve into the details of an agreement reached between a properly advised individual plaintiff and a funder, particularly at the outset of litigation.
Disclosure issues and the question of legal privilege have developed differently in the class proceedings setting compared to the single-party commercial litigation setting. In determining what may need to be disclosed, and what aspects of a TPFA may be privileged, the setting of the dispute is important.
i Class actions
The disclosure obligations vary by province. For example, in Alberta and Nova Scotia, the courts will approve an agreement on an ex parte basis.64 However, in New Brunswick, the defendants must be given notice, but are not provided with a copy of the TPFA and can therefore only address overall principles without application to the specific agreement.65
Ontario and British Columbia require notice to the defendants, who must receive a copy of the agreement. As set out in Kinross, in the class proceedings context, 'a TPFA 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 to ensure that there are no abuses or interference with the administration of justice. The TPFA is not itself a privileged document.'66
The issue of privilege in a class proceeding context also arose in Fehr. In this case, the court reaffirmed that TPFAs are not privileged and even if they were, that privilege has either been rebutted or waived.67 Consequently, the court cautioned that 'as a matter of best practices, an applicant for third party funding should not include extraneous and otherwise privileged information in a third party funding agreement'.68 Underscoring the importance of disclosure, in Davies v. The Corporation of the Municipality of Clarington,69 the court refused to award loan interest as a properly recoverable disbursement in a costs decision following a class action proceeding on the basis that the loan agreements were not disclosed to the court. In making this finding, the court referred to Kinross, Houle v. St Jude Medical Inc and other TPF cases.
In David v. Loblaw,70 the court was confronted with an objection by defendants in a proposed class action over an undertaking for security for costs by Bentham IMF, arguing that the redaction of Bentham IMF's cap on funding obligations raised concerns over the sufficiency of the undertaking. In response to the objection, the court confirmed that it had reviewed the unredacted version submitted to the court under seal and that it was satisfied that Bentham IMF's obligations to fund the litigation would be sufficient to address any adverse costs award. Therefore, the parties may redact terms that provide insight into budget and strategy, as long as those terms are disclosed to the court.
ii Single-party commercial litigation
In the commercial litigation setting, the Federal Court has found that 'there are no procedural requirements for the approval of a party's funding agreement outside of class proceedings'71 and that the question is strictly a matter of contract between the funder and the plaintiff. In Seedlings Life Sciences Ventures LLC, the Federal Court declined to approve the TPFA, ruling that 'where the Plaintiff is asserting its own rights against the Defendant, th[e] Court has no jurisdiction to make any determination in respect of any funding agreement to which the Plaintiff is a party'.72 To the apparent benefit of funded litigants in the commercial litigation setting, the Court questioned why its approval would be necessary and confirmed that a '[d]efendant has no legitimate interest in enquiring into the reasonability, legality or validity of [the plaintiff's] financial arrangements, its counsel's fee structure or the manner in which [the plaintiff] chooses to allocate the risks and potential returns of the litigation'.73
In both Schenk and Seedlings, the agreement came before the court because the funder and plaintiff chose to make the agreements subject to court approval. The finding in Seedlings appears to narrow the applicability of the champerty and maintenance issue to the funder and funded plaintiff only, rather than being a relevant consideration in the action between the funded plaintiff and defendant. While not yet conclusively resolved, this narrowing of the champerty issue seems to limit the need to disclose terms of a TPFA in the context of single-party commercial litigation (although clients and their funders may continue to voluntarily disclose their agreements in any event).
On the issue of privilege in the commercial litigation setting, the Federal Court has found that litigation privilege attaches to certain aspects of the TPFA at issue, particularly in respect of the details regarding the funding commitment and the temporal variables of the indemnity provisions, which, if disclosed, would provide a tactical advantage to the opposing party.74
In Canada, costs awards typically 'follow the event', such that the successful party is entitled to recover a portion of its legal costs. In the litigation context, the recovery is determined on a partial, substantial or full indemnity basis. Substantial indemnity on costs is typically reserved for exceptional cases, particularly where there is reprehensible conduct by a party either in the circumstances giving rise to the claim or during the course of the proceedings.
In the context of TPFAs in class proceedings, the courts have required a funder to provide security for costs as a precondition for approving a TPFA75 or, more recently, an undertaking for security for costs.76 The issue of whether a defendant would be given a direct right against the security has also been raised, but not resolved.77
In arbitration, the issue of costs is determined at the discretion of the tribunal. Domestic arbitration statutes typically grant the tribunal the discretion to award costs. For example, in Ontario, the Arbitration Act 1991 further sets out factors, such as the value of a prior offer to settle, that may be taken into consideration by the tribunal when considering a costs award. The presence or absence of a funding agreement is not expressly included in the factors that a tribunal may consider when rendering a costs award.
International arbitration seated in common law jurisdictions of Canada are subject to the UNCITRAL Model Law, which is silent on the issue of costs. In this regard, the circumstances of the case and the procedural law selected by the parties would likely affect the tribunal's exercise of discretion in respect of costs.
VI THE YEAR IN REVIEW
In October 2018, the ONSC Divisional Court released its judgment in Houle v. St Jude Medical Inc and remarked that '[t]he class action industry and the court have started down the road toward defining aspects of the funding relationship that can enhance access to justice in appropriate cases. . . . The common law will continue to evolve incrementally as each case comes forward.'78 This trend has undoubtedly continued in the past year, although the Court's comment does not capture three notable divergences in the case law that crystallised in 2019, as follows.
The first divergence relates to the exact formulation of factors and principles that the courts will apply when deciding whether to approve a TPFA in the context of class actions. On the one hand, the courts have repeatedly considered the many factors listed in Kinross (i.e., the 'Kinross factors') to guide their assessment of TPFAs.79 On the other hand, the courts have also applied the four criteria set out in Houle v. St Jude Medical Inc as the guiding test.80 In practice, this divergence may be formal rather than substantive, as the underlying principles captured in both frameworks are similar, as demonstrated by the ONSC's reference to both Kinross and Houle in JB & M Walker Ltd / 1523428 Ontario Inc v. TDL Group.81
The second divergence relates to the emergence of new common law applicable to TPFAs in the context of bankruptcy proceedings. While the Bluberi case appeared to consolidate the case law regarding TPFAs across common law and civil law jurisdictions within Canada, on appeal, the Quebec Court of Appeal introduced requirements for pre-approval of TPFAs from creditors, among others that are unique to bankruptcy proceedings. It remains to be seen how the SCC will treat these issues, having granted leave to appeal the Quebec Court of Appeal decision in August 2019.
The final divergence exists between class proceedings and single-party commercial litigation. Though 2019 has not provided any clear advancement in the law applicable to TPFAs in the context of single-party commercial litigation, it is worth reiterating that many of the courts' oversight and approval powers in the context of class proceedings do not appear to apply in other commercial proceedings. Specifically, the distinction arose in 2018 as part of the reasoning set out in Bluberi and Seedlings.82 Although the Bluberi decision was successfully appealed, the Federal Court has not indicated any reversal of its position that court approval of TPFAs is not required in the context of single-party commercial litigation. It is also noteworthy that Bluberi arises in the insolvency context, where the courts have broader supervisory powers than in other single-party commercial disputes.
VII CONCLUSIONS AND OUTLOOK
Overall, the law regarding TPFAs continues to develop favourably for the funding industry in Canada. There are further examples of successfully approved TPFAs (David v. Loblaw and JB & M Walker), which provide further clarity on the components of an acceptance of TPFAs in the context of class proceedings. The ONSC's decision in Houle v. St Jude Medical Inc also provided confirmation that a TPFA that provides funding for legal fees and disbursements, in additional to an indemnification for an adverse costs award, is also acceptable under Ontario law.
These principles have begun to shift into different settings, including single-party commercial litigation and bankruptcy, although the process has raised some procedural questions regarding the requirements and jurisdiction of court approval of TPFAs. There is support from the Seedlings case to suggest that TPFAs do not require court approval at the outset of litigation, as they do in the class proceedings context, although some uncertainty remains. The procedural requirements applicable to bankruptcy proceedings are also unclear, as the Quebec Court of Appeal's decision in Bluberi is currently stayed pending the appeal to the SCC. We would expect clarity on this issue in the coming year, once the SCC considers the issues in Bluberi.
Certain commentators have highlighted the lack of legislation or code of conduct to guide parties on the issue of TPF.83 There is no regulation akin to Regulation 195/04 governing contingency fee agreements to govern TPFAs that transfer the litigation risk to third parties rather than to solicitors. The first indication of codified treatment of TPFAs is found in Canadian laws relating to international arbitration. For example, the Comprehensive Economic and Trade Agreement between Canada and the European Union provides in Article 8.26 that, where TPF exists:
- the disputing party benefiting from it must disclose to the other disputing party and the tribunal the third party funder's name and address; and
- the disclosure must be made at the time of the submission of a claim, or if the financing agreement is concluded or the donation or grant is made after the submission of a claim, without delay as soon as the agreement is concluded or the donation or grant is made.
Further, in the recently amended British Columbia International Commercial Arbitration Act RSBC 1996, c 233, which incorporates the UNCITRAL Model Law, the recognition and enforcement provisions of the Model Law have been modified to expressly confirm that '[f]or the purposes of subsection (1)(b)(ii), third party funding for an arbitration is not contrary to the public policy in British Columbia.'84
The most significant progress towards codification of rules applicable to TPF is found in the Final Report of the Law Commission of Ontario released in July 2019 (the LCO Report). The LCO Report makes a number of recommendations for the amendment of the Class Proceedings Act to permit TPF, subject to certain rules, including: (1) the representative plaintiff must bring a motion seeking court approval of a funding agreement; (2) the court retains jurisdiction in an oversight capacity even after the agreement is approved; and (3) the court is entitled to see the full, unredacted agreement, with the extent of disclosure of the agreement to the defendant to be at the discretion of the judge.85 While many of these rules are already reflected in the common law, it will be interesting to see if the recommendations of the LCO Report are progressed by legislators in Ontario in 2020 and beyond.
Finally, we expect there will be increased interest in TPF from law firms and well-capitalised claimants in Canada who are interested in managing the cost and risk of their legal disputes. This interest will advance the law applicable to TPF in the context of class actions, single-party commercial litigation, bankruptcy and other legal proceedings. We also expect further interest in specialised arrangements with funders, including through 'portfolio funding'.86 There is similarly no clear legislative direction regarding portfolio funding, although given the recent interest in this issue in other jurisdictions,87 we may expect some direction from authorities in the future, if portfolio funding takes root among funders and firms in Canada.
1 Hugh A Meighen is a partner at Borden Ladner Gervais LLP. The author wishes to thank Paul Rand and Naomi Loewith of Bentham IMF Canada for their assistance in preparing this chapter.
2 'Third-Party Litigation Funding', Canadian Lawyer Magazine, 3 January 2017.
3 Bayens v. Kinross Gold Corporation, 2013 ONSC 4974 (Kinross).
4 ibid. at para. 31. The Class Proceedings Fund, which has been established by the Law Foundation of Ontario, '[p]rovides financial support to approved class action plaintiffs for legal disbursements' and '[i]ndemnifies plaintiffs for costs that may be awarded against them in funded proceedings'. Class Proceedings Fund, 2017 Law Foundation of Ontario, online source: www.lawfoundation.on.ca/class-proceedings-fund
5 2015 ONSC 3215.
6 2017 FC 826.
7 It is worth noting that 'champerty' is a common law concept and, as confirmed by the Quebec Court of Appeal in Montgrain v. Banque Nationale du Canada, 2006 QCCA 557, 'the concept of champerty is inapplicable in Quebec civil law' (para. 63).
8 (2002), 61 O.R. (3d) 257 at para. 26.
9 Fischer v. Kamala Naicher, 8 Moo Ind. App. 170 at p. 187, cited in Newswander v. Giegerich  39 SCR 354 at p. 361.
10 Newswander v. Giegerich  39 SCR 354 (Newswander).
11 McIntyre Estate v. Ontario (Attorney General), 61 OR (3d) 257; 218 DLR (4th) 193;  OJ No. 3417 (QL); 116 ACWS (3d) 527; 164 OAC 37; 23 CPC (5th) 59, at para. 34.
12  SCR 446 (Goodman).
13 'Maintenance and Champerty' Bentham IMF (12 September 2017), online source: www.benthamimf.ca/legal-landscape/maintenance-and-champerty.
14 Buday v. Locator of Missing Heirs Inc (1993), 16 O.R. (3d) 257 at p. 268.
15 The Criminal Code was consolidated in 1953, at which time all common law offences were abolished.
16 61 OR (3d) 257; 218 DLR (4th) 193;  OJ No. 3417 (QL); 116 ACWS (3d) 527; 164 OAC 37;23 CPC (5th) 59 (Ont CA) (McIntyre Estate).
17 McIntyre Estate, at para. 27.
18 McIntyre Estate, at para. 32.
19 R Agarwal and D Fenton, 'Beyond Access to Justice: Litigation Funding Agreement Outside the Class Actions Context' 59 CBLJ 65 (Thompson Reuters), at p. 65.
20 McIntyre Estate, at paras. 79–80.
22 In addition to private funders, Ontario has a Class Proceedings Fund, a statutory body that will provide a costs indemnity and disbursement to cases selected by its Committee. See, www.lawfoundation.on.ca/class-proceedings-fund/, last visited 21 August 2019. A similar fund, Fonds d'aide aux actions collectives, exists in Quebec. See, www.faac.justice.gouv.qc.ca/, last visited 21 August 2019.
23 R Agarwal and D Fenton, 'Beyond Access to Justice: Litigation Funding Agreement Outside the Class Actions Context' 59 CBLJ 65 (Thompson Reuters), at p. 65.
24 Metzler Investment GMBH v. Gildan Activewear Inc, 2009 CanLII 41540 (ON SC) (Meltzer).
25 ibid., at paras. 44–45.
26 Dugal v. Manulife Financial Corp, 2011 ONSC 1785 (Ont SCJ), at paras. 16 and 37 (Dugal); see also, Dugal v. Manulife Financial Corp, 2011 ONSC 3147 (Ont SCJ), at para. 5.
27 ibid., at para. 1.
28 ibid., at paras. 19–20.
29 For example, MacQueen v. Sydney Steel Corp (19 October 2010), Action 218010 (NSSC), cited at ibid., at para. 22.
30 Dugal at para. 24.
31 As part of its approval, the court imposed the following requirements: (1) adequate security provided by the plaintiff; and (2) that there be some reasonable controls on the provision of information to the funder. It ultimately approved the funding agreement in Dugal v. Manulife Financial Corp, 2011 ONSC 3147 (Ont SCJ), at para. 5.
32 2012 ONSC 2715 (Fehr).
33 See, Labourers' Pension Fund v. Sino-Forest, 2012 ONSC 2937, para. 11.
34 2012 ONSC 2937 (Labourer's Pension Fund).
35 ibid., at para. 9. In fact, the funder in Labourer's Pension was the same entity as had appeared in Meltzer and Dugal.
36 Kinross, at para. 37.
37 Kinross, at para. 41.
38 Stanway v. Wyeth Canada Inc., 2013 BCSC 1585.
39 Houle v. St. Jude Medical Inc., 2017 ONSC 5129, para. 18.
40 ibid. at para. 72.
41 ibid., at para. 63.
42 ibid., at paras. 73–100.
43 Houle v. St. Jude Medical Inc., 2018 ONSC 6352 (CanLII), at para. 52.
44 Marcotte v. Banque de Montréal, 2015 QCCS 1915.
45 2016 SKQB 278.
46 2016 ONSC 4466.
47 2018 ONSC 6469.
48 JB & M Walker Ltd / 1523428 Ontario Inc. v. TDL Group, 2019 ONSC 999.
49 Schenk v. Valeant, 2015 ONSC 3215 (Schenk).
50 ibid., at para. 8.
51 ibid., at para. 8.
52 ibid., at para. 17.
53 ibid., at para. 17.
54 This matter is currently scheduled for trial in April 2020.
55 2017 FC 826.
56 2018 QCCS 1040, 16 March 2018.
57 2016 NBBR 125.
58 This matter is proceeding under the rubric of the Companies' Creditors Arrangement Act, with the courts having a broader approval and oversight role (as in class actions), which renders a different dynamic from that rendered in standard commercial disputes.
59 See Re Crystallex, 2012 ONCA 404 and Re Strateco, 2015 QCCS 4671.
60 Labourer's Pension, at para. 9.
61 Stanway v. Wyeth Canada Inc, 2014 BCSC 931.
62 ibid., at para. 17.
63 ibid., at para. 18–21.
64 See, e.g., Hobshawn v. Atco Gas and Pipelines Ltd (14 May 2009), case No. 0101-0499 (ABQB), cited in Dugal at para. 21.
65 Hayes v. The City of Saint John et al, 2016 NBQB 125.
66 Bayens v. Kinross Gold Corporation, 2013 ONSC 4974, at para. 41; see also, Fehr, at paras. 89–90.
67 Fehr at para. 141.
68 Fehr at para. 142.
69 2019 ONSC 2292, at para. 71.
70 2018 ONSC 6469.
71 Seedlings Life Science Ventures, LLC v. Pfizer Canada Inc, 2017 FC 826 (Seedlings), at para. 28.
72 Seedlings, at para. 25.
73 2017 FC 826, at para. 23.
74 Seedlings Life Science Ventures, LLC v. Pfizer Canada Inc, 2017, T-608-17 Order, at pp. 3–4.
75 Dugal v. Manulife Financial Corp., 2011 ONSC 1785 (Ont. S.C.J.), at para. 35.
76 David v. Loblaw, 2018 ONSC 6469.
78 Houle v. St. Jude Medical Inc., 2018 ONSC 6352 (CanLII), at para. 51.
79 Marriott v. General Motors of Canada Company, 2018 ONSC 2535, at para. 9; David v. Loblaw, 2018 ONSC 6469, at para. 12;
80 Houle v. St. Jude Medical Inc., 2018 ONSC 6352, at para. 51; JB & M Walker Ltd / 1523428 Ontario Inc. v. TDL Group, 2019 ONSC 999, at para. 6.
81 JB & M Walker Ltd / 1523428 Ontario Inc. v. TDL Group, 2019 ONSC 999.
82 2018 QCCS 1040, 16 March 2018.
83 'Third-party funding in arbitrations lack guidelines, legislation', Advocate Daily, 2014, online source:
84 International Commercial Arbitration Act, RSBC 1996, c. 233, at s. 36(3). Subsection 36(1)(b)(ii) states that: '[r]ecognition or enforcement of an arbitral award, irrespective of the state in which it was made, may be refused only . . . if the court finds that . . . the recognition or enforcement of the arbitral award would be contrary to the public policy in British Columbia.'
85 Class Actions, Objectives, Experiences and Reforms, Law Commission of Ontario, July 2019, at p. 88.
86 For a description of portfolio funding, see 'Beyond Single Cases: Litigation Funding for Law Firms', 31 October 2017, online source: https://www.benthamimf ca/blog/blog-full-post/benthamcablog/
87 See, for example, the NYC Bar Association Formal Opinion 2018-5: Litigation Funders' Contingent Interest in Legal Fees.